A case study on United Parcel Service

MGT 3446 – International Business and Management 1

Acase study on United Parcel Service

SubmissionDate

ExecutivesummaryDavid Abney theCEO of United Parcel Service Inc.has alwaysbeenof theideathatexpansioninto emergingmarketsof theworldare whatwill drivethecompany`smarginsup (Hart, n. d).Therehas beensomuchfocuson thehomemarket,which is theUnited States, leadingto stagnation in revenuesfrom theover200 internationalmarketsin thelastfewyears.Marketconditionsare alwaysin a non-randomized timeseriespattern,andsoifthecompanywould focusmoreon theglobal Market, where95% of consumerslive,thenthere is a highchanceof revenuegrowth.There is thereforeneedforUPS to up its gamein theInternational Market ifat allitwantsto generatea sustainable amountof growthin thecomingyears.CompanybackgroundUnited Parcel Service Inc. (UPS) is a shipmentandLogistics Company, which isheadquarteredin Sandy Springs, Georgia. Eversince its incorporationas a messengerservicein 1907, UPS has grownbothin termsof sizeandfinancialmuscle.Thecompanyboastsof over$360 billion in assets andoperationsin morethan 200 countriesallover theWorld. Beingtheworld’slargestexpresscarrier,thecompanyalsospecializesin transportation,logistics ande-commerce (UPS Website, n. d). UPS madean entryinto theChinese marketin 1988. Whatmotivatedthecompanywasthehighrevenuethatitgotfrom its businessin theEuropean market.Thiscompanyfacedthechallengeof licensingfrom theChinese governmentdue to ficklepolicyandunsoundregulation(Gross, 1995). Thisis after theChinese governmentputrestrictionson allforeigncouriercompaniesdemandinglicenserenewals.Currently, theyare onlylegallyallowedto deliverparcelsin a fewof thecitiesaround China. Therehavebeennumerousattemptsto getmoreapprovalsto tradein othercitieswhich are not considered‘soimportant’by theChinese government,butwhich are goldminesto UPS.Despite this,thecompanyhas managedto securetwo airhubsin Shanghai andShenzhen. In thepastfewyears,UPS emphasishas beenmoreon Chinese exports andtheinfrastructure(Soupata, 2010). Withtheformationof a newBoard of Directors,emphasishas nowbeenlaidon thetechnology, retailmarketing,industrialproductionandaviation.Toproveits eagernessto tapthismarket,thecompanyrecentlybuiltandcommencedbusinesson a newlogistics anddistributionwarehousecloseto thebusyBeijing airport.Thisis UPS thirdlogistics facilitybesides thosein Chengdu andShanghai. UPS has takena veryboldmoveasthecompanywill nowsavemoretimethat wasmainlyusedin processing contractlogistic orders,andwill nowbe moreeffectivein meetingtheir targetsin thelicensedtowns.Marketresearchfirm Transport Intelligence deemedtheideaof UPS creatingan additionallogistic facilitystrategicas China is in thedriver’sseatto leadtheAsia-Pacific`s contractlogistics marketby 2016. Thismovehas beendrivenmainlyby thedomesticconsumptionby themiddle-classthroughout China. UPS will definitelybe a bigbeneficiaryof thisgrowth.TheWorld Bank in its recentreportestimatedthattheworld’smiddlepopulationwill triple to an astonishingfigureof 1.2 billion peoplein theyear2030. Thisis agrowthof morethan 600 million, with mostgrowthcomingfrom theemerging marketsof China andIndia.CountrybackgroundChinais locatedin East Asia andis thebiggestdevelopingcountryin theworld.Chinese Market openedto outsideinvestors in 1978, makingitone of themostattractivemarketsin termsof size,businessgrowthpotential, anddevelopment.Despite all this,itis stillnot a maturemarket.Themarketis not a freeone,dueto somuchgovernmentinterference.There is theexistenceof a vastnumberof torts,reputationloss,andexcessivecompetitionin thismarket.However,theChinese marketis stillpromising.Nearly70% of multinational corporationsin China havesaidtheyplanto increasetheir investments.Continuousinflow of foreigncapitalis a driving factorin China`s economictransformation(Joseph, 2012).Thegovernmenthas encouragedinvestmentin thelogistics andexpressindustryby issuingnewlicenses.Ithas seenthepotentialthattheseindustrieshavein thegrowthof Chinas Gross Domestic Product (Joseph, 2012). Furthermore,in recentyears,theriseof China`s online retailmarkethas alsoledto thedevelopmentof third-party logistics andhas hada significantimpacton Chinese modernlogistics facilities.Logistics andExpress markettendto be moreprecise,specialized,anddiversified in China.EntrystrategyDHL strategyis to buildmoreinfrastructuresin orderto establishmorebrandpresencein thecountry.Therewill be noneedforanymergersoracquisitions,as itis an alreadyestablishedenterpriseand,therefore,all thecompanyneedsis a planto counter thechallengefrom FedEx that hadenteredChina in 1984 andUPS that hadestablishedbasein 1980.DHL, therefore,needsbuild andopenup Expresses centersin severalof themajorcities,in a bidto strengthenits servicesof deliveryandpick-up. BothDHL andFedEx hada significantleadin termsof earlyentryandmarketshare.By theendof 5, years,weprojectUPS will havea marketshareof 11% against DHL’s 51% andFedEx’s 28%.Thisplanwill actuallyworkas theCFOs in UPS haveseenthegrowthin theChinese economyandtherapidincreasein thecountry’sinternationaltrade.Thismovewill providea hugebusinessopportunityforus as wewould counter thelossof marketsharebackhomein theUnited States. There is, therefore,thedeterminationto workhardto makeup forthedeclinefacedin thehomemarket.Franchising will workbetterforthefutureof UPS as itwould cuton costssuchas rents, wagesto staffin our financialstatement.MarketingandR&ampD strategies UPS in thecountriesthat ithas presencein capitalizeson thetheme“What Can Brown Do forYou?” Thiscompanyhas investeda lotin termsof advertisementsanduseof innovative technology. Itusesprintadsthat target peopleacross alldivides from businessreaders,online media,andtelevisionadverts.Marketsegmentation:The consumeris thecentralpointwhenitcomesto theentryof UPS into China. Chinabeinga countrywherethepopulationis mostlyAsian, geographic segmentation is themostimportantmarketingstrategy.UPS will, therefore,haveto understandthebusinesscultureanddeterminewhich bestlocationsto offerlogistic servicesare.Productattributes(standardization/customization):In orderto comply with Chinas standardizationprocedures,UPS will followall thelegallylaiddown proceduresthat are necessaryin orderto obtainoperatinglicenses.Theywill onlydeliverproductsthat are fitforhumanconsumptionandthosethat haveundergonetestsby theChinese standardizationbody.Distributionstrategy:UPS will leasevehiclesfrom theChinese governmentandalsotheprivatesectorin orderto facilitateeasypick-up anddeliveryof goodsfrom thevariouslicensedtownsthat weare allowedto operate.Thiswill savethecompanycostof havingto purchasenewvehicles.CommunicationStrategy:In orderto communicateeffectivelywith theresidents,60% of theemployeeswill comefrommainlandChina andtherestof theManagerial positionsbeingleftto theforeigners.Culturaldifferencesacross countries:UPS has comeup with a policythat theywill onlydobusinessthat doesnot interferewith thecultureof theChinese people.Theywill respectandupholdmolarity during their conductof business.PricingStrategy:The pricing strategyof UPS will bearrivedat after factoring thecostsandexpensessuchas distancecovered,costof fuelandtaxes.Decisions about locationof R&ampD facilities:Location of R&ampD facilitiesis a marketingstrategythatmanybigcorporationsusedonce theyventureinto foreignmarkets.UPS beinga logistics company,itwill centeritself along themaincitiessuchas Chengdu andShanghai andadjacentto airports.OpportunitiesandchallengesOpportunitiesof venturinginto theChinese market:Despite thechallenges,UPS has occupiedtheChinese marketsince theyhavealreadylaidtheir desireto lodgeinto logistics business.UPS has an enormousadvantagebecauseof their focuson technology andan establishedinternationalbusinessnetwork.Their focusis on themanufacturingindustrycenterin China, supplydeliveryandfinancialserviceforvariousorganizationandcompanies.Furthermore,theestablishmentof Shanghai freetradeareais a significantboostforUPS. Thisshowsthatthere will be morebusinessfortheenterprise.Challengesof venturinginto theChinese market:Without a doubt,UPS planof venturinginto theChinese marketis veryambitiousdespite thistheyfacea myriad of problems.TheE-commerce distributionsegmentbusinessvolumeexceeds50% of theoverall share.UPS havenomarketshare,besides havingmightycontrolin internationalexpressservice.Thiscompanyhas, therefore,to finda wayto acquirea pieceof themarketshare.UPS servicecostsare veryhigh,andthishas seenthem loseon someof their customersto thevariouscompetitors.Chinese companiesare goodat pricewarsand,therefore,theresidentsmay preferlowercostservicesto counter thehighpricesfrom UPS.Chinastilllimitsforeigncompanyinvolvementin thelogistics business.Thislimitationhas seenthethree mainforeignlogistic companiesbeingforcedto renewtheir licensesnowandthen.Eventuallythisleadsto lossof businessforboth thecompanyandthegovernment.EvaluationandConclusionUPS has takena boldstepin venturinginto murkywaters.ACountry that is sostricton foreigninvestmentsespeciallyby logistics andmailingcompanies.Thestrategiesithas employedwill goa longwayin makingitthebiggestlogistic companiesin China despite thechallengesitfacesfrom competitionto governmentlegislation.Problemssuchas lowmarketshare,highprice,andmailexpress limitwill onlybe therefora while andimplementingnewstrategieswill seethem counter all thesechallenges.ThiswassurelytherightstepforUPS in China.

References

Shipping,Freight, Logistics and Supply Chain Management from UPS. (n.d.).Retrieved March 25, 2015, from http://www.ups.com/

Joseph,M. (2012). Creating and managing the e-supply chain at UPS WorldwideLogistics. Strategic Direction, 5-7.

Soupata,L. (2010). Managing Culture for Competitive Advantage at UnitedParcel Service. Journal of Organizational Excellence, 19-26.

Hart,B. (n.d.). Business Case Studies, Market Entry Strategies Case Study,United Parcel Service, Expanding in China. Retrieved March 25, 2015,from http://www.ibscdc.org/Case_Studies/Strategy/MarketEntry Strategies/MES0060B.htm

Gross,A. (1995, January 1). China Market Entry Strategies. Retrieved March25, 2015, fromhttp://www.pacificbridgemedical.com/publications/china-market-entry-strategies/

Paley,N. (2005). The manager`s guide to competitive marketing strategies(3rd ed.). London: Thorogood.

Exhibit

E-Commercesales growth 2012-2017