China UPS’ No. 1 growth spot

If David Abney were the father of a young child, the executive says
>tongue-in-cheek, he would have that child learn to speak Mandarin.
>Abney, president of international operations for Atlanta-based United
>Parcel Service Inc., has seen tremendous growth in China during the past
>year. He expects continued growth this year.
>"China, China, China," he said. "It's absolutely essential. I can't
>overstate that."
>Spurred in recent years by more liberal trade agreements, less centralized
>control from China's Communist government, and increasing awareness of the
>financial benefits of globalization, China during the first quarter became
>UPS' fastest-growing market.
>As a result, Abney said, China also has become UPS' No. 1 international
>priority.
>UPS' export volume in China increased 60 percent last quarter, said Chief
>Financial Officer Scott Davis during a recent analyst call.
>Since UPS began operations in China three years ago, the company has
>attained 48 weekly flights — 24 round-trips to Shanghai, 12 to Beijing and
>12 to Hong Kong.
>In April 2002, UPS opened a new intra-Asia hub at the former Clark Air
>Force Base in the Philippines (now Diosdado Macapagal International
>Airport) to enable future growth in the region. Recently it increased the
>number of flights from Thailand to the intra-Asia hub from one to six
>aircraft per week. The new flights, UPS says, reduce delivery time by one
>day to countries like China and Japan.
>The company also acquired landing slots on the new runway at Tokyo's Narita
>Airport, which it says have resulted in enhanced access and connections to
>the intra-Asia hub.
>And with the successful partnership last year with Chinese carrier Yangtze
>River Express, UPS can now "deliver to every address in China," said
>spokesman John Wheeler.
>That's no small feat.
>Challenging geography
>China, the most populous country in the world, has 1.3 billion people.
>Outside China's densely populated cities lies vast, unpopulated terrain
>with underdeveloped transportation systems. China has only 500 airports and
>1.4 million kilometers of highways, according to the CIA World Factbook.
>The United States has 30 times more airports and nearly five times as many
>highway kilometers.
>Although Europe accounts for most of UPS' international export volume
>(about 50 percent), Asia is the fastest-growing. In addition to China,
>Japan and India also remain high priorities. UPS currently serves more than
>40 Asian-Pacific countries and territories through more than two dozen
>alliances with Asian delivery companies that supplement company-owned
>operations.
>With China and Asia leading the way, international revenue was up for UPS
>during the first quarter. UPS posted $1.6 billion in international revenue,
>a 24 percent increase from the same time last year. International package
>delivery accounted for 25 percent of UPS' total package-delivery revenue
>during the first quarter. In 2003, UPS pulled in $5.6 billion in revenue
>from international operations, a 19 percent increase from the previous
>year.
>Doing business with China
>The United States is China's largest export partner, receiving 22 percent
>of all goods that leave there.
>China exported $325.6 billion in goods in 2002, mostly machinery, clothing,
>toys and mineral fuels. It imported only $295 billion. The United States'
>imports ($1.2 trillion), meanwhile, were nearly double its exports.
>Due to such an imbalance, UPS is determined to increase exports from the
>United States, Abney said. Outgoing shipments grew by 13 percent last
>quarter.
>"It's important we have a balance," Abney said. "When China is the world's
>factory and the U.S. is the world's consumer, there's always a possibility
>of having an imbalance."
>But balance isn't the only concern when running a global business.
>The strategic use of company resources is another. With the entire world in
>UPS' reach, decisions must be made where to direct those finite resources.
>"UPS has to pick its targets," said Dave Bruce, an international business
>professor at Georgia State University. "On the other hand, I suppose they
>have to worry about expanding everywhere at the same time."
>UPS also faces severe cultural differences in China. That is why, Abney
>said, UPS manages its operations there with mostly Chinese. With 11 major
>ethnic groups (such as the Han Chinese), eight major languages (such as
>Mandarin), 23 provinces and five autonomous regions, it's evident how
>cultures could clash.
>Quite possibly the most daunting challenge is the Chinese government.
>Legislation is pending in the country that would make the Chinese post
>office a regulatory body of the express industry. UPS spokesman Wheeler
>likened it to "putting a fox in charge of the hen house." (UPS' biggest
>competition in China isn't the government, though; it is FedEx Corp. and
>DHL International Ltd.)
>In addition, UPS is trying to get more air rights from the Chinese, Abney
>said.
>UPS has built its Asian network country by country as route opportunities
>have become available. In March, UPS applied for three additional
>round-trip cargo flights from Hong Kong. The latest round between the U.S.
>Department of Transportation and the Chinese government started April 27 to
>try to liberalize China's skies.
>"UPS has already experienced an increase of almost twenty-five percent in
>its Asia-Europe express traffic over Hong Kong, and is currently exceeding
>its forecasted Asia-Hong Kong growth projections," the company noted in an
>April 15 filing with the Department of Transportation.
>In addition, according to the CIA, China's unique communist and free-market
>hybrid economy often has experienced "the worst results of socialism [and]
>capitalism." However, the CIA also reports that China's recent entrance
>into the World Trade Organization is helping the country's economy by
>increasing exports and decreasing government control.
>With so many forces at work, China likely will change its ways, predicts
>Han Park of The University of Georgia.
>Park, a political science professor who focuses on Asian politics, said
>there is "booming sentiment" for capitalism in China.
>"It's obvious China is becoming an economic capitalist giant," Park said.
>"It takes time for a controlled system like Communist China to transform
>itself into a fully capitalist system. In time, we will see a pluralist
>democracy."