The battle for parcel supremacy
Whenever David Abney looks up from his desk on the executive floor of United Parcel Service's headquarters in Atlanta, he sees a large map of China mounted on the wall. "I have it right in my line of sight," he says. "It reminds me and visitors to my office of the size of the place and the opportunity it provides for us."
As president of the package delivery company's international business, Mr Abney is quick to stress that Europe, South America and the rest of Asia are also important markets. But the fact that only China is granted its own map shows where his priorities lie.
"China is the largest and most exciting opportunity in the 30 years I've been with UPS," he says. "It's not a case of 'should we' or 'can we'. If you're going to be a global company in future you absolutely have to be a player in China."
Over the past few months, UPS has committed an additional $600m of investment in China as it vies with rivals FedEx, DHL and TNT for leadership of the market. The increased spending will expand the company's distribution network and secure full control of its express delivery joint-venture in the country.
China is becoming an increasingly important source of growth to UPS as the US market slows. The company's export volume out of China more than doubled last year, compared with a 23 per cent increase in the whole international business and 6.6 per cent in the US.
"In the past, UPS has relied on its domestic package business to drive growth," says Satish Jindel, president of SJ Consulting, a transport consultancy. "But last year's weak performance in the US showed it must focus more on international business – especially in China."
UPS is expanding in the country on two fronts. The first is its traditional package business, shuttling small parcels between China and the rest of the world. The second is supply chain services, handling the export of larger-scale cargo from Chinese manufacturers to overseas markets.
Last December, UPS agreed to pay Sinotrans, its Chinese partner, $100m to take full control of their express delivery joint venture when Beijing relaxes foreign ownership rules at the end of this year. The deal will make UPS the first foreign company in the sector to wholly-own its Chinese operation. "Having full control will give us more flexibility in making investments and long-term strategic decisions and will give our brand a stronger presence," says Mr Abney.
Meanwhile, the supply chain management business announced plans last month to increase its number of Chinese warehouses from 40 to 60 within two years. The facilities distribute goods such as textiles, technology and auto parts for import and export.
However, Kurt Kuehn, UPS's senior vice-president of sales and marketing, says building a network inside China is only half the challenge. Just as important is connecting it to the rest of the world. "Anyone can build a warehouse in China," he says. "But it's useless unless you can get the goods to market in North America and Europe."
UPS believes it offers a more comprehensive global service to Chinese customers than any of its rivals. FedEx lacks the international freight-handling capability that UPS secured through its acquisition of Menlo Worldwide Forwarding last year, while DHL and TNT are relatively weak in North America. "We have the best network in the US and a powerful presence in Europe, so we can connect China to the rest of the world better than our more regionally-focused competitors," says Mr Kuehn.
DHL and FedEx, however, both have important advantages over UPS. DHL, owned by Deutsche Post, was the first foreign package delivery company to enter China in 1986 when it formed its own joint-venture with Sinotrans.
While UPS and FedEx are limited to international deliveries in and out of China, DHL is the only one allowed to make domestic shipments. This will soon change as World Trade Organisation rules force Beijing to liberalise but DHL's 37 per cent share of the local market will be difficult to catch. FedEx, meanwhile, has had the best air access to China since its acquisition of Flying Tigers, an international cargo airline, in 1989. The company will this month increase its number of weekly flights to the country to 23, compared with UPS's 18. Both companies were recently awarded an additional six landing slots in China with the promise of a further three each next year, following an aviation agreement between Beijing and Washington. "We fly into three different Chinese cities: Shenzhen, Beijing and Shanghai," says David Cunningham, FedEx's senior vice-president for Asia- Pacific. "Nobody else does that." In addition to its direct flights between the US and China, FedEx connects China to the rest of Asia through its Subic Bay hub in the Philippines and this month launched a service from Shanghai to Frankfurt – the first direct cargo service between China and Europe.
The battle for dominance in China is part of a global parcel war raging between the package delivery giants, with DHL challenging UPS and FedEx in North America, while the US pair take on DHL and TNT in Europe.
But the companies understand that they cannot win their battles elsewhere in the world without a strong presence in China.
A CORPORATE CULTURE TO DIGEST
One day in January this year, a Chinese delegation visited the Atlanta headquarters of United Parcel Service to negotiate a business deal over a lavish Chinese meal.
The meeting was a disaster as UPS executives committed a series of cultural gaffes that risked causing grave offence to their guests.
Blunders included using first names instead of the formal titles favoured by Chinese businessmen and handing out clocks as gifts – a symbol of impending death in China.
Fortunately for UPS, the meeting was a role-playing exercise designed to familiarise its executives with Chinese business culture.
About 100 company officials attended the etiquette lesson, organised by Chinese-born Shiao Dong Han, UPS's director for international retail services.
Participants learned about the importance of building personal relationships with their Chinese counterparts before getting down to business. They were also advised to always leave a little food uneaten when dining in China because a clean plate implies hunger.
Despite the executives' disastrous performance, Mr Han said UPS's corporate culture was well-suited to business in China because the company puts a premium on hard work and loyalty – qualities that are valued by the Chinese.
