FedEx plans expansion in China

FedEx, the world's top express messenger service, is planning to expand its operations in China this year to keep up with the country's fast-growing opening up process in line with its World Trade Organization commitments. Heading up the FedEx growth engine in China is Eddy Chan, FedEx's regional vice-president in China and the Mid-Pacific region. Chan says that one of his immediate tasks is to expand the company's network of branches in China to achieve deeper market penetration. "Our plan is to open 5 to 10 branches in China this year," Chan says. In fact, he has already put his plan in motion by opening a branch in Xiamen in December 2003, one in Tianjin and another in Shijiazhuang in January. "We are extending our branch network in China to take advantage of the increase in business opportunities afforded by the market opening," he says. "Our plan is to concentrate on opening new branches in the second- and third-tier cities in coming years," he adds. The ambitious plan is in sharp contrast to the company's leisurely development in the past 20 years. During that time, it had only established a headquarters office in Beijing and branches in Shanghai, Shenzhen, Suzhou and Fuzhou. Indeed, most other express forwarding companies, including UPS, DHL and TNT have limited their China operations in cities in the coastal provinces. But this is changing. In compliance with the WTO agreement, China has allowed freight forwarding companies to open branches freely in the country. Now "it's up to us to choose where we want to be in this vast market," says Chan. "We are very happy about the market opening," he says. "The opportunities offered us are vast," he adds. Under the new policy, foreign freight forwarding companies are also allowed to own up to 75 per cent of its subsidiaries in China. But Chan says that FedEx has opted to maintain its partnership with its main joint venture partner, Tianjin-based Da Tian W Air Service Corp (DTW). The co-operation with DTW has generated good business for FedEx in China, Chan says. In fact, the partnership has helped secure the FedEx leadership position in this market with a network serving 225 Chinese cities. The company is planning to expand its service network to cover an additional 100 cities in the next five years, Chan says. Fuelled by the continuous surge in export trade and foreign investments, the demand for express freight forwarding service in China has soared in recent years. Business grew 30 per cent in 2003 and Chan says he expects the annual growth rate will be maintained at an average of 35 per cent in the next three to five years. To strengthen its China operations, the company recently established its country headquarters in Shanghai. That was the first time FedEx ever opened a headquarter office for a particular market. "The Shanghai headquarters is part of our efforts to provide the best possible service to our clients in China," Chan says. "It is a reflection of our devotion to the China market," he adds. FedEx also signed a letter of intent in December to explore the possibility of moving its Asia regional hub from Subic Bay in the Philippines to Guangzhou, which is scheduled to open a new international airport in June 2004. Many recent service enhancements also significantly increase shipment-handling capacity and boost the speed of shipments to and from the China market. In late October, FedEx customers can utilize more extensive service between Asia and Europe with six additional flights between Hong Kong and the FedEx European hub at Charles de Gaulle Airport in Paris. In late September, FedEx was awarded 13 additional frequencies in and out of Hong Kong by the US Department of Transportation. FedEx is the US carrier with the greatest number of flights in and out of Hong Kong. In September, FedEx also launched the first direct express cargo service from Shenzhen's Baoan Airport in southern China to the United States. FedEx has been offering direct cargo flights to the Chinese mainland since 1995. It currently offers 11 flights a week to the Chinese mainland, the most of any US cargo carrier, with service to Shanghai, Beijing and Shenzhen. However, FedEx's rivals, who are also pinning their hopes on China, are gearing up. DHL recently bought a five per cent stake in its Chinese joint venture partner Sinotrans Ltd and boosted its holding in the cargo arm of Hong Kong's Cathay Pacific Airways Ltd. UPS also signed an aviation contract with Yangtze River Express Airlines. Chan, who is confident about FedEx's performance in China, often speaks of four FedEx initiatives that have overtaken its international counterparts on the Chinese mainland: The first to have direct flights between the Chinese mainland and the United States The first and only international express carrier to offer a money-back guarantee in the market The first to link its network with customs for electronic clearance The first to co-operate with Kodak outlets for self-service delivery Chan denies FedEx was given special treatment by the government to achieve these firsts. Rather, he attributes this success to communication with the government, which has taken the needs of business in considerations in policy making. Many world express delivery giants are still disputing State-run China Post's monopoly. "But the increasing openness and transparency of government is appreciated," Chan says.