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1. FedEx entered in to China in 1984 through a joint venture, while UPS entered
China in 1988 through an agent partnership relationship. Critically examine the
contrasting strategies adopted by both the companies, while entering and
expanding their service network in China.

The case discusses in detail about the entry and expansion strategies of the two US-
based logistics companies - FedEx and UPS in the Chinese market .The case examines
the contrasting strategies adopted by FedEx and UPS in their efforts to establish
presence in China. FedEx followed an aggressive, high risk, more investments
approach to expand its services network in China which enabled the company to
capture higher market share .On the contrary, till the late 1990s, UPS followed a
conservative, low risk, low investment approach to establish its presence in China. The
case brings out the contrasting elements of the strategies adopted by both companies
including establishing the services network, advertising and promotion, targeting
customers and the investments made. Finally, the case examines how the expansion
strategies of both companies have changed with the improving business prospects in
China, following its entry into WTO. The case discusses in detail the entry and
expansion strategies of the two US-based logistics companies - FedEx and United
Parcel Services (UPS) - in the Chinese market. The case examines the contrasting
strategies adopted by FedEx and UPS in their efforts to establish and expand their
operations in China. FedEx followed an aggressive, high risk approach to expand its
services network in China which enabled it to capture more market share. On the
contrary, till the late 1990s, UPS followed a conservative, low risk approach to establish
its presence in China. The case brings out the contrasting elements of the strategies
adopted by both companies including establishing the services network, advertising and
promotion, targeting customers and the investments made. This will provide the
company with a total of 26 weekly flights to China, the most of any U.S.-based cargo
carrier, said sources with FedEx Express.
To share accommodate China's surging demand for international cargo transport,
FedEx Express has accelerated steps to expand its business in China.
On January 24, 2006, FedEx Express entered into an agreement with Tianjin Datian W.
Group Co., Ltd. ("DTW Group") to acquire DTW Group's fifty percent share of the
FedEx-DTW International Priority express joint venture and DTW Group's domestic
express network in China for approximately 400 million U.S. dollars in cash.
This acquisition will convert the company's joint venture with DTW Group, formed in
1999, into a wholly owned subsidiary and help FedEx Express expand international and
domestic express businesses in China, said sources with the FedEx Express.
The acquisition is expected to be completed in the first half of the financial year of 2007
when FedEx Express' employees in China will exceed 6,000.
Conducting business in China since 1984, FedEx Express has expanded its service to
more than 200 Chinese cities. And the company is expected to expand its service
network to another 100 Chinese cities in the next five years.
FedEx Express also plans to move its Asia-Pacific regional center to South China's
Guangzhou city. Sources said FedEx Express has invested 150 million U.S. dollars and
started the construction of a new regional center in Guangzhou this January.
Industry insiders said FedEx Express' new move in China indicates that China's
logistics market is more important to overseas investors.
According to China's promise to the World Trade Organization, China fully opened its
logistics market to overseas investors in December 2005. Sources forecast that China's
logistics market is expanding at an annual growth rate of 30 percent.


 

This acquisition underscores the ongoing FedEx commitment to China and bolsters
FedEx leadership in the global, air cargo industry. For example, FedEx:

‡ Was the first express air carrier to enter the market in 1984;
‡ Was the first express carrier to directly serve China with its own aircraft in 1996;
‡ Launched the express industry¶s first direct flight from mainland China to Europe in
March 2005;
‡ Initiated the first overnight express link between India and China in September 2005;
‡ Was the first express transportation company to be linked electronically with China
customs;
‡ Currently serves China with 23 frequencies per week, the most of any cargo airline,
and plans to add three more in March;
‡ Connects more than 200 Chinese cities to the FedEx international network and plans
to add 100 additional cities during the next few years;
‡ Will employ more than 6,000 workers in China when the acquisition is complete; and
‡ Earlier this month broke ground on a new US$150 million Asia Pacific hub in the
southern China city of Guangzhou that will employ about 1,200 workers.

To accommodate China's surging demand for international cargo transport, FedEx

Corporation has accelerated steps to expand its business in China. On January 24,
2006, FedEx Corporation entered into an agreement with Tianjin Datian W Group Co
Ltd :(DTW Group) to acquire DTW Group's 50% share of the FedEx-DTW International
Priority express joint venture and DTW Group's domestic express network in China for
approximately US$400 million in cash. This acquisition will convert the company's joint
venture with DTW Group, formed in 1999, into a wholly owned subsidiary and help
FedEx Corporation expand international and domestic express businesses in China,
said sources with FedEx Corporation. The acquisition is expected to be completed in
the first half of the financial year of 2007, when FedEx Corporation' employees in China
will exceed 6,000. Conducting business in China since 1984, FedEx has expanded its
service to more than 200 Chinese cities. The company is expected to expand its service
network to another 100 Chinese cities in the next five years. FedEx Corporation also
plans to move its Asia-Pacific regional center to South China's Guangzhou city. Sources
said FedEx Express has invested $150 million in its Guangzhou operations and started
the construction of a new regional center there this January. Industry insiders said
FedEx's new move in China indicates that China's logistics market is more important to
overseas investors. According to China's commitment to the World Trade Organization,
China fully opened its logistics market to overseas investors in December 2005.
Sources forecast that China's logistics market is expanding at an annual growth rate of
30%.
 2. FedEx had followed an aggressive, high investment strategy, while UPS followed
a conservative, low investment approach. Critically examine the contrasting
elements in both the companies¶ strategies with a focus on advertising and
promotion, target customer and the investment made until the late 1990s. what
benefits and you perceive in the overall approach of the companies while
expending in china ?

FedEx entered China in 1984 and, since that time, has expanded service to cover more
than 200 cities across the country, with plans to add 100 additional cities over the next
few years.FedEx provides reliable pickup and delivery services, rapid customs
clearance ability, and international line-haul using its own aircraft to link China to the
company's global networks. FedEx Express has the authority to operate 26 weekly
U.S.-China frequencies, including weekly flights serving Shanghai, Beijing and
Shenzhen. As of March 25, 2007, FedEx will have 30 weekly U.S.-China frequencies ±
more frequencies than any other cargo carrier.In December 2003, Shanghai became
the headquarters for FedEx in China. Today, FedEx employs nearly 6,000 people in
China.Greater access offers more opportunities. In March 2005, FedEx launched the
express air cargo industry's first direct flight from mainland China to Europe. This is part
of the new westbound around-the-world flight, which originates and terminates in
Memphis, Tennessee, U.S.A., and forms an important link in the FedEx network,
connecting the United States, Asia and Europe.The China-Europe flight provides
connections via the FedEx AsiaOne® network to and from Japan, and more than 130
cities in northern and eastern China. Additionally, the flight links key manufacturing
regions in Germany into the FedEx global network, while other parts of Europe connect
with the FedEx EuroOne® network via the FedEx hub at Charles de Gaulle International
Airport in Paris.In September 2005, FedEx was the first company to offer an overnight
link between India and China.In March 2007, FedEx acquired DTW Group's 50 percent
share of the FedEx-DTW International Priority express joint venture and became a
wholly foreign-owned enterprise. Benefits for customers and global trade
The benefits of the China-Europe flight include:

 The doubling of air cargo capacity on westbound flights from Asia to Europe, with
approximately 850,000 pounds of additional capacity available.
 The extension of cut-off times for cities in eastern China by up to six hours, giving
customers extended time in the day to coordinate business worldwide.
 FedEx is committed to expanding its operations and workforce in China over the
next several years

   ! 

There are some interesting commonalities between FedEx and UPS, and between DHL
& TNT that directly impacted on how these companies became behemoths of the global
logistics industry.UPS & FedEx, vigorous market rivals also have some things in
common. They are both fanatical about tracking one another¶s movements in the
market. Their investment in competitive market research is high, systematic and
constant. They are both centralized organizations with annual business planning
processes that are initiated, led and summarized by their respective corporate
headquarters in Atlanta and Memphis.
Their dedication to their employees is rooted in the belief that customer satisfaction in
the service industry, begins with employee satisfaction. Both invest heavily into its
employees and actively compete over the best annual MBA crop. FedEx has a unique
360 degree HR management system that is not repeated in any of its competitors. Both
also believe in promoting from within. Most of UPS¶s CEOs began their careers as
drivers or part-time workers. Both companies also have a strong strategic planning
culture, and view their businesses in terms of decades. Sowing the seeds of long term
investments, and then waiting patiently for the results. DHL and TNT started with a
highly decentralized model. DHL¶s decentralized nature though ultimately put it at a
disadvantage against the centralized systems of UPS & FedEx, who could spread their
costs across their entire network, and whose large corporate headquarters could access
greater funds. The decentralization that was so valuable to the quality of the localized
service, became an obstacle to a culture of long term strategic planning. Its more
centralized rivals began product and geographical encircling moves that began to eat
away at DHL¶s market dominance. As these encircling moves became more successful
so DHL began to lose market share, across its product offerings and geographies.
Decentralization hindered a corporate wide realization of the long term significance of
these encircling moves, and handicapped a sustained corporate wide coordinated
reaction to the advance of its competitors in multiple market and product segments.
Eventually this made DHL, the great pioneering brand of the industry, vulnerable to
ownership dilution, and finally acquisition by Deutsche Post World Net. Ironically,
Deutsche Post, a venerable and very profitable Government Postal Service only started
flexing its financial muscle when a McKinsey alumni, (one of the premier strategy
consulting houses in the world), began to develop a global logistics capability ahead of
Germany¶s forthcoming postal deregulation. Deutsche Post, with its deep pockets has
been re-vitalizing DHL ever since.Corporate cultures, created over the course of
decades, die hard though, and DHL today is now operating with its old genetic
decentralized structure, and a new highly centralized structure imposed from Bonn. In
some ways it is reminiscent of England in the 14th century, when the country was run
by an uneasy imbalance between the king who controlled the State, and the Barons
who controlled the regions.
The splicing of these two conflicted cultures is made more complex by a process, driven
by Deutsche Postµs desire to become a free-standing global logistics powerhouse, large
enough to rival UPS (100 years old) and FedEx (35 years old), in 15 years of systematic
and serial acquisitions.TNT became vulnerable after making disastrous operational
decisions in its European markets, with heavy financial impacts, and was in its turn
acquired by the Dutch Post, (Holland not Germany). FedEx and UPS also stumbled in
their European incursions. UPS had the funds and the fortitude, in the face of enormous
internal shareholder pressures, to struggle through years of losses in the hundreds of
millions of dollars. FedEx shut down the largest part of its European business, and
focused solely on intercontinental express service continuing to serve the market
through an alliance with TNT. While the downsizing for FedEx was painful and required
a $254 million restructuring charge, they did carve out a solid niche with a truly unique
product solution under the slogan ³FedEx is the fastest way to more of the USA´.
 3. In the early years of the new millennium, the rivalry between market FedEx and
the Chinese logistics market had intensified further. Examine the moves and
countermoves followed by both companies during the period. According to you,
what strategies should each company adopt to improve their market share in
China?

In my opinion, I think that FedEx has incorporated an aggressive shooting

strategy as the company has emerged into numerous shipping regions around the world
such as Asia, and furthermore, FedEx continuously has been pursuing and developing
a solid foundation and infrastructure for the company and its future. One example is the
addition of a new hub in the Philippines, at Subic Bay.His movement has guided the
company to innovate its products and develop with the needs of its customers. Finally,
the use of communication has emerged as one of the company¶s greatest
competencies, not only with customers, but internally as well. ³FedEx has always been
a technology trailblazer, and the success of fedex.com is testament to that.´ The
company was one of the first to harness the power of the Internet, launching its Web
site in 1994 with a bold new package tracking application one of the first true corporate
Web services. Soon after, FedEx became the first transportation company with Web site
features that allowed customers to generate their own unique bar-coded shipping labels
and request couriers to pick up shipments. FedEx Ground is taking advantage of the
wireless LAN technology by expediting the movement of shipping information from
delivery workers' terminals to a central database. It is with these tactics along with
FedEx strong competencies and worldwide infrastructure, which will be discussed in
further detail hereafter, that will foster the companies success and eventual competitive
advantage in years to come.FedEx provides many benefits to its customers. The
shipping industry, however, is one of extreme competition. Not only are customers
confronted with the choice of carrier, they are also confronted with a choice of means of
shipment. It is further complex, as the pricing strategy of the sector has companies, for
instance, who lead cost in one form of shipment such as ground and follow in another
form of shipment such as international delivery.
FedEx foresaw the importance of differentiation early on, as did most of the sector
players. FedEx realized that it was in the information business. Customers are not
only concerned with the product getting from point A to B, but further, are interested
in the knowledge of where the cargo originated from, its present whereabouts,
destination, estimated time of arrival, price and cost of shipment. All these elements
are just as important to some businesses and consumers as receiving a safe
delivery. To support this need, and differentiate itself from competitors, FedEx
created state-of-the-art technology for customers to track and validate shipments.
Shipments are virtually traceable from their origin to their destination all with the
convenience of the personal computer. Additionally, FedEx has forecasted the
important strategic trend of a continuously global shipping market. The
differentiation of products is a continuous process in this competitive industry as
innovations are often quickly imitated. FedEx strives to develop innovations and
listens to customers wants and needs.Further meeting the needs of customers
worldwide, the company has invested extensively in global infrastructure. Fedex
connects some of the most important areas of the world that make up 90% of the
world¶s gross domestic product, some of the new hubs were built in the Philippines
at Subic bay and in Europe at Charles de Gaulle, in Paris. Particular emphasis has
been placed on gaining a strong presence in the spawning Asian market. Countries
such as China, which had been predominantly exporting countries, are now large
importers of goods from all parts of the World. Since 1984 they have expanded
service to over 300 cities within China. (Business Source Premier). It is with this
keen sense of ³the big picture´ that FedEx finds itself without a current sustained
competitive advantage within the shipping industry. The Fedex return-on-equity
percentage of 10% falls far below the industry average of nearly 20%.
The company has invested heavily in aircraft and development of strategic
worldwide airline hubs. In 1997, FedEx foresaw the opportunity of Internet
commerce and its implications on the shipping industry. It is this same intuition that
we at the San Jose Consulting Firm believe FedEx is positioning themselves as the
future leader, with sustained competitive advantage, in the international market of
the shipping industry. The extensive infrastructure and resources FedEx has
compiled are quite impressive. The company has added several optimum hubs, the
Euro One Hub in Paris, the Asia One Hub at Subic Bay, and the new Iraq hub to
increase the reach and accessibility in blossoming new economies and
manufacturing locations. This infrastructure, coupled with FedEx¶s continuous
innovations and fulfillment of customers needs, is what will create continued
success, and eventual sector competitive advantage in the years to come.
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TITLE OF CASE STUDY: FEDEX VS. UPS ­ COMPETING

WITH CONTRASTING STRATEGIES IN CHINA.