“Air transportation now serves as the circulatory system of the global economy, carrying people, products and services to marketplaces around the world. ” SRI International As we look at two American based giants in international package delivery, this case illustrates how they entered a foreign market and how different the strategies are that they used. FedEx and UPS, both American corporations, have contrasting styles. FedEx describes itself as a company that ‘sizzles’ whereas UPS says it holds a ‘low profile’. When they entered the Chinese market, FedEx took more risks than UPS did.
For example, FedEx invested millions of dollars to build a network (by spending $880 million on buying Flying Tiger Line Inc. for instance) similar to the one the company has in the US, whereas UPS leased space on other companies’ planes. In the process of setting up operations in China, UPS emphasized its global networks and stability and the company paid close attention to how Chinese business is conducted. UPS marketed itself as a company that considers the building of relationships to be important following Charles Adams’, UPS’s top executive, comments. “We’re a quiet company…
sometimes we’re the student and sometimes we’re the teacher. ” (Jain, p. C-153) FedEx on the other hand, openly states that it is not concerned about the Chinese way of conducting business. Because of the Chinese culture, the FedEx style upsets some of the Chinese businesses that FedEx is working with because they claim FedEx does not respect certain aspects of Chinese business culture. Is one strategy better than the other? As the case points out, there are pros and cons with each entry strategy and it is up to each company to decide what they are most comfortable with and what they want to achieve by expanding in China.
Even with FedEx taking the “attack any market” attitude, and spending millions to build a similar infrastructure overseas, UPS still achieves the same delivery time and a handful of the market share. What this case did not mention, was that this was just the beginning for FedEx. Through further research I found that their intent was to add ground service to 20 Chinese cities a year for the foreseeable future. “Our focus… is on building a network. Once you have a network in place, if that premise is right, then the growth prospects are huge, and we’re going to hopefully have a leadership position,” said Frederick W.
Smith, FedEx’s founder, chairman and chief executive officer. Mr. Smith’s plan seems to be paying off in spite of their “anti-Chinese” tactics. Although FedEx was then and remains confident in their tactics and position in China, in 1998 they realized their first loss since 1996 on international business due to their investments in the Chinese market and currency devaluation in Asia. Despite the differences in entry strategies, and FedEx’s loss in 1998, both companies are doing better than holding their own in the Chinese market.
Though not playing by traditional Chinese rules and tradition, FedEx seems to have been successful in their saturation of the market. FedEx’s more risky approach has given them a market share of 13% whereas UPS stays behind with only 5%. In my opinion, FedEx will continue to gain more market share because they are actively pursuing it and they have invested in and built the infrastructure needed to sustain their business. However, I also feel that due to their lack of tailoring to the Chinese culture, they are at risk of businesses using their services but not being loyal to them once there’s a better or cheaper substitute.
FedEx is still currently the only express delivery service operating its own flights into and out of China. They have over 260 flights per week into 18 cities and serve over 30 countries and territories. While FedEx boasts itself as the largest express transportation company, UPS’s statistics are not far from matching those of FedEx. It seems that UPS is still quietly making their way into the Chinese market. It is currently operating air hubs in Taipei, Hong Kong and Singapore, and utilizes 9 additional air gateways throughout the region. They have a 650 delivery fleet servicing more than 40 countries and territories.
Flights from Ontario, California and Newark, New Jersey travel to Beijing and Shanghai six days a week. On April 1, 2001, UPS began the only non-stop service named “UPS China Express” between the United States and China in the industry. Not even FedEx can boast that accomplishment. So, which company has gained more from their strategy? FedEx maintains market share in spite of their American marketing tactics while UPS is still holding on with their more laid back style. If you look at the statistics, the two companies seem about equal and UPS has achieved this with little capital investment.
How much farther ahead would FedEx be had they adopted UPS’s marketing style while maintaining their capital investments and infrastructures? In my opinion, FedEx would be the winner, hands down. They have proven themselves capable of doing the job their way. I’d like to see them try the Chinese way. Executive Vice President, T. Michael Glenn said, “We’re the largest all-cargo carrier in the world and as a result we’ve got a pretty good formula for attacking any market. Whether it’s China or Japan or Germany, it really doesn’t make any difference. “