The Expansion of DHL in Saudi Arabia - Essay Example

?The Expansion of DHL in Saudi Arabia A strategy for movement into the Middle East Introduction The international environment is one that offers significant challenges to any business, especially with the prevalence of multinational corporations that now operate around the world. Across the world, the economic environment is constantly shifting, meaning that multinational companies derive significant benefit from increasing their representation and services within individual companies. This helps to secure their place in the international market if the economy in some countries significantly decreases. In addition, the increase in role within individual countries helps to ensure the global awareness of the brand. This report considers the strategy initiated by the DHL Express division of Deutsche Post DHL (henceforth DHL) to increase its investment in the Saudi Arabia network, increasing the access to DHL services for its customers, as well as customer service and delivery fleets. As part of this strategy, DHL planned to invest in the opening of 15 new service points. The Global Economy and International Business DHL is a worldwide logistics company that works with individuals, small businesses and large businesses in order to provide effective logistics solutions for whatever their clients require. The company has a number of different divisions which focus on different sections of their business. These divisions include DHL Express , which is involved in the worldwide shipping of mail and packages within a limited time frame, DHL Forwarding and Freight, which is involved in the global transportation of merchandise and goods to their destinations, this division focuses on the shipping of large items or large amounts of items, particularly for businesses . The other divisions that the company commands are DHL Supply Chain, which provides warehouse storage facilities as well as managed transport and finally DHL Mail, which is responsible for a wide range of services including global mail, the retail outlets for the company, press services and marketing . Multinational organisations are confronted with the decision to either focus on regional or on global expansion. Generally speaking, if a company expands at a regional level it loses some of its ground at the global level, and vice versa. Globalization has been shown to be a strong strategy for companies, allowing them to increase their competitiveness . DHL has players in both fields, with a strong international presence as well as strong roles in a number of different regions. The expansion within Saudi Arabia is being developed as part of a wider strategy for expansion into the Middle East, with the idea that Saudi Arabia could serve as a foothold and a strategic location. Data Country Trends DHL has operated within Saudi Arabia since 1976. In 2008, DHL Express initiated a strategy to significantly increase their network within the Saudi Arabian region. In order to do this a total of $26.6 million USD was invested into the network. This strategy served two purposes; the first was for the expansion within Saudi Arabia, to provide better service and products. The second purpose was to take advantage of the influential role that Saudi Arabia has on the economic development in the Middle East and create strong customer relations and brand recognition for future development . Population Trends Stakeholders in International Business Stakeholders in DHL include customers, employees, investors as well as a number of partner organizations. Other stakeholders include those who are involved in making policy, various environmental and social groups, as well as the general public. In the expansion into Saudi Arabia, the company must balance the needs of the different stakeholders. In order to do this, DHL works actively with different stakeholder groups to ensure that there are no problems. For example, they engage environmental groups to discuss the impact in which the company will have in their expansion and the way in which environmental impact can be reduced . In a similar manner, DHL tries to associate with any society that it is integrating into by programs such as GoTeach and GoHelp which help people in need as well as projects in the local community . Shareholder Shareholders in a company are always an asset that must be closely managed. As they have a financial interest in the company’s success, many keep a close eye on company processes. DHL shares are currently faring well, with the companies value increasing . Governments One important aspect of working within a country is operating within the rules and regulations that have been set in place by the government. For DHL this is not a significant problem as they have substantial experience with dealing with different governments and they have already been present in Saudi Arabia for some time. Employees One way that DHL operates in Saudi Arabia to ensure that it integrates well with the local culture is to ensure that a large proportion of its employees are local. The company considers that it is very important to make use of talent from within the country that it is located as it strengthens ties to the company, helps the country’s economy as well as increasing customer loyalty. Currently in Saudi Arabia approximately 50 percent of the DHL workforce is local Saudi Arabians. There is no discrimination across positions either, with local citizens occupying every division . Customers and Suppliers Another important aspect is maintaining positive relationships with both suppliers and customers. Both of these groups are important for a company to succeed, the suppliers to help provide the goods, and consumers for the profits. DHL has business relationships with a number of different suppliers, as well as having alternative options if supply becomes limited. They aim to source their products and materials from within the country that they are operating in whenever possible. In addition, the company is also environmentally aware and has processes in place to minimise the carbon cost of many of their activities. New Governments With any business venture, especially a Foreign Direct Investment (FDI) government regulation and policy plays a large role in how easy or difficult it is to do business. As a consequence, it is important for the corporation to ensure it maintains a good relationship with the current government as well as any new governments. Markets and International Trade Foreign Direct Investment (Financial) The expansion within Saudi Arabia is an extension of an already present FDI, as the company already has an established presence in Saudi Arabia. Financing for the expansion comes from financing for the planned expansion into the Middle East, as this is acting as a stepping some for further Middle Eastern development. FDI has always been a fact that has stirred strong emotional responses both within the host country and within the country that the business is based . In the case of DHL, the organization is based in Germany; however it already has strong international relations and a well established presence in many different countries internationally, including a large presence in the United States. In addition, it has been present in Saudi Arabia for many years, and contributes significantly to the local economy through having a significant proportion of its staff as Saudi Arabian’s . Global Strategy In many cases a company has to take into account cultural factors when expanding into a new area; however this is not the case with the DHL expansion within Saudi Arabia as the company already has a strong presence in the Kingdom. In order to understand the challenges and issues that are faced when a company such as DHL attempts to substantially expand its market, three forms of analysis are particularly useful, these are SWOT, PESTLE and Porter’s five forces analysis, which are included below. SWOT Analysis Strengths: The Express division of DHL is a well known and efficient division of DHL, and has been present in Saudi Arabia since 1976. As a consequence the brand is already well known within Saudi Arabia and this gives it an advantage within the market. The company already has a strong international presence, with more than 220 global locations, and a brand that is recognised worldwide. The business boasts more than 60,000 vehicles and 300,000 staff as well as aircraft which are used exclusively for DHL shipping . Physical stores offer many postal and logistics solutions for individual customers, as well as the company offering a wide range of solutions for businesses of any size. There are already a number of physical locations within Saudi Arabia, so their use is well known. The company is actively involved in trying to reduce its carbon footprint and offers a range of low carbon and carbon neutral shipping options for clients that are environmentally conscious. Part of DHLs overall business strategy is to keep clients and employees happy , and this focus is as important as the financial results that the company receives. Weaknesses: One risk of focusing on employee satisfaction is that it has the potential to produce complacency among employees, reducing their work ethic, and having potential negative effects on overall company profits. Prices of products offered by DHL are higher than their competitors, and can be expensive for individuals. Opportunities: Continued expansion into the global market, taking advantage of the demand for imports and exports from other countries. The acquisition of small local competitors within Saudi Arabia. This can provide the means for DHL to expand, as well as reduce any potential restrictions from these companies in the future. The continued expansion into the Middle East using the reputation and exposure gained in Saudi Arabia to make expansion into other Middle Eastern countries easier. Threats One important aspect that could provide a threat to the strategies proposed by DHL is the requirements for good relations between the company and the Saudi Arabian government. If these relationships become strained then it could become difficult for DHL to continue to make a profit. DHL faces competition from other logistics companies within Saudi Arabia, such as TNT Saudi Arabia which also provides express delivery systems . The economic environment is still unstable, and it is unknown what changes will occur in the future. Because of this, placing the majority of the business interests in the international market may cause significant problems at a later date. Problems could include restrictions on imports or exports to countries, increase in the price of fuel to the extent that it significantly increases the price of DHL services, or the global economy could slow down, reducing demand for DHL services. PESTLE Analysis Political: On the political level, the world has been facing a global financial crisis which has resulted in substantial difficulties for many companies and a decrease in investment and spending throughout the world. Many governments have offered stimulus packages to ensure that business continues to grow throughout this time . As a consequence of this the relationship that DHL maintains with the political powers in Saudi Arabia will be an important factor in the success or failure of these strategies. Economic: The manner in which a business operates and the profits that it makes is closely linked to consumer behaviour and the financial markets. With finances becoming more difficult throughout the world and many consumers and businesses decreasing their level of spending, there is a risk that the income of DHL would decrease as a consequence, both in Saudi Arabia and elsewhere in the world. Social: There are no strong social factors that affect DHL in implementing these strategies. The demographic audience that the company caters for as well as cultural aspects remain unchanged. Technological: Technology continues to improve throughout the world for logistics and for DHL. Any increases in technology significantly increase the efficiency of DHL transportation and logistics. In 2009 DHL introduced an Innovative Research Centre which aimed to provide significant advantages to the company in terms of logistics and effectiveness . Legal: Continued expansion into Saudi Arabia as well as further expansion into the Middle East requires careful communication and coordination with the governments which are involved. As DHL is a logistics company and specialise in many different kinds of goods transport there are many trade and customs barriers which must be observed. Environmental: Environment factors are those factors which influence the development of the company. For DHL the four major aspects are globalisation, outsourcing, digitisation and climate change. Porter’s Five Forces (Figure 1) Figure 1: Porter’s Five Forces for DHL in Saudi Arabia Cultural Issues One specific problem that DHL faces with the continued expansion into Saudi Arabia is that they are working with a significantly different culture than Western society. DHL has branches in more than 220 countries worldwide, and as a consequence they are well versed in international relations. In addition, the company already has strong ties in Saudi Arabia with many stores already present. As a consequence, it is unlikely that they will encounter any problems with culture when expanding their Saudi Arabian presence. The Value Chain Internal DHL Processes The value chain is connected to how much worth is in the products and options that a company has. For DHL the company has worked to ensure that their supply chain is flexible and able to follow fast changes in the market. This has worked to increase their position in the value chain Supply Chain External DHL Processes The management of the supply chain is complex and involves many different aspects and interconnected factors. It is important, as the supply chain is dynamic. Managing the activities within the supply chain, such as manufacturing, distributing and customer service help to decrease the final cost of the product. Consequently it helps to improve profits . As DHL specialises in logistics, it managed to internalise a significant portion of its supply chain that would usually be external. One manner in which DHL has operated to manage its supply chain in Saudi Arabia has been to initiate a three year partnership with Nokia beginning in 2011. The partnership hopes to create a network of communication that spans the Kingdom. This network will allow for the supply of goods and services to be managed much more closely . The company has a large number of strategies to manage its supply chain and ensure that their products and services are delivered at high quality to their customers. These methods of management include planning, the sourcing of raw materials, the creation and assembly of their product, its storage and delivery, as well as providing facilities for the product to be returned when it is not needed . These methods are used by the company both for its own supply chain and that of its customers. This allows for fast response to any unexpected situations which is important for consumer satisfaction. Managing Quality What Does Quality Mean for DHL? Quality management is an important part of any business and plays a large role in increasing and maintaining the effectiveness of an organisation . Quality assurance and management is an important aspect of the way that DHL operates and the company offers a number of assurances for quality of both their products and services. They provide structured mechanisms which ensure that their performance remains consistent. In addition they provide staff training and have a corporate focus on maintaining high performance and quality . In addition they focus host quality management conferences which focus on establishing and maintaining the integrity and quality of their service as well as managing their value and supply chains. Representatives from the branches throughout the Middle East attend the conference . Conclusion In 2004 DHL in Saudi Arabia had seen significant growth and had introduced a new service known as Import Express, which had been very well received throughout their customer base . Entering into the Middle Eastern market was one of the significant aims of the strategy for DHL expanding its market within Saudi Arabia. By 2005 DHL had become the leading group for express and logistics services within the Middle East . DHL predicted that it would its business within the Middle East double by 2010. Growth in the Middle Eastern market had been above 20 percent per annum in the Middle East . Recently, despite the economic recession DHL Express released a new express lane between the Middle East and the USA. This move comes as the result of significant demand for services that link the two regions and allows for single day service between the two geographical regions. The company has been considered to be the pioneer into logistics in the Middle East through commitment to customers, excellence in service and innovative techniques . Currently the Asia Pacific area which includes the Middle East is the fourth biggest earner of revenue region wise, only a little below the Americas (Figure One). These factors go to show strongly that the strategy of expanding business within Saudi Arabia in order to increase the business stronghold in the country and to use this as a base to expand into the Middle Eastern market was a success. It is likely that the trend will continue, as evidenced by the recent article showing the development of a new express route between the USA and the Middle East. This shows that the company has remained strong despite the recent economic recession. Figure 2: Revenue by Region of DHL, sourced from Deutsche Post DHL Deutsche Post DHL is a logistics company that is already a worldwide leader for many of its products and services. It offers mail and logistics services for businesses regardless of their size and individuals. Focusing on the growth of their Saudi Arabia DHL Express area of the business has resulted in substantial growth for the company and allowed it to branch out into the Middle Eastern market with a large amount of success. Growth in both the Saudi Arabian market and in the Middle Eastern market does not appear to be showing slowdown despite recent worldwide economic problems and it appears likely that this trend will continue in the future. References Read More