China Market for FedEx - Essay Example

? FedEx in China of Submitted by: Introduction Many domestic firms are expanding to exploit fertile international marketsthat are in need of their services and products. These overseas markets have provided local firms with the avenue to increase their revenue levels and higher profitability. The growing dynamics of the business environment necessitates firms to keep up pace by adopting to technological changes and formulating strategies that would enable them to enter into new markets and expand their influence in existing markets both locally and internationally. Business analysts often point out the reasons why certain firms have gone out to the international markets and have been successful while others have been a total failure in their pursuit of international growth. The initiative taken by a an international company or firm to tap into new markets requires consistency with the company’s overall strategy since unfocussed or sporadic exploitation of resources directed at achievement of international market growth can be counterproductive by soaking up limited resources with little or no returns. Any obstacles that might hinder entry into markets such as duties or regulatory laws need to be determined beforehand and adequately addressed. In the Chinese market, the authorities do not permit FedEx and other multinational firms to conduct domestic courier services (Berman 2012). It is therefore imperative that managers tasked with the duty of analysing strategies of entering new markets identify and clearly detail the company’s strengths and weaknesses to assist in maximizing and focusing on the international opportunities. Aspects of the company such as sales, supply chain, and marketing should be addressed, a clear and detailed direction should be formulated and management support resources dedicated to increase chances of success that may otherwise be impeded by lack of familiarity. Companies need to establish effective supply chain models and infrastructures that link efficiently with the commercial aspect of the business to formulate a strategy that enhances growth in new and existing markets. FedEx Market Entry Strategies in China FedEx is a multinational corporation established in America, but has a complex network of branches and subsidiaries around the globe and it deals with the business of courier. FedEx is a global enterprise that conducts its various activities and operations throughout the world in countries such as China among others. China is a major world economy dealing in electromechanical goods such as cars and other electronic products like phones and computers. These products are in high demand in many countries and continents of the world and for these merchandise to reach their targeted destinations the producing company is obligated to contact a transporting agency specifically FedEx to conduct the translocation. FedEx as a business enterprise has distinct rules and structures guiding its operations to ensure successful transaction in the global scene including the Chinese market.  These structures include the Global Entry Strategies which is a mechanism involved with efficient delivery of parcels to a specific location and spreading them there mainly involving importing and exporting such products. Theories under this structure include sequential theory and network theory (Liso and Leoncini 2010, p.189). This theory is closely related to the Uppsala model that states that organizations perfect their business in overseas markets; therefore, FedEx has an obligation of first training their employees on various fields in order to perfect the handling and service provision. This theory has four major stages composing of maintenance of sporadic exports, use of representatives and agencies, overseas sales through knowledge agreements with domestic firms and FDI in the foreign market. The main features of the Uppsala model in any organization and specific to FedEx include experience achieved from the domestic market before embarking on the foreign market this has the meaning of perfecting the service quality in the host country to act as a control measure of other services being provided globally. Lastly, FedEx normally start operations by using traditional exports and subsequently move to using more intensive and advanced operation modes this means for the case of China, individuals move from door to door or to different offices distributing parcels, packages, later trucks, and airplanes are used in long distance distribution Network   theory involves the relationship of various firms and the FedEx and how they benefit each other (Clegg Wang, & Berrell, 2007, p.123), when a firm gives a contract to the FedEx Company the organization gains a client such as a Chinese company. Therefore, FedEx is rewarded or compensated for the services rendered while the Chinese company benefits from good services thereby encouraging loyalty. The network theory works under the assumption that firms depend on resources controlled by others this is true because the FedEx is not a processing or manufacturing company but a transportation agency. Therefore, it benefits from distributing other firms wares and business units The CAGE (Cultural, Administrative, Geographic and Economic distance framework) framework is employed in identification of access strategies and analysis of cross country disparities (Ghemawat 2007, p.40). It majorly assists managers of FedEx identify and assess the impact of distance on various industries .FedEx being a multinational company has to adapt and accept various cultural and administrative beliefs of different countries for example China to enable it build a holistic picture of Chinese business environment. Cultural distance in China include language; the Chinese people speak the Chinese language and not English and therefore the FedEx must employ workers who understand perfectly the language and can communicate fluently in Chinese this may be conducted through employing Chinese people or training other individuals from a non-Chinese background how to communicate in the Chinese language. Administrative language entails the presence of a single nationalized language without any influence from colonization as depicted in China despite the country’s colonial ties with Japan. It is a well-known fact that China was never colonized by America, the host country of FedEx but Japan so trust and loyalty is a known obstruction and at first may lead to poor business. However, trust is later gained and the relationship between FedEx and China is one of the most first improving business relations of the century. Geographic distance on the other hand involves absence of a shared border and physical remoteness as evident with China and America, which do not have a common border and therefore business tends to somehow be delayed and slow. Sometimes targeted places are so remote that their accessibility  limits transportation majorly because certain areas are inaccessible  this has however been solved by the establishment of offices in China and the obtaining of large planes which can fly over wide areas of land  to deliver goods and services within the required time frame. Economic distance entails differences in consumer incomes and even the foreign exchange system differences in cost and quality of natural resources, financial, and human resources. Obviously, the dollar is at a different rate to the Yen and vice versa therefore, this kind of exchange rate is not entirely beneficial to a particular party. FedEx first entered into the Chinese market in 1984 but re-launched its activities in mid-2007 initially the company only delivered only products that are of high value. Peng’s Entrepreneurship Analysis Framework analysed the role of returnee entrepreneurs and those international companies that had previously pitched camp in the country and left due to a number of reasons returned to the country when economic conditions in the country changed for the better. Internationalization Strategies Other reasons that influence the FedEx operations and locational choice in China with regard to the analysis include success of other companies, the huge size of the Chinese market, and the presence of advanced technology in the country, R&D investments and the high-tech agglomeration. Social connections also play an important role in their locational choice of the company, however, the analysis points out that tolerance indices measured by demographic density and the rate of entry do not substantially influence locational choice, but rather it is true that FedEx does not do after creative milieu in China. Network theory argues that firms’ process of exploring international markets is dependent on the strategies it develops to expand its relationships and networks. FedEx’s overall focus from the organizational or economic aspect to the social aspect of its internationalization process is an application of this theory. This shift of focus, however, is taken with the full knowledge that there is an assumption is held that the company’s, that is FedEx’s resources are controlled by others. The network theory of internationalization by firms arose after the failures of the process models that were developed by Johnson and Valne, network theory presupposes that networks are critical to the company’s process of internalization and this is achieved through social exchange and resource dependency (Johnson & Turner 2003, p.241). Whenever there is connection between firms and individuals in an industrial system built as relationships are established, maintained, and linked through a variety of formal and informal mechanisms, resources and activities, this is the definition of networks. Internationalization therefore occurs when these networks are extended to ultimately reach, increase penetration, connect, and integrate different national networks. This theory identifies problems and intricacies the company faces in designing and formulating mechanisms that a company may adopt when entering into a new market. The theory exposes network and emphasize how social and cognitive relations between actors shape on-going interactions that consecutively shape the network structure. The network theory asserts that how different agents intersect to manipulate the manner and ways of the internationalization process. In the network view, to understand fully a market, the company must engage in a gradual learning process of the market. Did FedEx employ this strategy? The company employed a five-throng approach to ensure that this achieved and they include thorough research of the market, economic feasibility of the business project, knowledge of associates, establishment of key and specific contacts and finally thorough understanding of payment methods (Govindarajan, Wang & Gupta 2008, p.46). These networks are very important for the firm to develop and enhance its penetration in the Chinese market; the networks help the company in enhancing strategic positioning through access to new resources, skills and flexibility. FedEx internalization through networks happen due these methods: the establishment of relationships within the Chinese borders if they are new to the firm, development of relationships within the networks established in the country, adjoining the existing networks. These patterns of internalization suggest that networks are adopted to extend reach, enhance market penetration and are mutually supportive. The network theory focal point is the main function of the business and the ties that form the banner of internalization procedure. FedEx penetration of the Chinese market is a manifestation of the firm’s networks in the country and not merely the internalization process of the firm. Supply Chain Strategy Supply chain strategy for a firm is very important for its understanding of the market in which the company’s compete. Supply chain is very important and that it should not merely be understood as a linear derivative of the business strategy. It should however be understood that the supply chain strategy is a major component of the overall business strategy, FedEx strategy of ensuring an affordable solution to global logistics need, the supply strategy should support this strategy (Handfield & Nichols 2002, p.247). The company in a bid to design an effective business strategy, they turn to their core competencies, focus, and means of differentiation. Therefore, this strategy is vital because it operationalizes and supports the overall business strategy. Operational departments of the company have been assigned the role of executing this important function; these strategies when effectively executed aids in reducing operational costs and maximizing benefits. Unlike companies that deal with solid products, FedEx is a major logistic firm; it is the link between firms in the supply chain plans. Globalization of Products International management must effectively assess all the endeavours that are translated into standardization of marketing process and marketing mix in order to maintain the company derives benefit from it with respect to its performance measures, often divided into financial and non-financial indicators. Financial indicators majorly assert that a firm’s efficiency in carrying out the process of marketing and standardization measuring its revenue growth, understanding costs involved and profitability. Levitt concluded that cost saving s increases the price competitiveness of Multinational enterprises and this enables them to benefit eventually from financial performance measures and therefore a persistent level of marketing standardization will have a positive impact on a firm’s ROI and sales. FedEx currently has a formidable presence in China and the manner in which the firm has tweaked its products in conformity to the Chinese market. Standardization is very important as it enables the firm to gain a competitive advantage because of market conformity; this goes a long way in strengthening and positioning the company with the general business environment. FedEx undertakes an important assignment in China, the role if linking different sectors of the economy and those of the whole world. Adopting a global strategy of worldwide communications is very important as it ensures immediate dispersion of new lifestyles into the Chinese market to pave way for mass distribution of services that would enable FedEx to have a competitive advantage in terms of cost and efficiency. To remain relevant in the Chinese market and globally competes on a basis of proper value in terms of price, quality, consistency, and efficient delivery of its services that are similar to other market competitors. In as much as business of logistics remains similar all over the world regardless of the target market, each market has its own distinctive aspects that FedEx exploits to increase the Chinese market penetration. Levitt further argues that while global products are marketed globally with minor if not no modifications, the branding, market positioning, and promotion that FedEx puts into its strategies may hate to reflect the Chinese market local conditions (Cherunilam 2004, p.562). International companies seeking to tap into global markets need to formulate a strategy for the establishment of avenues and structures that would ensure maximization of available opportunities and profitability. The firm operates in the country in more than 200 cities performing limited courier services; the company first acquired DTW and OK airline to announce its arrival into the country. FedEx maintains intermittent exports via agents which ensures that overseas sales are at an optimal through knowledge agreements with local firms, as proposed by the Uppsala model’ developed by Johanson and Widesheim-Paul in 1975. The company first entered the market through agencies before intensifying its market penetration of China and finally establishing a company branch in the host nation. This strategy adopted by FedEx as it ensured a good understanding of the Chinese market before actual direct investment into the market increased. Just like any foreign company in China, in its initial stages upon entry into the market majority of the company’s employees were from America. However currently, due to its strong presence in the Chinese market the company’s majority employees are ethnic Chinese, this theory of product life cycle. The theory is based on five stages that an international product goes through, introduction, growth, maturity, saturation and decline (Ajami, 2006, p.52). FedEx launched their product in 1984 in China, during this stage, the market in China was fairly young and the country had just introduced economic reforms. However, the business of deliveries is not new since time immemorial human beings have always used middlemen to deliver information, communication and goods amongst themselves. However, united parcel limited copied the initiatives of FedEx by joining them in the Chinese market, the growth stage of a product lifecycle intonates that n whenever a firm produces a product another firm will also join in the fray to enjoy the same success that the other company had. However, the lowest pricing firm always wins this contest; pricing of FedEx products is fairly affordable, according to industry analysts. The cost of labour in china is fairly low compared to other industrialized nations such as the United States; the overall cost of labour in this market does not weigh down the scale of its operation in the country. The industry in theory normally concentrates and contracts and the company that produces its product at the lowest cost emerges as the most superior player. China is a major industrial and the world’s largest exporter this lays down the important role of the FedEx as it provides the necessary link of these companies. According to Peng (2008) the company reduced their prices in the year 2007 and the year 2008 to expand their market share in the country, but in late 2012 the company has marginally increased their rates in such different segments. FedEx general costs that include manual and other operating costs seem higher on average compared to other local companies competing in the same environment. Conclusion In the year 2008 FedEx company in China reduced its prices in spite of a heavy rise in the costs of its operations, this lead to a rise in its market share, this a rise was very consistent with a three year rise. The level of deliveries in the country rose by more than four folds since the fall in price leading to an estimated monthly loss of an approximate 50 million Yuan in Chinese domestic deliveries. This industry in China is composed of local firms such as China Post Express Mail Service and a host of other privately owned firms operating in the country and other multinational firms such as United Parcel Services. FedEx China is a wholly subsidiary company of the FedEx incorporated and it oversees functions of the firm’s operations in china in Guangzhou, Shenzhen, Chengdu, Shanghai and Beijing. Reference List AJAMI, R. A. (2006). International business theory and practice. Armonk, N.Y., M.E. Sharpe. Berman, J (2012) UPS, FedEx continue to play the waiting game for domestic express delivery clearance in China . Logistics Management [Online] Available at http://www.logisticsmgmt.com/article/ups_fedex_continue_to_play_the_waiting_game_for_domestic_express_delivery_c [Accessed on June 9, 2013] CHERUNILAM, F. (2004). International business: text and cases. New Delhi, Prentice-Hall of India. CLEGG, S., WANG, K., & BERRELL, M. (2007). Business networks and strategic alliances in China. 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