How DHL Grew From Scratch in 1969 into a Vibrant International Delivery Company within a Few Years - Case Study Example

International expansion strategy creates new challenges and provides new opportunities in every sector. The market is affected by macro changes like government regulations and policies and demographics. Other complexities and uncertainties include the consumer behavior. There can be shifts within the industry itself like globalization and technological advances which alter the marketing strategies. It is essential for a firm to first identify whether it intends to globalize or internationalize. This would largely depend on the product, the macro factors, and the company objective. Strategy would also vary across industrial expansion or marketing of services. In the last decade, service industry has taken a big jump. Marketing of a tangible product differs from marketing of services. To expand into new geographic markets, an organization may need to exploit core competencies without compromising on the organizational objectives. This paper will discuss how DHL grew from scratch in 1969 into a vibrant international delivery company within a few years. This paper will further highlight the company’s approach and how it kept its strategy linked to the organizational issues. As per the international marketing theories, exports can be undertaken in several ways. Each marketing strategy has its own risks, advantages and disadvantages. While exports is the simplest form of entering an international market, other strategies that companies can consider are licensing, joint ventures and off-shore operations. Joint ventures have to be applied in countries where foreign ownership is restricted. In the service sector brand extension strategy is frequently followed by companies (Aaker & Keller, 1990 cited by Pina et al., 2006). This helps to keep the marketing costs low while the chances of success are high. The frequent use of a monolithic branding strategy helps build goodwill behind the widely employed corporate brand (Free, 1996 cited by Pina et al.,). Huge investments are required to enter an overseas market before the utilization of investment comes and therefore, brand extension to some extent helps control expenses. DHL, founded in 1969, as an international air express service, ensuring the rapid delivery of documents and shipments by airplane, expanded into the Far East and the Pacific in 1971. DHL further initiated its service to Europe (1974), Latin America (1977), the Middle East (1978) and Africa (1978). Its rapid growth reflects the globalization of trade. DHL has more than 4,400 offices worldwide of which more than two-thirds are owned and operated by DHL. Most air express carriers use third part agents in foreign countries, hence DHL has an edge over competitors. For efficient movement of shipments, DHL has created 238 gateways and more than 450 hubs, warehouses and terminals (DHL, 2007). From the day DHL started a door-to-door express service between San Francisco and Honolulu, its main objective has been to be the provider of the best international air express service in the world. That they have been able to attain and maintain this objective is amply demonstrated by the fact that DHL controls 39 percent of the global express air market (Lobo & Zairi, 1999). It has been able to achieve this against giants like FedEx, TNT and UPS. According to a report by Deloitte (n.d.), serving customers beyond the domestic market is a key growth strategy. The risks in international expansion are less predictable and rewards can be elusive. Succeeding abroad requires the right approach and skills set that is different from expanding abroad. DHL, with its international philosophies has been efficiently handled this issue. Before they enter a new market they identify the opportunities, size the market and then formulate the entry strategy for each market. They use different entry strategy for different markets. With sluggish growth in the developed markets of the world, companies are turning to newly emerging markets for business expansion (Nakata & Sivakumar, 1997). DHL has been quick to seize the opportunity and make huge investments in Asia to provide their services in heir services in Thailand, Singapore, Malaysia, Korea, Taiwan, China and the Philippines. Emerging markets are attractive as there is potential for immediate added sales. DHL has the advantage of enjoying a global reputation which makes market penetration easier in newer undeveloped markets. Besides, developed markets faced economic recession or stagnation and DHL responded to the situation immediately in overseas expansion. The global market leader of the international express and logistics industry, specializing in providing innovative and customized solutions from a single source, was the first to enter the Chinese market in 1980 (Business Wire, 2006). While DHL opened its own office in UK and Germany, it started as a joint venture in China. It entered into a joint venture and became the first express company active in China. Brands are one of the greatest assets of the firm and China being a transition economy, DHL had a made a strategic move to penetrate the market at the right time. As per Gao et al., (2006), brands that enter the market earlier have larger market shares, which is the competitive edge that DHL gained by early entry. Since it got barrier free environment, it could expand easily. Thus, DHL had the right strategy to first study the market on its own before going in for joint venture with SINOTRANS. Only after understanding the potential that China offered, did it join hands with China National Foreign Trade Transportation (Group) Corporation (SINOTRANS) in 1986. Joint ventures may perhaps be time-consuming and initially difficult, but yields optimum results both for the foreign firm and the local company offering partnership (Gross, 1995). Sinotrans had unrivalled local knowledge in the China foreign trade transport market while DHL was the leader in global air express industry. The major advantage in joint ventures is sharing of risks and the ability to combine local knowledge with a foreign partner with know-how in technology or process. DHL gained immensely by tying up with SINOTRANS because it could gain with their local knowledge of foreign trade transport market. Despite not having total control over the venture, it helps to have local support and knowledge. Setting up joint ventures in China has several advantages as seen by Gross (1995). Joint ventures help the foreign companies gain access to the domestic market while still maintaining control over its activities. Under joint ventures, foreign investors gain from the reasonably well educated low cost labor available in China. The Chinese government benefits through joint ventures because it helps create new jobs, improve and import technology, and gaining access to foreign markets. Besides, the Chinese government extends support in all matters like foreign exchange and tax exemption, which is one of the reasons DHL launched its investment plans. Having made successful ventures in China, DHL now plans to invest $24 million to build headquarters for its express operations in Beijing, bringing its total investments in China, Hong Kong and Macau to $900 million (LogisticsToday, 2006a). China today is the top market for DHL in the Asia-Pacific region. It expects to have a market share of about 48% in China by 2015. This demonstrates the strategic decision that DHL has taken step by step in expanding its operations in China. The air freight customers have seen dramatic changes and life cycle of their products have become shorter. This demands faster delivery schedules and customers want to know every moment where their consignment is. This requires total optimization of the delivery process. Customers want shorter transport times and complete logistics solutions. It has become important to focus on core competencies. DHL recognized that in the changing market environment it matters who reaches the cargo faster. To survive in the market innovative systems have to be introduced. To process its shipments faster, it made Bahrain its Middle East Regional distribution center (Lobo & Zairi). This facilitated faster deliveries to sixteen countries in the Middle East. In line with its strategy to reach more destinations, DHL formed an alliance with Lufthansa, Japan Airlines and a trading company called Nissho Iwai in 1990. It was also the first company to re-establish services to Kuwait after the Gulf war in 1992. The competitive advantage of DHL lies in its vast network of destinations that allows it to deliver to any destination. Customers too have easy access to DHL stations. It has earned the reputation of record on-time performance. While being cost conscious, DHL does not use this as a trade off against service quality. DHL has a decentralized culture due to which it is able to take immediate advantage of business opportunities that arise around the globe. Foreign market entry requires innovation, sensitivity, market development and research. DHL has been committed to expand globally. They made a very strategic opening in Cuba as because of its location it could send shipments directly from Cuba to Europe, Asia and Africa. All its investments are planned with a long term vision to consolidate the market. It started as a joint venture in Cuba in 1991 and now receives and sends to more than 200 countries from Cuba (Comellas, 2001). In line with the company objectives, Cuba has been making rapid progress towards ‘guaranteed express delivery’. DHL has been able to achieve its massive international expansion due to its international philosophies of decentralization (where everyone in the organization is empowered to take decisions), strategic thinking (where the staff are trained to look for opportunities to beat competition) and the Asian family attitude (where the staff are treated with fairness, courtesy and support). As competition increased in 1990s, DHL had to respond to competition and demand for faster and improved service (Chan, 1997). It was because of its international philosophy and beliefs that it was able to respond effectively and efficiently to this threat. DHL believes in continuous training and development of the staff to foster employee loyalty to the values of the company. According to Mintzberg (1994), planning is future thinking and planning is controlling the future. Planning is also integrated decisions making and is a formalized procedure to produce an articulated result, in the form of an integrated system of decisions. Strategy is a pattern that blends intended responses with the responses that emerge out of the changing environment. Thus the emergent strategies become important. Despite attentive planning, circumstances may warrant last minute changes to the strategy. Planning may fail to identify discontinuous changes as it often relies on environmental scanning and forecasting. This means an organization must be prepared for flexible planning. Planning often refers to centralized planning and authority and does not recognize that immediate business decisions may have to be taken. This would merely be an illusion of control created through planning. DHL to that extent is decentralized as each of its employees has the authority to take decisions. Porter says global companies are those who competitive position is one country is significantly influenced by its position in other countries. This requires integration of activities on a worldwide basis rather than splitting the world into fragments. Mass customization allows an organization to modify its products and services to suit local needs (Boudreau et al., 1998). Information technology can control the introduction of customized features into the production process. Due to its phenomenal expansion, DHL recognized the need to have an effective communication system. It thus established DHLNET in 1988 which enables it to track and trace parcels right up to the point of delivery (Lobo & Zairi). In addition, DHL has placed an enterprise software license on intranet which has led to an enormous saving in time and effort compared to their previous practice of distributing the license of to 220 countries via conventional electronic media. Communication is easier among its 22000 employees about corporate activities, global programs and services, competition, internal job postings and meeting calendars and minutes. DHL has been constantly responding to the needs of the customers and after identifying the new markets it seizes the opportunity to be the first mover. It has been the first international company to offer services in Afghanistan (PRdomain, 2002). At the same time, DHL also fulfills its corporate social responsibility as it could provide urgently needed relief goods in Afghanistan. DHL recognized the need and capitalised on the growing demand for tailored express logistics solutions and road freight by expanding its facilities in Jebel Ali Free Zone (TradeArabia, 2006). They expected to take two to three years to complete the first stage of expansion but seeing the growing demand, they completed it two years ahead of schedule. Again one of its strategic locations, this hub too serves 60 percent of all Middle East imports and acts as a catalyst for the company’s growth. Its investment in UAE is with an aim to provide its customers with a full suite of logistics solutions from a single source. Since DHL has given autonomy to local people and believes in decentralization, the local employees have been trained to recognize opportunities for growth. Canada and Mexico together represent $300 billion a year in export business to the US, which DHL has been quick to recognize. To serve U.S.-Mexico trade, DHL will launch centers in Tijuana, Juarez, Nuevo Laredo, Reynosa and Matamoros in early 2007 (LogisticsToday. 2006). One of the important challenges that DHL faces is responding to the situation timely. According to Mintzberg, strategic thinking is about synthesis, about using intuition and creativity to formulate a vision about where the organization should be heading. This implies that prediction is possible and strategy-making process can be formalized. Shippers and carriers in 2006 had to deal with stricter enforcement of customs rules and regulations which forced many like DDU Express and Total Logistics to cease operations (Campanelli, 2006). The U.S. Postal Service’s proposed rate case and supporting new operating rules is expected to pose great challenges in 2007. DHL is prepared to find newer opportunities for growth amidst these challenges. They expect growth and additional business from e-commerce and the pharmaceutical business. DHL continues on the expansion track which is essential so that it does not become stagnant. In the US it is adding new terminals to its ground operations and upgrading its international and custom clearance services. To enhance its cross border shipping, DHL partnered with Baltimore, MD-based Sandler & Travis Trade Advisory Services Inc. (STTAS) and is now able to offer business process enhancement, tariff classification, and compliance with government supply chain security initiatives, free trade agreement optimization, and customs training to all of DHL’s import/export clients (FleetOwner, 2007). This demonstrates that DHL has a sound knowledge of the external environment. In the competitive environment it is essential to have a differentiating factor. DHL recognizes that speed-to-market is critical and it now offers noon delivery from the previous end-of-business-day transit time for U.S. importers and international customers. DHL endeavors to exploit its core competencies at every stage and does not allow complacency to set in. when a client uses their international services, they explore the possibilities of the same client using their domestic services (Campanelli, 2006a). They have an international focus and leverage the customers’ behavior to identify cross sell and upsell opportunities. Earlier they used mass marketing but now it is customer oriented as they have expanded their services across nations. In line with its main objective to be the provider of the best international air express service in the world and to have sustained continued growth, DHL has added supply chain and logistics services such as distribution warehousing and order management. DHL retains its core competencies in delivering services but has outsourced logistics management. It has tied up with Sun Microsystems so that Sun can perform real-time monitoring and management of its worldwide service parts inventory and customer order processing functions (Emigh, 2005). This would greatly benefit its customers in the electronics, telecommunications, CPG (consumer packaged goods), automotive, and life sciences industries. All its initiatives are meant to offer better service at affordable and competitive prices. The core competencies of DHL are logistics and transportation. In line with their core competencies, they formed a strategic alliance between DHL Logistics and Data Exchange Corporation (DEX). This alliance is aimed at providing global, fully integrated service solutions for reverse and forward logistics program to businesses worldwide (DHL, 2004). Now their logistics customers do not have to invest in expensive warehouse management systems as they can take advantage of the system already in place. DHL Logistics helps companies improve the performance of their warehousing, inventory management and distribution network. It provides regional stocking locations for critical parts inventory, centralized hub-based facilities in Wilmington; it provides global distribution capabilities and custom solutions for clients to improve their inventory distribution process. They offer technical solutions that are difficult to duplicate elsewhere. During their global expansion, they do not overlook the needs of the communities where they work. Environment protection is a part of their corporate strategy. They work closely with other organizations as they believe that they can achieve more in partnership than working alone as each can offer their core competency in helping others (Deutsche Post, n.d.). DHL is undoubtedly the global leader of the international express and logistics industry specializing in providing innovative and customized solutions from a single source. It has attained its objective of being the best international air express service provider in the world. Opportunities and risks are equal in entering a foreign market and both have to be weighed cautiously before venturing into a partnership. Competition in a growing economy is healthy but strategies have to be formulated accordingly. DHL has very strategically formed association in international expansion. Its strategy has differed across nations. After it found a certain region very promising, DHL opened a hub to serve the region which greatly enhanced the services. In the changing competitive environment, services are time-critical. Whatever be its strategy, it has never deviated from its organizational objective. It only enhanced its service quality rather than use it as a trade off against cost efficiencies. It has exploited its core competencies and also discharged its corporate social responsibility. Its international philosophy of empowerment at all levels has allowed the people to take immediate business decisions. They have also been trained to identify and recognize local opportunities for growth. This approach of DHL has made its global expansion smooth and profitable. References: Boudreau, M., Loch, K. D., Robey, D., & Starub, D., (1998), Going Global: Using Information Technology to Advance the Competitiveness Of the Virtual Transnational Organization, Academy of Management Executive, Vol. 12, No. 4 November 1998, pp. 120-128. Business Wire (2006), DHL Unveils First in China Strategy, 05 May 2007 Campanelli, M., (2006), International expansion, rate case will dominate, 05 May 2007 Campanelli, M., (2006a), DHL switching to a customer-centric database model: NCDM, 05 May 2007 Comellas, M., (2001), DHL: Investing in expansion, 05 MAy 2007 Chan, A., (1997), Corporate Culture of a clan organization, Management Decision, 35/2 1997 Deutsche Post, (n.d.), The Logistics of Corporate Citizenship. DHL shares its experience, 05 May 2007 DHL., (2004), Press Release, 05 May 2007 DHL., (2007), History, 05 May 2007 Emigh, J., (2005), DHL Adds Supply Chain Services, Signs Sun, 05 May 2007 FleetOwner (2007), DHL continues to expand, upgrade operations, 05 May 2007 Gao G Y et al., (2006), Market Share Performance of Foreign and Domestic Brands in China, 05 May 2007 Gross A (1995), China Market Entry Strategies, 05 May 2007 Lobo, I., & Zairi, M., (1999), Competitive benchmarking in the air cargo industry: Part I, Benchmarking: An International Journal, Vol. 6 No. 2, 1999, pp. 164-190. LogisticsToday., (2006), DHL Strengthens International Connections , 05 May 2007 LogisticsToday., (2006a), DHL, FedEx, UPS Expansion of Service To and In China, 05 May 2007 Mintzberg, H., (1994), The Rise and Fall of Strategic Planning: Reconceiving Roles for Planning, Plans, Planners, New York: The Free Press, 05 May 2007 Nakata, C., & Sivakumar, K., (1997), Emerging market conditions and their impact on first mover advantages, International Marketing ReviewVolume 14 Number 6 1997 pp. 461-485 Pina et al., (2006), The effect of service brand extensions on corporate image, European Journal of Marketing, Volume 40 Number 1/2 2006 pp. 174-197 PRDomain., (2002), DHL first to offer express services to Afghanistan, 05 May 2007 TradeArabia., (2006), DHL expansion in Jebel Ali ahead of schedule , 05 May 2007 Read More