A Case Study of UPS’ expansion strategy in India
United Parcel Service or UPS is one of the best courier service companies in the world. Founded in 1907 it has grown into a $36 b company through the expansion of its operation in more than 200 countries all over the world. UPS has emerged as one of the largest package delivery companies in the global market and competes with FedEx and DHL in supply chain management activities.
UPS extended its operations to South East Asia as a strategy to counter the recession and India offered a lucrative opportunity with a growing market (Arthaud -Day M. L. et al; 2012). Applying the Hofstede’s dimensions to the cultural differences to India and US, it can be inferred on the basis of CAGE analysis that there are certain similarities as well as differences which influence the expansion strategy of UPS in India. Hofstede initially presented four dimensions such as power distance, individualism vs. collectivism, masculinity vs. feminism and uncertainty avoidance. Later Hofstede integrated the fifth dimension called long term orientation and a sixth dimension called indulgence vs. restraint (Hofstede, G. 2010). These dimensions when combined with Culture, Administration, Geographic distance and Economics (CAGE) factors help formulate an expansion strategy which is both profitable and long lasting for UPS.
Hofstede’s dimensional analysis - Power Distance is the degree to which organizations accept the inequality of power distribution among its members. In Indian culture inequality of power is quite normal and hence easily accepted. Therefore in Culture factor India ranks high in Hofstede’s dimension of power distance. However in United States, delegation of power is practiced in organizations and therefore cultural acceptance of unequal power distribution is low and ranks low according to Hofstede’s dimensions. Therefore there is a significant difference in the cultures of India and US. Similarly US culture is more individualistic compared to India’s culture of Collectivism where extended family systems are still prevalent. Indian Organizations are still male dominated. US organizations have started giving leadership roles to women in their organizations. The degree of uncertainty is high in India as compared to US because in US people are more law abiding whereas in India there is some amount of political and social unrest and hence the uncertainty. The value on family and social ties is more in India and hence there is a long term orientation in Indian Culture. American people although are extroverts and make contacts easily their orientations are short term. Indians live a life of restraint probably because their religious beliefs encourage spirituality and frugality while American culture believes in experiencing a fuller life enjoying the pleasures of life. Thus Hofstede’s dimensions show that cultural differences are quite substantial between both the countries and can have to be addressed before proceeding with the expansion strategy. However, there is some extent of similarity in the administrative structure as both have a democratic political structure although India is more socialistic compared to America’s capitalistic philosophy, but this factor along with India’s policy of liberalization may be a positive point in favor of UPS’ formulation of strategic expansion in India. Geographic distance may be a shortcoming but UPS has its own fleet of carriers and this barrier can be easily overcome. Economically, USA is a developed country while India is still struggling to reach the status of one. This fact can be exploited by UPS in its advantage; foreign direct investment is solicited by the Indian government to uplift its economic status and UPS may make this its strategy. Also India’s GDP during recession showed an upward trend which is a supportive factor for UPS’ expansion.
Therefore it can be inferred that although Hofstede’s cultural dimensions may not be very encouraging for its expansion strategy in India, but administrative and economic factors are quite supportive for extending its operations to India.
Overcoming Local Competition
In the field of Courier service, Indian companies may have the advantage of better communication and networking because of familiarity of the local language, delivery to remote places using local conveyance and tie –ups and understanding local culture.
Foreign MNEs like UPS can get a competitive advantage by using technology and resources for better and fast services to customers. UPS can provide its customers the facility of tracking consignment electronically, using its privately owned air transport fleet and warehousing it can facilitate fast delivery to the customers. MNEs can gain an edge over their competitors by providing training to all employees to enable them to clearly understand specialized services, the technologies used, and be able to satisfy consumer queries. A MNE’s competitive policy depends upon its ability to understand changes in customer needs and respond quickly with products and services to satisfy those needs (Shailendrakumar, U. K. 2007).
Learning from past mistakes
UPS had adopted the expansion strategy through internationalization of its services long ago but its slow pace resulted in DHL getting a competitive edge and carving out a market niche for itself in India. Its inefficiency in passenger routes of chartered air services resulted as a drag to the bottom line in Germany and Canada in its early attempts at expansion and also enabled other companies like FedEx to move in (Hess, E. D. 2014). UPS was busy strengthening its ground network and overlooked the fact that customers needed fast and reliable services. UPS rectified its mistakes by building its own air line services which is one of the best.
Learning from the mistakes, UPS must enter the Indian market geared up to meet the challenge of providing fast and reliable services by building a strong air service network. Its logistics division which uses the shortest route computation for ensuring fastest delivery will be very useful in India. However the strategy of launching its own airlines may not be transferable to India immediately because of government regulations and distance barriers but tie up with local airlines for fast and reliable services could be the way.
Mode of Entry
UPS should consider a merger or takeover of any local courier service to enter the Indian market. This would enable it to counter the cultural differences through local interventions as well as enable it to take advantage of the existing network of a local firm. A joint venture with any freight carrier airlines for air services may help it to develop good market in India.
Structuring of its entry should consist of accessing the Indian Courier Service market through a merger or acquisition of an Indian firm which already has a well developed ground base and implement UPS’ technological and logistics competency to gain customer satisfaction and consolidate its base in India.
It should then aim towards a tie up with local air based freight carriers to build a strong air parcel service like it did in the US to supplement its ground service and emerge as the best in South East Asia too.
References
Arthaud-Day, M.L; Banerjee, S. & Rothaermel, F.T. (2012, January 6), UPS in India (in 2011): A Package Deal? Harvard Business Review, Retrieved from https://hbr.org/product/ups-in-india-in-2011-a-package-deal>
Hess, E. D. (2014). Learn Or Die: Using Science to Build a Leading-edge Learning Organization. Columbia University Press
Hofstede, G. (2010). Geert hofstede. National cultural dimensions
Shailendrakumar, U. K. (2007); Global competitiveness: Role of supply chain management (Doctoral dissertation, Indian Institute of Management Kozhikode).
