Executive Summary
The purpose of the paper is to describe UPS’s abilities to expand international market, namely Indian. UPS is an international company, which generates a profit of tens of billions of US dollars, known in more than 200 countries around the world. In addition to the delivery of goods and documents, UPS also provides other transport, logistics services, and services in the field of e-commerce. Established in 1907, it has developed from a small business into a fairly solid company with a reputation. UPS’s international expansion began after the recognition by FAA of its own airline in 1988. The first company’s store in India was opened after setting cooperation with Jet Air in 2005. However, after the second alliance with AFL Private Ltd. in 2008, UPS focused its attention on China. The decision to come back to India was taken by UPS’s newly appointed Chief Strategy Officer.
For the completion of the assignment, methods of quantitative research were used to explore the market. In order to conduct the analysis, PESTEL-analysis, Porter’s five forces model, resource-based view, business-level and corporate-level strategies and different financial formulas for measuring financial ratios were used.
It was found that UPS will face prospects of Indian market, but with some challenges. UPS offers lower prices compared to rivals, faster delivery, reliable air delivery, high level of CSR and perceived value of additional services. UPS has very diversified business and establishes different partnerships in order to gain market share. It creates joint ventures or alliances globally. The company occupies significant place in the global logistics business. UPS is financially quite reliable organization with proper amount of current assets for serving debt, liquid funds, efficient use of investments and resources, but increased dependence on borrowed funds. It is recommended, first of all, to develop highly distinguishable advertising campaign. Also, it is recommended to make investments into roadways as this way of transport has problems in India.
Introduction
The case is about UPS Company and its intention to penetrate Asian market, namely India. A comprehensive study of the foreign market includes the analysis of the factors determining the state of the market, namely supply and demand for a particular product, competitiveness, prices, product distribution, etc. It is a process of identification of market challenges, collecting and processing information about foreign markets to improve commercial-economic decisions on the creation, movement, sale, consumption of commercial products in this market, etc. (Kotler and Armstrong, 2012)
The choice of the international market involves the study of the three parameters, namely, the capacity and the market conditions, the intensity of competition techniques used and the goals and capabilities of the company (Heizer and Render, 2011). The main obstacles on the company’s way include tariff barriers, non-tariff barriers and legal obstacles. The second parameter in the selection of foreign markets is to study the intensity of competition and practical techniques. Competition should be studied in the following areas, namely identification of effective competition, determination of the structure of competition, i.e. the number of competitors and the distribution of their market share, and establishment of competitive criteria. A third option relates to the definition of the goals and capabilities of the organization. An analysis of the actual situation of the company on the foreign market must be carried out. The strengths and weaknesses of its operations should be identified. The company’s reserves, which can be successfully used both in domestic and foreign markets, must be determined. In order to conduct the analysis, PESTEL-analysis, Porter’s five forces model, resource-based view and different financial formulas for measuring financial ratios are used (Hollensen, 2014).
Strategic Case Analysis
First of all, as newly appointed at the position of Chief Strategy Officer, Ms. Robin Page decided to consider Indian market, especially its main cities – Mumbai, Bangalore and Delhi. After setting cooperation with Jet Air in 2005, the first UPS point of sale in Mumbai and other cities was opened. Former President of UPS International highlighted the ability of UPS Store to offer individuals and legal entities suitable channel to markets globally. After the second alliance with AFL Private Ltd. in 2008, UPS focused its attention on China (alliance with AliExpress, which VP of E-Commerce and Marketing at UPS described as opportunity to establish contacts with Chinese SMEs to facilitate their logistics) and Malaysia. Based on such UPS’s decision, DHL bought Blue Dart and turned into the market leader in delivery services in India. Thus, it is necessary to create a strategy for winning leading position (Arthaud-Day, Banerjee and Rothaermel, 2013).
The company, which a few years ago celebrated its centenary, was established in 1907 by Claude Ryan and Jim Casey. It has developed from a small business into a fairly solid company with a reputation. In 1919, it was decided to change the name and the company became known as United Parcel Service, that is already familiar to us UPS. After World War II, the company changed its sector to B2B. In 1975, UPS attained its goal of 48 states within the USA as common carrier even despite numerous legal fights (UPS, 2016).
In 1980ies, the company acquired cargo jets and set its own airline, which in 1988, was recognized by FAA. UPS’s international expansion began. In 1999, the company went public and its IPO is considered to be the greatest public offering so far. UPS created two business units in 1995 (UPS Logistics Group) and 1998 (UPS Capital) in order to modernize service operations over its consumer pool and provide financial goods and services to take part in small companies’ expansions correspondingly. Due to company’s much diversified business, it called its business model “Synchronized Commerce”. In 2001, Mail Boxes Etc. became company’s part (Arthaud-Day, Banerjee and Rothaermel, 2013; UPS, 2016).
UPS’s prior CEO Mike Eschew adopted “Four Quadrant” development strategy, which played crucial role in company’s global reputation by putting it into top 15 most valued and top ten global logistics organizations. As of now, company operates on hub and spoke model, which was first implemented by company’s competitor, FedEx (Arthaud-Day, Banerjee and Rothaermel, 2013).
Today, the company is international and generates a profit of tens of billions of US dollars. Its brown logo with the three letters is known in more than 200 countries around the world. In addition to the delivery of goods and documents, UPS also provides other transport, logistics services, and services in the field of e-commerce (UPS, 2015).
External Environmental Analysis
Analysis of external factors helps develop strategic solutions that provide algorithms of interaction of the company with the environment in the short and long term that will help maintain its potential at a level, necessary to achieve objectives, and will help uncover threats and opportunities (Grewal, 2014).
As UPS decided to penetrate Indian market, political, economic, social, technological, ecological and legal aspects are presented below. Therefore, political factors include government support of foreign trade, potential deregulation of oil industry and strong government control of service industry through bureaucracy. Economic factors concern the amount of India’s GDP (in April 2007, it reached $1 trillion, ensuring its economy 12th place among the wealthiest countries worldwide), existence of Special Economic Areas with substantial tax benefits and facilitated compliance procedures, low wages in the country, increased purchasing power for Indian younger generations, dependence on oil industry controlled by the local government, positive correlation between oil price and prices of products within various segments of Indian economy, huge debts of airline industry, high sales taxes on ATF and high airport charges, challenges in buying land, elaborating infrastructure, etc., annual growth rate of Indian logistics market of about 15-20%, forced private segment, fragmented market structure and slow development of online retailing due to the lack of Internet access for approximately 700 million people. Social factors consider, first of all, the number of Indians in the world is extremely high, making the country the second largest in the world, great part of English speakers, large part of technical labor force and Indians’ preferences of personalized shopping practices. Technological factors include the lack of Internet access for approximately 700 million people and low level of security of credit cars’ transactions. Ecological factors concern rapid development of transportation segment, developed railway, availability of 12 main seaports, which make up 90% of Indian trade, and increased costs of transportation. Finally, legal factor relates to the outdated legislation in the service sector. In general, main drivers for Indian logistics industry are increase in quality physical infrastructure, introduction of VAT and e-commerce (Arthaud-Day, Banerjee and Rothaermel, 2013).
According to Porter’s five forces model, the risk of entry of potential competitors for UPS is high (high barriers to entry, strong positive reputations are necessary and there should be economies of scale), competition among existing in the industry companies is also high (Blue-Dart DHL Express is the market leader. Others include TNT, FedEx, AFL, GATI, First Flight and Indian Department of Posts. In general, there are over 2,500 parcel providers and courier services), bargaining power of customers is low (there are many customers, who can make choice among available carriers), pressure from suppliers is high as Indian logistics largely depends oil market trends, and the threat of substitute products is low (Arthaud-Day, Banerjee and Rothaermel, 2013; Grewal, 2014).
Speaking about competitive environment, there are over 2,500 parcel providers and courier services. Among them, Blue-Dart DHL Express is the market leader. Others include TNT, FedEx, AFL, GATI, First Flight and Indian Department of Posts. Bigger participants of the market have competitive advantages of infrastructure, business-consumer interface and rapidity of supply. Smaller organizations are better aware of local data and simplicity of penetration at the national level (Arthaud-Day, Banerjee and Rothaermel, 2013).
Resource-Based View
Resource-based view studies the link between the necessities of inner resources and competences of the firm to attain its crucial objectives. As every company is aimed at the transformation of resources to attain positive outcomes, it needs individuals (human capital), finance (capital), resources, and information technology (Rothaermel, 2015).
The main company’s resource is its employees. UPS’s “promote from within” principle of corporate culture forms employee loyalty. It has enough financial resources as company’s financial position is quite profitable. Due to company’s much diversified business, it called its business model “Synchronized Commerce”. Finally, UPS is very progressive in information technologies. UPS’s capabilities concern further expansion into different markets. Core competencies are global expansion in more than 200 countries, where over 40 countries with more than 13 thousand employees are in the Asia-Pacific region, over 100 years of strong positive reputation, diversification of services provided, strong corporate culture and establishment of alliances (Arthaud-Day, Banerjee and Rothaermel, 2013).
Company’s resources can be named valuable as they allow it creating strong brand name and perform its duties properly. UPS’s resources have medium level of rarity. It is quite costly to imitate them as the company has bought numerous different companies in order to create “Synchronized Commerce” and spent enough time to gain current staff loyalty. Resources are non-substitutable (Barney and Clark, 2007).
UPS searches ways to help its clients create value through the application of its technological capabilities to simplify enhanced organization of customer’s supply chains. The company holds both major and additional value chains. The major operations include inbound logistics, processes, and outbound logistics, deals, promotion, and service. Inbound and outbound logistics ensures the receipt by clients of their packages from pick up to supply. UPS is an example of the company that evaluates the value chain to recognize the core competencies it has or can improve to make value for a client (UPS, 2015).
Business-Level and Corporate-Level Strategies
Corporate strategy defines the breadth of coverage of the company’s activity in the industries and markets, in which it competes. Corporate strategic decisions relate to investments in diversification, vertical integration, acquisitions and the creation of new enterprises, the allocation of resources between the various activities of the firm, and disinvestment (Henry, 2011). Thus, UPS has very diversified business and establishes different partnerships in order to gain market share.
Business strategy is concerned with how the firm competes in a particular industry or a particular market. If the company is thriving in the industry, it must gain a competitive advantage over their rivals. Consequently, this strategy is often referred to as a competitive strategy (Webster, 2014). UPS offers lower prices compared to rivals, faster delivery, reliable air delivery, high level of CSR and perceived value of additional services.
International strategy of UPS is in the creation of joint ventures or alliances. When creating a joint venture, partners are pooling their capital, creating joint ownership, co-managing it and dividing the proceeds in proportion to their participation in the capital. Joint ventures are typically created to bring together and coordinate the efforts in the scientific, technical and production field, which help to overcome competition (Krugman, Obstfeld and Melitz, 2014).
UPS’s Performance
The company occupies significant place in the global logistics business. It is in the top 15 most valued and top ten global logistics organizations. In addition to providing postal services (quality and prompt delivery of goods), the company also performs consulting services, management of securities transactions, the creation of the delivery networks, etc. within 2007-2010, UPS improved its financial condition and increased net income. The company is very popular after DHL. The last 20 years, UPS is recognized by Fortune magazine as the best US transport company (Arthaud-Day, Banerjee and Rothaermel, 2013; UPS, 2015).
Calculating Financial Ratios
In order to define company’s financial condition, it is necessary to measure its profit ratios, activity ratios, leverage ratios, liquidity ratios and market ratios. The company is liquid in case of the ability to pay temporary debts by selling current assets. Being financially solvent and independent specifies company’s financial stability. The company is profitable, when it covers its expenses and receives profits. Business activity is about company’s proper application of available financial resources. Market ratios inform about company’s situation on the stock market (Brigham and Houston, 2011).
Liquidity ratios are:
It is obvious that UPS’s liquidity ratios are of moderate value, so its ability to pay off appeared debts in time is positive. Moreover, UPS has plenty sum of free cash in order to apply it for business expansion. There is growth tendency.
Financial stability and solvency ratio is:
Debt/Equity ratio is quite high within three analyzed years, so it is the indicator of UPS’s need of borrowed funds (long-term mostly). Unfortunately, UPS cannot be called financially stable.
Profitability ratio is:
ROE’s value should be as higher as possible for the company, and then it will be considered the company effectively spends available finances. UPS’s ratio is positive and has a satisfactory climate for investors.
Turnover (business activity) ratio is:
UPS’s Asset turnover ratio describes the proper use of resources mobilized for the arrangement of manufacture process.
Market activity ratio is:
The value of UPS’s Book Value Per Share specifies the significant amount of its net assets relates to one ordinary share in circulation compliant with the accounting information and approves the presence of each issued share by related UPS’s property (Madura, 2012).
It can be concluded that UPS is financially quite reliable organization with proper amount of current assets for serving debt, liquid funds, efficient use of investments and resources, but increased dependence on borrowed funds.
Diagnosis
UPS, when entering Indian market, will face mostly opportunities than threats. The company has dependable and long-standing positive reputation, proper financial condition and necessary resources. Despite high level of competition, UPS has formed proper international strategy as well as corporate and business strategies. High level of diversification will help the company to offer its potential Indian customers necessary services.
Conclusions and Recommendations
As UPS is going to enter Indian market, proper external and internal environment analysis were performed. It was found that Indian market is prospective, but with some challenges. Therefore, it is recommended, first of all, to develop highly distinguishable advertising campaign. As of today, advertising supplements practically all products, works or services. Due to available advertising the client can be aware of company’s services offered. In order to implement this recommendation into action, it is necessary to organize meeting with Marketing Department, where employees will be given tasks to research Indians’ preferences in advertisings (within one month), and later proper marketing strategy will be elaborated with necessary subordinations and budget (within six months) (Peng, 2012). Company’s marketing approach needs more comprehensive strategy and different aspects.
Also, it is recommended to make investments into roadways as this way of transport has problems in India. It is necessary to organize meeting with Indian government and discuss on the amount. Development of infrastructure will increase company’s chances for winning leading position as it can set for its competitors some term conditions. However, this method is long-lasting (minimum five years).
References
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