UPS moves to China

By Bryan Hartman

Why China?

• 2004 GDP Growth of 9.5%– 8.2% in India, 4.6% in S. Korea

• 94 Million Internet Users in China– All potential customers

• US export to China increasing– 1999 = 45,000 tons– 2001 = 73,700 tons– Increase of 28,700 tons or 57 Million Pounds

Chinese Growth

• SME = Small or Medium Enterprise

• Survey of 1,200 Asian SMEs

• Chinese SMEs– 62% will increase employment– 71% expect higher growth in 2005– 86% see transport/logistics as important– 74% see consumer goods as important– 62% think Supply Chain Efficiency is lacking

Mainland China Shipping

• Partnership with Yangtze River Express

• Goal – “reach every address in China”

• Government is building 26,000 miles of new highway. Every city of 200,000+ will be connected

• SMEs not entering China– 65% do not trust Chinese government

UPS Offers

• What Chinese employees seek…– Education– Health Insurance– Overtime– Less meetings

• Brand Name SMEs can trust

Air and Freight Shipping

• Typical Air Shipment– High value to weight ratio– Short Lifespan items– Legal, Medical documents– Computer Disks– Spare Production Parts– Luxury Goods

• Shipment spends ½ of its time in warehouses

Opportunity

• Opportunity in China’s Emerging Economy– Chinese Discretionary Spending Increases

(luxury items)– Market Reform (legal docs)– Increased technology manufacturing

• Spare Parts and computer disks

UPS Solution

Population and Airports

Mainland China

Planes, Flights, and Hubs:

• Currently 48 weekly flights– 24 Shanghai– 12 Beijing– 12 Hong Kong

• The Future is now (expansion in 2005)– International Hub in China (2007)– 23 regular hubs– 1,400 UPS Trucks– 3,500 Chinese Employees

Competition

• Fed Ex, DHL, and China Post Office– Fed Ex moving Asia Hub to China– Fed Ex has been shipping in China for longer– In 2001 China Post Airlines had only intra-

China express delivery service. (head start)

Political Risk

• Chinese Government– Legislation to make China Post Office

regulatory body of express shipping.– Forced by WTO to allow private express

shipping– 81% of SMEs view gov’t instability as reason

to stay away from China.

Obstacles and Answers

• Demand for UPS Services– Market Maturing increases demand

• Chinese Infrastructure– Gov’t highways

• Fierce Competition– Establish more Hubs and faster transport

• Government Issues– Pressure from outside