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Logistics is one of the emerging sectors around the world as it helps in transporting goods from place of origin to the place of destination. China's logistics industry is one of the fastest growing industries in the world. Major factors relating to the development of the sector are continuous up gradation of infrastructure, increasing foreign trade, liberalized policies and so on. There are various competitors in china including Fedex, TNT, DHL, UPS which are fiercely competing with each other to gain the market share of china.
At present DHL is leading the race along with his partner Sinotrans which have captured around 40% market share. Both the companies came together with a joint venture in 1986 and DHL with its innovative technology along with Sinotrans expertise in local market are earning huge profits. From the past few years the logistics industry is growing above 20% in a year.
Initially there was lot of implications on foreign companies as a result of which many companies entered into a joint venture with the local firms.
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China's entry into the WTO in 2001 benefited the economy as well as the foreign firms. The way DHL established itself and its tie up with the local Chinese company Sinotrans resulted into a 30% annual increase in their business. It is seen that DHL has established itself very well from the beginning - with a joint venture, then with its various innovative strategies like import express for Chinese importers, e-solutions like DHL Web Shipping and DHL sms tracking, time definite delivery, setting up new ports etc led to overtake its competitors like Fedex, UPS and TNT.
Further on report talks about the various factor that were made by DHL while entering the Chinese market like growing market of china, mode of entry, timing of entry, scale of operations and their core competency compared with sinotrans and competitors.
So it can be said that the strategy applied by DHL in china was well planned, organized and very well implemented as compared to other competitors. DHL's proactive and innovative style led them to success in china. Moreover, in order to maintain its position in Chinese market DHL need to invest in development of ports, network and improve its customer service.
Logistics can be defined as planning, controlling, implementing and managing the efficient flow of goods from manufacturers to end users. Logistics is an important part of business. It helps in each and every function of business like procuring, deliver, inventory management, transportation, production etc. There are mainly four types of logistics service provider like first party logistics, second party logistics, third party logistics and fourth party logistics which can be explained as follows:
Types - Definition First Party (1PL) - owns all logistics assets and manages their logistics function. Eg. suppliers Second Party (2PL) - they are commodity capacity providers, supporting the geographically expansion of first party logistic and facilitating logistics services for the 1PL - e.g. trucking company Third Party (3PL) - It handles and integrate different logistics functions, involving in some management capacity of supply chain, e.g. freight forwarders Fourth Party (4PL) - they are service integrators of 2PL and 3PL serving a single point for the 1PL. they provide end to end solutions to ensure high value-added supply chain services to the 1PL. ( Fung et.al, 2005)
With the increasing international trade logistics has gained a lot of importance in business because plenty of things like cost, quality and customer service are dependent on it. Transportation cost plays a crucial role for the companies engaged in exporting. Out of the total cost- logistics accounts for 30% of it or more so, it is very important to manage it properly. Introduction About DHL Adrian Dalsey, Larry Hillblom and Robert Lynn (D, H, and L) founded DHL in 1969 while delivering bills of lading between San Francisco and Honolulu by air.
In 1971 it decided to move international and it entered the market of Philippines. Then it started its operation in Latin America, Saudi Arabia, Africa and middle-east in 1978. Innovation and proactive thinking is what separated DHL from other competitors. It was first company to bring international express service in china and also innovations like mobile van in San Francisco. It was awarded in 1998 as best technological innovative company by information week.
Today, DHL is the world's largest and most experienced international air express network with service to 120,000 destinations in more than 220 countries and territories and More than 4,400 offices support DHL's extensive worldwide coverage. Of that total, over two-thirds are owned and operated by DHL, far greater than any other company in the air express industry. (DHL International Ltd, date unknown) About Sinotrans China National Foreign Trade Transportation (Group) Corporation (SINOTRANS) is the largest international freight forwarding company and the leading integrated logistics service provider in China. Comprehensive logistics and service capacity of SINOTRANS come from an intensive network covering China and the rest of the world, supported by advanced information technology. (CNET Networks, Inc.,2006)
Analysis of case study The following case study analyzes the success story of DHL-Sinotrans joint venture and its reasons for achieving it. Then further on it explains the various implications on China's economy after being the member of the WTO, as a result of which, many foreign investors started entering the Chinese market. Proactive and innovative thinking made DHL-Sinotrans the market leader in the industry.
Success of DHL-Sinotrans DHL is a Belgium based company which entered the Chinese market in 1986 with a joint venture of 50:50 with sinotrans as their local partner and also the only way of entering the Chinese market. Sinotrans were identified as their potential partner as they had deep knowledge of the local Chinese foreign trade and export market. During 1980 each company wanted to enter the Chinese market because of the increase in import and export market and moreover it had an inefficient logistics infrastructure, insufficient and unreliable highway system and overstressed civil aviation system. Sinotrans were very important for DHL's success in china because it provided them with a readymade domestic market and huge network in china. The mix of local knowledge and advanced technology of DHL-Sinotrans worked very well for each other. (Hill, 2007, pg. 528, 531/GC-1 - 531/GC-6)
DHL's relationship with Sinotrans helped them in developing their presence into various parts of china. The rapid growth of China's economy provided business players with tremendous opportunities amid a boom in the express and logistics industry. The 20-year successful partnership has led to DHL-Sinotrans' average annual growth rate of 35% to 45% in the past few years. So it was very easy for DHL to set up their offices in different parts of china as Sinotrans had very deep knowledge of it. Success of DHL in china would not have been possible without Sinotrans as it is very important for any foreign company to have a very good local partner to be successful as each country has its own taste and preferences, culture and tradition. So DHL would not have a similar level of success by going it alone. (Malone, 2006)
Implications of China's entry into the World Trade Organization China's decision to become a member of the WTO led to the opening up of the Chinese market for the foreign investors. Since China becoming a WTO member, foreign logistics providers have entered into China one after another, with 2/3 of the world top 10 retailers settled in China, and their purchase centers established. (CEInet Data Co., Ltd., 2003)
From the given case study we come to know that between 2001 and 2003 almost all the logistics service providers witnessed growth of 30% on year on year basis. This indicates that china's logistics industry was rising at a rapid rate. The reason behind the china's logistics growth story was increase of international trade, changing consumer preferences, and technological developments, competition among domestic players led to huge demand for sophisticated and quicker service of goods (Hill, 2007, pg.531/GC-6-531/GC-7)
Following are rules and regulations on air cargo logistics related sector before WTO accession. (Fung et al, 2005) Initially the only way of entering the Chinese market was through joint venture with a local company but later on it all changed with entry of china into WTO which resulted into no ownership limitations for the foreign companies. Simultaneously continuous domestic demand forced the government to open the market as it knew that in order to continue the growth story it would need foreign investors investing in the economy.
Before china's entry into WTO accession many barriers were put on foreign companies like they have to obtain various types of licenses to engage in ground transportation, bonded warehousing, customs clearance, and related services. With China's accession into the WTO, the gradual opening-up of its service trade sector, the sustained heating-up of the international trade, and especially the international manufacturing center's shifting into China, the Chinese logistic market rapidly exhibiting its huge potential, which has attracted the attention of various international logistics giants. (Jing, 2004) According to many people china would have adverse impact for short term on social inequality between urban and rural people, cut off in jobs and it has also affected the business of many local people and job which has led to closure of many local businesses.
Expanding Horizons: DHL's Success in China's Booming Logistics Industry. (2020, Jun 01). Retrieved from https://studymoose.com/dhls-entry-china-13992-new-essay
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