First in Asia and the World
What company is the leading international express carrier? If you answered Federal Express (www.fedex.com) or UPS (www.ups.com), guess again. Try DHL International (www.dhl.com). This company, founded in San Francisco by three entrepreneurs, carved out the niche for combined land-sea express services in 1969 when it began shipping bills of lading and other documents from San Francisco to Honolulu. Soon the company got requests to deliver and pick up in Japan and other Asian countries, and the business of international express delivery was born.
Today, logistics is the backbone of global trade and DHL services 120,000 destinations in more than 220 countries and territories from its base in Leipzig, Germany. Annual net profit was recently an astounding $3.8 billion. DHL employs around 350,000 people worldwide, many of them based in Asia, the company’s first and most important international market. DHL prides itself on its customer service and reliability. The company hires personnel in the countries where it operates and sees this practice as key to forging relationships with customers in its overseas markets. One DHL executive explained that unlike many of its competitors, DHL ensures that the company’s own employees, not outside agents, make deliveries and pick-ups and that these individuals often are local people who know local customs. Relationships are the name of the game in service businesses. DHL cultivates relationships with customs agents because the archaic clearance procedures in many countries are the biggest obstacle to speedy international deliveries.
Express air delivery is now a huge business in Asia, and DHL has several formidable competitors snapping at its heels. These include Federal Express, which offers competitive rates, and local players like Hong Kong Delivery, whose small size makes it highly flexible. DHL cannot simply rest on its number-one position or boast of its long years of experience to stay ahead. The dangers of complacency were brought home to the company when its DHL Japan office faced customer resistance to a price hike. DHL employees had simply assumed that the firm would always be number one and had grown lax on service. In fact, an objective “shipment test” revealed that DHL Japan provided the worst service at what were already the highest prices. Japanese customers had simply continued to use DHL because it was the first in the business and because loyalty was important. Yet the proposed price hike might have been the decisive factor in convincing formerly compliant customers to defect. Fortunately, DHL Japan was able to get back on track through aggressive initiatives.
Today, DHL’s customer service record is winning repeated kudos in Asia and around the world. For example, a division called DHL Logistics earned a second consecutive gold medal for excellence in the eighteenth annual Quest for Quality survey conducted by the industry’s Logistics Management and Distribution Report. It is also often voted the “Best Express Service” at the annual Asian Freight Industry Awards. These days, competition in the express delivery industry is increasingly intense. Slow global economic growth in recent years has served to strengthen this intensity as DHL and other industry players compete for business. DHL will need to continue listening to its customers, working hard to deliver higher-level services, and fulfilling their advanced logistics needs.
DHL purchased Airborne Express in 2003 for around $1 billion. The merger, designed to restructure the business and slash overhead expenses, integrated the two companies’ ground and courier networks and offered customers a seamless global network. The idea was that DHL could then offer its US customers the best of both worlds: the world-class international services of DHL combined with the strong domestic service offerings of Airborne. DHL has been losing money in the United States, but it will not pull out of the US market altogether. Instead, its US arm closed about a third of its stations, cut its ground-hauling network by 18 percent, and reduced its pickup and delivery routes by 17 percent.
5-16. As the first to set up an international air express business in 1969, DHL had the first-mover advantage over other companies. Is being a first mover as advantageous for a service company such as DHL as it is for a manufacturing company such as Boeing? Explain.
5-17. What elements are necessary for a service company to achieve global success?
5-18. Instead of relying on local agents, DHL prides itself on having its own staff of around 350,000 people across the globe. What are the merits and drawbacks of this international staffing approach?
5-19. What do you think are the dangers, if any, of being a first mover?
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