Introduction
Globalisation has resulted to an increase in international trade; despite the collapse of Doha negotiations in 2008, trade among countries is increasing. Countries trade through economic policies of absolute and comparative advantage. For effectiveness and efficiency in the trade, transport and communication are important. There are international companies which have invested in global logistic service provision.
United Parcel Service is an international logistic company which has been in the business for over a century. To venture in international market and remain competitive, there are strategic management decisions made by the company (Joshi, 2005).
This paper looks into the company’s global business strategy, it will undertake a PESTLE analysis, use Michael Porters Five Forces and Three Generic Strategies to evaluate the current strategies of the company.
Aim of the report
The report aims at using management tools to evaluate the effectiveness of current strategies adopted by United Parcel Services Company. It will evaluate internal and external conditions facing the company.
Brief history of UPS
UPS was founded as a messenger company in United States of America in 1907. Initially, it only targeted local markets. However the company has grown to a multi-billion company facilitating trade across the globe. Currently it enjoys a strong brand name with presence in all continents. It is respected for its efficiency. It focuses on two services; packaging and logistics services.
Daily, the company is able to facilitate businesses in over 200 destinations daily. It uses the e-Commerce, supply chain management and frontiers of logistics to facilitate the transfer of technology, goods and funds (UPS corporate Website, 2010).
Depending with the type of goods/services the company is transacting, it chooses the mode of transport to adopt. It ranges from sea, road, electronic transfer and air transport.
The name UPS was rebranded in 2003 with the aim of showing the world its intentions to be the world largest and most efficient supply logistic service provider in the world. Currently the company employs approximately 4,606 employees distributed in different countries.
According to a report by Zemanta on July 26th, 2008, Ups is facing systematic problems. This causes unreasonable delay in delivery of services which lead to un-satisfied customers. The failure has been occasioned by system failures resulting to un-updated system.
With such a system, there have been times that goods were thought to have been un-transported from their country/destination of origin but after a thorough check, they are found in UPS warehouses in the intended destination or other destinations. This has caused unreasonable delay and customers lose confidence with the company.
The company maintains alliances with companies situated in different parts of the world where parcels can be dropped or collected by a customer. There are some dropping points which results to loss to the company because of their low flow of customers.
Despite this, the company have maintained the outlets. The company has also been facing situations of lost packages. This may be from theft, or ignorance from the staffs (UPS corporate Website, 2010).
UPS PESTEL analysis
PESTEL is the stands of Political, economic, social, technological, environmental and legal analysis. It is a management tool that is used to analyse the external environment that a company is operation in. UPS is operating as an international company and thus its external environment goes further than an analysis of a single countries external environment. The world is facing a rapid increase in international trade.
This has been facilitated by globalisation and interdependency that countries have developed. When one part of the world having an absolute /comparative advantage over another, there is a tendency to concentrate on production of such goods and importing those goods and services which it cannot produce efficiently.
An increase in international trade is an increase in business for UPS as it facilitated the flow of goods and services (Kermally, 2003).
Political factors
The world is recovering from world economic crisis which started in 2007. It is believed that the crisis started in United States of America after a collapse of financial institutions. It is in the same country that UPS has a strong market. The effects of the crisis are reduced international trade where countries have placed trade barrier, tariffs and non tariffs, to protect their economies from effects of the crisis.
This has resulted to reduced business in UPS. World countries were specifically more careful when trading with United States and this affected the company sales.
In 2008, there was the collapse of Doha negotiations which were aimed at facilitating international trade without trade barriers (free trade). This could have been a good political decision to the company as it would have seen an increase in trade and thus a demand for supply logistic services from the company (Kotler &Lane, 2009).
Economic factors
The world is recovering from world financial crisis. The crisis had affected international business negatively as trade among countries reduced. This acted to the disadvantage of UPS. One of the ways that the world has used to recover from the crisis is increasing consumer consumption preferences. This is through reducing lending rate of interests.
UPS has benefited in such policies and is using the low cost loans to invest in different countries. For example in 2003, UPS acquired Purchasing Menlo Worldwide Forwarding, a company that increased the company’s capacity in air cargo handling. The next year, 2005, the company acquired Overnite company to increase the company’s access in Northern America.
During the period, the company also made other acquisition in United Kingdom and Poland. These acquisitions were made possible by deteriorated businesses in these companies which lead to their disposal and availability of affordable capital financing loans. The trend in international business thus has negative effects on UPS but comes with opportunities that the company has utilized for its benefit (Nersesian, 2000)
Technological factors
The world is facing an increased technology improvement. There are new systems developed to facilitate international trade among countries. Other than trade facilitation, there have an increase in technological transfer where UPS services are contracted. To align its services with the new trend, the company have also adopted technology.
For example it has introduced cargo tracking systems where it can trace the direction of its tracks or other modes of transport. Technological development has also posed some challenges to the company. This is mostly in electronic money transfer, mobile money transfer and internet fund transfers. This has resulted to reduced business.
For example, Safaricom, a Kenyan mobile service provider invented mobile transfer service via phone, in April 2010, the services were exported to United Kingdom and are proving to be more efficient than UPS fund transfer services. UPS has embarked on technological improvement.
It has gained a number of awards as the best in technology. For example in 2009, it was given a present by InformationWeek in 500 Most Innovative Business Technology Organizations. The company has a centralised information and technology department. The chief execute officer of IS/IT department is called David Barnes
Social factors
The world is increasing in population and literacy level. Increased population has lead to demand for better ways of resource management which is facilitated by international trade. From thing angle the company is benefiting as it transport goods and services across borders. There are campaigns urging people , governments and international bodies to respect human rights.
With such advocacy, people are moving from one country to another for education, settlement and leisure. This has facilitated the need for service and goods transfers across borders. For example there have been an increased number of students from Africa studying in Australia.
This number has created an increase in transfer of funds from home country to Australia and forth. With such changes in social trends business in the country have increased (Neumann, Ringbeck & Schwegmann, 2000)
Environmental factors
There is an increase in environmental conservation campaigns all over the world. Different countries are taking different measures to ensure that they protect their environment.
International bodies are also playing an important part in ensuring that the different countries adopt different policies aimed at conserving the environment. on 11 December 1997, 37 industrialised countries and the European Union, signed the Kyoto protocol in Japan. The protocol was target to have been fully implemented by 16 February 2005. It was developed by United Nations Framework Convention on Climate Change.
The main aim of the protocol was to ensure that emission of green house gasses was reduced by 5% below their level in 1990 by the end of 2010. The protocol targeted the major greenhouse emitters and developed measures to be implemented. The protocol has though not been fully honoured but has offered some guidelines on how governments should reduce green house emission.
Of late in 2010, there were talks in Copenhagen aimed at devising measures to protect the environment. The talks failed as countries took strong stands against the recommended ways of conservation (Roberts, 2008).
UPS does not ignore environmental conservations. It protects the environment by adopting technological measures that reduces pollution. Right from its incorporation it has continuously improved its process. In 1930s, the company was depending on electric vehicles to transport products in new York, at the time, this was a high environmental friendly means of transport instead of using vehicles which used fossil fuel.
The company’s vehicles commonly known as “brown cars” are well serviced to ensure that there is minimal emission from them. The company enjoys as the world’s largest company with vehicles operating under compressed natural gas (CNG). These vehicles are highly fuel efficient and emit minimal green house gasses to the environment.
The company whether in United States or abroad recognises the need to conserve the environment. It is a signatory of responsible business models which gives a mechanism that a company should adopt when undertaking its business (UPS corporate Website, 2010).
Legal factors
Different countries have different business laws which it requires followed in their country. When UPS gets into a company, it seeks legal advice from legal experts in the country to ensure that it abides by the laws of the country. Where there are international laws, then it abides to them accordingly.
UPS Current strategy
To evaluate the company’s current strategy, this report will take use porters five forces and three genetic strategies.
Porters five forces
Porter in 1985, came up with five forces that can be used in analysis current position in a company. They are;
Suppliers power
The company’s suppliers have an influence on the market share that a company is likely to enjoy. If an industry has limited suppliers but a high demand of supplies, then goods are likely to be expensive. To have product differentiation, a company need to have reliable suppliers. UPS being in the service industry has its inputs more skewed to services.
Customers requesting for services from the company are seen as the suppliers of to the company. There other supporting materials like packaging bags, vehicles and airplanes.
The company has attained a differentiation of its vehicles by their colour. Customers, in this case doubles as suppliers, they supply the company with parcels, cash, and goods of various nature to transport. Companies doing the same business include FedEx, DHL and United States Postal Service.
Barriers to entry
Companies in an industry place certain barriers to entry in the market. These barriers include economies of scales, low production cost and input access strategy. UPS has been favoured by its strong brand name in the world. It is able to venture into a market and through the strength of its brand able to successfully launch and enter in that country.
Access to raw materials is not a problem since the main materials are from customers which the company has entertained through its strong brand name. Because of its size, it enjoys economies of scale and this is can venture into a country and produce at a reduced cost.
One of the main strategies that UPS uses to venture in international markets is acquisitions. In 2001, when it wanted to venture in retail mail delivery service business, it acquired Mail Boxes Etc. The company has tapped into the fast growing Asian market and it deepened it service in 2005 when it started a direct route of transfer between U.S. and Guangzhou, China.
Threats of substitutes
The company is threatened by companies in the same industries and technology. The major companies which threaten the company are FedEx and DHL. They are doing the same business and have a wide customer base. Mobile and internet use has created a threat to the company. This is because the number of letters that were previously sent through the company has been largely replaced by telephone and email communication.
Mobile and internet fund transfer has offered a different route to customers to transfer money across borders, this was a business that UPS had invested in. Such seems include PayPal, wire transfer and Mpesa.
Buyer power
The company targets customers placed in different parts of the world. It offers services that a customer contracts form the company using the internet, sales offices and authorised dealers. The industry is highly competitive and these customers have a choice among similar providers to use.
The choice of a company to the other is dependent on how reliable a company is. UPS benefits from a strong brand name and its reliability. This has made the company enjoy increased customer royalty.
Rivalry
International supply logistic business is highly competitive. to maintain competitive in such an industry, the company require offering consumer oriented services. It should be offer reliable services and aims at developing customer royalty (Hitt, Hoskisson & Ireland, 2003).
Three Generic Strategies
Differentiation
UPS has two kind of service that it offers; packaging services and transporting services. To serve its customer right, the company ensures that it makes it packages affordable and available to all classes of people. Those people who are using freight have their special package and those parcels on road have a different rate.
Those using water has their package, small and large scale customers are incorporated. To remain competitive the company aims at improving its service to attain more customer satisfaction and loyalty. Lately it invented computer cargo tracking system which is one such development (Hitt, Hoskisson & Ireland, 2003).
Overall cost leadership
The company’s prices are dictated by the bulkiness and the weight that a customer products has. This ensure that there is equality and those customers who are transporting small portions of goods are charged proportionately to these products. The payment system which is electronic facilitate for quick payment for service given.
Focus
The company has concentrated in one area and dominated. The company has physical station is some countries however in those countries that it does not have offices there are brokers or the website assists customers to get services from the company. When venturing other countries, it tends to follow the trend in the market. Where there are increased business is where the company is investing (Harris, & Dennis, 2008).
Urgent issues in UPS that need to be addressed
Modern service industry is drastically changing. There is a move to a more customer focuses services. customers on the other hand have learnt and understood their rights. UPS has evolved over time and its offering consumer satisfactory services however there has been incidences where some cargo already transported or those which have arrived in UPS offices are not recorded.
This is ignorance which should be addressed by the management. Where there is ignorance, there is customer dissatisfaction. Thus the company should invest in its human resources management. If there are inadequate staffs, then they should recruit and put on effective motivational measures.
System failures are also other issues of urgency in the company. The company should ensure that its computers are working well so as they can serve their customers well. If a customer want to know how far his cargo is, the system should be able to tell (Dann & Dann, 2004).
Recommendations to improve the services of UPS
UPS can be applauded for adopting an E-marketing strategy but more need to be done to ensure that it remains competitive in the changing logistics industry. Some of the areas that it needs to improve are in online businesses.
UPS’s website has limited information this discouraging since customer has to wait for a long period of time before he gets a response from customer care desk. The reason for this is that the call centres are only in the head office. What the company need to do is to decentralize this service and make it available to its brokers and local offices.
This improve customer’s satisfaction and increasing loyalty. Computers are not always reliable and sometimes they have failed the company. This is when servers are down or under repair. This has hindered the delivery of services by the company. An upgraded technology should be adopted to ensure that there is a backup when a case of system failure occurs (Bocij, 2005).
There is a customer care service method that DHL has adopted but UPS has not attained it yet; this is door to door delivery. The company’s service mostly ends up at warehouses or at the port of destination.
To ensure more customer satisfaction, there is need to adopt a door to door strategy where it can deliver products right to the consumers. This will assist the company command a more customer base and be the preferred choice of Logistics’ Company.
Although it has adopted a cargo tracking system, the system has taken long to mature. It is faced with technological failure and is inefficient to certain countries. The system is monitored from the head office and faces challenges of adequate monitoring. It should be decentralized and customers assured that they will get information about their cargo with precision.
Today’s marketing strategy has taken a different approach, this is where alongside computerized marketing, customer-company relation are developed to ensure that it benefits from repeat customers. Although the company has a strong brand name, strategies to retain customers should be put in place (Champy & Wang, 2000)
Conclusion
UPS is an internationally recognised logistic company with its headquarters in United States. It has been in logistic and supply chain management business for more than a century and enjoys a strong brand name. UPS Business is affected by the environment it’s operating in.
There has been a reduced business resulting from global financial crisis, technological innovations and globalisation. To remain competitive in the changing global market, the company has invested in giving its customer good services although it is failed sometimes by computer systems and ignorance of employees and products handlers.
References
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