Tuesday, October 03, 2006

FedEx Focuses On China

Robert Malone,

Fedex came to China in 1984 and has come to consider it one of the two anchor points of a growing global economy. The other of course is its home base of the U.S.

FedEx (nyse: FDX - news - people ) developed its air and ground express service with its founding in 1971. It became FDX in 1998 and FedEx in 2000. Today it consists of a network of companies whose philosophy is "operate independently, compete collectively and manage collaboratively."

FedEx's growth as a commercial carrier and transportation solutions provider has matched the growth of international and national trade. The company sees a rapid acceleration of the supply chain. Service does not stand still, and what was fast yesterday is not fast today for FedEx.

Over the past 22 years, since it first launched its China operations, there have been many milestones, including the 1999 launch of its industry simplified Chinese Web page and the company's first direct flight from southern China to North America with next-day service launched in 2003. In 2005 it launched flights to Europe from China.

Its job is to integrate services globally through control, strategy and technology. It now has plans to increase service to 100 more cities in China over the next few years. The FedEx country headquarters is now in Shanghai.

"China is a major piece of business for FedEx. I have been based over here for 18 years," says David Cunningham, president of FedEx Express Asia Pacific, who is in Hong Kong.

As for doing business within China for China. "We are not in that business now, but it is something we are interested in because of the size and the scope of the market," says Cunningham. "The dynamism of the market is evolving very rapidly. The size of the domestic cargo market is one of those that is growing and is forecast to be the fastest growing for the next 20 years."

FedEx's Asian operations launched with a hub in Subic Bay in the Philippines back in 1995. "It was essentially an ex-military base and empty when we moved in," says Cunningham. "This helped us serve intra-Asia movements. It connected Japan and Singapore and all Asia and the Philippines, Taiwan, Australia."

Cunningham says that Subic Bay was a hub and spoke system and is the type of network that FedEx uses today. That facility was a victim of its own success: It has grown so rapidly that it will shortly reach capacity. Now FedEx is looking for a facility to continue to grow.

"If you are looking to locate a hub, an intra-Asia hub, you have to look at the regulatory environment," says Cunningham. "You have to have the right airfield; you have to have it in the right geographical location. You also have to the air services agreement."

That is why FedEx has decided to find an airport for the expanding business environment of the Pearl River Delta, which serves 40% of China's export volume. The Bao'an Airport is just such a facility, and it will allow FedEx to increase capacity as business moves ahead.

"One of the problems you have in Asia is having the capacity to keep up with the growth," says Cunningham. "With its centrally controlled economy, China has been making substantial investments in their infrastructure that includes port facilities, airports, roads and cargo terminals. This is what makes it possible for them to continue to support their ever-increasing economic growth."

"Hong Kong resonates six inches off the ground," says Michael L. Ducker, president of FedEx Express International. "It is a city that energizes, and the national sport is business. We have five different regional offices with our U.S. office in Memphis and our European office in Brussels and our Asian office in Hong Kong."

FedEx's China strategy is simple: having a robust business in Asia's largest nation. It is also a key for FedEx worldwide, according to Ducker, since the company considers itself one big global network. Their business is as much a network business as a telecom company. Every pipe they add on to the network increases the utility to the user.

"When people ask what the next growth market is going to be, I say eastern China, middle China and western China," says Ducker. "They are great growth markets. These large economies are keys to us because they come at the headwaters of the supply chain if you will."

Ducker suggests that FedEx's priorities in China consist of continuing to expand international business in three networks: a trans-Pacific network to the U.S., a transcontinental network to Europe and an intra-Asia network to the rest of Asia.

And finally FedEx plans to expand its portfolio, as customers have different requirements. This translates into expanding forwarding capability, service territory and improving cycle times.

Ducker see FedEx's innovation to be in implementing its power pad handheld technology, which gives instantaneous shipment information to customers in China. The second application is electronic interface and liberalized customs procedure. FedEx has applied new technology to the process of customs clearance.

"We see globalization as using the Internet to connect people large and small to the global economy. People are now able to source for themselves globally," says Ducker.

FedEx has built its business on the basis of moving fast with new technology and service. It appears that it's extending the corporate strategy to include the relatively new focal point called China that is bursting with energy and business--making it a primary node within its supply chain network service.

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