1. Executive Summary
In 1907, Jim Casey founded the American Messenger Company, which is known today as United Parcel Service (UPS), with his friend Claude Ryan, Lukas, P., Overfelt, M. (2003).The company has since then grown from providing services within its local origin, Seattle, Washington, to one of the largest package delivery companies in the world. With its headquarters now in Atlanta, Georgia, UPS has transformed its core business with innovative implementation of modern technology and expanded into other sectors including financial services, supply-chain logistics, transportation, and computer repairs. The company has 408,000 employees, Datamonitor (2010) and recorded an increase in revenue from US$45,297 million in 2009 to US$49,545 million in 2010. The net income increased from US$2,152 million to US$3,488 in the same period. This paper is the author’s analysis of UPS.
2. Market Analysis
2.1. SWOT Analysis
Strengths
UPS operates on large scale bases that result in providing the company with the benefits of economies of scale and very strong market visibility. In numbers, the company delivers approximately 15,1 million packages to almost 2 million customers around the world daily. UPS is able to manage the large scale business by efficiently integrating global air and ground networks including over 140,000 domestic and international access points. The company has successfully created a positive brand image by winning the loyalty of its customers across the globe through efficient services.
Weaknesses
UPS offers services all over the world but generates about 76 percent of its revenue in the United States of America. This shows that UPS is still economically dependent on its businesses in the USA. Dependency on one geographical region generally expose a company to the risk associated with economic and political changes of the particularly region. In comparison, one of the company’s competitors, TNT has diversified its operations in other European and Asian countries where substantial revenues are being generated. Another weakness of UPS is its debt that has increased to US$10,846 in 2010. The company has to generate enough cash to service and repay the debt. In case of serious economic downturn, particularly in the USA, the company might be in trouble repaying the debt and borrowing might be very expensive.
Opportunities
UPS realizes that opportunities exist in other regions outside of the USA and has started a series of business investments in Dubai, Slovenia, China, Vietnam and Malaysia. In Dubai, the company has a joint venture to carter for UPS express package service. A small package delivery company has been acquired in Slovenia to facilitate the growing business in the country. UPS will capitalize on the economic growth in China and has built a new facility in Shenzhen as well as a new International Air Hub at Pudong International Airport in Shanghai. E-commerce offers new line of opportunities from which UPS can make profit. UPS provides e-commerce solutions that integrate business processes including transportation information for the customer, whereby online transactions are made attractive.
Threats
UPS faces intense competition both within the USA and internationally. The major competitors include TNT, FedEX, Deutsche Post DHL, Royal Mail Holdings, Poste Italiane, Panalpina World Transport and La Poste. The competitors have different service and pricing structure some of which might give them competitive edge over UPS. The competitors may decide to consolidate in order to gain economic power and increase their market share. The consolidation trend is already underway in the transportation industry. UPS has to develop a strategy to respond to the challenge. UPS business is subject to licensing and several laws and regulations imposed by government institutions ranging from US Department of Transportation to US Department of Homeland Security. Violating any of the laws or regulations may have adverse impact on UPS. Through the nature of its businesses, UPS employees have different work agreements and conditions, both nationally and internationally. Dissatisfactions relating to working conditions may result in strikes and business interruptions that may result in financial losses and bad image for UPS
2.2. Five Forces Analysis of the Competitive Environment
Entry Barrier and Threat of Substitutes
Transportation Air freight and Trucking Industry is a capital intensive, posing a high entry barrier. The new entrant must be in a position to compete globally and build distribution channels, which requires a lot of capital. It is therefore very difficult for a new entrant and substitute products or services to survive. The companies in the industry already have their loyal customers and would do everything to defend their means of revenue.
Bargaining Power of Suppliers
The major global players have relatively high bargaining power because they operate their own ground and air vehicles with integrated information systems. The power is somehow diminished because of their dependency on fuel, which is a cost factor.
Bargaining Power of Buyers
Due to the number of competitors in the industry, the buyer has the option to choose which carrier to use. The availability of options increases the bargaining power of the buyer. Moreover, cost and on time delivery are very important factors for customers in choosing their carrier.
Competitive Rivalry
UPS is in the intensely competitive Transportation Air freight and Trucking Industry, where competitors are specialized in delivering packages, documents and valuables worldwide. Through effective implementation of information technology and innovative distribution infrastructure, UPS is able to differentiate its products and services from those of other companies in the industry. The increase in efficiency allows UPS to offer services at competitive prices, which attract more customers and boost the revenue. Though UPS has gained technological edge and consequently large market share over the years, the competitors are developing and applying different strategies to gain more shares of the market.
3. Analysis of UPS Strategy
UPS has developed automated business processes that are capable of handling millions of packages efficiently and cost-effectively per day. This initiative has led to lower cost and increase in profit.
UPS has differentiated itself from competitors by developing very efficient supply chain solutions in which a broad range of products and services are integrated, making it easy for customers to patronize the company. This creates customer satisfaction and increases earnings.
The quality of customer relationships is an important performance measurement at UPS. The company monitors its customer relationships by conducting interviews with decision-makers responsible for shipping frequently to have an overview about delivery performance and eventually customer satisfaction.
4. Conclusion
UPS has successfully implemented leading-edge technology to create one of the largest businesses in the world in the Transportation Air freight and Trucking Industry. The business environment is highly competitive. In order to maintain its market share globally, UPS must continue to expand internationally, fine-tune its cutting-edge technology, exploit e-commerce potentials and maintain holistic customer relationship.
5. References
Lukas, P., Overfelt, M. (2003). UPS James Casey Transformed a Tiny Messenger Service into
the world’s largest shipper by getting all wrapped up in the details of package delivery.
Retrived from http://money.cnn.com/magazines
Datamonitor. (2010) United Parcel service, Inc. Company Profile
Afritopic 2017
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