Federal Express (FedEx) recently decided to build its Asian transport and distribution centre in Guangzhou, capital of South China's Guangdong Province.

"That will create advantages for Guangzhou to build itself into a logistics centre," Guangzhou mayor Zhang Guangning was quoted by Guangzhou Daily.

Logistics company employees discuss tactics. Domestic logistics firms will encounter competitive challenges and co-operation opportunities as their transnational counterparts gradually move in. [newsphoto.com.cn]

But logistics companies in Guangzhou, as well as those in the Pearl River Delta region where Guangzhou lies, may not be so excited about the entry of such a major competitor.

Although the Pearl River Delta region is one of the three pillars of China's robust economy, along with the Beijing-Tianjin region and the Yangtze River Delta, where Shanghai is located, the region's logistics industry is still in its infancy, as it is elsewhere in the country.

"All the logistics companies in China will face intense pressure in the presence of such a giant if it becomes a reality that FedEx builds its centre in Guangzhou," said Li Keming, general manager of Guangzhou Air Express Co Ltd, a branch of China Air Express.

"Today the market decides everything. And no one can stop transnationals such as FedEx from entering the Chinese market, given that China has joined the World Trade Organization (WTO)," Li said.

"Federal Express has its own cargo planes and a rich experience in the international market," said Jiang Shaoyun, a journalist with China Shipping Gazette, who has been observing the progress of the country's logistics industry for years.

"If FedEx enters the Chinese market, I guess there are few things that Chinese logistics companies, none of which have their own cargo planes, can depend on to compete with them," said a pessimistic Jiang.

But Ma Yue, senior general manager of Southern China Express under the Datian W Group, a privately owned logistics company, said, "It is not that we (Chinese companies) do not have our advantages."

Many mainland companies have been doing business in the Chinese market longer than foreign firms, and we know the Chinese market well, Ma said.

And some Chinese companies have built up strong reputations they can depend on.

He Bingjun, secretary of the party committee as well as vice-general manager of China Air Express (Shenzhen) Co Ltd, a branch of China Air Express, said "Our competitive edge is speed."

He referred to the company's ability to provide express service within eight, 12 and 24 hours.

Advantages or not, with global heavyweights such as FedEx and United Parcel Service (UPS) covetously eyeing the market and some even getting a foot in the door, Chinese companies must prepare to face more fierce competition and fight harder to survive.

Co-operation

A combination of domestic experience and imported experience will be a must, said Terence TY Lee, assistant to the chairman of the Datian W Group (DTW), which is based in Beijing and offers freight forwarding and logistics services.

A franchise owner in Shanghai demonstrates her business operation on a computer for Avon CEO Andrea Jung. Avon has opted to depend on logistics companies to take over its distribution needs. [newsphoto.com.cn]

The company, founded in 1992, is one of the largest and foremost privately owned logistics companies in China.

In July 1999, FedEx and DTW signed a co-operation agreement in which they established a joint venture known as FedEx-DTW Express Co Ltd.

The 10-year contract makes DTW the sole sales agent for FedEx in China.

Currently, FedEx-DTW has set up 144 stations nationwide and boasts fast, reliable, time-sensitive delivery and 24-hour on-line tracking services.

"We believe co-operation with FedEx will help Datian become the best in terms of management style," Lee said.

Learning from the experiences and management style of FedEx, Datian has decided to build up its own express brand - domestic standard express.

"The group will mobilize 80 per cent of its staff and focus 80 per cent of its attention on developing the standard express," said Wei Dongfang, general manager of DTW in Xiamen, East China's Fujian Province.

The company launched the standard express business last July and expects to realize a profit in 2005, according to Wei.

A total of 100 million yuan (US$12 million) will be invested annually within three consecutive years, starting from last year, to develop the new brand, according to Ma Yue, senior general manager of Southern China Express under the group.

The investment will be used to build up a more widespread network throughout the country and perfect the company's information technology applications, Ma said.

The standard express service is designed to become the company's main business in 2008 with an estimated turnover of 1.8 billion yuan (US$217 million), accounting for 60 per cent of the company's total business volume.

Since its initiation, the business has generated turnover of 200 million yuan (US$24 million) to possess a 30 per cent share of the company's business pie to date.

Meanwhile, the company is thinking of strengthening its transport capacity.

"We will have to have our own cargo planes in several years," Wei said.

The company is also considering becoming a listed stock, Lee said. "The listing might be in the mainland or even in the US."

Customer orientation

"Above all, the development of logistics relies on the demand manufacturers make for logistics services."

That message was not uttered by a logistics supplier, but a senior manager of the Guangzhou-based Avon Products (China) Co Ltd, the China branch of the US-based Avon Company, which primarily sells perfume and cosmetics to women.

Zhang Hengfa, senior director of Avon's customer service department, said it was that demand that prompted his company to employ logistics firms to distribute their products into the hands of dealers across the country.

From 1999 to 2001, Avon's distribution pattern involved contacting dealers about the arrival of products, which the dealers themselves then travelled to Avon's local warehouses to pick up.

Under this method, Avon employed more than 600 staff to manage the warehouses and collect payments.

Meanwhile, the products often sat in the warehouses for long periods, and product turnover was very slow because of poor warehouse management.

But in 2002, Avon began to apply a new pattern. It gave up all its warehouses to set up eight logistics centres in eight major cities, including Beijing, Shanghai and Guangzhou.

Then it entrusted several logistics companies to distribute its products from the centres to dealers.

The new pattern was immediately applauded by dealers, who appreciated not having to travel to the warehouses any more, according to Zhang.

As a result, Avon dealers have become more faithful to the company, he said. From 1999 to 2001, nearly 20 per cent of dealers closed their Avon shops annually. Now the number has fallen to 10 per cent.

Under the new distribution pattern, Avon now needs just 190 personnel to manage the eight centres.

"Such a drop in employees and warehouses will pay off with the increase of Avon's sales volume," Zhang said.

Before, logistics cost accounted for 7-8 per cent of Avon's total operation costs. That has since decreased to 6 per cent, which is significant given the already-low percentage.

Li Ganlin, vice-manager of the EAS International Transportation Ltd Guangzhou Branch, one of the logistics companies conducting distribution for Avon, said his company pays a great deal of attention to customer satisfaction.

"We require our staff to better their services and to strive to offer 'no-complaint' service," he said. Last year, customer service registered one complaint for every 1,000 transactions, and the current the rate has fallen to .5 in 1,000.

As Avon expands its business in China, EAS will also increase the number of staff and vehicles to meet the growing demand, Li said.

Sound system needed

Li Yasheng, director and general manager of the Shenzhen-based China Merchants Logistics Group Co Ltd, pointed out that the government does not yet clearly identify what sort of businesses can be legitimately known as logistics companies.

"There are now 800,000 firms calling themselves logistics companies in China," he said.

A number of these companies have only one or two trucks, which Li considers ridiculous.

Some mobile phone manufacturers have chosen to co-operate with logistics companies as their dealers welcome the new distribution pattern. [Reuters]

In his opinion, a logistics company must be able to supply its customers with a complete cargo distribution scheme.

Otherwise, it should not advertise itself as a "modern logistics" firm, he said.

He also finds market management in China to be in disarray.

"Many logistics companies in China, especially smaller ones, do not abide by relevant regulations."

For example, overloading trucks is a very common practice among smaller companies. The trucks are usually driven late at night to elude checks along the highways.

"Currently, the idea of logistics is only heating up among companies, while the market is not heated enough," Li said.

The potential for China's logistics industry is huge, as logistics costs here account for 20 to 25 per cent of total operations costs, whereas they make up less than 10 per cent of operational expenses in the US.

But many large companies shy away from using logistics companies, Li said. Instead, they establish their own logistics sub-companies, in the belief that such businesses will benefit them directly.

Meanwhile, local officials in many regions, especially in cities, hurry to draw up blueprints to develop local logistics industries with no regard for local situations.

Li pointed out that other obstacles, including a lack of unified standards within the industry, impede its development.

Flexibility

Luo Jun, head of logistics management for the sales department of Xiamen-based Amoi Electronics Company, said that as a privately owned company, Datian has more flexibility with its management style.

Datian now delivers more than 50 per cent of Amoi's mobile phones and all of its laptops to dealers all over the country.

"When we started to co-operate with Datian last April, they played a small part in transporting our products. But later we gave them more and more business because their service is quite good," Luo said.

Before co-operation, Amoi dealers themselves used to travel to the ports to pick up their shipments. Now, Datian sends products directly to the dealers.

The logistics costs subsequently decreased by 30 per cent, Luo said.

"Compared to several State-owned companies that are also doing distribution for us, the management at Datian is better and this makes it more competitive," she added.

Human resources

Cai Chenyu, chief executive officer of the Xiamen Globelink China Logistics Limited, a medium-sized company, took eight of the company's employees to a conference of the International Federation of Freight Forwarders Associations in Bali in late September and early October.

Apart from setting up communications with well-known forwarders at the conference, Cai's other purpose in making this trip is to familiarize the eight employees with their communication style and way of doing business.

Cai plans to have each of these staff members take another eight employees to similar conferences or train them up in the business in future.

Eight times eight times eight and so on. By such a method, the company's pool of personnel strengthens its expertise, which can be put to use in the company's future expansion, Cai said.

As with Globelink China, many Chinese logistics companies are paying more attention to human resources.

Datian conducts a variety of training programmes on a regular basis, said Wei Dongfang, general manager of Datian Xiamen.

At the same time, the company tries to make every employee feel part of a big family, he said.

"If one employee is having difficulty, everyone else immediately offers to help," said Wei, who joined the company a year and a half ago specifically because of its attractive corporate culture.

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