Gaining a Toehold in China
When people think of expanding their business, the “go to” place is China and its market of 1.3 billion people. People are now clamoring to China in the hopes of jumping on the perceived gravy train. According to the Ministry of Commerce, foreign direct investment in China grew 26.04% year-on-year to reach USD 38.8 billion in the first four months of this year.
Today’s China is reminiscent of the days when people thought the US streets were paved with gold. But like the US myth, there are very few overnight sensations; the bulk of the successes are the forward-thinking businesses that started in China long before it became “hot.” These businesses are succeeding because they have a toehold in the market. They entered the market when others simply shook their heads in wonder.
FedEx is a company that takes risks they believe will pay off by innovating and energizing its business. We began operations in China in 1984 when the playing field was much different. Back in those days, we had to work with an agent and all foreign carriers partnered with the same provider. There was little opportunity for differentiation, but the Open Door policy showed signs of a changing China and we wanted to be on the ground and ready when the market changed.
China is a country that wants to know you are in for the long haul, that you are committed to the country and its people. You absolutely need to “think global, act local.” Success requires taking time to develop relationships. It also requires looking to the future and gauging the direction you think your market is moving. You need to demonstrate your commitment to the country by sharing best practices and incorporating the special needs and requirements of China into your operations.
Like a steam engine, China began with gradual changes, but the country soon began to move at the speed of a high speed rail. Our presence in the country gave us a front row seat to realize the full potential the opportunities these changes presented. The relationships we developed helped us manage the complex regulatory environment and seize the moment as the country moved toward a more market-driven economy.
We had many “firsts” in China. For example, we were the first to have an on-line system with China Customs. We were the first foreign carrier to fly our planes direct to China. We were the first to have an online system for customers. We couldn’t have had any of these firsts if we hadn’t built a strong presence in the market.
Our presence in the market meant we were ready with logistics services for customers when China decided to join the World Trade Organization. In 1999, we partnered with a privately held Chinese company, DTW Group. When the announcement to allow freight forwarding companies to become wholly owned foreign enterprises (WOFE) was announced in December 2005, we had already laid the groundwork to acquire our joint venture partner. In January 2006, we announced our intent to not only purchase the shares of our joint venture partner’s interest in our international express business, but also to purchase the assets of their domestic express operations – another forward-thinking move.
It took time for all the t’s to be crossed and the i’s dotted, but FedEx became a WOFE in March of 2007. Becoming a WOFE gave us custodial control of our operations which benefits our customers and strengthens our toehold in the market.
Interestingly, in many ways our entry into the domestic delivery business was like entering into a new business in China. Although it seemed the same to us – we use the hub and spoke concept developed by our founder, the market and the regulations were very different from our international express business. We had to take the attitude that we were starting at square one and begin the complex process of establishing ourselves as a reliable, committed domestic service company. Our domestic service has now been up and running for four years, and we have maintained a fluid operation to meet the dynamic customer needs of the domestic market. Our domestic business has increased steadily. For example, we have expanded our service portfolio to include general delivery service, a reliable ground service for less time sensitive shipments.
Our experience in China is fairly common. Nothing comes easy, but if you “pay your dues,” that is laying the groundwork and building a reputation of trust and reliability, the rewards can be great. I always say you need to “be bamboo” when operating in China – strong, but flexible. That is what we have in China, a strong but flexible business operation ready to support China’s market, whatever direction it takes. It is a market that will keep you on your toes. It’s an exciting place to do business – and a profitable place to do business – as long as you keep up with the dynamic pace!
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