External competition and internal loopholes
From an international giant to a tragic "loser," what kind of hardships did DHL go through over the past seven years?
"The revised national postal law regulates that foreign-invested companies shall not operate express delivery business. This includes both foreign-owned companies and domestic-foreign joint ventures. As letter and document deliveries account for about 35% of the domestic express delivery business, and they produce the highest profit, the foreign-invested companies can only suffer from this limitation," revealed Xu Kewei.
This implies that the law has already set different "rules of the game" for both foreign-invested and domestic private express delivery companies, and mapped out the territory of the domestic market.
The law had been revised 12 times before it formally took effect. If DHL was limited by this revised law from the very beginning, why did it acquire the three domestic express delivery companies? Some industry insiders have said that the reason for DHL's retreat was not simply because of the policy, but also the intense price war with "Chinese characteristics." Most privately-owned Chinese companies are willing to slash their margins to win customers.
In fact, DHL was not the only foreign delivery company that had a tough time competing in China's domestic express market. The state-owned EMS and a growing number of private express delivery companies have been taking up more and more shares of the market. For example, the total annual revenue of Shunfeng, Shentong, Yuantong, Yunda, Zhongtong, and Huitong accounted for about half of China's express delivery market in 2010.
Moreover, management loopholes also contributed to APEX's demise. A number of salesmen collaborated with one another and opened their own company secretly. When they finished an order of express delivery service, they recorded the order income under their own company account. Because they used the APEX's human resources to send the deliveries, all human costs would be covered by APEX.
With external competition and internal management problems, DHL realized that it could not afford it in China's domestic express delivery market.
A cake that cannot be abandoned
Chen Ping once described China's domestic express delivery market as "the sweetest cream on the cake," by which he meant that this market was thriving, especially amidst a boom in online shopping and rising demand for document and other shipments.
In 2010, the total volume of business in the booming market reached 2.34 billion deliveries, up 25.9% compared to 2009. The revenue of the domestic express delivery market also hit a record high of 57.46 billion yuan, up 20% from the previous year.
DHL's retreat is not a typical case. Many express delivery companies will still choose to stay. For example, though FedEx experienced a wave of reforms in 2009, which resulted in two-thirds of the staff in the domestic express delivery department to lose their jobs, it also survived and chose to fight ahead in this market. Early in 2011, UPS announced that it had formally applied to enter the domestic express delivery market.
Xu expressed his opinion thus, "China's domestic express delivery business is still at a stage where operators use low prices to fight for market shares. The current domestic market environment is not suitable for DHL. So DHL will focus its attention fully on the international express delivery business. When the commercial and legal environment is more mature, DHL will consider coming back."
It is possible that DHL may stage a comeback in the future. After all, the market in China has a unique attraction and great potential. In this regard, a temporary retreat may not be a bad idea.
