Assignment: Challenges of Expansion to a Foreign Location

Research Analysis for Business – The Logistics Business Environment In US

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ECO/561 Economics

Alan Lane-Murcia

February 05, 20181

In the US we have seen that the parcel delivery or logistics business being an ever-running business all year round, this s because sending of goods whether large or small, by companies and households is increasing every day (Coyle, 2013). This brings an opportunity that can very well be invested in by the firm. A look at the business operating environment of this venture reveals the following about transport and logistics.

We at DHL we are committed to serving our clients better and better every day, we, therefore, look for solutions that work regarding reducing the time of delivery of goods worldwide, reduce damages and reduce costs to the consumer. To serve our customers better, am going to look at the trends in the market to see what has resulted in the significant shifts and thus what can we do to that extent.

The market structure and the competitors

Transport and logistics business has been mainly an oligopoly affair . This is because the large is too large and the players are very few. The main players being the two giant whom DHL is competing with that is UPS and FedEx who are both offering discount fright charges.

DHL has a market share of 28.64% according to Datanyze when compared to her close competitors. UPS that has a market share of 32.81%, FedEx which commands of the market of 14.66% USPS with 23.68%, for Whiplash Fulfillment and Shippingeasy they both have a market share of 0.08% ("Datanyze Universe-DHL," 2017). Thus, the primary competitors are DHL, UPS, USPS, Whiplash Fulfillment and Shippingeasy.

Barriers to entry

Logistics market is vast; however, entry is not a small issue. This is because of the very many barriers to entry that have resulted in the current oligopoly market structure.

They have a few of the voluminous list that comprises of factors such as capital costs whereby it is costly to set up the offices, buy the trucks and even hire manpower; the second barrier is economies of scale whereby most of the competitors are unable to compete with other firms whose production scale is microscopic for example the case of for Whiplash Fulfillment and Shippingeasy being too small to give DHL any considerable competition (Coyle, 2013). A third is that legal barriers to entry are a significant frustration, here the government grants patents, copyrights as well as exclusive rights to companies selectively . Forth is marketing barriers whereby gaining loyalty is pretty hard, other restrictions are; take over and merger, vertical integration as well as predatory pricing.

The impact of such barriers is that given that DHL has been in existence for long and already has a preferably more significant market share, there is no any promising competitor who is to get in the market thus the market will remain good as it is now a bit longer.

Current macroeconomic indicators

In a business such as this, it is critical to understand what the indicators say about the market. For example, over the last three years, the following items have shaped the business today in various strengths.

i) Current stage of the business cycle

Between the four phases of business cycles that include expansion, peak, recession, and though we are currently at the expansion stage. In 2007 to 2009, that is when we last experienced resection . In the current phase, there have been a few things that have been realized that make it easy for companies to operate efficiently which includes unemployment rates being less than 5%, slow rate of wage increment on personal income of about 2.4% and increased industrial production due to high consumer buying power. Thus, the last three years have the US has been under expansion phase of the business cycle.

ii) The unemployment rates

One of the most significant inputs into a company's business operation is skilled labor, from the last three years; the US unemployment rate has been substantially reducing according to the US Bureau of labor statics. This has created a better environment for the logistics business ("Consumer Price Index Summary," 2017).

iii) Real gross domestic product (GDP)

The GDP according to statista has been ever-rising which makes the logistics business environment favorable. In 2015, the GDP was at $18120.7 billion, in 2016, it was at $18624.5, and in 2017, the GDP was at 19386.8 dollars which is a positive indicator ("United States GDP 1990-2017 | Statistic", 2018).

Inflation as measured by the consumer price index (CPI)

With the base of 100 since 1982 with data obtained from the US Inflation Calculator, the CPI has been relatively increasing since 2015 to 2017. For example, in 2015, the CPI ranged between 137.017 % and 138.638% thus an annual average of 1 37.017% since 1982. That of 2016 based on the same terms gave a range of 136.916% and 141.729% thus a yearly average of 140.007%, and for 2017, the values were between the range of 142.839% and 146.669% hence an annual average of 1 45.120%. This to a great extent means that the power of consumer purchase of most services is going to be low shortly if the inflation rate is not controlled.

Federal funds rate

The Federal funds rate was rising between 2015 and 2017, i.e., form 0.11% in Jan 2015 to 1.30% in December 2017. This has made it possible to control inflation and thus have a stable economy.

Current rate for borrowing funds

The U.S prime rate has been continually rising since 2015, whereby in December 2015 it was at 3.5%. In December 2016 it was at 3.75% whereas in December 2017 it was highest at 4 .25%, this thus has since made it possible for commercial borrowers to borrow precisely and enhance better market characteristics ("the United States Prime Rate History," 2018).

Financial report

From the company's annual reports, the company made revenues of €59230 million in 2015 and €57334 million in 2016. In 2017, the available figures indicated that the company made revenues worth €29696 million in its first half of the FY2017 whereby in quarter two the vale reported was at €14813 which represented a 4.4% increase when compared to that of the same period in FY 2016.

This is presented in the graph below;

Thus, the company's data indicate that it is making profits of which the pricing strategy employed should still be used as it is likely to be the most recommended one based on the market share and the existing competition.

The pricing strategy and recommendations

One of the major determinants of the price DHL would charge is based on the geographical area, means of deliveries, the available competitors and if the business is entering for the first time. However, for the longest time, the company has used software called Zilliant which takes into account relevant customer, cost as well as the competitive information. This has been effective; however, considering a pricing strategy like skimming would help the company capture new customers in new locations (Rushton & Walker, 2007). This is because, the higher prices at the beginning would help achieve the high-end customers, however, as the cost is gradually reduced and the company becomes more common, then more customers are bound to be brought on board as the initial customers remain loyal and this will make the revenue growth.

Output decisions

One of the factors that affect the logistics business is costs of production for this case, delivery of goods and parcels across the world. DHL has some costs that it has to consider to make well-informed decisions. They include labor, which is the employees, marketing, technology, mode of delivery and research and developments (Rushton & Walker, 2007).

The company has to mostly embark on marketing which may include promotional discounts like free shipping on special occasions for items that are light enough to its loyal customers for example during the black Fridays to counter their major competitors. Extensive market research into the needs of her market would help establish a framework that would be aimed at solving the problem of their day to day customers.

Thus, therefore, DHL is a global logistics company that is destined to become a global market leader. It thus only requires that it may go an extra mile to identify the special needs of her customers through market research, offer better pricing strategies like skimming and venture into more grass root level marketing to have more customers subscribe to it. Better technology in establishing best and reliable mode of delivery of the goods is a requirement to see it increase its market share in the long run.

References

Datanyze Universe-DHL. (2017). Datanyze.com. Retrieved 2 February 2018, from https://www.datanyze.com/market-share/logistics/

Consumer Price Index Summary. (2017). Bureau of Labor Statistics. Retrieved 2 February 2018, from https://data.bls.gov/timeseries/LNS14000000

Coyle, J. J. (2013). Supply chain management: A logistics perspective. Australia: South-Western Cengage Learning.

Rushton, A., & Walker, S. (2007). International logistics and supply chain outsourcing: From local to global. London: Kogan Page.

United States GDP 1990-2017 | Statistic. (2018). Statista. Retrieved 2 February 2018, from https://www.statista.com/statistics/188105/annual-gdp-of-the-united-states-since-1990/

United States Prime Rate History. (2018). Fedprimerate.com. Retrieved 2 February 2018, from http://www.fedprimerate.com/wall_street_journal_prime_rate_history.htm

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