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Zhu Yong After UPS broke from its local partner - Sinotrans, Fedex spent US$400 million to acquire the remaining stake of its joint venture with the Chinese firm DTW Group. It also bought all of DTW's assets in the domestic and international express delivery markets. And while foreign giants are expanding in Fedex's buyout of its local partner signifies the acceleration of foreign express delivery firms' expansion in DTW's domestic express delivery business suffered losses of 60 million yuan in its first 11 months in 2004, but Fedex still spent $400 million for DTW, which highlights Fedex's desire for DTW's network. Industry sources say Fedex's is trying to catch up with its competitors. DHL announced its entry into the domestic express delivery market in 2004, TNT has already begun domestic parcel delivery and UPS has the rights to international express delivery business in tier-one cities. The joint venture agreement with DTW was originally expected to expire in 2009, but Fedex bought out the Chinese firm because it wanted immediate exposure to the domestic market. Exit of domestic players Since selling to Fedex, DTW has given up its domestic express delivery business and its chairman, Wang Shusheng, said the firm's focus would shift to goods logistics, warehousing, international goods forwarding and distribution. Sinotrans, another domestic delivery giant, seems to be considering whether it should exit the business, or up investment. Zhang Jianwei, Sinotrans' president, used to say his company would continue to strengthen its position in the domestic market. The firm's air delivery arm, Sinotrans Air Transportation Development Co Ltd, still holds 25 percent of international express delivery market. Sinotrans Air announced to acquire 51 percent of stakes in Shentong Express, a domestic express delivery firm, and 49 percent of Sichuan Airlines. However, since Zhao Luxiang took over the position of chairman, Sinotrans Air's strategy seems to be changing. The company has recently suspended cooperation with both Sichuan Airlines and Shentong Express. Pending postal law A private express firm president was not worried when he heard DTW was being acquired by Fedex, but he expressed deep concerns about a draft revision of the postal law. Two points in the draft will hit private firms hard: letters with a weight under 350 grams can only be handled by China Post, and non-postal businesses, aiming to do letter and parcel delivery business, must get permission from postal service regulators. Because most private firms handle letters under 350-gram limit, many private delivery firms will have no chance of survival if the draft becomes law. Build-up to battle The changes mean conflict is inevitable. However, we believe four foreign giants - Fedex, DHL, UPS, and TNT - will not seek a greater stake in the domestic delivery business and that their Private express delivery companies are also finding ways to survive, primarily by developing their own parcel business. Our view is that although the logistics and express delivery business has been growing rapidly since Foreign companies therefore need to use their financial strength to build necessary infrastructure while strengthening their capability to handle goods on the ground. This will help maintain their competitive advantage in the market. Service and technology are two other ways foreign firms can demonstrate their leadership. Private and State-owned companies should learn management and technology expertise from their foreign counterparts to build an information network for customers, allocate resources efficiently and use capital effectively. The author is senior consultant with Shanghai Tkcis Consulting (
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