United Parcel Service, Inc. (“UPS”) and FedEx Corp. (“FedEx”) are two of the largest air delivery and freight services. With the current transportation agreement between the United States and China the market in which these companies conduct business is going to grow. This is a positive agreement for both UPS and FedEx, meaning that both companies are attractive in terms of investing. However, it is recommended that only one of them should be invested in because they are very closely correlated to one another. Since this is the case it is important to look deeper into each company to determine the levels of attractiveness.
Business Plan Overview
Even though FedEx has the early lead on operations within China, one only has to look at the European marketplace to evaluate how both companies will approach the new business environment post-agreement. Using the analogy of the tortoise and the hare, FedEx acts like the hare by quickly ramping up service by leasing new equipment and setting up distribution hubs. This allows FedEx to get a head start and achieve early gains but this does not come without risks. Within Europe, FedEx made a number of risks and ultimately sold its European hub to DHL and it is estimated that they had lost upwards of $1 billion from 1984-1992 on the European business.
Conversely, UPS is more like the tortoise by not being the first to market with a new service. UPS takes the time to do their analysis and to identify potential partners in order to share the risks for a new venture. Within Europe, UPS did not enter the marketplace until 1988 but when they did enter, they did it by acquiring 10 European courier services. This gave UPS an already-established network with which to grow without the start-up expenses that FedEx incurred.
We can see that the same business-model approach is being used for China on both FedEx’s and UPS’s part. FedEx was the