Corporate Strategy

University Degree Business and Administrative studies

Introduction

Pacific United Logistics Inc. Limited (PUL) is one of the leading Korean-based logistics companies established in Hong Kong since year 2000. PUL consists of young and talented manpower in order to achieve the market demands of globalization and specialization. Through the years, PUL has achieved a remarkable reputation for its services. (Pacific United Logistics Inc. Limited, 2008)

PUL provides tailor-made logistics solution matching with different requirements from different customers. PUL’s tailor-made logistics service includes air and sea freight forwarding, warehousing, domestic and worldwide distribution, container drayage and cross-border trucking, logistics consulting, customs brokerage and worldwide door-to-door service. Delivering goods in a manner of prompt, efficiency, consistency, flexibility and timeliness is PUL’s operation motto. (Pacific United Logistics Inc. Limited, 2008)

PUL’s mission is to provide zero-defect and complete supply chain management solution in both time and cost efficiency and customer-driven manner resulting in total satisfaction for its customers. (Pacific United Logistics Inc. Limited, 2008)

This report will use PEST analysis to analyze the broad macro-environment of PUL; Porter’s five forces as the micro-environment to assess the attractiveness of logistics industry; market trend analysis to analyze market segment that PUL focuses attention on differences in customer needs; competitor analysis to analyze the main competitors of PUL (Johnson, G et al., 2008); and conclude with several propose recommendations for PUL.

PEST Analysis

Political Environment

Hong Kong is often the preferred logistics hub for many international traders because of its clear and transparent legal framework founded on the rule of law and an independent judiciary. A judicial system that operates independently from the executive and legislative branch of Government and makes its own judgments without fear or favour is a key element in the success and continuing attraction of Hong Kong as an ideal base for the administration of business development, investment and trade in the Mainland (The Hong Kong Logistics Development Council, 2007)

Hong Kong is a free port which thrives on free trade. Its open door policy has enabled it to become one of the world’s largest trading economies and an international financial and commercial centre serving the Asia-Pacific region and the Mainland of China. The cornerstone of this approach is a strong and credible multilateral trading system. Besides, Hong Kong is a founding member of the World Trade Organization (WTO) that provides strengthens rules and disciplines for the conduct of multilateral trade. Hong Kong maintains no barriers on trade under the free trade policy. Therefore, Hong Kong does not charge tariff on importation or exportation of goods. Import and export licensing is also kept to a minimum. These enhance the rapid growth in logistics industry in Hong Kong in the past years. (Trade and Industry Department, 2008)

Economic Environment

The Heritage Foundation and the Cato Institute of the United State, and the Fraser Institute of Canada have consistently rated Hong Kong as the world’s freest economy. With no barriers to trade, no tariffs, no quotas, no exceptions, no restrictions on inward or outward investments and no foreign exchange controls, Hong Kong is an ideal hub for international trade and logistics. (The Hong Kong Logistics Development Council, 2007)

In addition, the Closer Economic Partnership Arrangement (CEPA) between the Mainland and Hong Kong on 29 June 2003 has made Hong Kong the ideal business base for entrepreneurs looking to do business in the Mainland. This has given Hong Kong logistics companies the priority access to the Mainland’s booming domestic market. (The Hong Kong Logistics Development Council, 2007) CEPA allows Hong Kong service suppliers to provide, in the form of wholly-owned operations, logistics services in the Mainland. CEPA provides a window of opportunity for Hong Kong Logistics businesses to gain greater access to the vast opportunities of Mainland market. ...

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In spite of intensifying competition in the region and sluggish economic conditions in the United States, the logistics sector maintained its steady course. The total container throughput of Hong Kong Port recorded a further rise of 4.4% over a year earlier to 12.0 million TEUs in the first half of 2008, as compared to the 2.0% growth for 2007 as a whole. A strong expansion in transshipment activities continued to be the key contributory factor. Concurrently, the value of trade excluding transshipment cargoes handled at Hong Kong Port moved up by 7.0%, with its share in the overall trade value remaining at 31%. (Hong Kong Economy, 2008)

Due to the run-up in food and energy prices on a global scale, inflationary pressures around the world have been increased. Against this background, consumer price inflation in Hong Kong went up notably in the second quarter of 2008, reaching 5.7% year on year. As measured by the Producer Price Indices, the output prices of maritime transport and air transport increased 3.0% and 3.3% respectively in the first half of 2008 under the environment of high fuel costs. The surge in fuel prices and uncertainties in the global economy expected to adversely affect the growth in the near term. (Hong Kong Economy, 2008)

Social Environment

Facing the world and backing on the Mainland, Hong Kong is situated at an advantageous position in the Asia-Pacific Region. Hong Kong has also been at the forefront of providing modern transportation and information technology services. With these multiple advantages, quickly thrives in the logistics field. The mainland’s accession to WTO will be translated in terms of imports and exports, into surges and presents new opportunities for the Hong Kong logistics business. Boosted by the government’s effort in enhancing logistics capabilities, the industry should have great demand for skilled manpower. (Labour Department, 2006)

Hong Kong’s logistics industry professional possess rich knowledge and experience in trading and providing logistics services for international customers. However, the growing of logistics industry emphasis and pressure being placed on logistics as part of the global commerce cycle requires the integration of all trading, supply chain, transportation and warehousing skills (The Hong Kong Logistics Development Council, 2007). According to the Hong Kong in Figures 2008, the employment distribution of logistics industry in 2007 was 9.3% among 16 different industries (Census and Statistics Department, 2008).

Technological Environment

The McClier Report commissioned by the Hong Kong Port and Maritime Board completed in 2001 create a “Digital Trade and Transportation Network” (DTTN) to link up stand-alone and vertical information systems in the supply chain, as well as an open platform for the common use by the trade and logistics industry stakeholders along the supply chain both local and international. It provides a comprehensive end-to-end coverage of electronic trade and logistics document transmissions across companies, sectors and geographical boundaries. The DTTN implementation was subsequently identified as one of the top priority initiatives of the Government. The key benefits that will be delivered by the DTTN are improving the operational efficiency, enabling new business opportunities, competing on value not just cost, integrating with global initiatives and Mainland China, inducing changes to IT literacy of the industry, responding to competitive challenge, improving Hong Kong’s image and shielding the industry from frequent upgrades. (The Hong Kong Logistics Development Council, 2002)

Porter’s Five Forces

Hong Kong is a world-class logistics hub with the busiest container port and international air cargo handling centre in world. However, with the rapid growth of the Mainland and other neighboring countries, logistics industry in Hong Kong nowadays is now facing ever-increasing competition, and the relatively high operation costs put logistics industry in Hong Kong in a less-advantageous position. (Federation of Hong Kong Industry Group, 2005)

Rivalry among competitors

The logistics industry is an extremely competitive industry as there are numerous small, medium, strong and aggressive competitors undercutting each other. (Katgara, S., 2008) As well as the current logistics industry in Hong Kong is under the mature growth stage of its business life cycle, it hence the fierce competition. The fact that the logistics industry is highly undifferentiated and very easy and costless to switch to another logistics company drives increasing competition amongst logistics company (Jost, T. and Hux, W., 2008). In addition, Hong Kong logistics companies also face an additional threat from growing competition from neighboring ports and logistics hubs in the Mainland in which reinforce the competition of the logistics industry in Hong Kong (The Hong Kong Logistics Development Council, 2007).

Threat of new entrants

Logistics industry has low entry cost and low exit cost hence anybody can enter and exit anytime, which is the reason that industry is highly fragmented. (Katgara, S., 2008) In addition, under the rule of law, the free flow of information and capital, transparent regulation, a level playing field for new entrants, and a well-regulated financial system, anybody can enter into the logistics industry.

Threat of substitutes

There are no current substitutes in logistics industry. However, as the whole logistics industry has gone through an upheaval as IT has enabled buyers and manufacturers to by-pass “middleman” companies; and to utilize “just-in-time’ delivery to enhance profit margins in a wide range of industries, the logistics industry would be under threat in the future (Katgara, S., 2008 and The Hong Kong Logistics Development Council, 2007).

Bargaining power of consumer

Both exporters and importers try to force prices down, demand more quality and better services and set competitors against each other all at the expense of agent’s profitability. (Katgara, S., 2008) Customers have the bargaining power as it is costless to switch to another forwarding company.

Bargaining power of suppliers

The bargaining power of airlines and shipping lines are high as they are the main suppliers and both are stronger than the logistics industry. Therefore they will always dominate the terms of business and the prices. (Katgara, S., 2008) Oppositely, the bargaining power of truck vendors is low to moderate as there are many suppliers and it is costless to switch to other trucking vendors.

Market Trend Analysis

PUL is a small to medium size Korean-based Logistics Company in Hong Kong. The reported turnover has been slightly grew up from Hong Kong dollars 5.19 million in March 2007 (Leung Kar Pui & Co, 2007) to Hong Kong dollars 5.66 million in March 2008 (Leung Kar Pui & Co, 2008). PUL currently target marketing the Korean market as one of their geographical market segments. Over 80% of its customers are from second to third large-scale Korean companies.

The rivalry among competitors is low to moderate as there are not many Korean-based logistics company in Hong Kong. The threat of new entrants is low as most of the Korean company would like to appoint a Korean-based logistics company as their logistics provider. The bargaining power of consumer is medium to high as the main customers of PUL are normally using its service under groups. The bargaining power of airlines and shipping lines are high as they are the main suppliers of air and sea carrier, but the bargaining power of the trucking vendors is low as most of the vendors are singly nominated by PUL. The key success factors of PUL are “never say no to customers” and treat its customers as “King”.

Competitor Analysis

PUL’s main existing competitors are Korchina Logistics Holdings Limited (Korchina), Extrans International (HK) Company Limited and Pantos Logistics (HK) Company Limited. These existing competitors are all Korean-based logistics companies. Due to the limitation of resource available, the competitor analysis will be only focus on the Hong Kong largest Korean-based logistics company, Korchina.

Korchina founded in 1994 headquartered in Hong Kong and operations in Singapore, Bangkok, Taipei, Japan, Malaysia, Malaysia, Cambodia, United State of Amercia, Vietnam and South and East of the Mainland. Its objective is to design the best solutions to expedite the cargo movement with cost saving and accurate cargo flow. (Korchina Logistics Holdings Limited, 2008)

Its main customers most are the first large-scale Korean companies such as Samsung Electronics, LG Electronics, Hyundai Electronics, etc. Owing to this, Korchina reduces the bargaining power of suppliers to low level. This leads Korchina to be the cost leader among Korean-based logistics companies and attract more customers. Aside from this, Korchina also create differentiations by established subsidiaries covering different unique features of service such as online and offline cargo sales agent, insurance brokerage, offshore company management, digital trading and engineering, and all kind of insurance products that better serve its customer needs. (Korchina Logistics Holdings Limited, 2008)

Conclusion

In order to meet with the challenges of ever changing environment and overcome competitors, PUL should utilize the advantage of being the natural gateway for trade to and from Southern China to expand wide range target segment in spite of focusing mainly on Korean market. Moreover, PUL should establish new services by collaborating with other industry players and improve its existing services by implementing Track and Trace solutions. Aside from this, PUL should increase IT spending enhancing the functionality and efficiency of the company’s system. In addition, PUL should promote lifelong learning and improve the quality of the manpower by providing staff technological skills with a clear articulation ladder and training that promoting the development of value-added one-stop supply chain management services (The Hong Kong Logistics Development Council, 2002 and 2007). PUL would maintain its competitiveness in face of the opportunities and challenges ahead by implementing all above recommendations.

Bibliography

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Leung Kar Pui & Co (2008) Pacific United Logistics Inc. Limited - Reports and Accounts for the year ended 31 March 2008

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