Four Opportunities and Challenges for Domestic Private Express Enterprise

Four Opportunities and Challenges for Domestic Private Express Enterprise

The new Post Law, Development Plan of Express Industry of Yangtze River Delta Region and Development Plan of Express Industry of Pearl River Delta Region aim at encouraging express enterprise to become bigger, stronger and more focused, namely, to nurture several nationwide domestic express enterprise with famous brand, large scale, strong competence and potential capability. The market access system established by the new Post Law, which requires larger registered capital, sets up more restrictions and imposes more severe penalty, is conductive to promoting the industrial integration.

 

The new Post Law, Administrative Measures on Express Market Permitting and Regulations of Monopoly Management for Express Industry will take effect simultaneously on October 1, 2009. Standards of Express Service and Administrative Measures on Express Market will have to be revised based on the above. The implementation of the laws, regulations and standards is in favor of optimizing the market environment, creating fair and equitable competition for different market players, and changing the current market structure which is small, weak, scattered and poor.

The legal status of private express enterprise has been made clear by the new Post Law. Domestic and foreign investment has gained the legal assurance and the scope of business was clearly defined. It is conductive for express industry to speed up the development to become bigger and stronger through financing.

Domestic private express enterprise are weak in terms of comprehensive capability, which is a great opportunity for investors and private express enterprises. Domestic private express enterprises are facing up to reshuffle. And they depend highly on capital for restructure or merger. As a result, there is great potential in China express market so that the opportunity outweighs challenge for investors.

The new Post Law is conductive for a more diverse and specialized market, the innovation of new technology and new business mode and speeding up the development of segment market. Investors or express enterprises are allowed to enter any legal segment market like distribution for e-commerce, TV shopping, receipts, customs documents, treasures, gifts and so on, which has great potentials in the future.

1．The new Post Law raises the threshold of the market access, such as registered capital (0.5 million yuan for intra-city couriers, 1 million for inter-city couriers and 2 million yuan for couriers who provide international service), qualification and the standards of facility and so on, which will increase the operating cost.

2．Expenses related to legal obligation, such as, endowment insurance and the cost of resource will increase.

3．The cost of law and regulation violation will increase as the penalty system has been improved day on day.

4．Extensive management pattern without standard operation mode will certainly lead to the high cost.

5．Due to the fierce competition, profit of each market player is approaching average level, competition getting larger-scaled and operation being integrated. Check the following Annex 3.

Therefore, private express enterprises are losing their edge of cost after the new Post Law takes effect.

 

Similar target market appears as the similar service, similar rate and similar business mode.

With the regulatory environment being improved, the competition will be developing like this way: from similar target market and low price-based competition to service-driven competition (like cost performance and diversity), from service-driven to business mode competition, from business mode competition to brand competition. Brand competition mainly involves standardization, IT, automation, integration, innovation of business mode and enterprise culture.

 

Franchise mode works successfully in many industries. However, when the credibility is not high enough to support the rapid development of express industry and be in line with the trend of market plus the irregular market, the business mode of franchise-only is losing its competitive strength.

1．Express industry features the integration which the franchise mode cannot be fit in with because each franchisee focuses on its own interests. They work on their own way in disregard of the overall situation. They are weak in terms of integrate operation and management skills, along with inferior culture and quality of employees.

2．It’s hard to build the standardized system.

3．Most market players adopt unitary strategy for competition (mainly low price competition) and provide service products at the same level. That means they over provide the low-end service but are less able to meet the high-end demand.

Therefore, franchise-only mode will face up to the danger of close if relevant enterprises do not restructure or optimize their franchise-only mode in the next five years, they may not be able to survive .

Family enterprise and family like managing structure are completely different concepts. Corporate governance structure of modern enterprises is the base for express enterprises to grow to be bigger and stronger. Decision-making of enterprises with family like managing structure lacks scientific basis, democracy and forward thinking. It is hard for them to absorb talents and investment. Many examples of the development of private enterprises proved that starting a business mostly depends on family members but the further development mostly depends on the modern corporate system.

The combination of price-based and weight-based monopoly definition impact less but the weight-only one impact a lot on private express enterprises. Furthermore, the impact is in direct proportion to how much grams the monopoly definition is.

This author consults with leading institutions through GLG