Final Project Report on Indian Aviation Industry | Airlines Final Project Report on Indian Aviation Industry hii, guys this project will help to make your project easyly , when i search here , i could not find any project that is worthy so i make it and uploaded for you guys ,go and enjoy it...!!! Copyright: Attribution Non-Commercial (BY-NC) 1 |P a g e THE ECONOMICS OF INDIAN 2 |P a g e Acknowledgements First of all, I would like to thank the Almighty for providing me with the strength to complete this project. I am highly obliged to have support of my Parents without which it was not possible to take up this activity. I feel deeply feel indebted to myDir ecto r, Mr. S. K. Gulati, who was the strength and an encouragement behind every student. I also, take this opportunity to thank Mr. Gaurav, of Kingfisher Airlines, Mr. Ashish Srivastava of Indian Airlines, Mr. Kapil Kaul of Center for Asia Pacific of Avionics, Mr. Rupesh Kumar of Jet Airways and Mr.

Shantanu Prakash of Indi Go; for providing me an opportunity to take this project work and under whose guidance whole of the project has been completed. MY sincere thanks also goes to our friends, peers and colleagues for supporting at every j uncture which helped us complete this project work in time and without which we would not have been able to unravel several mysteries of the Aviation Industry of India , which is now part of this report. SANDEEP SINGH 3 |P a g e The Indian Aviation Industry Introduction Air India was set up by J.R.D. Tata, who ran it successfully until it was nationalized in 1953. In the 1960s the \u2015Maharaja\u2016, as the national flag-carrier was affectionately known, was flying to 32 destinations (it now flies to 46 destinations) and making profits.For many years in India air travel was perceived to be an elitist activity. This view arose from the \u2015Maharajah\u2016 syndrome where, due to the prohibitive cost of air travel, the only people who could afford it were the rich and powerful.

In recent years, however, this image of Civil Aviation has undergone a change and aviation is now viewed in a different light - as an essential link not only for international travel and trade but also for providing connectivity to different parts of the country. Aviation is, by its very nature, a critical part of the infrastructure of the country and has important ramifications for the development of tourism and trade, the opening up of inaccessible areas of the country and for providing stimulus to business activity and economic growth. Until less than a decade ago, all aspects of aviation were firmly controlled by the Government. In the early fifties, all airlines operating in the country were merged into either Indian Airlines or Air India and, by virtue of the Air Corporations Act, 1953 this monopoly was perpetuated for the next forty years. The Directorate General of Civil Aviation controlled every aspect of flying including granting flying licenses, pilots, certifying aircrafts for flight and issuing all rules and procedures governing Indian airports and airspace. Finally, the Airports Authority of India was entrusted with the responsibility of managing all national and international airports and administering every aspect of air transport operation through the Air traffic Control. With the opening up of the Indian economy in the early Nineties, aviation saw some important changes.

Most importantly, the Air Corporation Act was repealed to end the monopoly of the public sector and private airlines were reintroduced. Domestic liberalization took off in 1986, with the launch of scheduled services by new start-up About Strategic Management | College Thesis Writing Help | Custom Dissertation Writing Services | Research Paper Writers Strategic Management: Concepts and Cases Mcgraw-Hill Higher Education (2012) edition 2012 or the newest MHID: 0071317910; ISBN: 978-0-07-131791-7 The case (questions) need to be solved. It is the Case Number 26: UPS in India (in 2011)-A Package Deal? The questions (mostly at the end of the case text) should be answered. Therefore the book should be used, especially the chapter 11 Organisational Design: Structure, Culture, and Control to answer the case questions. If needed to answer the question other frameworks can be used (pestle, five forces etc…. but only if it is needed to answer the questions in addition to the things which are mentioned in the chapter 11).

English level like in the Case. 0+ FRANK T. ROTHAERMEL UPS in India (in 2011)—A Package Deal? It’s challenging. But UPS is all about global trade. Global trade is going to pull us out of this recession. —UPS CEO Scott Davis in a 2009 CNBC interview IT HAD BEEN six months since Robin Page first walked into the Sandy Springs headquarters of United Parcel Service (UPS) and assumed her role as Chief Strategy Officer. Though she had been doing strategic analysis and planning for years, she felt an unusual amount of pressure to prove herself in this new position. Chief Executive Officer (CEO) Scott Davis had made it clear when he offered her the job that he had high expectations of what she could do for the company, and that he wanted to see concrete results by the end of the first year. Ms. Page glanced at the pile of reports sitting on her desk, many of them describing recent international acquisitions and alliances. She knew that one of the reasons she had been Mr. Davis’s top choice for the position was her extensive international experience.

UPS already had a presence in more than 200 countries, but they wanted to penetrate those markets more deeply, especially the rapidly growing economies of Southeast Asia. Ms. Page had traveled extensively around the region both for work and for pleasure, and Mr. Davis was counting on her insights to help the company with its Asian expansion. First and foremost on her mind was India. She remembered fondly a vacation she had taken there just a year or so ago, and how the city marketplaces had struck her as a unique mix of the modern and the ancient. People milled around everywhere, pushing their way through crowded streets, families piled on motor bikes weaving in and out of lanes of standstill traffic. Yet everywhere she looked, someone was talking on a cell phone, and modern buildings lined the horizon with names of multinational corporations from all over the world. An entrepreneurial spirit seemed to fill the air, with new businesses coming to life on a daily basis; for every venture that failed, two more sprouted up to claim its space. The country was awash with business opportunities amidst the clamor, congestion, and complexity that typified modern life in India’s major cities like Mumbai, Delhi, and Bangalore. The sheer volume of people promised seemingly unlimited market potential.

Although UPS had established a footprint in India, it had yet to penetrate the market on the scale that Ms. Page and other UPS managers hoped for. They formed an alliance with Jet Air in 2005, which led to the opening of the first “UPS Store” in Mumbai and several other major cities. In 2008, UPS established a second alliance with AFL Private Ltd, gaining access to the logistics company’s field stocking locations and significantly increasing its access points for international delivery. Since then, however, UPS’s attention had shifted to other Asian markets like China and Malaysia, leaving India wide open to invading competitors. Sure enough, in UPS’s absence, DHL acquired the Indian Professor Marne L. Arthaud-Day, Research Associate Shreyasi Banerjee (Industrial Engineer and Systems Analyst, Intel), and Professor Frank T. Rothaermel prepared this case from public sources. This case is developed for the purpose of class discussion. It is not intended to be used for any kind of endorsement, source of data, or depiction of efficient or inefficient management. © Arthaud-Day, Banerjee, and Rothaermel, 2013.

delivery company Blue Dart and had become the clear market leader in both the international and domestic segments. Today, DHL-Blue Dart had a combined market share three times higher than the next largest company.1 Clearly, it was to time to reformulate UPS’s India strategy. In many ways, the India situation reminded Ms. Page of when UPS first began to offer overnight delivery back in the 1980s. A major competitor (the U.S. Postal Service) dominated the marketplace, and while UPS had strongholds in all of the major locations, the challenge was to figure out how to connect rural America to its major transportation hubs. UPS had promised overnight delivery between any two addresses in the United States, and they weren’t joking. If a package needed to get to the base of the Grand Canyon, the plan was to drive the package on a dirt road for 50 miles from Valentine, Arizona, to the rim of the Canyon. A mule train operator would then take the letter over to the rocky final leg for a $35 charge to UPS. UPS would deliver the letter at a loss in order to maintain its commitment to overnight delivery. Ms.

Page knew that vast regions of rural India still lacked adequate roadways, and she chuckled thinking that mule trains might not be such a far-fetched idea after all. Delivery at the local level was still very much a small business, especially in developing countries. It’s like Kent Nelson, UPS’s senior vice president for finance and customer service, said in a 1985 interview, “When you are in the package-delivery business, you are really in the pennies business. The trick is to have the pennies build up to be profitable.”2 If UPS was to be a major player in the current “India Mania,” the company would have to figure out the answers to several difficult questions. How unique was the Indian situation compared to other developing countries? UPS had been in business for over 100 years and had experience in over 200 worldwide marketplaces. Surely some of the lessons learned would transfer to India, but how could they determine which ones? Competitors already had a head start, so UPS could not afford to experiment based simply on trial and error. How should they go about tapping the extensive potential of one of the world’s largest economies?

How difficult would it be to streamline their supply and distribution chain given the lack of infrastructure development? With the size of India’s population and the economy’s rapid growth, the rewards for successfully addressing these issues were sizeable to say the least. Ms. Page sat down and started reviewing the pile of documents sitting on her desk, hoping the deals of the past would help her figure out the right path for UPS’s future in India. The UPS Story The UPS saga has all the elements of a remarkable success story. Two teenage entrepreneurs in 1907 started what would one day become the world’s largest package delivery company. EARLY HISTORY Claude Ryan and Jim Casey had a big idea and a small amount of debt capital. Working from a Seattle basement, they began running errands and carrying notes on foot, as well as making home deliveries for drugstore customers. As the arrival of new technologies such as the telephone and automobile led to a decrease in demand for messaging services, the company shifted its emphasis to delivering packages for retail stores.

“Merchants Parcel Delivery” quickly built a strong reputation based on its personalized customer service and the care with which it handled every package.3 The young enterprise changed its name to United Parcel Service in 1919 as it entered a golden period of domestic expansion. The word “United” was chosen to reflect that even as the company expanded into other cities like Oakland and Los Angeles, they still belonged to the same organization. 2 Throughout its early history, UPS functioned primarily as an intra-city delivery service, innovating in response to consumers’ changing lifestyles and shopping patterns.4 In the 1920s, UPS added several unique service features such as daily pick-ups, acceptance of C.O.D. payments, and multiple delivery attempts.

It also developed a new conveyor belt system for handling packages.5 When fuel shortages leading up to World War II caused retailers to curtail their delivery activities and encourage customers to carry their parcels home, UPS stepped up and expanded its retail store service.6 After the war, as people migrated to the suburbs and bought cars that could hold their goods, UPS shifted its focus to the business-to-business segment.7 COMMON CARRIER RIGHTS In the next phase of its expansion, UPS decided to pursue common carrier rights, meaning that it could deliver packages between both private and commercial customers. This was traditionally the domain of the U.S. Postal Service, as stipulated by the Interstate Commerce Commission and multiple state regulatory bodies. A series of legal battles ensued as UPS fought to expand its operating authority to all 48 states, a goal which it finally achieved in 1975. By 1978, UPS also provided nationwide air transport services, flying packages in the cargo bays of commercial airlines.8 UPS AIRLINES In response to the deregulation of the airline industry, many established carriers trimmed flights during the 1980s, leading to reduced air freight capacity.

UPS saw this as an opportunity to enter the air delivery business and began to acquire cargo jets. It offered next-day air service to 48 states by 1985, and in 1988, UPS Airlines was formally recognized by the Federal Aviation Administration. It was the fastest airline startup in FAA history, taking just over one year to get all systems into place.9 Building on the success of its airline service, the company shifted from a national delivery company to a global footprint throughout the 1990s. UPS now provides delivery services to more than four billion people in over 200 countries.10 GOING PUBLIC The latter half of the 1990s brought both major challenges and new business opportunities. In August 1997, the Teamsters Union led about 185,000 UPS workers on a strike. They wanted more union control of employee pension funds and objected to UPS’s increasing use of part-time workers. UPS controlled about 80 percent of all package deliveries in the United States, so the repercussions of the 15-day strike for both the company and its customers were severe.

UPS lost $650 million in business over a disagreement that then CEO James Kelly commented could have been worked out “without a strike.”11 UPS recovered quickly, however, and went public in 1999, almost 100 years after its conception. A report in The New York Times said, “Investors have greeted the new stock with an enthusiasm usually reserved for dot-com ventures whose founders’ parents had not even been born by 1907.”12 In fact, the UPS IPO was the largest public offering to date. (See Exhibits 1 and 2 for UPS financial data.) SYNCHRONIZED COMMERCE In the meantime, UPS continued to redefine itself in response to changes in its external environment.

No longer restricting its activities to delivery services, UPS sought to become a “solutions company” that offered services tailored to its customers’ business process value chain.13 It formed the UPS 3 Logistics Group in 1995 to streamline service operations over its customer base, and UPS Capital in 1998 to provide financial products and services to help small businesses grow.14 The company made about 30 acquisitions in total, including freight forwarders, customer clearers, and a bank for the efficient movement of goods, information, and financing along their supply and distribution network.15 When a study by FutureBrand concluded that UPS had no terminology to explain their expanded business model to customers, they coined the term “Synchronized Commerce.”16 By modifying its supply chain to streamline the flow between buyers and sellers, UPS was able to “synchronize” goods, information, and funds to deliver more products and services to its customers.

By the start of the new millennium, UPS was well on its way to becoming a full-service business.17 In 2001, UPS acquired Mail Boxes Etc., then the world’s largest franchisor of retail shipping, postal, and business service centers.18 This strategic move enabled the company to target smaller businesses and increased its accessibility to residential and home-office customers. Over 3,000 Mail Boxes Etc. locations were re-branded as “The UPS Store,” in the largest re-branding campaign in history. Mail Boxes Etc.’s CEO said that the initiative helped set lower maximum retail prices for UPS shipping. He added, “By pooling MBE’s expertise in retail business services with UPS’s expertise in shipping and other expanded capabilities, The UPS Store offers an extensive portfolio of products to our franchisees and their customers.” Currently, “The UPS Store” and “Mail Boxes Etc.” have over 4,800 locations in the United States, Canada, and India alone.19 Today, UPS maintains its focus on services as its core business while continually looking to grow new revenue sources.

To ensure that the company keeps its strategic focus, former CEO Mike Eschew introduced the “Four Quadrant” growth strategy that “focuses on innovating existing business operations internally and externally, and, likewise, focuses innovation on new entrepreneurial ventures both internally and externally.”20 This strategy has helped to land UPS among the top 15 most respected companies and in the top 10 of all logistics companies worldwide (see Exhibits 3 and 4). HUB AND SPOKE MODEL UPS’s delivery network is based on the hub and spoke model,21 a centralized and integrated approach to logistics management.22 It consists of a hub (the center), where packages are sent for consolidation, and spokes that link the hub to all other points in the system. UPS’s rival, FedEx, pioneered the hub and spoke system in the U.S. domestic express delivery sector, and then extended it to its international operations. FedEx’s first Asian hub was at Hangzhou Xiaoshan International Airport, located in east China’s Zhejiang Province.23 UPS transitioned from direct shipping to the hub and spoke system somewhat later than its major competitor, but has still benefitted from significant cost savings by doing so.

UPS BRAND AND CULTURE Claude Ryan and Jim Casey started UPS with the goal of providing the best service at the lowest rates. Jim’s commitment to reliability, courtesy, neatness, and high ethical standards helped establish the values that continue to guide UPS today.24 “They trust UPS, our technology and visibility tools. It’s good to get there on time,” said CEO Scott Davis, when asked what loyal customers think of the brand.25 Since its inception, UPS has stressed employee ownership as a way to get its people to feel responsible and involved. “We are all owners, that is a big part of enhancing culture. At some point, all of our employees have had a moment when they realize what it means to be a partner,” said former UPS CEO 4 Mike Eskew. The company cultivates further loyalty by following a “promote from within” principle. Over the years, many delivery workers and mail sorters have risen to management levels, including Eskew himself. Before serving as CEO from 2002 to 2007, Michael Eskew started as an industrial engineering manager in 1972 and worked his way up the ranks for 30 years.

India Mania In a 2006 address, Dr. Manmohan Singh, the Prime Minister of India, declared, “We believe that India is now on a sustained path of high growth. We have developed a new model for service-led and technology-driven integration with the global economy.”26 As if on cue, India’s GDP topped the $1 trillion mark in early April 2007, making it the 12th wealthiest nation in the world according to Swiss investment firm Credit Suisse.27 India’s GDP now stands at $1.16 trillion, with an annual growth rate of 7.9 percent even during the global financial crisis.28 When asked about the biggest benefit of doing business in India, Steve Hochradel, Assistant VP of distribution for PBD Worldwide said, “India offers great growth opportunities, and it is easier to do business there than in many other international markets. India has a high population of English speakers, which makes it easy to enter the market, negotiate with vendors and part ners, and set up operations.”29 ECONOMIC REFORM However, prosperity did not follow immediately after India’s emergence from British control and establishment as an independent nation in 1947.

For the first 40 years or so, the new socialist government took an extreme protectionist stance, structuring society on the basis of collective action as opposed to capitalist acquisitiveness. The License Raj represented the state’s efforts to control all aspects of the economy. Elaborate permits and regulations were required to set up or run businesses, severely limiting their growth. Though there was economic discipline at the macro level and inflation was low compared to other developing countries, the Indian economy dragged along at a subsistence level with a low GDP per capita. Basic industries such as steel and textiles were conspicuous by their absence.30 The UPA (United Progressive Alliance), a coalition of political parties that constitutes the Government of India still today, is credited with opening up the economy. An economic crisis during the 1991 general election triggered the beginning of micro-economic liberalization. To rectify the situation, then–finance minister Dr. Manmohan Singh proposed changes such as repealing the “License Raj” and lifting a ban on foreign direct investment. The economy grew by 9 percent the following year as a result of these changes.

The Manmohan Singh government showed further support for international trade through the achievement of two key foreign trade policy objectives in 2004: (1) to double India’s percentage share of global merchandize trade in a five-year period; and (2) to use trade expansion for both employment generation and economic growth.31 To expand upon these objectives, the government established several Special Economic Zones (SEZ Act, 2005) in 2006 to attract foreign and domestic investment. Companies operating in these zones receive significant tax benefits and face much simpler clearance and compliance procedures. India’s worldwide trade is linked to the world economy. For example, with the recession hitting most of India’s major trading partners like the United States, United Arab Emirates, and Singapore, export demand from India declined by 16 percent in January 2009.32 KEY INDUSTRIES India boasts a technical work force of 4 million and trains 60,000 software engineers every year.33 Combined with lower wages, these factors make India a prime source for information technology (IT) services and a choice business process outsourcing (BPO) destination.

In turn, large-scale employment in the IT and BPO sectors has helped to create an upwardly mobile working class, driving increased purchasing/spending power for India’s younger generations. India’s economic climate is highly dependent on the oil industry, which until recently has been closely regulated by the national government. An FICCI (Federation of Indian Chambers of Commerce and Industry) report found a strong positive correlation between the price of oil and commodity prices across different sectors of the Indian economy (with the exception of manufacturing, see Exhibit 5). This was largely due to the fact that political pressures ensured that the government absorbed a large part of the increase in oil prices. Public sector oil companies reported losses of approximately US$ 28 million per day on the sale of petroleum products at government-mandated prices. The government offset these losses by selling oil bonds, providing crude oil to state-owned oil retailers at discounted rates, and making periodic adjustments in retail oil prices.34 In June 2010, the Indian government made a surprising announcement that it plans to deregulate the oil industry. This move is expected to drastically reduce India’s fiscal deficit by shifting increased oil costs to the end consumer, and level the playing field between public and private sector oil companies.

TRANSPORTATION SECTOR Transportation in India has undergone rapid development only in the last two decades. The onus of covering 1,269,210 square miles of land area and supporting a population of more than one billion (1,028,737,436) people makes the sustainable development of India’s transportation sector difficult.35 The Eleventh Five-Year plan, which detailed the latest plans for the Indian economy, projected that $500 billion was needed to achieve comprehensive growth in aviation, roads, railways, and waterways combined. The plan also proposed mobilization of resources from the private sector to complement government efforts. India has 2.1 million miles of roadways that carry 80 percent of its total passengers and 65 percent of India’s freight (see Exhibit 6). As of 2000, roughly 74 percent of India’s rural population lacked adequate road access, while 40 percent of the existing roads lacked all-weather capability.

As a result, the government plans to invest $70 billion in India’s road infrastructure over the next few years;36 $33 million has been dedicated to providing rural connectivity.37 Developmental projects such as the Golden Quadrilateral Project are helping link India’s four major metropolises (Delhi, Mumbai, Kolkata, and Chennai), while the Prime Minister’s Rural Roads Program (PMGSY) aims to provide increased access to agricultural communities. India’s civil aviation industry was born in 1912 with the first air flight between Karachi and Delhi (see Exhibit 7). The government monopolized the industry for most of the 20th century through the state-owned Air India and Indian Airlines Corporation, until the passage of the “open sky” policy in April 1990 (effective as of 1994). Under “open sky,” airlines could receive foreign direct investment of up to 49 percent, opening the market to a host of new players like Jet Airways and Sahara.

Deccan Airlines was started by Captain Gopinath in August 2003 as a no-frills budget air service, becoming the first in the industry to fly to second-tier cities from major metropolitan areas.38 However, after an initial period of rapid growth, the Indian airline industry fizzled around 2007. Today, the industry operates at 6 fares below its costs and is weighed down by huge debt. When oil prices hit $75 a barrel in early 2009, the industry as a whole was expected to post a $9 billion loss. Major carriers like Indian, Jet, and Sahara have been forced to turn their full-service businesses into budget fleets by cutting down on frills, due to the government’s refusal to provide bailouts. While passenger airlines are suffering, the government has increased the maximum level of foreign direct investment in cargo carriers from 49 percent to 74 percent in order to attract overseas players to increase their network in India.39 Research for Air Cargo India 2010 indicates that air cargo now comprises 19 percent of the total freight in India—the same amount as ocean and rail freight combined.

Overall, aviation is expected to grow at a rate close to 25 percent in the next decade. Air cargo is expected to post a CAGR of 11.2 percent, expanding to more than three times its present size by 2025. Currently, India has 126 functional airports, 12 of which are international and are managed by the Airport Authority of India (5 of these have been privatized for development). Pricing in the industry is directly dependent on high sales taxes on aviation turbine fuel (ATF) and high airport charges. Players in the industry also face major challenges in acquiring land, developing infrastructure, and other issues such as environmental clearance. India’s first rail line was set up as an experimental line during the Madras Presidency in 1836. Later, the British government encouraged development of a railway system to haul construction materials around the country, securing 9 million pounds from British companies in guarantees. In 1951, the Indian Railway was nationalized and integrated into one unit to form one of the largest rail networks in the world.

Today, it has more than 7,500 railway stations connected by tracks spanning 39,233 miles that, most importantly, reach both metropolitan cities and rural villages.40 Railroads in India carry over a million tons of freight every day (see Exhibit 8). India has 12 major seaports, which account for about 90 percent of India’s trade in terms of volume.41 Inland, the presence of canals, rivers, backwaters, and creeks has facilitated the development of an extensive waterway network, maintained by the Inland Waterways Authority of India. Ten of these inland waterways have potential significance at the national level. Although close to 5,700 miles can be used by mechanized crafts, freight transportation is limited to only 0.1 percent of the total inland traffic in India. The volume of cargo carried by Inland Waterways Transport has been declining consistently in recent years in favor of alternative modes of transportation.42 Nevertheless, future development of the inland waterway system could bring economic as well as environmental advantages, and under some conditions, may be the only feasible mode of carrying cargo.

Logistics Industry in India A World Bank research paper sums up the Indian economic climate as having “a highly fragmented service industry. Outdated regulations, heavy government control, a constrained private sector, and largely inadequate infrastructure have curtailed efforts to improve trade logistics.”43 Despite these obstacles, the World Bank projects that the Indian logistics industry will grow at an annual rate of 15 percent to 20 percent, achieving revenues of $385 billion by 2015.44 By 2013, approximately 110 logistics parks and 45,000,000 square feet of warehousing space are expected to be developed across the country by various logistics companies (see Exhibit 9). Tier-2 and tier-3 cities have become favorable destinations due to the availability of large pieces of land at lower prices, connectivity to multiple markets, and the proximity to industrial clusters. Such improvements in logistics capabilities could potentially spur national GDP growth to 11 to 12 percent (see Exhibit 10). Impediments to the development of the Indian logistics industry include government bureaucracy, a fragmented market structure, and inadequate infrastructure.

Indian bureaucracy remains a quagmire; it takes about 20 days to clear import and export cargo at India’s ports, while the same process takes only 4 days on average in Singapore. Smaller players form a major part of the industry, and they are typically characterized by low capacity and poor technology. Meanwhile, the power supply is erratic and subject to prolonged outages in many parts of the country. All of these inefficiencies lead to increased costs. Compared to European countries, rail transportation in India costs about three times more and the average transit time by road is about three times longer. Airport charges and related operating expenses are the major contributors to the cost structure in the aviation segment, while shipping is plagued by high operating expenses, staff cost and depreciation.45 In the Indian context, operating expenses generally exceed the costs of raw materials (see Exhibit 11). A study by Cygnus Business Consulting and Research listed three main growth drivers for the Indian logistics industry in the near future.

Since transportation accounts for over 40 percent of the total cost of production in India, growth in quality physical infrastructure is essential for improving the efficiency of the industry.46 Secondly, the introduction of a Value Added Tax (VAT), a consumption tax levied on any value that is added to a product, has led to increased demand for integrated logistics solutions.47 Manufacturers are seeking to reduce the number of independent warehouses spread over various regions to minimize unnecessary handling and processing (and thus their VAT burden). Lastly, globalization in the manufacturing sector has highlighted the need to integrate fragmented and independently operated functions (for example, transportation, warehousing, freight forwarding, and so on) in order to achieve greater efficiency (see Exhibit 12).48 Despite strong potential, the Indian logistics sector currently comprises only about 2 percent of the estimated $5,000 billion global logistics industry. Another potential growth driver is e-commerce and the associated increase in demand for shipping larger volumes of small packages direct to consumers. Online retailing has been somewhat slow to develop in India due to the lack of infrastructure.

Many of the country’s rural population of 700 million still lack Internet access, though Comat Technologies is actively working to establish Internet centers in villages with populations of more than 5,000. Other project collaborators include ICICI Bank, India’s second-largest private bank, and Wyse Technologies, a manufacturer of computer terminal equipment.49 Another barrier is that Indians value a personalized shopping experience and are not as discount-driven as the American consumer. Credit card transactions in India are not as secure as they are in other countries. Nevertheless, many analysts expect that India will warm up to the idea of Internet shopping as the technology infrastructure improves. UPS in the Asia–Pacific Region UPS entered the Asia–Pacific market in 1986, by setting up a regional headquarters in Singapore. Today, the company’s presence in the Asia–Pacific region spans more than 40 countries and territories, and employs more than 13,300 people. Additional air hubs are located in Hong Kong, Shenzhen, and Shanghai, China. UPS’s initial foray into India was its 2005 partnership with Jet Air.

This agreement led to the opening of the first “UPS Store” in Mumbai, which also marked the brand’s first expansion outside North America. The UPS Store was India’s first full-service retail outlet to offer shipping, packaging, and other business services under one roof. Speaking at the official opening of a UPS Store in New Delhi 8 in 2007, David Abney, then President of UPS International said, “India’s role in the global economy continues to grow impressively . . . ‘The UPS Store’ will provide businesses as well as consumers a convenient channel to markets throughout the world.”50 To better consolidate business processes and gain faster, more cost-effective outputs in India, UPS established a second alliance with AFL Private Ltd in 2008. AFL is a logistics service provider with a significant footprint in India. The alliance was mutually beneficial: UPS gained access to 130 of AFL’s field stocking locations and increased its number of access points for international delivery customers from 26 to 200, while AFL gained access to UPS’s export capabilities.

UPS’s penetration into the Asian markets deepened further with the incorporation of 101 additional field stocking locations in China into UPS’s service parts logistics network.51, 52 Globally, UPS maintains 1,000 such distribution centers to provide customer inventory and order management services in addition to core packaging services. Some of those facilities also house specialized contract services such as technical diagnostics and repair. UPS continues to form alliances and collaborations with other local Asian companies to target different segments. For example, in May 2010, UPS formed an alliance with AliExpress, a subsidiary of the China-based Alibaba group. AliExpress is the world leader in e-commerce for small businesses and hosts the world’s largest base of suppliers in the segment.53 Jordan Colletta, VP of E-commerce and Marketing at UPS, explained the purpose of the agreement as follows: “Through our alliance with Alibaba, we hope to partner with more small and mid-sized Chinese businesses to simplify their logistics processes and connect them with new buyers and sellers worldwide.”54 Less than one month later, UPS formed another alliance with PosLaju, the leader in the Malaysian domestic courier business with a 27 percent market share.

Together, the companies created PosLaju International Premium, which boasts money-back guaranteed overnight international delivery service to 215 Asian locations.55 Competition in India India was proving to be one of the more difficult Asian markets to penetrate due to the sheer number of competitors. Currently, the subcontinent boasts more than 2,500 parcel carriers and courier services, all competing to differentiate themselves based on cost, speed, and territorial coverage. Larger players have a clear advantage with respect to infrastructure, business-consumer interface, and speed of delivery. Smaller or more local firms tend to have better access to local information and ease of penetration at the domestic level (see Exhibit 13 for market share data, Exhibit 14 for performance metrics, and Exhibit 15 for key success factors, respectively). These different approaches are reflected in their respective investments in information systems: larger firms devote close to 20 percent of their development funds to information technology, compared to just over 7 percent for smaller firms.

Blue Dart-DHL Express is the clear market leader in both the international and domestic segments, with a combined market share three times higher than that of the nearest competitor.56 Prior to its acquisition by DHL, Blue Dart had an 8 percent share in the non-document cargo and road freight sector. The next largest competitor in the international segment is TNT, which has double the market share of FedEx and UPS.57 AFL, GATI, and First Flight are Blue Dart-DHL’s main challengers in the domestic sector. See Exhibit 16 for a comparison of the stock performance of some of these key competitors. Started in 1989, GATI has become a leader in express cargo delivery. With operations touching 603 out of 611 districts in India, GATI is one of the most sought-after freight carriers in the country.58 The company covers 200,000 miles every day and claims to have brought India and the world closer by virtue of their “deeply entrenched network and domain knowledge.” In recent years, GATI has diversified both its services and its geographic reach.

GATI now offers distribution and supply chain management solutions as well as delivery services, and has spread across the Asian subcontinent. While expanding its international presence through the establishment of offices in Singapore, Hong Kong, China, and Sri Lanka, GATI continues to develop highly focused expertise in India-centric operations. Of course, all of these private companies also compete against the Indian Department of Posts, the government-run postal service. The Department of Posts has the largest network of post boxes in the world, and close to 90 percent of this network spans rural India. The Department also offers express delivery through its Emergency Mail Service (EMS), which comprises 13 percent of the express market share in India.59 The Post Office (Amendment) Bill of 2006 gives the Department a monopoly in the delivery of small letters and packages (weighing less than 0.66 lbs), limits foreign direct investment in the industry to 49 percent, and requires all private carriers to participate in an expensive and cumbersome registration system.

Every registered service provider with a turnover of $50,000 or more is required to deposit 10 percent of its annual turnover to a Universal Service Obligation Fund (USO Fund).60 Despite its legal mandate, a survey of users of delivery services carried out by the Indian Institute of Management revealed that 60 percent of consumers did not use India Post. The 40 percent that did use it sent only letters or documents (but not packages). For all other shipments, customers preferred express delivery service providers for their reliability and accountability. What Lies Ahead? At the end of the day, Ms. Page gathered up the remaining reports, shut down her computer, and headed out to her car. She figured she’d catch up on some more “light” reading once she got home. At least she was starting to feel like she had a better sense of what UPS had done thus far, as well as some of the obstacles the company faced if they were to penetrate the Indian market more deeply. How could they take advantage of India’s growth potential? Did UPS’s strategy of promising delivery to “every address” in their area of reach make business sense in the Indian context?

Was it possible to overcome the numerous challenges that this highly regulated yet underdeveloped economy presented? Which global strategy should they apply? Could they decentralize decision making and adopt a strategy that would make it easier to incorporate the diverse local conditions of India? Which segment would prove to be most profitable: business-to-business, consumer-to-consumer, or the emerging business-to-consumer channel? How quickly would the advent of the new “credit-card generation” change the scope of e-commerce in the country? Once they decided what activities to pursue, what was the best means of accomplishing UPS’s business objectives? Could they use their current strongholds to grow organically, or would additional alliances be a better way to go? Perhaps they should follow the model of DHL and pursue an acquisition instead. The dynamic business environment in India surely needed a dynamic strategy, and it was up to Ms. Page to figure out how to proceed from here. . . . EXHIBIT 1 UPS Income Statement (U.S.

$ in millions) Years Ended December 31, Revenue $49,545 $45,297 $51,486 $49,692 Operating Expenses: Compensation and benefits 26,324 25,640 26,063 31,745 Repairs and maintenance 1,131 1,075 1,194 1,157 Depreciation and amortization 1,792 1,747 1,814 1,745 Purchased transportation 6,640 5,379 6,550 5,902 Fuel 2,972 2,365 4,134 2,974 Other occupancy 939 985 1,027 958 Other expenses 3,873 4,305 5,322 4,633 Total Operating Expenses 43,671 41,496 46,104 4

9,114 Operating Profit 5,874 3,801 5,382 578 Other Income and (Expense): Investment income 3 10 75 99 Interest expense (354) (445) (442) (246) Total Other Income and (Expense) (351) (435) (367) (147) Income Before Income Taxes 5,523 3,366 5,015 431 Income Tax Expense 2,035 1,214 2,012 49 Net Income 3,488 2,152 3,003 382 Basic Earnings Per Share Cash and cash equivalents $ 3,370 $ 1,542 $ 507 $ 2,027 Marketable securities 711 558 542 577 Accounts receivable, net 5,627 5,369 5,547 6,084 Finance receiv

ables, net 203 287 480 468 Deferred income tax assets 659 585 494 606 Income taxes receivable 287 266 167 1,256 Other current assets 712 668 1,108 742 Total Current Assets 11,569 9,275 8,845 11,760 Property, Plant and Equipment, Net 17,387 17,979 18,265 17,663 Goodwill 2,081 2,089 1,986 2,577 Intangible Assets, Net 599 596 511 628 Non-Current Finance Receivables, Net 288 337 476 431 Other Non-Current Assets 1,673 1,607 1,796 5,983 Total Assets $33,597

 $31,883 $31,879 $39,042 LIABILITIES AND SHAREOWNERS’ EQUITY Current maturities of long-term debt and commercial paper $ 355 $ 853 $ 2,074 $ 3,512 Accounts payable 1,974 1,766 1,855 1,819 Accrued wages and withholdings 1,505 1,416 1,436 1,414 Self-insurance reserves 725 757 732 704 Other current liabilities 1,343 1,447 1,720 2,391 Total Current Liabilities 5,902 6,239 7,817 9,840 Long-Term Debt 10,491 8,668 7,797 7,506 Pension and Postretirement Benefit Obligations 4,663 5,457 6,323 

4,438 Deferred Income Tax Liabilities 1,870 1,293 588 2,620 Self-Insurance Reserves 1,809 1,732 1,710 1,651 Other Non-Current Liabilities 815 798 864 804 Shareowners’ Equity: Class A common stock (285 and 314 shares issued in 2009 and 2008) 3 3 3 3 Class B common stock (711 and 684 shares issued in 2009 and 2008) 7 7 7 7 Additional paid-in capital — 2 — — Retained earnings 14,164 12,745 12,412 14,186 Accumulated other comprehensive loss (6,195) (5,127) (5,642) (2,013) IT 2 (Continued) Source: Barron’s Magazine, 2009.

Source: SEC.gov. IT 4 The Top 10 Global Logistics Companies 2008 Revenues Rank Company (million US$) Base Country Coverage 1 DHL Logistics $39,900 Germany Global 2 Kuehne + Nagel 20,220 Switzerland Global 3 DB Schenker Logistics 12,503 Germany Global 4 Geodis 9,700 France Global 5 CEVA Logistics 9,523 Netherlands Global 6 Panalpina 8,394 Switzerland Global 7 Altadis/Logista 8,190 United Kingdom Europe 8 C.H. Robinson Worldwide 7,130 USA Global 9 Agility Logistics 6,316 Kuwait Global 10 UPS Supply Chain Solutions 6,293 USA Global Source: Traffic World, 2009.

EXHIBIT 5 The Impact of Oil Prices on Various Factors International $50 38.9 2.1 0.4 1.5 60 66.7 9.7 1.9 3.6 70 94.2 16.9 3.4 5.7 80 122.2 24.5 4.9 7.9 Source: Study on oil price impact, Federation of Indian Chambers of Commerce and Industry. IT 6 The Road Network in India, Showing Major Warehouse Hubs Source: Cygnus Research and Consulting.

IT 8 The Rail Network of India Source: IT 9 Warehouse Capacity Plans of 3PL Players in India (in millions of square feet) Company Current Capacity Planned Capacity Expected by Year TCI 7.5 10.0 2010 DRS Logistics 1.5 5.0 2010 Indo Arya 2.0 3.5 2010 Blue Dart 1.0 2.0 2010 Gati 1.0 2.0 2009 Micro & Small Companies (78 responses) All Companies (133 responses) Independent Type of p-value Independent Type of p-value variable relationship variable relationship Customer acquisition Breadth of services ” 0.009 Coverage ” 0.000 Industry focus – 0.015 Experience ” 0.000 Experience ” 0.015 Human resources ” 0.003 Grographic reach Coverage ” 0.005 Coverage ” 0.001 Industry focus ” 0.004 Industry focus – 0.003 Reputation ” 0.038 Investment in assets ” 0.00

1 Client relations – 0.006 Integration of services ” 0.000 Source: A Survey of Indian Express Delivery Providers, IIMC.

EXHIBIT 15 Comparative Study of Key Success Factors Cluster No.

of Observations 78 15 7 Key Success Factor Rank % Rank % Rank % Door-to-door service 1 97.44 1 100 8 85.71 On-time delivery & reliablity 1 97.44 2 93.33 1 100 Coverage (national/international) 6 55.13 7 80 1 100 Breadth of service offerings 11 15.38 9 60 1 100 Focus on specific industries 12 11.54 14 6.67 13 57.14 Experience of service provider 5 88.46 2 93.33 11 71.43 Reputation of service provider 3 93.59 2 93.33 1 100 Competitive pricing of services 4 92.31 8 73.33 8 85.71 Extension of credit facilities 6 55.13 12 40

 14 28.57 Relationship with customers 8 53.85 5 86.67 8 85.71 Investment in assets 12 11.54 11 46.67 1 100 Investment in information systems 9 38.46 5 86.67 1 100 Quality of human resources 9 38.46 10 53.33 11 71.43 Integration of services 14 5.13 13 26.67 1 100 Source: A Survey of Indian Express Delivery Providers, IIMC.

IT 16 Comparative Study: Domestic vs. Global Market Source: UPS form 10K, Annual Report filed February 27, 2009. Endnotes 1. Mitra, S. (2009), “A survey of Indian express delivery service providers,” Indian Institute of Management Calcutta, May. 2. Berg, Eric N. (1985), “United Parcel extends its reach,” The New York Times, June 9. 3. 4. Hess, E. D., and R. Kazanjian (2006), The search for organic growth. Cambridge, UK: Cambridge University Press. 5. 6. “Company history; About UPS,” UPS.com, svl=SubNav. 7. 9. “Company history; About UPS,” UPS.com, svl=SubNav. 10. Ibid. 11. “Teamsters end UPS strike,” CNN.com, 12. Leonhardt, D. (1999), “Returns to senders; Snail mail: It’s alive! And it’s mutating!” The New York Times, November 14, 13. Hess, E.

D., and R. Kazanjian (2006), “The search for organic growth.” 14. 15. Hess, E. D., and R. Kazanjian (2006), “The search for organic growth.” 16. UPS Media Kit, 17. Hesseldahl, A. (2004), “Toshiba will have UPS fix its laptops,” Forbes.com, cx_ah_0427ups.html. 18. “Company history; About UPS,” UPS.com, svl=SubNav. 19. “The UPS store debuts more than 3,000 strong,” The UPSStore.com Pressroom, pressroom/pages/040703_press_release.aspx. 20. Hess, E. D., and R. Kazanjian (2006), “The search for organic growth.” 21. “United Parcel Service,” Wikipedia.org, 22. Hudson, S., “Success with hub and spoke distribution,” Supply Chain Management, NCSU, ncsu.edu/public/lessons/less031014.html. 23.

“FedEx announces domestic express services in China,” 2007 Press Releases, Fedex.com, cn_english/about/pressreleases/20070320_507.html. 24. “Company history; About UPS,” UPS.com, 25. UPS CEO Scott Davis in a 2009 CNBC interview, ney_top_investing:ns:MSNmoney_Gallery:mk:us:vs:1&from=MSNmoney_ticker&tab=s216. 26. PM’s address to Joint Session of the DIET, Press Information Bureau (India), December 14, 2006, nic.in/release/release.asp?relid=23318. 27. Balogh, M. (2007), “Significant growth is crucial for India’s economy,” January 10, Credit Suisse, http:// emagazine.credit-suisse.com/app/article/index.cfm?fuseaction=OpenArticle&aoid=200210&lang=EN. 28. “India GDP growth rate,” TradingEconomics, July 5, 2010, 29.

“UPS snapshot for small businesses: Doing business in India,” 30. Williamson, J. (2006), “The Rise of The Indian Economy,” May 11, 31. Sharma, A. (2009), “India’s Foreign Trade Policy 2009–2014,” November 2, The Metropolitan Corporate Counsel, 32. ENAM Securities Logistics Update, March 2009. 33. “India information,” Embassy of India, 34. “Deregulation of oil prices—Yet another endeavor,” IndiQuest, com/2009/06/30/deregulation-of-oil-prices-yet-another-endeavor/. 35. “Transport in India,” Wikipedia.org, 36. “Indian road network,” Wikipedia.org, 37. “Rural roads—A lifeline for villages in India,” World Bank Publication, WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/EXTSARREGTOPTRANSPORT/0,,contentMDK:217557 38. “Kingfisher Red,” Wikipedia.org, 39.

“Research for Aircargo India 2010,” 40. “Indian Railways Information System,” 41. “India: Transport and communications,” The Economist, June 24, 2008, asp?layout=VWPrintVW3&article_id=1113483696&printer=printer&rf=0. 42. “Inland waterway transport,” United Nations Economic and Social Commission for Asia and the Pacific, 43. Peters, H. J., “India’s growing conflict between trade and transport,” Infrastructure and Urban Development Department, The World Bank, January 1990, www-wds.worldbank.org/external/default/ WDSContentServer/IW3P/IB/2000/02/24/000009265_3960929153437/Rendered/PDF/multi_page.pdf. 44. 45. Hesseldahl, A. (2004), “Toshiba will have UPS fix its laptops.” 46.

Cygnus Business Consulting and Research Pvt Limited, Quarterly Performance Analysis of Companies (January– March 2009), Indian Logistics Industry. 47. “Value added tax,” Wikipedia.org, 48. 49. Markoff, J. (2005), “Plan to connect rural India to the Internet,” The New York Times, June 16, com/2005/06/16/technology/16compute.html. 50. “First of its kind, one-stop retail outlet offers full range of business services to North India,” press release, UPS.com, 51. Peters, H. J., “India’s growing conflict between trade and transport.” 52. “UPS increases FSL presence in China,” Post and Parcel, ups-increases-fsl-presence-in-china/. 53. Home page, Alibaba.com, 54. “UPS teams with AliExpress,” Atlanta Business Chronicle, May 3, 2010, atlanta/stories/2010/05/03/daily23.html. 55.

“PosLaju and UPS form alliance, The New York Times, July 5, 2010, stocks/news/press_release.asp?docTag=201006031000BIZWIRE_USPRX____BW5289&feedID=600&press_symbol=277628. 56. Mitra, S. (2009), “A survey of Indian express delivery service providers.” 57. “Fast-growing Indian express market set for further consolidation,” press release, CEP Research, https:// 58. These facts were collected in an author’s interview with logistics industry expert Supratem Ganguly. 59. Mitra, S. (2009), “A survey of Indian express delivery service providers.” 60. “India together,”

Question: The state-owned corporation re-branded simply 'Indian' (2005-11) was a major operator in which sector?
Answer: Airline