Head of China, FedEx Express
2010-06-01, China International Business (CIB) www.cibmagazine.com.cn
By Mina Choi | From CIB June 2010 Print & Web Edition
FACE TO FACE INTERVIEW
NAME: Eddy Chan
POSITION: Head of China, Senior Vice President, FedEx Express
EDUCATION: BA History, University of Hong Kong; Executive MBA (EMBA), Kellogg School of Management at Northwestern University in conjunction with the Hong Kong University of Science and Technology
WHAT'S IN HIS POCKET: Nokia mobile phone, BlackBerry, pens, handkerchief, keyholder
Delivering packages around the world may not seem like the most glamorous of professions, but for Eddy Chan it has led to 25 years of adventure, personal growth, and not a few long nights.
Stints in Hong Kong, Taiwan, Tennessee and Shanghai led to his current post as Head of China and senior vice president of FedEx Express, based in Shanghai.
Chan sat down with CIB to talk about the varying approaches FedEx is using to address the challenges of China's still-developing logistics market, the reasons behind the company's decision to move its Asia-Pacific hub to Guangzhou, and the importance of being able to stop the arrival of a nasty letter written to your wife in the heat of the moment.
How long have you been with FedEx?
I've been with FedEx for 25 years. It was my first job out of university. Initially, I had no wish to work in the transportation industry, we all thought of it as a low-level industry [but] I read in the newspaper that FedEx was recruiting sales personnel in Hong Kong, and I really wanted to be in sales because I needed to earn a lot of money: I needed to pay back my student loan and I was dating my girlfriend — now my wife — and dating requires a lot of money. FedEx actually asked me how much they should pay me. I didn't know what to say so I told them that they should offer me a competitive salary and it turned out to be very high for back then. It was much more than any of my classmates who were working for banks. It turned out to be the best decision because I grew with the company and the industry.
From being a sales professional I moved to operations as a station manager for import & export. For a period of eight or nine months I worked 15 hours a day and slept in my car parked at the garage, but this was a valuable experience because I had a chance to understand the company business.
After a few years in Taiwan [as managing director of operations for FedEx Taiwan] I went to work at the headquarters in Memphis, Tennessee. [Then,] in 1998, the company had some issues in China and asked me to go there.
What were these problems?
FedEx knew that China was going to be a very important market and they wanted me to find a joint venture partner to develop the China business. So in 1998 I became the head of China. We formed a joint venture with Tianjin Datian W. Group in 1999, and our business developed very fast.
In 1999 we had 250 employees. By the time we set up as a WOFE (wholly-owned foreign enterprise) in 2007 we had 7,000. In 1999 we were serving 144 cities, by 2007 we were serving over 200 cities, and now the number is over 400.
How much was the initial investment you made?
That figure we do not disclose, but I can tell you from this experience that finding the right partner is very important. It's like finding your other half. You can't just be impressed by the outer appearance; you have to share common goals. Likewise, I always try to convince my wife that although I'm not that handsome we still share the same goals.
What were some of the changes that took place once FedEx went from a joint venture to a WOFE in 2007?
After we bought out DTW we launched our domestic service. That was the perfect time to launch the domestic service business – we could see that economic growth was going to be more than import/export. It was clear that local consumption was playing a significant part in the economy.
Did you face heavy competition from the local players when you entered this market?
China's domestic market is very big. We're not talking about taking market share away from other companies. Our approach is that we have to work together — in harmony — to make the pie bigger so that everyone can benefit.
We also understand clearly our value proposition. We can't be everything to everyone. We position ourselves to focus on high-end commodities such as mobile phones, where the value of the good is higher and the customer is willing to pay a premium for reliable service.
How has the marketplace changed in China over the last 10-15 years?
In the past, the economy was driven by the import/export business, so when FedEx entered the market in 1995 our focus was international express. We've really been pioneers in China. We were the first ever international express service to use our own company aircraft. Also, because we knew that customs clearance is an important component of service, we were the first international express company to offer electronic data exchange with customs. In 1999 we were also the first international express company to offer a simplified Chinese language website.
Why did you decide to start the first direct cargo flight between China and the US in 1996?
At that time a lot of people said: 'Hey, express? That means more packages. How can you justify putting in an aircraft?' But import/export doesn't just mean sending small packages. For our international priority distribution service, for example, we might take a thousand boxes from one customer, deliver them to the US and, after customs clearance, distribute to one thousand different recipients. Because we saw a huge potential in this market, it was easy to justify putting in place our own aircraft. For example, in January this year we launched a Boeing 777 Freighter service that flies direct from Shanghai to Memphis. The 777 allows us to carry more tonnage and fly to Memphis non-stop, offering an extra two-hour guarantee for our customers. What that means is that we can extend our cut-off time for customers from 4pm to 6pm. Our customers have two more hours to work – these two hours are significant for our clients. The 777 is also 18% more fuel-efficient.
Logistics, as well as international express, is a very competitive business. How do you compete?
We differentiate ourselves by offering better services. We entered the domestic service market because we wanted to offer domestic service to our customers. We want to give them more choices. When you send a package with FedEx, it's one price for delivery by tomorrow at noon, another price for delivery by tomorrow at 6pm, and another price for delivery plus one day, and so on. We offer a very time-definite option.
I'll give you personal example. About ten years ago, before the days of Internet stock trading, I was on a business trip to the US. Before I left on the trip I told my wife to sell a stock if the price hit a certain point. From the US I was following the stock and saw that the price hit that mark. But two days later, the price dropped significantly. I called my wife to see whether she had sold the stock; she hadn't – she had forgotten about it. I was mad and sent a nasty letter to her that very night via FedEx. But the next day, after I woke up, I knew my wife should not read that letter so I called the Hong Kong office and told them to stop the delivery. I'm still married to her. And this is the same guarantee we offer to all our customers – they can stop delivery as long as the recipient hasn't signed off on the package.
How many dedicated aircraft do you have flying in and out of
In a given week, we have about a 30-flight frequency for the long haul [routes]. Right now our Asia Pacific hub is in Guangzhou, and we have 15-18 flights a day, 136 flights a week to 22 cities in our region – all of them are our own aircraft. Because Guangzhou is our Asia Pacific hub, in the evening all the Asia Pacific locations fly into Guangzhou. We sort in Guangzhou, and we put the packages on the flights to their respective destinations.
How are the big decisions, such as starting the Shanghai-Memphis
route, or moving the Asia Pacific hub to Guangzhou, made?
Every initiative is supported by business cases. We are not looking for short-term benefit; we are always looking at the long-term.
We also look at sustainability. For example, in 1999 we started a dedicated flight between Shenzhen and Anchorage. When we put that in place everyone said,‘You will not have any shipments, what are you thinking?' But it's like the chicken or the egg situation. If nobody puts an asset in place, then no change will happen. We calculate our investments in a comprehensive manner and this route turned out to be a huge success. We keep telling the government officials and our employees this: FedEx is a local company; China is our home. All our decisions are long-term and because of this we're very focused on the integrity of our employees. That pays back in the long run.
What do you say to those who questioned your decision to move the Asia-Pacific hub to Guangzhou?
We moved the hub to Guangzhou in 2009 because our customers were here. It was as simple as that. Before that, our Asia-Pacific hub was located in Subit Bay in the Philippines. Everyone knows that the Pearl Delta River is the manufacturing center of China. We need to be close to our customers. Guangzhou is a perfect location because flying time to any major Asian city is under four and a half hours.
How have increases in labor costs and fuel prices impacted your overall business?
We have a way of dealing with the fuel issue, which is that we charge our customers a dynamic fuel surcharge. So when the fuel price goes up, customers pay more, and when it goes down, customers pay less. We're very transparent about this. Our labor costs are increasing. Our philosophy at FedEx is that we can't control the overall market, but we can manage our own productivity and our own role in the marketplace by providing better training and better technology. In addition to skills training, the key to our business is to generate more volume so that the unit costs can be reduced.
Who are your main China clients?
They are mostly multinationals. But in the recent years we've been seeing more and more local companies using our service. They can see the value we provide. It's not just the big companies, more medium and small size companies are using our service as well, and some private individuals: many university students use FedEx for school applications or to send Valentine's Day gifts to their other halves.
Who are your main rivals in China?
We're our own toughest competitor: we don't focus on our competitors, we listen to our customers. During the global financial crisis our customers said, 'We don't need fast, we need to pay less,' so we launched our international economy service.
We started our China domestic service in 2007 because our customers wanted it. We'll be expanding to second and third tier cities over the next decade because that's where the growth will be.
In your 25 years at FedEx what has changed across the industry?
Ten years ago, if someone had asked if I could imagine the size of our business in China, I have to say that I couldn't have imagined it. The economic growth in the previous decade is a miracle. When the new [Shanghai] Pudong Airport opened, people were saying ‘Should we keep the Hongqiao Airport?' At that time, I wondered – can Shanghai have that kind of volume? Now the Hongqiao Airport is being expanded as well.
Going forward, maybe 15 years on, the size of our business in China might be bigger than the size of our business in the US, but the key is to build a solid foundation, which means developing local talent. At FedEx, 97% of managers are promoted from within the company. This offers a lot of career development opportunities for our local employees.