Success of SF Express in China
How does a courier company differentiate itself in an undifferentiated industry?
Introduction
Founded in 1993 by Chinese entrepreneur Wei Wang, SF Express now is the second biggest courier service firm with 20% share in China market (second only to the state owned company China Post). Despite the aggressive growth trend of China’s express industry (36% CAGR from 2006 to 2014), it is a highly competitive market place with more than 8000 express enterprises and over 20 major brands operating in China. To keep its competitive advantage, SF Express has focused on its operation model to provide differentiated service to customers:
Superior Delivery Speed
SF Express is the first courier company in China to purchase cargo fleets. Up to 2015, it owns 36 fleets and aims to increase the fleet size to 100 by 2018. The company even opened up its airline subsidiary in 2009 and intended to establish an airport near Wuhan as a courier hub. Even though the cost of flight courier is very high, this business model allows SF Express the fastest delivery speed among the competition. In most of the major Chinese cities, SF Express can guarantee packages to be delivered within 24 hours. Based on its highly organized flight schedule, the company provides diversified service to customers such as “morning arrival over-night mail”, “afternoon arrival over-night mail”, “same day mail”, etc. By catering to different customer’s needs, SF Express is able to continuously bring in new customer and enjoy significant business growth.
Vertical Integration
Besides its core business courier service, SF Express also seeks opportunities to control the downstream part of the value chain. In 2014, the company opened more than 500 convenience stores called Heike in 70 cities of China. There’s no real stock in the outlets, but customer can try out products and place orders using computers within the store. SF’s strength in logistics becomes its advantage in retail business. High-end imported food and luxury products are Heike’s future strategic focus. In addition, those outlets may also serve as a small courier hub for local communities, where customers can easily mail and collect packages.
Global Expansion
As more and more Chinese middle-class consumers start to shop products from abroad countries using e-commerce, the needs of cross-border delivery to China are increasing. To catch up this trend, SF Express aggressively expands its service into other continents. Now the company operates in Hong Kong, Macau, Taiwan, Singapore, South Korea, Malaysia, Japan, Vietnam, Thailand, Australia and the US. In November 2014, it becomes the overseas delivery provider of Costco. SF can take care of the customs clearance procedures and shorten the delivery lead time to five days. The frozen chain logistic service will allow the firm to deliver fresh food to China, and this service is expected to be increasingly welcomed by Chinese younger consumers.
Technology Innovation
SF Express constantly makes efforts to innovate its courier technology in order to optimize operation cost. The company is testing a drone to deliver packages to remote areas. According to Chinese media reports, the drone is able to hit a maximum altitude of 100 meters and deliver parcels within two meters of target destination. Besides, SF is trying to develop a long-distance flight dispatching system in order to plan and control drone’s routes in a centralized approach. Should SF succeed in this technology innovation, it would save the company tremendous labor cost and make its delivery even more time-efficient.
References:
Deloitte Industry Report: China’s express sector development report 2014
http://www.ejinsight.com/20141119-sf-express-aims-to-double-air-cargo-business-in-four-years/
https://www.avia-tek.com/analysis/?tag=sf-express
http://www.globaltimes.cn/content/861178.shtml
http://www.shanghaidaily.com/business/SF-Express-to-deliver-for-US-retailer-Costco/shdaily.shtml
http://qz.com/120654/china-could-become-the-first-country-to-legalize-parcel-delivery-by-drone/
Hi Clay – Super interesting post! I was intrigued by the part of the post that discusses SF’s plan to expand into the retail space. Do you agree with this expansion plan? This would be quite innovative when considering the US market, but wasn’t sure if this is something you feel would be successful in China. Thanks!