Executive Summary
Aramex is an international logistics and transportation service company specializing in a wide range of services including logistics, express, domestic distribution, and freight forwarding. It was founded in 1982 by Ghandour who became its CEO. The firm began as an international operator offering oversea delivery to American courier companies in the Middle East. This paper looks at the US companies Aramex has partnered with over the history, identifies the culture that drives it, its services, and how it has managed to develop a global network. First mover advantage and developing global network alliance are the two drivers of Aramex competition.
Contents
- Executive Summary
- The Global Express Business
- Entry of ARAMEX
- Aramex Culture
- Aramex Services and Global Positioning
- Conclusion
Introduction
Aramex is an international logistics and transportation service company specializing in a wide range of services including logistics, express, domestic distribution, and freight forwarding. The company was established in 1982 by Fadi Ghandour in partnership with his father’s friend William (Bill) Kingson. Ghandour had just attained a degree in political science from the University of George Washington. As a student in the university he marveled at reliability and efficiency of U.S express business and wondered what it would feel to start a similar business in the Middle East. He met Kingson at Paris Air Show and they talked about this opportunity in the Middle East. This conversation led to a partnership to establish an express business in the MENA (Middle East and North Africa) region. They established the firm to offer delivery services for companies dealing with exports deliveries in North America like FedEx (Federal Express), Purolotor, Emery, Burlington Northern, and Airborne Express. Its main competitor at the time was DHL in this region. In 1990 it partnered with Airborne Express to establish an independent alliance for international express companies known as OEC (Overseas Express carriers). This organization formed an international delivery network for the member firms to give them an advantage over large firms. In 1997, the company became the first Middle Eastern company to list in the NASDAQ. However, it delisted from the stock exchange in 2002 to return to private ownership. In 2003, Airborne Express was acquired by DHL and it existed from its alliance with Aramex.
The Global Express Business
At the time Ghandour contemplated venturing into express business this industry was still at it infancy globally. Air freight industry started in US around 1970s. Airlines began to ship cargos in empty spaces underneath passengers. However, because international trade was not well developed then demand was low. As a result, airlines shifted to larger and more appealing items and abandoned smaller packages businesses to firms known as freight forwarders (Augustine, 2009)..
In the U.S the freight forwarders included Emery, Airborne, and Purolator. These companies consolidated smaller packages into large loads attractive to the commercial airlines. Later, FedEx entry into the industry transformed this as it came with its own aircraft carrier as well as logistic infrastructure. This caused ripples in the industry and other firms went on to purchase their own aircraft to generate similar profitability like FedEx (Augustine, 2009).
Over these years United States express business dominated the world. DHL was the only company operating internationally in the whole world. It was established in 1969 in California at San Francisco. The Bank of America was the company’s first customer as it needed an international express carrier to carry its credit letter and other records globally reliably and rapidly. In the 70s the company operated in Europe, Far East, Africa and Latin America. It was one of the express companies with local offices in Middle East. By 1983, the company operated in over 125 with 500 offices (Augustine, 2009).
Entry of ARAMEX
After graduating from university, Ghandour decided to conduct a feasibility study to start an express carrier in the Middle East. In his analysis he noted that global carriers would bypass DHL if they had an option for delivering their items across the world. By partnering with Kingson they established Aramex. Ghandour spent a lot of time in the initial years travelling around the world to find entrepreneurs to develop his network. He networked with individual who accepted to deliver Aramex packages locally. They include small travel operators, and emerging domestic courier companies. Ghandour initially used commercial flights to ferry packages across the world. He also noted that though most of the courier firm used to send packages to Middle East, majority had no interest in venturing into global market. His company established processing operation in major drop points like New York City airport of John F. Kennedy and Heathrow in London. In these locations the company started to load small packages to be taken to Dubai, Amman, and Bahrain for sorting and delivery to various parts of Middle East. In time the company was able to lure U.S express operators like Emery, Burlington Northern, and Airborne to partner with it and deliver these firms’ packages to Middle East. The company was able to use the known brands to attract more business (Augustine, 2009).
The company successfully developed its brand with the small courier companies. In 1987, it attracted the U.S. largest courier company FedEx. This became the firm’s turning point as the partnership alone generated 30 percent of the total revenue for Aramex. In the late 80s express industry experienced a series of acquisitions of various courier companies that the firm served, but it continued to serve them despite the changes in ownership. However, the firm later developed its relationship with Airborne and they formed OEC alliance. This alliance enabled the two firms to compete with large firms like DHL and UPS with global presence. By 1991 this network had 90 percent connection to various countries of the world enabling Aramex to access different markets. This network enabled the firm to build trust among businesses in the Middle East for services ranging from freight forwarding to express, and distributed goods to any location a client needed.
Although this alliance formed an important source of business growth for Aramex, it still depended on other courier express company like FedEx. As a result, when FedEx decided in 1966 to drop the firm and start its own ground operation in the Middle East it created a great threat to Aramex’s revenue. Accordingly, the firm started to source for finances to develop its own systems in Middle East. The company first sourced these funds by selling 9 percent of its share to Airborne. However, these investment were inadequate to enable the company develop its technological capabilities to a competitive level in the region. The Arab world was also reluctant to invest in the firm. They did not have confidence in the firm because it did not own buildings or lands. Kingson advised Ghandour that they should list the firm in NASDAQ, an American based stock exchange. In addition to the cash acquired for this listing, it enabled the firm to build its reputation as a global player. The firm’s IPO (initial public offering) traded on January 1997 and was the first company based in Middle East to sell shares in a United States Stock Exchange (Augustine, 2009). The listing left an impression among other players such as strategic partners, banks, and client. They all started to view the firm in a different perspective.
According to Ghandour (2011) partnering with Airborne had a great impact on the firm reputation. The company used to speak about this partnership in every road show organized in America. This partnership cultivated confidence in the firm from institutional investors in US. It was also later instrumental in attracting regional investor interest in the firm. The firm was therefore, able to move from its IPO value of $7 million to $14 million in the second offer. As a result, the company was able to accelerate its growth and it started to venture into new regions beyond Middle East like India, Bangladesh, Sri Lanka, and Hong Kong. This weakened the firm’s dependence on OEC. The firm worry of losing technology capabilities provided by Airborne because of the OEC alliance compelled the CEO to start developing its own IT system. He recruited a former employee of Airborne to assist in this objective and successfully managed to do so in two years time. In 2003, Airborne was acquired by DHL and withdrew its support to Aramex. Luckily the firm had ventured into various markets and had developed its own package tracking and tracing system. The company also called a meeting of other members in the OEC alliance to convince them that despite Airline walking away from the alliance, it was in a position to maintain their alliance.
Ghandour (2011) argues that by the time Airborne moved out of the alliance and switched its system from Aramex, the latter was able to switch its new system on. This is because that moment offered Aramex an opportunity to build its global leadership position. He further argues that though the firm loss of Airborne had an impact on the firm, it was a blessing in disguise because their partnership had hindered Aramex from realizing its full potential. However, in spite of the firm being listed in NASDAQ, it was not able to get the capital it needed. Political instability in the region made investors to lose confidence with the firm. Ghandour partnered with Abraaj Capital to return the firm into private ownership. There years later the firm was listed in the Dubai Stock Exchange where it continues to source for funds to date (Williams, 2013).
Aramex Culture
The company continued to develop a unique identity as a global leader in logistic industry. It was known as a non-bureaucratic, non-hierarchical, entrepreneurial, and encouraging environment. The company values entrepreneurs and recognize the need to work with small firms in expanding its businesses. In 2003, for instance following a wave of consolidation in the industry, the firm lost a significant proportion of its US market. To address this challenge Ghandour initiated his own strategy of acquisition and alliances to equal its competitors. The company continues to acquire local operators, and has recently acquired logistic firms in Britain, Ireland, and Egypt. Ghandour believed that entrepreneurs existed everywhere where the firm needed a business partner. In addition, the company attracted a younger workforce with 45 percent of the entire workforce being under 29 (Augustine, 2009). To prospective employees it offered access to international opportunities and professional growth. In addition, the firm offers relatively high degree of local autonomy to work stations not common in most of the multinational companies. This enables the firm to provide services that other international express companies would not bother to provide. For instance, the firm in United Arab Emirates and Jordan delivered notification for courts. This created an intensive knowledge of the local market that Aramex operates.
Aramex Services and Global Positioning
The company prides itself as a global service provider. It offers a wide range of services in categories like international delivery, freight forwarding, domestic express delivery, integrated logistics, supply chain management and warehousing, information management solutions, and E-business solutions.
International express delivery involves shipping of packages and documents for clients in various sectors like banks, pharmaceutical, trading, regional distribution and manufacturing, which needs speedy delivery. The freight forwarding category encompasses all transportation via land, air, and ocean. This is mainly for large packages, which are not time sensitive. In domestic express delivery category the firm offers door-to-door delivery of packages urgently needed within a city or country. This can either be same-day or the next business day. The firm also offers warehousing and inventory management systems for clients’ products, from the time they leave business premises up to the time they reach end user. According to AUGUSTINE (2009), this category emerged from increased demand for these services by companies due to changes in global economy. These firms needed the warehousing services to enhance the logistics solutions. The firm also has information management solution services under the brand name infoFort. This provides clients in North Africa and Middle East information management solution. This encompasses information confidentiality, preservation, accessibility, business continuity and compliance issues relating to data and information.
Following recent growth in online business due to expanding internet use the firm has also developed e-business solutions. The company operates an online shopping delivery services known as Shop and Ship. This is a delivery service enabling thousands of online shoppers in various parts of the world to get goods purchased from UK, US, and China via online stores delivered to them. This service is offered in over 25 countries in Europe, Middle East, Asia, and Africa (Aramex Overview, 2011). Despite recent growth in online business, some firms in America as well as eBay traders do not ship sold items overseas. Recognizing this gap Aramex developed the Ship and Shop where it offers Middle Eastern online shoppers American Addresses where they can have their goods delivered. The firm then delivers these items to the buyers in other parts of the world (Bangkok Post, 2006).
The firm has a dedicated website where the Shop and Ship service can be accessed. This is www.aramex.com/shopandship. This website provides crucial information to the firm’s customer through mailbox accounts. Customers can also be able to truck their shipments and calculate the rate of shipment as well as convert currency. The site also links users to other popular sites. The mailbox for Shop and Ship enables users to access Mailboxes in the US, where they can get internet orders, magazine subscriptions, correspondence, and special offers that would be impossible to get under any other ordinary international addresses (Middle East Company News, 2004).
Conclusion
The lesson from this analysis is that Aramex growth has developed as a result of two major reasons. The first is because of the first mover advantage. The firm was able to develop a competitive advantage over its competitors by venturing into local markets they feared to enter or disregarded. Secondly, its ability to maintain global alliance also gives it advantage over its competitors. Its ability to build alliance in different countries gave it a cheap means to compete with its main rivals without having to engage in an investment race with them. As a result the firm has been able to grow its revenue from $125 million in 2005 to closer to $845 million by 2012 (Robert, 2013).
References
- Augustine, G. (2009). Aramex: Delivering the Future (A). William Davidson Institute Case 1-428-776.
- Ghandour, F. (2011). The CEO of Aramex on Turning a Failed Sale into a Huge Opportunity. Harvard Business review, 43-46.
- Middle East Company News. (2004). Aramex Complements ‘Shop and Ship’ Service.
- Robert, K. (2013). Case Study: Developing a Global Operation: Aramex’s New Strategies at New Stages. Financial Times.
- The Bangkok Post. (2006) How Delivery Companies are Consolidating.
- Williams, J. (2013). Ordering off the menu: Entrepreneurship Arab-Style. INSEAD.