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DHL Company’s Strategic Challenges Analysis

Introduction

Organizations need constant growth and development, which makes it necessary to respond to strategic challenges. DHL is an international logistics and transport company that provides road, air, and sea delivery services (DHL, n.d). The organization pays special attention to the use of the sustained potential for long-term development in the logistics sector. Moreover, DHL is focusing on growth in e-commerce, digitalization, and globalization in the future. Strategies consisting in investing in digitalization, as well as expanding into developing countries’ markets, should be considered to respond to the existing strategic challenge of the organization effectively.

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Existing Strategic Challenges

SWOT Analysis

TOWS analysis is a logical continuation of SWOT analysis and allows more detailed consideration of the existing indicators of the company. This model “reduces the risk of wrong selection of business opportunity, which makes next steps easier, viable and sustainable” (Kulshrestha & Puri, 2017, p. 151). First of all, it is necessary to determine the strengths, weaknesses, opportunities, and threats of the organization as for the classical SWOT analysis.

Strengths

  • DHL is a leader in air freight volume and holds the second position in ocean and road freights globally (Deutsche Post DHL Group, 2020);
  • The company operates in 220 countries of the world (Deutsche Post DHL Group, 2020, p. 4);
  • Increase in the number of online purchases and the need for delivery of parcels (Deutsche Post DHL Group, 2019);
  • High level of customer satisfaction;
  • Reliable international suppliers;
  • Highly professional and trained staff.

Weaknesses

  • The logistics sector requires significant investments in particular to expand;
  • DHL, as an international company, must comply with local and regional laws and regulations;
  • The quality and marketing costs of the company are lower than those of competitors (Deutsche Post DHL Group, 2019);
  • DHL is highly dependent on local partners and delivery in many countries;
  • Reducing the demand for mail delivery (Deutsche Post DHL Group, 2019);
  • The presence of both international and regional competitors limits the company’s market growth, especially in developing countries.

Opportunities

  • Acquisition of local companies for global expansion;
  • Reducing costs and modifying the pricing strategy;
  • Expansion of operations in the e-commerce sector.

Threats

  • High level of international and local competition;
  • Possible weakening of the economy in some regions;
  • The spread of digitalization reduces the demand for traditional delivery services;
  • The impact of rules and regulations on a company’s operations.

TOWS Analysis

Identification of SWOT components further allows for more detailed analysis using the TOWS matrix. The plan of analysis corresponds to the table shown in Figure 1. The model allows to fully use internal strengths and eliminate weaknesses, as well as maximize the positive effect of opportunities and minimize the negative of threats. To perform the analysis, it is necessary to evaluate all presented components consistently.

TOWS Matrix
Fig. 1. TOWS Matrix

WT (how weaknesses can reinforce threats):

  • Poor marketing can diminish competitive advantage over regional companies;
  • Significant investment can lead to higher pricing, which will negatively affect operations in developing countries;
  • Electronic communication can significantly reduce the demand for post services reducing revenue.

ST (how strengths can mitigate threats):

  • Leadership in air freight enables efficient delivery of parcels in response to increasing demand;
  • International supply chain enables more efficient and less costly expand operations globally;
  • A high level of satisfaction leads to customer loyalty, which makes them reliable even during economic downturns;
  • Leading positions provide brand awareness allowing gaining an advantage over regional deliveries.

WO (how opportunities can minimize weaknesses):

  • Cooperation with regional companies can minimize expansion costs;
  • Reducing operating costs will increase marketing expenses;
  • Expansion in the e-commerce sector could strengthen the position in developed and developing countries.

SO (how strengths can be used to exploit opportunities):

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  • A company’s global presence can facilitate collaboration and expansion in local markets;
  • A reliable network of international suppliers can facilitate the transition to e-commerce.

Major Strategic Challenge

Based on the analysis conducted, it is possible to identify the strategic challenges that are presented to DHL at the moment. The key challenge for DHL today is the spread of e-commerce and its implications. In particular, this transformation is driving demand for parcel delivery services and the need to expand operations in both developed and developing countries. This difficulty is also fueled by increased competition from regional deliveries, which can offer better value for customers through lower costs.

Strategic Options Analysis Applying SAFe Framework

One of the possible strategic options is investing in digitalization to expand operations in the e-commerce sector. This strategy addresses the key opportunities and threats that DHL currently has. First of all, in both developed and developing countries, the company will be able to increase brand awareness since many people use the Internet to find information about available services. Additionally, DHL will be able to lower the delivery prices offered to customers by reducing the number of operations required for cooperation. It is also important that digitalization is now actively developing in remote regions such as Africa or Asia. Finally, regulatory features affect the Internet space to a lesser extent than the physical one.

The acceptability of this option is high as DHL is currently focusing on digitalization and globalization. Investing in an online presence will allow the company to conduct operations faster and more efficiently. The risk of this option is minimal since the modern world depends on innovation and technology, and communication is more often done via the Internet. Returns of this strategy are also high since, in any case, they will increase the level of brand awareness and attract new customers around the world. This option is feasible for DHL, since the company is experiencing steady growth in revenues and free cash flow (Deutsche Post DHL Group, 2019). The company will need to hire specialists to implement the strategy, which requires additional costs.

The second possible option is to focus on expanding to African countries. This strategy addresses the threat of increased competition from regional and international organizations. Currently, the logistics market in developing countries can be extremely beneficial for the company, as it can establish brand awareness there, as well as take a significant market share. The expansion of e-commerce is also accelerating in developing countries, which will allow the company to expand its parcel delivery operations. However, this strategy requires a significant investment in the development of the supplier network, which makes it riskier.

The acceptability of this strategy is also much lower than that of investments in digitalization since it takes a long time and requires more costs. However, this option has a significant long-term advantage, allowing the company to expand into an emerging and potentially lucrative market. This feature is also associated with an increased risk since it is necessary to carefully study the characteristics of the market before implementing a strategy. Funding for this option is also not a problem for a company as DHL. The company also has the necessary specialists to develop a new market, which makes the option even more promising. However, the digitalization strategy is more in line with the three criteria and the current goals of the company.

Suggestion

The presented analysis allows determining what steps the company needs to take to execute the strategy effectively. The option of investing in digitalization appears to be the most relevant since it allows meeting the current needs of the company within a reasonable time frame. First of all, the company needs to focus on the development of e-commerce platforms in developed countries. This approach will make it possible to conduct a thorough analysis of the offers available on the market and identify the areas that must be considered in order to acquire a competitive advantage. Additionally, DHL should determine which stakeholders’ needs will be prioritized. In this regard, it would be wise to focus on both customers and suppliers, which will create opportunities for future expansion of operations to the global market. This aspect will allow later to implement the strategy of entering the markets of developing countries minimizing risks and costs. Finally, the company should also consider working with companies that already operate in the e-commerce sector and develop partnerships with them.

Conclusion

DHL is one of the leading logistics and transportation companies in the world market. Despite successful operations in many developed and developing countries, the company is currently experiencing a strategic challenge and needs to transform its activities. Moreover, today DHL is focusing on digitalization and globalization, which determines its future direction of development. To achieve sustainable long-term development of the company, it is necessary to invest in digitalization and the development of e-commerce. This strategy will allow DHL to expand its influence in existing markets, as well as potentially expand operations in developing countries.

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References

Deutsche Post DHL Group. (2019). 2018 annual report [PDF-file]. Deutsche Post DHL Group. Web.

Deutsche Post DHL Group. 2020 business profile [PDF-file]. Deutsche Post DHL Group. Web.

DHL. (n.d). DHL. Web.

Kulshrestha, S., & Puri, P. (2017). Tows analysis for strategic choice of business opportunity and sustainable growth of small businesses. Pacific Business Review International, 10(5), 144-152.

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