FINANCIAL ANALYSIS

1. PROFITABILITY RATIOS:

Revenue Growth
(in million)

DHL FedEx
2016 2017 2018 2019 2016 2017 2018 2019
€57,334 €60,444 €61,550 €63,341 €47,847 €50,246 €57,007 €62,096

Revenue for DHL’s has been recorded from several segments such as Post & Parcel Germany,
Express, Global Forwarding & Freight, and Supply Chain etc. Revenue of DHL gradually
increased over the years. Though the overall revenue increased over the years, the fluctuations
been observed in the revenue growth rate. In 2017, DHL’s revenue growth rate shows increase of
5.42% & then in 2018 it sloped down to 1.83% which increased by a margin of 2.91% in 2019.
Currency Effects is one the major
reason that shifts the DHL’s growth 14
rate downwards in 2018 that 12
% of Changes

10
amounts to €1,466 million.1 The
8
addition of a new business segment 6
in 2019, namely E-Commerce 4
Solution, is a reason that affects the 2
0
overall revenue generation ability of 2016-2017 2017-2018 2018-2019
DHL that increased revenue growth DHL 5.42 1.83 2.91
FedEx 5.01 13.46 8.93
rate slightly to 2.91%.

On the other hand, FedEx realized revenue from segments like Transportation, E-Commerce, and
Business Services. In 2017, FedEx’s seen revenue growth rate of 5.01%, then the rate
impressively went high with 13.46% in 2018 and in 2019, it slowed down to 8.93%. In every
segment, the growth rate was basically positively impacted by higher number of packages
shipped and average annual growth rate of 4.1% is estimated by 2021.2

1
DHL Annual Report, (2018), P. 41
2
Forbes, (2019)
 Net Profit Margin (NPM)

Along with the profitability of a company,

7
NPM indicates the operational efficiency
6
5 level. Higher percentages of NPM provide a
4 positive insight about the operational
3
efficiency.3 DHL’s NPM falls slightly in
2
1
2018 shifting from 4.72% to 3.61. Although
0 the revenue in 2018 increased by 1.55%,
2017 2018 2019
DHL 4.72 3.61 4.38 EBIT decreased by 15.48% due to the
FedEx 4.97 6.99 0.77 increase of total operating expense by 2.62%
in 2018. The increase of overall operating expense is driven by the significant changes to
expenses relating to Depreciation, Amortization & impairment Losses which, increased
by 123.79%. This indicates poor level of efficiency in converting sales into profits. In
2019, NPM went upward to 4.38% due to the increase of EBIT by 30.55% and revenue
by 3.75%. Such progression of NPM transpired through the restructuring activities by
DHL in their divisions.4

On the contrary, FedEx performed impressively in 2018 that increases both their revenue
and EBIT respectively by 13.46% and 1.10%. But in 2019, the revenue growth slowed
down to 8.93% and simultaneously operating expenses increased by 10.14% that effected
EBIT to decrease by 6.19% during year. As a result, NPM sloped down to 0.77% &
FedEx lacked operational efficiency to continue their NPM progression in 2019. It is
explained that global economic condition and less profitable mix of activities adversely
affected the FedEx.5

3
Kusmayadi, Rahman and Abdullah, (2018)
4
DHL Annual Report, (2019), P. 34
5
FedEx Annual Report, (2019), P. 1
Return on Capital Employed (ROCE)

ROCE indicates the ability of a company to

18
generate maximum revenues and profits by
16 15.41
the best use of given capital & the higher 14
12 12.4 11.7
ratio demonstrates better performance.6 11.4
10 9.84
9.3
Compared to FedEx, DHL had a better 8
6
ROCE ratio in 2017. In 2018, DHL realized 4 DHL
2
increase of equity by 7.52%, massive FedEX
0
increase of 77.05% in long-term debt and 2017 2018 2019

decrease in PBIT by 22.34% which

collectively affects ROCE to fall-down to 9.3%. Due to increase of PBIT by 34.34% with
not so significant changes in equity & long term debt, DHL managed to progress their
ROCE to 11.7% within the accounting period of 2019. Better ROCE indicates that DHL
was able to squeeze their capital to generate profits than in the previous year.

In terms of FedEx, their increased nature of debt capital and decreased PBIT costs them
constant fall-down of ROCE. In 2019, FedEx’s debt capital increased by 21.39% but
PBIT declined by 6.19% which led their ROCE to 9.84% & that shows their inefficiency
in utilizing their capital.

Non-Current Asset Turnover

3
2.53 Asset Turnover shows how a business
2.5
organization utilized its assets to generate
2 1.77 1.71
revenues or profits & has considerable effect on
1.5 DHL
1.68 1.68 1.69
FedEX the financial performance.7 Study shows DHL
1
had non-current asset turnover of 2.53 in 2017
0.5
that slopes down to 1.77 in 2018. Non-current
0
2017 2018 2019 assets significantly increased by 45.53% whereas

6
SINGH and YADAV, (2013)
7
Nurlaela et al., (2019)
revenue changed on a very slightest margin of 1.83% and that causes down-fall of asset turnover
in 2018. For very similar reason, the asset turnover further sloped down to 1.71 in 2019. This
trend of DHL threatens efficiency relating to their ability of asset management & asset control.

Conversely, Study indicates that FedEx has a stable position in utilizing their assets in their
operations to generate revenues and profits. FedEx had turnover of 1.68 for both in 2017 & 2018
that slightly increased to 1.69 in 2019. Although the turnover of FedEx is lower than DHL, the
trend is observed to be progressive for FedEx and in the meantime regressive for DHL.

2. ACTIVITY RATIOS:

Cash Ratio

Cash Ratio is a liquidity ratio that indicates the

company’s ability to pay-off the liability using 0.15
0.12 0.12
its liquid assets. A ratio range of 0.5-1 is 0.1
0.1 0.08 0.08
preferred as excess amount of cash needs to be
0.06
reinvested to generate more profits.8 DHL scored 0.05

cash ratio of 0.12% in 2017 and 0.08% both in

0
2018 & 2019. The ratio declined to 0.08% in 2017
2018
2018 due the increase of liability by a margin of 2019
DHL FedEx
42%. As the industry where DHL conducts its
business require huge investments in different segments of operation, it is unlikely that DHL
would remain its cash idle.

Similarly, FedEx is also aware of the fact that investing more cash might bring them competitive
advantages in some stage. Hence, FedEx had cash ratio far below than the preferred range in
2017, 2018, and 2019 where the ratio is consecutively 0.12, 0.1, and 0.06.

8
Corporate Finance Institute, (2019)
 Current Ratio

Current Ratio measures a company’s liquidity

2 that relates to the short-term obligations only.9
1.59
1.5 1.39 1.45 Current Ratio below 1 indicates to liquidity
1.02
0.95 deficit or short-term debt being used to finance
1 0.89
long-term assets.10 DHL was enough liquid in
0.5
2017 with current ratio of 1.02. In 2018, current
0
liabilities increased by 14.36% whereas current
2017
2018
2019 assets increased only by 6.17% that led the ratio
DHL FedEx
down to 0.95. DHL might have financed short-
term debt to finance its non-current assets as it increased by a large margin of 45.53% in 2018.
Similarly in 2019, the ratio decreased to 0.89 as a result of increased current liabilities (2.47%)
and decreased current assets (3.92%).

In terms of FedEx, study shows current ratio of 1.59 in 2017, 1.39 in 2018, and 1.45 in 2019
which stipulates that FedEx was able to maintain themselves as a solvent company. Both in 2018
& 2018, balance between current assets and current liabilities led FedEx to keep the ratio above
1.

Quick Ratio

Quick Ratio considers only those current assets 2

1.53
that are easy to convert into cash and excludes
1.5 1.33 1.39
current assets (inventory, prepaid expenses) that 1
0.92
1 0.87
are difficult to convert. Higher quick ratio of a
0.5
company indicates to greater liquidity.11 Study
0
shows that DHL’s quick ratio is gradually
2017
decreasing from 2017 to 2019. In 2017, DHL 2018
2019
experienced quick ratio of 1.00 that shifted down DHL FedEx

to 0.92 in 2018. This has happened due to the increase of current liabilities by 14.36% as a result
9
Corporate Finance Institute, (2019)
10
Durrah et. al., (2016)
11
Durrah et. al., (2016)
of significant increase in current financial liabilities by 188.43%. Similarly in 2019, the ratio
sloped down due to increase nature of current liabilities and the decrease in current assets by
3.92%.

Along with the Current Ratio, FedEx also has strong quick ratio with a ratio of 1.53, 1.33, and
1.39 consecutively in 2017, 2018, and 2019. The stability in such quick ratio justifies FedEx’s
capacity to meet short-term obligations by their most liquid current assets.

3. LEVERAGE RATIOS:

Debt to Equity Ratio

Debt to Equity ratio explains the corporate

funding situation of a company and the ability of
0.88
2017 1.53 its own capital to cover debts to creditors.12
1.45 Higher debt to equity Ratio possesses risk as it
2018 1.2
indicates that debt is greater than the equity.13
1.45
2019 Study reveals that DHL had a creditor-attractive
1.56
debt to equity Ratio in 2017. Net debt of €2,261
0 0.5 1 1.5 2
DHL FedEX million declines to €1,938 million at the end of
2017 that affects the ratio to become 0.88.14 The
ratio gets higher in 2018 to 1.45. This has happened due to the increase of non-current liabilities
by 77.05% whereas equity increased slightly by 7.52%. Due to initial recognition of lease
liabilities, significant increase of net debt by €10,365 facilitates the ratio to go higher in 2018.15
In 2019, the debt to equity ratio remains same at 1.45 similar to the ratio of 2018. Both the debt
and equity increased almost in a similar margin of 3.84% and 3.74% consecutively compared to
previous year.

12
Nasution, Putri and Dungga, (2018)
13
Ulzanah and Murtaqi, (2015)
14
DHL Annual Report (2017), P. 62
15
DHL Annual Report (2018), P. 49
FedEx had comparatively higher debt to equity ratio than DHL in 2017 and 2019 where the ratio
was consecutively 1.53 and 1.56. The ratio was lowest in 2018 for FedEx due to the significant
increase of equity by 26.31% and slight decrease of debt. FedEx looked better leveraged in 2018
than other years.

4. INVESTOR RATIOS:

Earnings per Share (EPS)

Earnings per Share (EPS) measure the

16
management’s success to earn profit for their 14
12
investors. EPS indicates the investors to take 10
their investment decision that affect the share 8
6
prices.16 DHL recorded EPS of €2.24 in 2017 4
2
that exceeds prior-year EPS of €2.19.17 In 2018, 0
2017 2018 2019
DHL realized declined profit by 22.05% DHL 2.24 1.69 2.13
compared to the previous year that slowed down FedEx 9.36 14.88 1.84

EPS to €1.69 in the accounting period. The profit

declined majorly due to 40.15% increase in net finance costs. Finance costs for the accounting
period was higher than previous year due interest expenses on lease liabilities.18 DHL came back
strong in 2019 as profit increased by 24.82% that means EPS also increased and went to €2.19 at
the end of the accounting period. Inclusion of a new division in the operational segment helped
to increase the revenue level by 2.891% in the year and significant decrease in foreign currency
by 92.59% ensures profit level to increase.

FedEx had way more better EPS position than DHL both in 2017 and 2018. Though the profit
amounted lower than DHL, lessen number of shares facilitates EPS to be €9.36 in 2017 and
€14.88 in 2018. In 2019, FedEx’s profit declined by an enormous margin of 87.92% in 2019 that
affects the EPS to move down to €1.84 for the year. The major causes behind such horrific
decline in profit were global trade disputes loss of its prominent customer Amazon.19

16
Yuliza, (2018)
17
DHL Annual Report, (2017), P. 55
18
DHL Annual Report, (2018), P. 41
19
CNN, (2019)
 Dividends per Share

Dividends increase the wealth of the shareholders

2.5
by bringing real profit to them. Appropriate
2
dividend policy increases shareholders reliability
1.5
1 over the company.20 DHL provided dividend of
0.5 €1.05 per share in 2017. Though the EPS
0 declined by 24.55% in 2018, DHL management
2017 2018 2019
DHL 1.05 1.15 1.15 announced higher dividend than prior year. Study
FedEx 1.33 1.75 2.32 also reveals that EPS increased by 26.03% in
2019 and in response the management was stick
to the same dividend per share rate. It is noticeable that DHL increased dividend per share in
2018, despite of decline in EPS, to maintain the shareholders attraction and positively affect the
market value of shares.

In case of FedEx, dividend per share seems to be in growth trend over the years. Analysis asserts
that FedEx delivered dividend of €1.33, €1.75, and €2.32 per share consecutively in 2017, 2018,
and 2019. Even though FedEx faced drops in share by 10% in later of November 2019, higher
dividend in the year seems more of a strategic movement of their dividend policy which is
similar decision as DHL in 2018.21

20
Wet and Mpinda, (2013)
21
CNN, (2019)
 SWOT ANALYSIS OF DHL

STRENGTHS:

 Global Reach: DHL has Global Reach over 220 countries.22 As a result DHL holds
advantage over the field of market expansion and effective communication throughout
the globe that made DHL a global player.

 Robust Brand Value: DHL ranked 83rd with the brand value of $5,987 Million in the
Best Global Brands Ranking in 2019 whereas Commitment, Relevance, and
Responsiveness were the top performing factors for DHL’s brand strength during the
year.23 Brand Value has great impact on the firm Valuation.24 This positive brand value
of DHL can be effectively useful if they want to expand into new product & service
categories.

 Healthy Economic Position: Financial Indicators and the Finance Strategy performed
well in the accounting year for DHL (Annual Report-2019, p. 39). DHL has a very strong
finance background and is known to have adequate amount of resources as back up. As a
result, companies trust over DHL and their services is being increased over the years.
This economic position is necessarily helping DHL to expand its business year on year.

 Effective Customer Feedback Mechanism: Approximately 200 Projects were

implemented by DHL to achieve customer feedback on the matter of Quality, Reporting,
and Loss Events during the year 2018.25 In 2019, DHL conducted Customer Surveys over
30 countries to improve their Products and Services on a continuous basis. For that
instance, DHL achieved a great level of customer satisfaction and good brand equity.

 Skilled Workforce: Skilled workforce is essential for a firm as the commercial world
getting more competitive with the flow of time passes.26 DHL is investing enormous
resources in training and development processes for its employees & trainees that result
in a workforce that is highly skilled and also self-motivated towards achieving more.
22
DHL Annual Report, (2019), P. 7, Heading: A Global Express Network
23
Interbrand, (2019)
24
KIRK, RAY, AND WILSON, (2013)
25
DHL Annual Report, (2018), p. 61, Heading: Systematic Customer feedback in the Forwarding Business
26
Ortiz, (2019)
 Total number of Employees, headcount at the year-end 2019, for DHL amounted 546,924
(Annual Report-2019, p. 55).

 Immense Free Cash Flow: There is a relatively direct relationship between the firm
value and Free Cash Flow.27 Though DHL’s Net Free Cash Flow in 2019 went low from
the previous year still an amount as €867 Million is enormous (Annual Report-2019, p.
44). This amount of Free Cash Flow can provide resources for DHL to expand into new
projects. Free cash flow also allows DHL to pursue opportunities to increase share value
that ultimately increases the firm’s value.

 Strong Asset Base: In terms of Solvency, DHL holds a large Asset Base which is worth
of €30,484 Million (Annual Report-2019, p. 6-7). DHL is more likely to attract its
shareholders, creditors & other investors being a well solvent entity.

 Established Strategic Partners: For a progressive world and sustainable results, in a

competitive world, strategic partnerships are an essential method to take as a firm.28 DHL
with its suppliers, retailers, dealers other stakeholders established strategic partnerships
that allows it to leverage them if needed in the future.

 Social Media: Technology nowadays driving the commercial world. Henceforth, Social
Media is another effective marketing tool.29 DHL has significant levels of customer
engagement with minimal customer response time on social platforms like Facebook,
Twitter and Instagram having more than millions of followers.

 Website: Nowadays an entity’s success largely depends on its different stakeholders.30

Different stakeholders hold right to need for the company information & DHL has a well-
furnished, interactive and well- designed website to meet that right of stakeholders that
also draws a huge amount of traffic and sales over the internet.

 Shipment Insurance: Physical loss or damage may occur during the shipment from
external causes. As a proactive measure, to protect the shipment, insurance are being
provided to the customers that further enhances customer satisfaction.31

27
Ghodrati and Hashemi, (2014)
28
Kasamska, (2017)
29
Paquette, (2013)
30
Darskuviene and Bendoraitienė, (2014)
31
DHL Express, (2018)
WEAKNESSES:

 Declined Market Share: A company's position of market share directly related to

increase its profitability.32 Market Share for DHL declined during the accounting period
(Annual Report-2019, p. 6-7). DHL also ranked low in terms of Market Share in
comparison with its competitors. It indicates that DHL facing difficulties to attain market
share growth over its nearest competitors.

 Poor Supply Chain Management: In February of 2019, DHL sold its supply chain
operations, in China, Hong Kong and Macau, for €700 Million to SF Holding. 33 In
Africa, DHL preparing to sale the supply chain which is worth of €500 Million.34 Such
actions from DHL insights the dependencies on external agency that has a direct impact
associated with risk on the efficiency of DHL.

 Significant Impairment Loss: Impairment Losses are more of a bad news for an entity
in a perspective that it has to write down the value of assets.35 Also, Impairment loss
impacts significantly & makes difference in the profitability & capital structure. 36 At the
end of 2019, DHL faced Impairment Loss of €44 Million whereas it appeared €16
Million in the previous year (Annual Report-2019, p. 114).

 Extreme External Environmental Pressure: DHL has its operation, as aforementioned,

over 220 countries across the globe (Annual Report-2019, p. 7). Due to DHL’s
globalization effort, it has to operate within different culture, unstable political situations,
& meet certain obligations imposed by the local government that. DHL has to conduct its
operations in accordance with the changes in situations which create difficulty that limits
the opportunities to expand.

 Lower Advertising Expenses: To promote & publicize goods & services, advertising is
essential. Also, preserving the brand image is one of the vital roles that advertising plays
as a tool of marketing.37 DHL slightly cuts its expenses, in comparison with previous

32
Boulding, and Staelin, (1990)
33
Logistics Manager Magazine, (2020)
34
Reuters, (2019)
35
Wathen, (2020)
36
Sooriyakumaran, and Thirunavukkarasu, (2013)
37
Terkan, (2014)
 year, during the accounting period for advertising & public relations (Annual Report-
2019, p. 114). It reflects that DHL is less concerned about its brand promotion whereas
its competitors (e.g. FedEx) are increasing their expenses for advertising & public
relations.

 Zero Effort in Research & Development (R&D): It has been examined that R&D has a
great impact on the ratio of Return on Assets (ROA), Return on Equity (ROE), and
overall firm performance whereas it is probable that ROA & ROE will increase with the
increase in R&D budget.38 DHL has no significant effort in R&D field though other
players within the industry are making significant effort in R&D (Annual Report-2019, p.
17). Due to the course of action, DHL is more likely to go backward in long-term
strategies like product development & innovation.

 Probable Liquidity Problem: Liquidity shows the ability of a company to pay back its
short-term liabilities & is essential mechanism to smoothen operations of the company.39
The DHL has current asset of €15,052 Million which is decreased from previous year &
current liabilities of €16,873 Million that is increased from previous year (Annual
Report-2019, p. 89). Though DHL holds an impressive asset base, still liquidity problems
may arise due to low level of current asset in relation to the current liability.

 Limited Liability for Carriage: In comparison with its competitors, DHL’s approach to
take liability for carriage lacks customer attraction. Though it bears the liability but to a
very limited extent that is basically based on the weight of the goods shipped which can
be relatively lower than the actual cost of replacement.40

38
Ghaffar and Khan, (2020)
39
Yameen, Farhan, and Tabash, (2019)
40
DHL Express, (2018)
OPPORTUNITIES:

 Merger or Acquisition of Local Entity: DHL is one of the renowned brands within the
industry and is in a position of growth. Inorganic Growth is one of the two growth
options that a firm shall choose in order to grow.41 As Inorganic Growth mechanism,
Merger or Acquisition in target markets can accelerate the growth DHL needs to compete
with its competitors.

 Appropriate Utilization of Existing Market: Nearly there is no nation where DHL does
not operate its business. As DHL emerged into nearly every possible market, it’s high
time for DHL to adopt Concentrated Growth Strategy that focuses in existing markets to
increase market share.42 DHL also needs to expand in order to use potentials in the
existing markets. Hence, DHL is required to eye for the Customer Focused Supply Chain
Management (CFSCM) that is an effective tool to increase customer satisfaction &
profitability.43

 Increased Capacity in Developing Countries: DHL has increased its loading capacity
in China, Malaysia, Vietnam, and Hong Kong in 2018 (Annual Report-2018, p. 16). This
course of action enables the company to take advantages over its competitors in that
particular market.

 Changes in Consumer Behavior: New trends in consumer behavior have been observed
along with the acknowledgement of new consumer groups.44 Such trends can create new
market within an existing market and DHL shall proceed to grasp the opportunity to
attract the consumers.

 Stable Free Cash Flow: DHL’s Net Free Cash Flow in 2019 amounted to €867 Million
(Annual Report-2019, p. 44). Such stable Free Cash Flow incorporates DHL’s chances to
invest into new projects using new technologies. As DHL seems not fascinated by the
R&D effort earlier, the can use their Free Cash Flow in future in innovation to surprise its
customers.

41
Tamosiuniene and Duksaite, (2009)
42
Pearce and Robinson, (2013)
43
Strong, (2011)
44
Anna, (2013)
  Shifts in E-Commerce Trends: number of people who are using e-commerce has been
increasing day by day. Also, recent trends in E-Commerce includes connecting through
social media, mobile commerce, quick service, video based marketing, websites & apps,
and virtual sales force.45 DHL needs to assess such trends & shall take appropriate
measures to make those trends into a scope of growth and business expansion.

THREATS:

 Extensive Competition within the Industry: increase in number of competitors is one

of the most important threats to DHL. Along with UPS, USPS, and FedEx, there are also
some small companies competing with DHL. Such competition forces DHL for
continuous development of their business and strategies in order to sustain within the
industry.

 Economic Recession: It is the Logistics Industry that is mostly affected by an economic

slowdown in a country (e.g. India, 2019).46 DHL operates within so many developing
countries like Bangladesh, India where economic recession is more likely to appear that
possess a great threat for DHL.

 Socio-Political Threats: Socio-Political hindrances such as political instability, conflict,

war, terrorism etc. also possess great threat to DHL. Such threats can severely affect the
delivery dates estimated by DHL.47

 Currency Fluctuation & Inflation: DHL operates within numerous countries over the
globe, hence is exposed to currency fluctuations and inflation (Annual Report-2019, p. 7
& 132). Unstable political situations across the world accelerate the currency fluctuations
and adversely affect the inflation of a country which creates obstacles to the growth of a
firm.

45
Menaka and Seethal, (2018)
46
Chowdhury, (2019)
47
Kenney, (2016)
  Consumer Behavior Changes: Consumer behavior is shifting along with the
advancements of e-commerce.48 It can also possess threats to the existing physical
infrastructure of DHL.

 Natural Disasters & World Pandemic: Impacts of natural calamities, also world
pandemic, in a country’s economy cannot be neglected that can results in huge
infrastructural damages.49 Though DHL cannot prevent such threats but still proactive
measures to mitigate the risk and effect needs to be approached.

48
Makarewicz Anna, (2013)
49
Annual Disaster Statistical Review (2013)
 PESTLE ANALYSIS OF DHL

POLITICAL FACTORS: Political Factors are the parameters within which a firm must operate
that either may expose the firm both to the restrictive and beneficial regulations.50 DHL operates
within multiple national boundaries, hence facing following political factors in recent times:

 Political Stability: Political instability affects business and investment in a country. 51 In

Middle East & African region, nations are exposed to political unrest for several times in
recent times (Annual Report-2019, p. 7). On the other hand, DHL has a large engagement
with the European region where the political stability is said to be stable than any other
region that impacted DHL’s revenue having an increase of 5.6% than the previous
accounting year (Annual Report-2019, p. 48). Also European Union, integrated
community of European 27 countries, established close link with immediate other EU
countries that enables free movement, enlarged export, payments and other economic
cooperation.52 The Asian region possesses worse political stability compared to the world
as a whole. The world has an average score of -0.05 and the Asia is well behind with an
average of -0.36.53 In short, DHL must utilize the trade opportunities available in the
European region including the EU and situations must be analyzed in the Middle East,
African & Asian region to take advantage over its competitors.

 Policy Changes: Government policy influences greatly on the performance &

development of an industry.54 Due to trade conflict between China and USA, DHL had to
face slight growth slowdown. Taxation Policy Changes in Japan adversely impacted the
pace of growth of DHL (Annual Report-2019, p. 35). So, it is essential for DHL to
understand and assess the current trends of the policies of a country as changes in
government can harm business performance due to the increase of environmental
uncertainty and government’s attitude changes towards the industry.

50
Pearce and Robinson, (2013)
51
Jalloh, Djatmika, and Putra, (2017)
52
European Union, (2020)
53
Political Stability Index, (2018)
54
Luo, Roos, and Moavenzadeh, (2006)
  Barrier of Taxation: Taxation significantly impacts a country’s growth and its industry.
Operating in a country with high taxation level will impact the profitability of DHL. On
the contrary, DHL can expand into low taxation level markets to generate high profits.
Industry specific taxation structures require proper assessment by DHL in developing
industries to point out the government priorities.

 Protests or Strikes: Political protests or strikes by different pressure groups or by

Unions significantly increase firms costs and effects the firms overall efficiency. 55 In
November 29th of 2019, general strike in France effected DHL’s shipment efficiency due
to delays. Also, strikes in recent past by different unions and pressure groups made DHL
to delay their shipments. In order to mitigate the effect, DHL must have to collaborate
with pressure groups, labor unions and social activists as they play an essential role in
policy making.

 Corruption & Bureaucracy: Bureaucracy can rise as one of the major obstacles for a
country’s economy (e. g. Bangladesh).56 Also, World Bank mentioned that the level of
corruption increases with the increase of the level of bureaucracy. 57 Conducting
operations in a country that has higher corruption level with higher level of bureaucratic
complexity makes business environment uncertain for DHL.

ECONOMIC FACTORS: Economic factors affect the context of shaping the environment of a
business.58 DHL also exposed to different economic factors as following:

 Level of Economic Momentum: In 2019, the world lost significant economic

momentum that costs GDP downfall in industrial countries and emerging markets of
DHL (Annual Report-2019, p. 35). As organizational growth depends on such
momentum, loss of economic momentum can adversely affect the DHL’s organizational
performance. On the contrary, growing economy can offer broader range of opportunities
to DHL.
 Influence of Business Cycle: For DHL, it is important to acknowledge the stages in
industry life cycle. Industry in maturity stage creates competitive pressure within the
55
Shonchoy and Tsubota, (2016)
56
Reuters, (2015)
57
The Daily Star (2019)
58
Hudáková and Masár, (2018)
 firms.59 So, DHL might find more competition in a matured market due to market
saturation than the one in growth stage.

 Macroeconomic Indicators: DHL considers macroeconomic factors as an essential

element in determining their business success (Annual Report-2019, p. 67).
Macroeconomic indicators include GDP Growth, Inflation rate, Interest rate, Exchange
rate, Unemployment rate etc.60 High GDP indicates ability of customer to response to the
offered services by DHL. Fluctuations in the local currency, hence inflation can cause
serious issues (e.g. Inflation Risk in Germany and UK) to business strategies of DHL
(Annual Report-2019, p. 132). Also interest rate shall influence the present value of the
DHL’s total obligations and their attitude towards borrowings and further investments.
DHL can be exposed to financial risks due to changes in exchange rates (Annual Report-
2019, p. 139). Lastly, unemployment rate shall impact DHL’s attitude as high
unemployment rate indicates availability of labor with low wages that significantly
decrease operating costs.

 Labor Market: The wage rates and availability of skilled force are determined by the
demand supply of labor of a country.61 DHL needs to study its policies to attract skillful
employees to use their potential in order to enhance the organizational performance. In a
flexible market, an organization like DHL can be advantageous of higher labor
productivity.

 Efficiency of Financial Markets: Financial market is strongly related with the economic
growth, savings & investment. Also, financial market plays essential role when it comes
to the matter of ability to raise capital.62 DHL’s operations in high efficient financial
markets may lead them to a strong liquidity position that strengthens their capacity to
emerge into new markets.

59
Lichtenstein and Lyons, (2008)
60
Egbunike and Okerekeoti, (2018)
61
Fleetwood, (2014)
62
Federal Reserve Bank of San Francisco, (2005)
 SOCIAL FACTORS: Social factors that affect an organization include the values, beliefs,
attitudes, opinions, and lifestyles of a person that usually developed from the cultural,
demographic, ecological, educational, religious and ethnic reasoning.63 Social factors that
affect DHL are broadly explained as following:

 Changes in Demographic Propensity: Demographic tendency influences business

organizations from several perspectives that shape consumer market.64 DHL’s
understanding of the demographic characteristics can help them in market
segmentation & in other marketing strategies. DHL also acknowledged that
demographic change might decrease their chances of having motivated & qualified
employees (Annual Report-2019, p. 70).
 Cultural Diversity: Social norms and values differ from society to society and
culture to culture in a multiple way. A business can achieve competitive advantage as
well as can face obstacles due to different societal norms and values. 65 Developing
local partnership can better insight DHL into its operating area’s societal norms and
values to plan for unique marketing strategies in accordance with the cultural
diversity.
 Booming Online Shopping Interest: Availability of technology, growing traffic on
social networks and efficiency of e-commerce shifted customer buying behavior
towards online shopping in recent past. DHL needs to consider the aforementioned
fact when developing strategies regarding marketing and communication.

TECHNOLOGICAL FACTORS: Technological Factors for an organization have great

influence on its strategic decisions especially on its marketing strategy. 66 A detailed analysis of
technological factors affecting DHL has been briefed below:

 Electronic Marketing: To enhance collaborative relationship with DHL’s customers, it

is essential to adopt innovative marketing techniques like electronic marketing.
Technological advancement can be utilized to conduct online campaigns for increasing
online brand communities.

63
Pearce and Robinson, (2013)
64
Danziger, (2018)
65
GEERTZ and HERMAN, (2017)
66
Dauda and Ismaila, (2013)
  Continuous Technological Advancements: Changes in technological advancements
affects not only the business but the industry also.67 DHL needs to in line with the
continuous technological development to stay ahead than its competitors.
 Cost-Benefit Investment: DHL must analyze the cost benefit relationship while making
investment on technologies. R&D activities regarding technological advancements
needed for DHL to maximize profit.

LEGAL FACTORS: A careful concern required for every organization in terms of their legal
environment. Legal factors, related to DHL, are explained as following:

 Labor & Employment Laws: Most of the countries where DHL operates, they have
distinctive laws to their protect labor & employees from discriminations and to ensure
health and social safety. Studying such laws and practices on those can provide a positive
image of DHL to regulatory bodies within the country.
 Consumer Laws: DHL has to comply with consumer protection laws in different
countries. Compliance here means to maintain the laws regarding setting the maximum
price, certain level of quality standard, and avoidance of fraudulent marketing claims.
 Intellectual Property Laws: Organizations patent and ideas are protected by the
intellectual property laws of a country. DHL should be able to protect its intellectual
property rights otherwise it can lose competitive advantage that surely weakens the
position of DHL against its competitors.

ENVIRONMENTAL FACTORS: Environment laws, regulations or standards differ among

countries. DHL, as a global player, needs to consider the following environmental factors:

 Renewable Sources: A lot of countries offering subsidies and other benefits to business
to encourage them in renewable technologies.68 DHL can be benefitted from such
opportunities by investing on renewable technologies and can become more sustainable.
 Anti-pollution Activities: To mitigate the pollution in every level, more countries are
engaging businesses in their territory into anti-pollution activities like recycling and
waste management. DHL needs to adopt & practice such policies or standards as so many
countries are strict regarding their policies especially about the waste management.

67
Barnat (2005)
68
Bahar, Egeland and Steenblik, (2013)
  Green Business: Green policies have become strategic approach for the logistics
companies.69 Consideration about green business practices can create new opportunities
for DHL to increase trust of its stakeholders & also to comply with the regulatory
standards.
 Depletion of Scarce Resource: Study needs to be undertaken by DHL to avoid excessive
depletion of resources to comply with the environmental regulations of a country. Using
scarce resources excessively might bring trouble to the organization through
environmentalist groups, journalists or general public.

69
Karagülle, (2012)
 PORTER’S FIVE FORCES ANALYSIS

Threat of New Entrants: The entry barriers are high in logistics industry as high level of capital
requirements needed within the industry. It is highly difficult to achieve economies of scale in
the industry where DHL operates that makes new entrants a weaker force. Product differentiation
in logistics industry is strong that is considered as a competitive advantage for DHL & makes
entry barriers high.70 DHL and other firms within the industry have a great emphasis on
promotions and customer feedback programs that limits the threat of new entries. Governmental
policies and strict regulations regarding registration, licensing & other requirements make new
entrants a weak force. Further, DHL can mitigate the threats by engaging more in product
differentiation. Also DHL needs to build capacity on R&D sector for innovation and
development of product and services to eliminate threat of new entrants.

Bargaining Power of Suppliers: The industry where DHL operates has a large supplier base
compared to its customers that indicates supplier dominance a weaker force as bargaining power
of supplier is manipulated by number of suppliers.71 The switching cost in the industry is low;
hence, DHL has dominance over its supplier. Supplier in the industry dominants over DHL due
to there are no substitute products. Being one of the top players in the industry, DHL became an
important customer to its supplier.72 Therefore, suppliers have profit dependency over DHL that
shows supplier as a weaker force. To tackle the bargaining power of suppliers, DHL needs to
consider multiple suppliers within its supply chain and to build close relationship among the
parties for mutual benefit.

Bargaining Power of Buyers: Power of buyers depends on the market situation and the
importance of that purchase.73 Though buyers in the industry have fewer options of choosing,
still they want maximum quality with a given price that puts pressure on DHL. The buyers also
are concerned about the quality that indicates their less price sensitivity. To minimize the
bargaining power, DHL needs to develop cost advantage through economies of scale to provide
products and services at a lower price to attract more buyers.

70
Business Wire, (2017)
71
Slater & Olson, (2002)
72
Transport Topics, (2019)
73
Chowdhury, Hasan and Islam, (2017)
Threats of Substitute Products or Services: From the perspective of the company, it’s better to
have threats of substitute at low level.74 Threats of substitutes in the industry, where DHL
operates, have a weak force due to the availability of fewer substitutes. The substitutes that are
available are of high quality that is expensive whereas DHL sell at a lower price. Threats of
substitutes would be stronger if cheaper facilities than DHL are available in the industry. To
eliminate such threats, DHL have to continuously focus on improving the quality by maintaining
its cost leadership at the same time.

Rivalry among Competitors: The competition among the existing firms is really high due to the
presence of well-known international companies such as FedEx, UPS etc. Due to low product
differentiation, competitors are most likely to compete with their quality and price.75
Differentiating DHL’s facilities will create uniqueness within the industry and the competitors
will have less effect on customers of the industry. DHL also needs to strengthen its core
competencies in order to better compete with its competitors.

74
Bruijl, (2018)
75
Kaunyangi,( 2014)
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