The Battle for Values

February 22, 2010Group 4: Karissa Blasko, Adam Kane, Leighton Loop, and Jane Soper

Agenda

Introduction Opportunities in China FedEx and UPS Goals The Beijing Olympics Financial Trends A Winner in China Conclusion

Intro & OpportunitiesLeighton Loop

Introduction

FedEx High volumes in China

UPS Largest package delivery company globally In China 15 years longer than FedEx

US and China agreement Allowed hubs and landing rights in China Gave FedEx and UPS exclusive rights

Opportunities in China

Why China? Fast growing economy

Infrastructure and opportunities Increasing demands Room for expansion

Effects of the recession Almost at pre-crisis levels

Two Strategies, Many Problems

FedEx Local partnership strategy

UPS Entered the market alone

Challenges for both No domestic airline routes for foreign airlines EMS is more affordable Brand recognition and customer loyalty

barriers

Goals and CultureKarissa Blasko

FedEx and UPS Goals

FedEx: the Hare “Superior financial returns” Implied short term orientation and risk

UPS: the Tortoise “A long-term competitive return” Implied conservative values

A Different Culture

Cultural dimensions Uncertainty avoidance

Risk adverse Long-term orientation

Conservative Collectivist culture

Guanxi

The Beijing Olympics

UPS bid Demonstrated trust Built brand recognition Opened the door to future expansion Severely threatened FedEx

FINANCIAL ANALYSISAdam Kane

Asset Trends

FedEx Rent Assets Cash Balance

Issues UPS

Cash Balance Expansion: $100M

Company Current Ratio 2003 Current Ratio 2008

FedEx 1.18 1.35

UPS 1.79 1.13

Liability Trends

FedEx Debt Load

Fixed Charge Ratio Low Cap-Ex Limitations

UPS Debt vs. Equity

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20030

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

UPSFedEx

Weighted Average Cost of Capital

Financial Analysis

FedEx SEO

299 Million Outstanding

800 Million Authorized

Issue 400 Million Shares

Raise $31.2B Disregarding

issuance costsPar Value $10

Stock Price 12/29/2003

$68

Price of New Shares

$78

Financial Analysis

12/31/2003 FedEx UPS

Retained Earnings $6,250 Million $14,356 Million

Cash Flow from Operations $1,871 Million $4,646 Million

Internal Growth Rate 4.86% 6.91%

UPS Internal Financing Internal Growth

Rate 6.91%

Large Operating Cash Flows

Large EOY Cash Balance

WINNER! Jane Soper

Winner

Presence UPS: more hubs in China

Price UPS: FedEx cut prices below cost Also produced ill-will

Staying power UPS: Climate Counts Award, Cultural assimilation in China

Hubs in China

UPS hubs in China as of 2009: Shanghai and ShenzhenFedEx

hubs in China as of 2009: Guangzhou

Conclusion

A more appropriate goal FedEx’s goal was ill-suited for the Chinese

market Price was not the determinate factor UPS gained the trust and build the

relationships UPS’s winning formula will help in future

expansion

Questions?