Case Study: Creating a global operation

The story
Co-founded in 1982 by Fadi Ghandour, Jordan-based Aramex started out by delivering packages across the Middle East on behalf of global express delivery and logistics companies. Aramex thrived by aggregating the bigger companies’ small volumes of business in the region and by providing a superior service thanks to its detailed local knowledge.

It also developed two other lines. First, it sent express packages out of the region to be delivered by partners, many of which were in an alliance formed by Aramex and Airborne Express. Second, it offered freight forwarding and domestic distribution services to Middle Eastern clients as well as logistics and customs clearance.

Between 2000 and 2005, Aramex had annual revenue growth of more than 16 per cent and net income growth of 29 per cent.

First challenge and strategic response
In 2003, Airborne was acquired by DHL. This meant dissolving the alliance and ending the tracking and tracing system used by alliance partners to co-ordinate the network. How could a medium-sized regional business compete globally without a strong overseas network?

Mr Ghandour organised 40 or so of Aramex’s peers worldwide into the Global Distribution Alliance, which could collectively compete with big operators. Aramex developed tracking and billing systems that allowed members to act as a global network. The alliance model minimised the need for big capital investments in several countries.

By mid-2005 GDA was operating smoothly, outbound traffic was strong and its logistics and transport business in the Middle East was booming.

Second challenge and strategy
In 2005, Lynx Express, GDA’s UK member, was acquired by global operator UPS. GDA members would be unable to send or receive packages to or from the UK on the favourable terms they were used to. This showed Mr Ghandour the fragility of
a pure alliance strategy. Investment might be low and returns high, but if a member drops out, the entire network is weakened.

Recognising that its core competence was providing a superior service in emerging markets, Aramex set out to become the first-choice logistics company in the Middle East and north Africa by investing in infrastructure and people. It also moved to replicate its strategy in other emerging economies in Africa and southeast Asia.

In more competitive or more regulated emerging markets, such as China, Aramex moved cautiously. It invested in a “gateway” operation – staffed by Aramex managers – that ran a partnership with a Chinese logistics and transportation leader. This provided local presence and knowledge but minimised capital investments.

As for the global network, Aramex realised it could not compete directly with the big operators in the developed world. But it had to expand its role as GDA co-ordinator to take on responsibility for plugging any holes in the network that might occur as a result of financial distress or acquisition. In the US and Europe, Aramex avoided making big direct investments. Instead, it set up gateway operations at major hub airports, where its staff managed local partners and were responsible for back-up plans if a partnership failed.

The results
Revenues rose from $125m in 2005 to nearly $845m in 2012, with profits rising to an expected $66m in 2012.

Key lessons
Aramex really grew once it realised it had two areas of business, each needing a different strategy. The first was delivery, sourcing, logistics and value-added services in emerging markets: wherever Aramex was a first mover, few rivals could hope to catch up.

The second was managing a global alliance that enabled it to operate internationally thanks to its agility and its ability to manage partners and fill in when gaps in the network occurred. This “asset-light” strategy kept it out of an investment race with bigger rivals, but if a problem did occur, its local contacts meant it could act quickly.

- Financial Times, Feb 4. 2013