is in doubt, as letter volumes continue their lower
for longer trend (they are forecast to decline
4–6% annually). In addition, fierce competition
from foreign operators in the parcel market has
led to a 20% overcapacity, which prevents Royal
Mail from staking a large claim in the main
growth market. As efficiency gains are exhausted, further profit growth will likely have to come
from parcels—where profit growth has been
unimpressive so far—or diversification, which
Royal Mail has only pursed at small scale and is
losing ground to more aggressive competitors.
Royal Mail has begun to move vertically into
e-commerce and logistics but is being outpaced
by movement the other way, which is likely to
increase pressure on margins. Royal Mail (like
Deutsche Post and France’s La Poste) is moving
vertically up the value chain towards website
development, digital marketing and parcel collection points. For now, Royal Mail appears to be
progressing exclusively through mergers and
acquisitions; no major organisational reshuffle—
such as the creation of a new board position or
business unit—has been announced. The deal
volumes of its e-commerce-related acquisitions
have not been disclosed, nor have revenue forecasts been given by Royal Mail, but it is estimated they will add only £100 million in revenue
over the next two years. Amazon has started to
build an in-house delivery network, expanding
its operations from e-commerce to the underlying
parcels and logistics business which, by comparison, reported revenues of £1.5 billion in
2016.
Royal Mail has acquired foreign postal operators to diversify into new international markets,
but again these have been small. In the USA, it
acquired Postal Express for $13 million in 2017
and Golden State Overnight for $90 million in
2016. In Europe, Royal Mail acquired ASM
Transporte Urgente of Spain for €71 million in
2016. By comparison, Deutsche Post’s acquisition of DHL in 2002 for around €2 billion and
Exel for €5.6 billion in 2005 are of a different
magnitude. Part of the reason for these smaller
acquisitions by Royal Mail was capital limitations. There are benefits from taking a more
measured, modular approach that does not
require large-scale strategic and organisational
shifts: the risk and costs are much lower. This is
evidenced by the $3.9 billion in restructuring
costs arising from Deutsche Post’s expansion
into the US market, followed by an exit from
domestic US deliveries. But the reality is that a
strong presence in new markets requires strong
investment that Royal Mail is currently not
delivering.
The government effectively paid a one-off fee
to allow Royal Mail to break out of constraining
monopoly regulation, which was crucial for
Royal Mail to become profitable again. With its
high transformation costs before privatisation,
Royal Mail was unable to pursue any strategy
other than inaction, despite expectations of a
continuing lower for longer trend and a high
payoff from divestment or diversification. By
taking on the pension liabilities of Royal Mail,
the government made privatisation possible,
which proved to be net beneficial. For oil and gas
in China, this could take the form of divesting
network infrastructure (as a precondition to
becoming a private company) and accessing
private capital markets for growth opportunities.
With the right regulatory environment and
leadership, stabilising the core business and
maintaining service security is possible without
major top-level organisational change. Except for
the separation of the post office arm and the
government taking on the pension liabilities,
Royal Mail’s turnaround has been achieved
without making major changes to its organisational structure. However, as mentioned above,
this turnaround was concentrated in Royal Mail’s
core business, and the company’s long-term
growth prospects are not yet certain.
Deutsche Post: An example of a transformative strategy
Deutsche Post’s diversification strategy into
global markets and logistic services began in the
late 1990s, predating any fall in mail volumes.
The decline of mail volumes in Germany began
later than in both the USA and the UK, peaking
in 2008 and falling only by 13% by 2015. In
comparison, the falls in mail volumes in the USA
76
W. Xiaoming et al.
for longer trend (they are forecast to decline
4–6% annually). In addition, fierce competition
from foreign operators in the parcel market has
led to a 20% overcapacity, which prevents Royal
Mail from staking a large claim in the main
growth market. As efficiency gains are exhausted, further profit growth will likely have to come
from parcels—where profit growth has been
unimpressive so far—or diversification, which
Royal Mail has only pursed at small scale and is
losing ground to more aggressive competitors.
Royal Mail has begun to move vertically into
e-commerce and logistics but is being outpaced
by movement the other way, which is likely to
increase pressure on margins. Royal Mail (like
Deutsche Post and France’s La Poste) is moving
vertically up the value chain towards website
development, digital marketing and parcel collection points. For now, Royal Mail appears to be
progressing exclusively through mergers and
acquisitions; no major organisational reshuffle—
such as the creation of a new board position or
business unit—has been announced. The deal
volumes of its e-commerce-related acquisitions
have not been disclosed, nor have revenue forecasts been given by Royal Mail, but it is estimated they will add only £100 million in revenue
over the next two years. Amazon has started to
build an in-house delivery network, expanding
its operations from e-commerce to the underlying
parcels and logistics business which, by comparison, reported revenues of £1.5 billion in
2016.
Royal Mail has acquired foreign postal operators to diversify into new international markets,
but again these have been small. In the USA, it
acquired Postal Express for $13 million in 2017
and Golden State Overnight for $90 million in
2016. In Europe, Royal Mail acquired ASM
Transporte Urgente of Spain for €71 million in
2016. By comparison, Deutsche Post’s acquisition of DHL in 2002 for around €2 billion and
Exel for €5.6 billion in 2005 are of a different
magnitude. Part of the reason for these smaller
acquisitions by Royal Mail was capital limitations. There are benefits from taking a more
measured, modular approach that does not
require large-scale strategic and organisational
shifts: the risk and costs are much lower. This is
evidenced by the $3.9 billion in restructuring
costs arising from Deutsche Post’s expansion
into the US market, followed by an exit from
domestic US deliveries. But the reality is that a
strong presence in new markets requires strong
investment that Royal Mail is currently not
delivering.
The government effectively paid a one-off fee
to allow Royal Mail to break out of constraining
monopoly regulation, which was crucial for
Royal Mail to become profitable again. With its
high transformation costs before privatisation,
Royal Mail was unable to pursue any strategy
other than inaction, despite expectations of a
continuing lower for longer trend and a high
payoff from divestment or diversification. By
taking on the pension liabilities of Royal Mail,
the government made privatisation possible,
which proved to be net beneficial. For oil and gas
in China, this could take the form of divesting
network infrastructure (as a precondition to
becoming a private company) and accessing
private capital markets for growth opportunities.
With the right regulatory environment and
leadership, stabilising the core business and
maintaining service security is possible without
major top-level organisational change. Except for
the separation of the post office arm and the
government taking on the pension liabilities,
Royal Mail’s turnaround has been achieved
without making major changes to its organisational structure. However, as mentioned above,
this turnaround was concentrated in Royal Mail’s
core business, and the company’s long-term
growth prospects are not yet certain.
Deutsche Post: An example of a transformative strategy
Deutsche Post’s diversification strategy into
global markets and logistic services began in the
late 1990s, predating any fall in mail volumes.
The decline of mail volumes in Germany began
later than in both the USA and the UK, peaking
in 2008 and falling only by 13% by 2015. In
comparison, the falls in mail volumes in the USA
76
W. Xiaoming et al.