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BW Businessworld

‘Life Science Is Our Focus’

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The $80.6-billion Deutsche Post DHL, Germany's postal operator and global market leader in logistics, is caught in a global meltdown. The year 2008 was not a good year: it made consolidated losses. But the company is sprucing up its act and hopes to turn profitable in 2009. Its new group strategy: focus on three major sectors — technology, oil and energy, and life sciences. On a recent visit to India, BW's Muthukumar K. caught up with Frank Appel, CEO of Deutsche Post DHL, to  understand why he is gung ho about Asia Pacific and Indian Life Science business and, how the new goods and services tax will affect his investment plans. Excerpts:

How has the global economic slowdown affected you?
It has hit all our four businesses — mail, express service, global forwarding and supply chain. Our domestic mail business in Germany, for instance, is yet to recover. In fact, the financial crisis has only highlighted its structural challenges. While higher fixed costs is proving a major challenge, preference for internet advertising among marketers (due to its lower costs) is eating into our direct mail marketing services. Lower advertising for newspapers also means lesser business for us (Deutsche Post delivers newspapers in Germany), since we are paid by weight by publishers and not per newspaper. While our supply chain business has also faced pressure, global numbers are distorted. Our largest supply chain customer — a retailer — went bankrupt. Still, I can safely say, we are much better off.

Any change in business strategy?
As part of the new group strategy 2015, DP DHL has prioritised three sectors — technology, oil and energy, and life sciences. we have nominated board members to head each of these sectors. This is part of our strategy to reduce complexity and increase value for our customers. This structure also establishes a sector management approach, which aims at further developing our relationship and understanding of customers in specific industries.

Are you toning down your capex?
Given the global economic conditions, we have reduced capex. At last count, we made an investment of $1.2 billion globally, which is sufficient to capture growth. We have invested more than $2 billion in asia pacific over the past couple of years. We expect large growth to happen in this region. With a portfolio of 41 markets, and with good investment footprints in many countries, we are in a strong position in asia pacific to ride out any short-term economic fluctuations and business cycles. we recently invested $10 million into lifestyle competence centres in india (hyderabad and mumbai) connecting india to DHL's life science infrastructure globally.

Why life sciences?
It is a continuously growing industry, driven by ageing populations, growing demand, and new healthcare products and services. Its supply chains are complex with very specific requirements, particularly given the high value and perishable nature of phamaceutical products. we recently launched products in india to cater to such needs. Our overall turnover in this sector last year, reached $3.3 billion, derived from a wide range of logistics services, ranging from international freight forwarding, pharmaceutical warehousing and domestic distribution, to worldwide specialist courier services supporting clinical trials.

 

Larger proportion of our revenues comes from mature economies today. Europe accounts for 50 per cent, the US 40 per cent and asia pacific 10 per cent. India is a rapidly growing manufacturing hub for pharmaceutical products bound for many overseas markets, both developed regions such as the US and the UK and also emerging markets of Africa, the Middle East and Latin America.

You have a strategic stake in Blue dart in india. Any thoughts about having an indian hub?
We are happy with our indian operations. Blue dart is a strong brand in India and for the moment we aren't contemplating further investments. Just a few months ago, we opened a hub at leipzig (germany). In asia, major volumes are coming from china and thailand. India is strategically located and is closer to europe than hong kong — which could mean saving on fuel cost. But India doesn't have enough volumes to become a hub.

GST is to be implemented in India soon — how will it affect your business?
GST will open up huge opportunity for us. we can build large distribution centres in India then. There are certain infrastructural challenges though. For instance, busier and congested airports and roads would restrict our ability to deliver cargo on time.

Any change in consumer behaviour after the global slowdown?
In the domestic courier services, some customers are switching from express to regular parcels (to save on cost). As a strategy, we refrain from competing with smaller players. We rather cater to the high end of the consumer market looking for quality and consistency of service. 

Are the trade volumes picking up?
We believe the worst is over. In fact, in some sectors volumes have picked up. I am yet to look at the September figures as July and august are weak months for trade. But there is certainly light at the end of the tunnel.