UPS opening doors with Games sponsorship

Running a logistics center the size of 30 football fields. Moving soccer goals, giant scoreboards and kayaks through grid-locked streets. And getting uniforms and pommel horses in place on time.

For package delivery giant UPS, the "official cargo and logistics supplier" for this summer's Olympics, it's an ordinary day in Beijing.

The Sandy Springs-based company is looking to expand overseas to reduce its dependency on the stagnating U.S. economy, which accounted for about 62 percent of its revenue in 2007. Making inroads in China — the world's fastest-growing large economy — is a key part of UPS's international strategy.

But in China, you don't just decide to set up shop.

Chinese laws dictate that only the state-owned China Post can deliver letters and documents domestically. Right now, UPS's only retail presence in the Chinese marketplace of 1.3 billion consumers is four stores: two in Shanghai and two co-branded with Staples in Beijing. But the company is building a $600 million, 1 million-square-foot logistics hub in Shanghai to increase its reach in Asia.

Package carriers are betting China will lighten restrictions on domestic package delivery services, and UPS wants to have a competitive advantage if that happens.

That's why the company is spending an estimated $30 million to be a China-only sponsor of the Games. UPS has 4,500 employees in China, and about 1,500 of them will work on Olympics logistics.

If all goes well, it could be a shrewd move that strengthens UPS's ties to high-level officials in Beijing, where rules governing China's package service are made, and raise the company's profile among China's masses.

Being a China-only sponsor has had an unanticipated benefit, too. As protestors around the world hit the streets during the Olympic torch relay, human rights activists called on the biggest Olympic sponsors to pressure China about its actions in Tibet and its influence in the Darfur region of Sudan.

Global sponsors such as Atlanta-based Coca-Cola Co. were pulled into a public relations dilemma: React publicly and risk offending Chinese officials and consumers. Lay low and risk being pounded in the media by human rights groups. Coke still is dealing with the aftermath.

Because UPS's Olympic sponsorship is visible only in China, the company, largely had avoided the fray. UPS has only gotten about 50 e-mail complaints regarding its Olympic sponsorship, all from the United States, said Lynnette McIntire, a UPS spokeswoman.

But last week, New York-based human rights group Dream for Darfur gave UPS and 15 other Olympic sponsors low marks for not writing to the United Nations to push for international action in the Sudanese region. (UPS was given an "F.") China is the top trading partner and a major weapons supplier to the government in Sudan, which experts say has fueled a conflict that has killed some 200,000 people in its Darfur region.

Dream for Darfur said it would organize protests to pressure the Olympics sponsors; the group planned to march against Coke in downtown Atlanta on Saturday.

Looking for name recognition in China

By hosting the Games, UPS aims "to get the name recognition and brand value in China that we have in United States, Canada, Singapore or Germany," said David Abney, UPS's chief operating officer, and former president of UPS international.

The Games will "connect China and Shanghai and the rest of the world," Abney said. "China is our No. 1 priority market outside of the United States."

UPS's first-quarter earnings, released last week, showed why UPS needs overseas growth to counter lackluster U.S. gains. U.S. package delivery dipped 0.3 percent in the first quarter to 13.2 million packages a day on average. International package delivery, on the other hand, grew by 2.3 percent to an average of 1.8 million packages a day.

The Beijing sponsorship — which includes exposure such as TV commercials and advertisements on subway trains — allows access to China's rapidly growing middle class, which today numbers more than 100 million.

"If people see that we can handle the logistics of the Beijing Olympics," that will help from a "customer and government standpoint," Abney said.

Experts believe UPS trails U.S. rival FedEx and German-based competitor DHL in market share in China.

Last year, Abney said, UPS's export volume out of China increased 35 percent. Revenue from operations there have increased by double digits every year since 2001. Abney would not give specific dollar figures.

Sam Chambers, the managing director of City Connect, a Hong Kong-based supply chain consulting firm, said no specific study on package-delivery market share in China has been done, but among foreign companies, he suspects DHL, followed by FedEx, lead the market.

Any increases UPS has made "were starting from a pretty low base," Chambers said.

The express mail market in China grew from $3.5 billion in 2005 to $5.6 billion in 2007, Chambers said, representing tantalizing growth.

Companies' cash crucial to Beijing Games

Chinese officials needed the know-how — and cash — of multinational companies to help stage the Games. Organizers sought $1.6 billion in sponsorships to defray operational costs of the Games.

UPS is a third-tier sponsor — with an estimated value of about $30 million in cash and in-kind services.

Coca-Cola, a first-tier sponsor, paid an estimated $70 million to $75 million to be a four-year global Olympic partner, said Jim Andrews, senior vice president of IEG LLC, a Chicago firm that analyzes corporate sponsorships. It also paid an estimated $5 million to $15 million to be one of three sponsors of the torch run, Andrews said.

In all, there are 48 official sponsors, both Chinese and global companies, helping Beijing stage the 17 days of games this August.

As one of its sponsorship responsibilities, UPS will operate a logistics warehouse that will get equipment and gear to venues in time for Olympic events.

By sponsoring the Games, UPS might earn Beijing's goodwill.

"They're definitely trying to get visibility out of it, and they're definitely trying to get Beijing to know they are on their side," said Chambers, the consultant.

"This is a showcase" for Beijing, said Rick Franza, chair of the management and entrepreneurship department at Kennesaw State University's Michael J. Coles College of Business.

"If government officials are impressed with UPS, it's going to have a positive impact on the way they might want to see that regulation go," said Franza.

"This movement of stuff on the ground, it's their core competency," he said. "This cannot hurt [UPS] unless they stub their toe."

(Atlanta Journal Constitution)

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