Mumbai: Frank Appel clearly isn’t perturbed by the struggling economy as he outlines his plans for India.
His firm Deutsche Post AG, which runs one of the world’s top logistics brands, Deutsche Post DHL, will invest up to €300 million (Rs 2,097 crore) in India, he said, though he wouldn’t set a time for this.
Five-pronged strategy: Appel says the firm plans to target life sciences, technology, energy and auto in India. Photo: Hemant Mishra/Mint
Frank Appel, of Deutsche speaks about his business plans in India and how the impact of slow economic growth on his business.
He has even charted out a five-pronged strategy for the country—develop free trade houses, create specialized industry verticals, offer products specific to small enterprises, cross-sell DHL brands, and attract talent.
“The only predictable thing about this environment is volatility,” said the Deutsche Post chief executive. “Even forecasts can go wrong. But volatility is certain.”
Deutsche Post will invest more in India if the country introduces a uniform tax structure and improves its infrastructure, Appel said in an interview on Tuesday while on a company visit to India.
“There is an opportunity to offer additional capacity for the air fleet networks. We see huge opportunities for multi-customer warehouses. We also see opportunities for new competent centres where we have expertise for certain industries,” Appel said.
Appel first announced his his five-pronged strategy for India in a presentation to investors on 24 May. India, he said, is one of the key regions Deutsche Post is focusing on, the others being Brazil, Russia, China and Mexico.
A main component of the presentation is the company’s plan to cross-sell the various DHL brands in India. DHL has air freight, ocean freight, road and rail freight, warehousing and distribution businesses in the country.
“DHL will be the umbrella brand and we will bundle all services under that to derive synergies,” Appel said.
But Deutsche Post will keep Blue Dart Express Ltd as a separate brand. DHL holds an 81% stake in Blue Dart, a domestic courier company. Appel did not comment on DHL’s proposal to delist Blue Dart from Indian bourses.
In his presentation, Appel said the company will build competence centres in automotive, life sciences and healthcare, and retail industries. It will also develop products in line with its new free trade zone in Chennai, he said in it, without specifying details.
Appel added that the key sectors the group will target in India are life sciences and healthcare, technology, energy, and automotive.
Vikas Sarangdhar, director, research, who leads consulting firm Gartner Inc.’s supply chain research group in India, said Deutsche Post has an immense opportunity in India to invest in warehousing and other infrastructure facilities as the country grows.
“Even as India is growing at around 6% instead of the projected 7-8%, there are immense logistics opportunities for any player. Logistics costs constitute 13% of GDP (gross domestic product) in India compared to 9% in the US. There are challenges in infrastructure and hence DHL has opportunity to improve efficiencies by investing in India,” Sarangdhar said.
Another logistics consultant said it was heartening to see a large global logistics firm keen to invest in India even in a slowing economy.
But he also said Deutsche Post couldn’t be complaining about poor infrastructure. “They are supposed to help create it for corporations,” he said, on condition of anonymity. He agreed, though, that Deutsche Post was right in signalling for a uniform tax model.
States in India have their own sales and service tax structures, which are different from the central taxes, frustrating sectors such as logistics. The proposed goods and services tax (GST) is delayed mainly because of resistance from some states.
“It is always difficult for a foreigner who visits India to give advice on what India wants. We have always seen as a constraint for the growth for this country the lack of a uniform goods and sales tax on one end, and infrastructure not keeping pace with growth at the other end,” Appel said.
GST will standardize rates across the nation, allowing companies to move away from having warehouses in different states adhere to each state’s tax code, and employ logistics companies to manage distribution and supply chains.
“If something could be done to have a simpler tax regime to take some cost out of logistics, which is an enabler, the country can grow faster,” Appel said.
He also hinted that Deutsche Post will bring more freighters to India based on the demand.
Rival firm FedEx Corp., the second largest parcel transporter in the US, and United Parcel Service Inc. have at least 50 cargo planes flying to India.
In 2011, Deutsche Post DHL had a revenue of €53 billion. It does not break up numbers for India. In 2010, Deutsche Post was India’s top logistics firm, claiming a 40% share in small parcels transportation.
India’s logistics market was estimated at $100 billion (around Rs 5 trillion), according to Gartner’s Sarangdhar.
Appel unveiled his ‘Strategy 2015’ in March 2009, providing for a two-tier structure with small parcel business and freight forwarding business, as well as tighter links between various divisions.
About the global economic worries, he said he is “slightly optimistic when I am surrounded by several pessimists. However, we are convinced that India is going to grow rapidly and that creates a lot of opportunities.”
Appel said Deutsche Post is not looking for large acquisitions in India but for small and tactical purchases. He didn’t give details.