In the face of fierce competition, will small and medium-sized logistics firms back down or fight back?

Release date:

2021-10-25

Author:

Jinhua Logistics

In the current logistics market, competition is exceptionally fierce. Faced with such competitive pressures, how should logistics companies make their strategic choices?

When the odds are heavily stacked against them, some companies choose to “back down”—if they can’t fight, why not just avoid it? Others, however, opt for a “head-on clash,” treating life and death as no big deal and taking on the challenge head-on.

However, whichever option you choose, the outcome invariably falls short of expectations—just keep reading to see for yourself.

After making a choice, there is no other option.

For small and medium-sized logistics firms, conceding ground may not be such a bad thing after all—after all, survival comes first. What good is high revenue if profit margins are razor‑thin or even negative? In that case, it’s better to cut the losses. That certainly sounds reasonable, but this line of thinking doesn’t apply to every logistics company.

Every enterprise goes through four stages of development: the startup phase, the growth phase, the maturity phase, and the decline phase. What we’ve discussed—focusing solely on “high‑margin” operations—is appropriate for small and medium‑sized logistics firms in their startup phase. At this stage, cash resources are limited, and engaging in low‑price or loss‑making competition will only exacerbate operational challenges. Cash flow is the lifeblood of a company; when it dries up, the business is destined to fail.

For companies in the growth and maturity stages, it is essential to maintain an open-minded approach to business selection and categorize prospective customers into three groups: profit‑driving customers, brand‑building customers, and inventory‑filling customers. Among them, profitable customers boast relatively high profit margins, followed by brand‑name clients, while fill‑in‑the‑blank customers have the lowest margins—often breaking even or even posting slight losses. For customers at these two stages of development, it’s crucial not to simply concede on all low‑margin businesses; diversifying the business mix and investing in brand building are equally vital.

Having discussed the aftereffects of “admitting defeat,” let’s now examine what happens after “going head-to-head.”

Many large third-party logistics providers, after conceding on pricing to their customers, are finally able to move forward with the next contract term. However, with operating costs remaining stubbornly high, how can they sustain their existing profit margins? For most companies, business profitability is tied to both corporate and individual performance—so the question becomes: what’s the solution?

No doubt many of our peers have encountered and considered this: the “centralized procurement tender” organized by large third-party logistics providers. In fact, there are numerous ways to cut operating costs, but among them, the centralized procurement tender stands out as the most effective—its results come fastest, and it requires far less effort than implementing other cost‑reduction measures. It’s nothing more than multiple rounds of price negotiation; if all else fails, they’ll simply set a floor price for you.

If you can handle it, do it—otherwise, get out! There’ll be bread, there’ll be a home, and of course, there’ll be a “takeover candidate” too. But how long that “takeover candidate” can last? That’s anyone’s guess. And if you don’t have a sufficiently reliable backup in place, you might just end up letting that “takeover candidate” ruin your business altogether...

Since backing down and outright confrontation are both less than ideal, do small and medium-sized logistics enterprises have any other options? If you’re still struggling to come up with a solid plan, why not take a look at the “maneuvering strategy”?

The Third Option: The Maneuvering Strategy

In Baidu Baike, “tengnuo” refers to a nimble and flexible playing technique used in localized Go battles when the opponent is stronger than one’s own position, serving as a means to handle one’s isolated stones.

It should be noted that the side making room is fighting under adverse conditions; a head-on clash will inevitably incur heavy losses, whereas maneuvering by probing here and there often allows for a more favorable pace of play. In some situations, it is perfectly acceptable to promptly shift gears and sacrifice a few pieces.

Simply put, “tengnuo” is about trading space for time. In his book, “The ‘New Kind of Certainty’ in China’s Economy,” Professor He Fan breaks down the “tengnuo strategy” into three key moves, which I find highly instructive. Here they are:

1. Identifying a breakthrough point

Right now, it’s the annual shopping frenzy of Double 11, so let’s start with e‑commerce—something everyone knows well.

Back then, Taobao got a head start, and most people who had already enjoyed the benefits of online shopping would download its app. JD.com, by contrast, entered the market later; for many of the products available on JD.com’s mall, you could almost certainly find them on Taobao as well. So, how can JD.com boost its market share in the e‑commerce space?

As a professional in the logistics industry, you’re undoubtedly familiar with JD Logistics—after all, it was “logistics” that served as the breakthrough strategy when JD Group first launched.

Because JD.com has come to understand one key point: a consumer’s online shopping experience doesn’t end with the act of payment. Rather, it encompasses the entire journey—from product selection and price comparison, through checkout and logistics, to the final delivery of the purchased item in perfect condition.

No matter how fierce the competition, it can never be confined to a single dimension. Competition is multi‑dimensional: even when you’re at a disadvantage in one area, you can always identify a breakthrough point. Once you’ve found that leverage, you can lean all your strengths into it—like a jack—and withstand the pressure from your rivals.

2. You do your thing, and I’ll do mine.

This National Day holiday, the hottest film has undoubtedly been “The Battle at Lake Changjin.” If you’re a military enthusiast, I’d like to recommend another book—unrelated to the movie—titled “Why the PLA Won: A Military History for the New Generation,” written by Major General Xu Yan.

This book explains what the PLA’s strategy is: “You fight your way, I’ll fight mine—engage if we can win, retreat if we can’t.” As for the Kuomintang’s approach? It has, in fact, been articulated since the Self-Strengthening Movement: “Learn the barbarians’ skills to subdue them”—that is, study others and, once mastered, stand on equal footing with them.

General Fu Zuoyi remarked during the War of Resistance Against Japan that this war could not be won. The Kuomintang’s training manuals and the operational plans devised by its staff were all modeled on Japanese practices. While learning from Japan, the KMT was simultaneously fighting against it. No matter how the KMT fought, the Japanese had a crystal‑clear picture of their tactics—how, then, could they possibly prevail?

From a strategic standpoint, Communist soldiers were outmatched by their adversaries in both training and weaponry, so they could not hope to prevail. Consequently, the PLA adopted the “fighting our own way” approach: retreat when the enemy advances, harass them while they are encamped, strike when they are exhausted, and pursue them as they fall back—thus securing victory in guerrilla warfare. In maneuver warfare, they advanced and withdrew in bold strides, lured the enemy deeper into prepared positions, concentrated their forces, and defeated the enemy piecemeal, achieving decisive results through mobile operations.

Once you’ve identified the breakthrough and established yourself, the next step is to stick to your own approach—don’t just follow in others’ footsteps. Put yourself at the center of the game and quickly build up your own core strength.

3. Vast and boundless skies

Let’s start by talking about one figure—Hu Xueyan. He was a renowned “red‑top merchant” of modern times. When someone asked him, “What is business?” he replied, “Doing business is like having eight water jars and seven lids: you keep putting the lids on and off, and no one ever sees through it.”

If you look at it from a conventional perspective, isn’t this just a Ponzi scheme—robbing Peter to pay Paul, bound to unravel sooner or later? Yet, viewed from another angle, it really could avoid being exposed.

In the early stages, our resources were limited, so we had to keep building and rebuilding to buy ourselves some time. With that extra time, we could send a young assistant up the mountain to chop firewood, then quickly craft another roof—so in the end, wouldn’t the whole structure hold together?

Let’s revisit JD.com’s decision at the time to build its own logistics network. Establishing an in-house logistics system required substantial capital investment in assets—such as acquiring land to construct the Asia No. 1 warehouses and investing in warehouse‑level equipment. This move was widely criticized by many industry insiders, who feared that such heavy asset‑intensive spending could erode the company’s cash flow or even disrupt it altogether.

However, after JD.com began building its own logistics network, it gradually cultivated a widely shared perception: placing an order on JD.com leads to faster delivery. When price differences among sellers are minimal, delivery speed becomes the decisive factor in consumers’ purchasing decisions. As a result, JD.com’s self‑operated logistics has fueled rapid growth in both revenue and profitability, while this business expansion, in turn, has generated additional cash flow for its logistics operations.

You can’t solve every problem at the same time or in the same setting. You need to learn to adjust the constraints—time is flexible. If you can’t tackle a problem today, create some breathing room first; by tomorrow, it will likely be much easier to resolve. And for issues that seem impossible to address directly, try an indirect approach—shift your perspective and find another way to move forward.

Final words

Small and medium-sized logistics enterprises, in the face of fierce market competition, cannot always enjoy smooth sailing; they will inevitably encounter challenging times. Beyond conceding or stubbornly resisting, you might try a strategic maneuver—trading space for time.

First, it’s important to recognize that competition is multi-dimensional, and no single company can dominate you across all fronts. Analyze the resources you possess—both your own and those you can leverage—and identify your unique strengths to pinpoint a breakthrough opportunity.

Once you’ve identified that breakthrough point, lean all your strengths into it—like a jack—to withstand your opponent’s pressure. In market competition, don’t get bogged down by short-term gains or losses; stay focused on your goals and adopt a long-term mindset.

Second, you fight your way, and I’ll fight mine—fight if we can win, and retreat if we can’t. Excellence can be learned, but greatness can only be forged through sheer determination!

You must fight in your own way; don’t just follow in others’ footsteps. Put yourself first and quickly build up your own capable forces. That’s how the People’s Liberation Army won, and that’s how the Chinese revolution achieved victory. So, learning from the Party is absolutely the right thing to do.

Third, time is flexible—don’t try to tackle every issue at the same moment or in the same setting. If you find that a problem simply can’t be solved, it’s very likely because the question you’re asking is the wrong one.

Give it a try—see if you can tweak the constraints, afford yourself more time and patience. If one path doesn’t work, switch to another. When a problem seems intractable, tackle it indirectly; approach it from a different angle. Hang in there, and the horizon will open up before you.