A few years ago, Kerry Warehouse was a well-established company that did one thing quite well: it stored goods. The company could have stayed in the warehousing business and no doubt would have continued to do well, but it chose a far more difficult path and is now well on its way to being the logistics company par excellence in Asia. This radical change in direction has come about through a great deal of effort and planning, an extremely wise selection of partners and acquisitions and a complete re-thinking of how to use IT. Tradelink Talk recently spoke to Vincent Wong, Joint Managing Director at Kerry Logistics Network Limited, and Wilson Lee, the Director of Information Technology.

It was in 2000 that the company embarked on its radical change, according to Mr Wong. "The highlight of this period was the physical transition from a warehousing business to a logistics business. That was around 2000 when we changed our name. We used to make a profit as a landlord, when we were called Kerry Warehouse. We had to recruit people from the industry, assess and acquire the software, etc. Our approach was not just to handle Hong Kong but was related to our vision of becoming an Asian expert and that meant we had to expand outside of Hong Kong. That has been done by getting down to the grass-roots to understand the business thoroughly as well as choosing the right joint ventures and acquisitions. The initial five years were needed to build up this Asian network. By the end of 2005 we already had a decent coverage in Asia; practically all countries except Japan," he said.

In the year 2000 there were 350 people employed, by 2005, they had a staggering 6,000. Much of this extraordinary rise came from a single acquisition: Express Air Services (EAS). EAS was a 20-year-old Chinese state enterprise with thousands of employees spread over every province in China. Kerry Logistics went from eight offices in China the year before to having 120 offices. Mr Wong said that was the biggest, most complex deal they have yet made.

"That was definitely a major challenge. Firstly, it was a state-owned company, so the culture was very different; secondly, the magnitude of the acquisition was extraordinary - it was huge. They had 4,000 employees and we acquired them in one go. They have at least one office in each province," he said.

Sometimes, coming into a new business late has its advantages. Mr Wong might say so, although in their case it has been a major effort to learn the business and establish the kind of reputation that will bring you customers.

"We entered the market quite late - in 2000 - so we had to make ourselves attractive in order to get good partners overseas. After all, Asia is an export-based economy and that means the control of the shipment is on the other side. We are not over there, we are here, so how can we attract people to work with us? One solution was to create a pan-Asian network in order to have a unique market differentiation. Most logistics companies are service based; they usually have no warehouses or property. That is what made us different from the rest: we were born with it - as a part of Kerry Warehouse, we have 13 warehouses in Hong Kong and 25 years' experience in warehousing so we have a unique competence in designing and managing warehousing solutions. This know-how is quite unusual for a logistics company."

Kerry Logistics has put much thought and effort into the IT side of the business and it is very aware of the advantages a good IT system can have. Wilson Lee said they began the 'usual' way by deploying standard software packages but soon realised that would not do.

"After looking at what most people were using in terms of standard software packages, we soon realised that they were quite limited. We decided, then, to do it ourselves. We began hiring programmers and writing our own code. Naturally, this was not easy at first but we found it to be far more flexible than anything else, and flexibility was very important to us.

"Our competitors all use standard software so we found that by developing our own, we were able to offer our customers solutions more attuned to what they needed or wanted. This was very important. Also, not all regions are the same, so it is far better to have a flexible solution," he said.

Mr Lee runs a number of different systems now. They are handling the warehouse management system, tracking system, reporting system, transport system, and others. All of this is part of the overall package. But Kerry Logistics has even more in mind, with a system it calls 'Visibility'.

"We are adding business applications to what we have. The coming challenge will focus our resources on integrating the supply chain 'Visibility' product. We believe there are so many potential opportunities but multi-national companies may not have the confidence to move to this part of the world. They will not be able to go down the road and see what they have. With the internet, we can allow them to do just that.

Traditionally, we have treated inventory as stock in a warehouse. Most of the other 3PL (third-party logistics) companies can provide information on proof of delivery but they cannot combine everything together. You can provide an SKU (stock-keeping unit) and I will tell you the total inventory across all your business units and across warehouses: how many are on the plane, how many in trucks, how many in warehouses, how many under Customs clearance and how many in the stores," he said.

The next step, he said, would be to help manage the suppliers. They would be the stakeholders in the supply chain and Kerry Logistics would be able to deliver the quality control needed to make that work as well. All of this is possible because they are 'closer to the source', meaning they are closer to where most products are made today: China.

Mr Wong said that there was still a great deal to do. Most of Asia is made up of developing nations and that means a lot of work to get the kind of quality and service expected abroad. This means that the Kerry Group must pay strict attention to a great many details.

"Many Asian countries are still developing - like China - and many of their warehouses are substandard and that means if we do not build them they won't satisfy our requirements of our customers. So we have to build. We won't build any more in Hong Kong or Singapore but we will do in Thailand, Indonesia, China. Also, we aim at the middle to upper customers, mainly foreign companies. We manage the Asian hub of some well-known brands but we cannot say who, for security reasons. They need to have confidence in us."

One of the keys to their future success is sheer volume: the more they can show that they can handle, the more confidence large players abroad will have in their capabilities. "In order to attract other partners from overseas, you need to have volume and we have managed to do that bit by bit over the last couple of years. We are now moving a substantial volume of cargo and that has become quite attractive to overseas partners."

As one might expect, Mr Wong is keen to show the world that Kerry Logistics is the company you want to go to if you are interested in China. "Our vision is to become the Asian expert, focussing on China. The world is so large, we do not believe we can provide competent service everywhere, so we would be quite happy to be seen as the Asia and inter-Asia expert. We want to be a kind of boutique for Asia businesses."

Although Hong Kong is the centre of the business, Mr Wong believes the HKSAR is likely to remain a force mainly in air cargo, not sea transport. "For Hong Kong, air cargo will still be important because it uses passenger aircraft a great deal. Frequency is very important here so you need a lot passenger aircraft and the surrounding cities of Guangzhou and Shenzhen will not likely be able to match Hong Kong for sometime to come."

But Shenzhen is growing very fast in terms of what it can ship by sea. Mr Wong said it was simple economics: "Why pay 15 per cent more to use a container in Hong Kong?" Of course, most of the terminals in Shenzhen are owned by Hong Kong interests.

So long as China remains the manufacturing capital of the world, it would appear that Kerry Logistics will have a great deal to do. It is most unlikely that any overseas company could come here and displace them, even with WTO, because of their local knowledge and expertise.