ARAMEX is a leading global company in the field of comprehensive logistics and transportation solutions. It was established in the 1982, and achieved its international status in 1997. It is the first Arab based company and ARAMEX have their shares on the NASDAQ stock exchange. The continued its business expansion into different countries through forming global alliances and by establishing different subsidiaries. ARAMEX Public Joint Stock Company (PJSC) is the parent company. It was registered in the Emirates of Dubai on 15th February 2005 under the federal law of the country. It was listed on Dubai Financial Market on 9th July 2005. The principal activities of "the Group", as it is collectively referred, is to make investments in the freight, express, logistics, and supply chain management business. At present, the ARAMEX Group has an employee base of more than 12,300 over 353 branches across 60 countries. The range of services offered by the Group comprise domestic and international express delivery, logistics and warehousing, freight forwarding, records and information Management solutions, online shopping services and e-business solutions (Aramex, 2008).
Functional Performance of ARAMEX
The rate of growth of a company, its net profit in the financial year, the increase in its market shares are basis of measuring the functional performance. The accounting system adopted by a company plays a very crucial role in the determining its functional performance. The system of accounting directly affects the financial performance of the company. The following topics discuss the account system adopted by ARAMEX Group of companies and how it affected the financial as well as overall performance of the company. There are following areas of performances of ARAMEX which aggregates to functional performance of this company:
Financial Performance of ARAMEX
The consolidated financial report of the ARAMEX for the 12 month period of previous financial year was admirable. The company reported net profits of AED 211.5 million in 2011; there is increment of 4% as compared to AED 204 million in 2010. The revenues of the company reached AED 2,576 million in 2011, up 16% compared to AED 2,212 million in 2010. The latest financial reports of the company show the continuity of strong performance and a sound growth in revenues and expenses. In the third quarter of year 2012 the revenue of the company increased to AED 763 million, which is up 17% as compared to AED 650 million in the corresponding period of 2011, whereas the net profits was recorded as AED 53.1 million, 11% higher than the profit in the year 2011 i.e. AED 48 million.
Accounting System of ARAMEX
ARAMEX being a multinational company has adopted the international accounting standards for the financing and accounting processes. As mentioned in the annual report of company, it has adopted the IAS 34-Interim Financial Reporting System to prepare the interim condensed consolidated financial statements. Thus, it does not include all the information and disclosures required in the annual functional statement. But as per the requirement of IAS 34 it discloses the following components, namely statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows. For each of components the company provided the heading and sub-totals that were included most recent financial statements of the company. The company has provided lines for the entities of all the headings which make it easier to perform the trend analysis of the company.
Accounting Policies of ARAMEX
The accounting policies adopted by ARAMEX are in accordance with IAS 34- Interim Financial Reporting System. The following are the accounting policies of the company for giving an account of bank balances and short term deposits and derivate financial instruments:
Cash and short term deposits: Cash in hand, bank balances, short term deposits with an original maturity of three months and less, net of outstanding bank overdrafts and cash margin are the constituents of cash and cash equivalent which are mentioned during the preparation of consolidated statements of cash flows.
Derivative financial instruments: The ARAMEX Group uses the interest rate swap as the financial instrument for the hedging the interest risk. When the derivative contract begins the financial derivative is recognized at the fair value and is premeasured at the same fair value from there on. When the fair value is positive the derivative is considered as financial asset and if the value is negative the derivative is considered as financial liability.
Comprehensive incomes: The gains and losses due to the change in the derivatives are not taken into account for the hedging process, and the ineffective part of the effective hedge is included in the statement of comprehensive income. The fair value is determined on the basis of the market value of the financial instrument.
Hedge accounting: When applying the hedge accounting and the risk management objective and strategy for the undertaking the hedge, the ARAMEX Group formally specifies and documents the hedge relationship. The documentation includes hedging instrument identification, the hedged item or transaction, and the nature of risk involved.
Income statements: The equity recognizes a considerable part of gains and losses on the financial instrument; the other portion is mentioned in the income statement. When the occurrence of a hedged transaction affects profit and loss, the amount taken to equity is also mentioned in the income statement. If the forecasted transaction doesn't occur, the previously recognized amount in the equity is mentioned in income statement.
Current and Non-current classification: Those hedging instruments which are ineffective and aren't designated are classified as current or non-current on the accounts of facts and circumstances based on contracted cash flows.
Impact of System of Accounting
The system of accounting followed by the ARAMEX Group has proved to be very beneficial for the company. The formally specified and documented hedge relationship has helped the firm to achieve offsetting changes in cash flow and have proved to highly effective during the financial reporting period. It has provided numerous other benefits and one of them is the easy comparison of the financial statements of branches in different countries which has led to a financial agreement globally. It has increased the transparency of the firm. It has increased the cost efficiency and reduced the cost. The present system of accounting has provided ARAMEX an ease of accessibility to global market and increased its competitiveness. The company has now the facility of cross border listing in different stock markets. The company doesn't need to report the information according to various national standards. It has brought flexibility to the company. There are practically no disadvantages of the current accounting system. The present accounting system has proven to be fruitful to ARAMEX in every possible way.
Business Performance of ARAMEX
ARAMEX has shown a remarkable development since its birth in 1982 till today, emerging as a leading global company in its field. The company has adopted the path of sustainable development. It survived and thrived by adapting to the changes, making expansion in different areas of services and adopting the latest technology. It maintained its competitive edge by continuously revising its marketing strategies.
Marketing strategies of ARAMEX
Once a company develops its marketing strategies it should use "Seven P Formula" to continually evaluate and reevaluate its business activities (Tracy, 2004). The ARAMEX Group adopted numerous marketing strategies to increase its market share and emerge as a prominent global player in the field of logistics and transportation. Following are key marketing strategy adopted by the company on the basis of 7Ps of service marketing:
Product
ARAMEX offers services its main product, which is intangible. In case of services the production and consumption are inseparable which provides the scope of customizing the services (Tracy, 2004). ARAMEX took advantage of this, and adopted product differentiation strategy to gain competitive edge over its rivals. It offered a variety of services from freight forwarding and logistics to online shopping services. The customization of the services added extra value and made it unique among the similar services provided by the competitors.
Price
The current pricing structure of a company may not always be ideal, so it must remain open to revising the price (Tracy, 2004). ARAMEX adopted the customer value-based pricing strategy to maintain the flexibility of the prices for the services depending upon the value provided to the customers. They are committed to provide high value services to their customers.
Place
Since the service delivery and its production are parallel in nature, the service providing location is crucial. ARAMEX adopted expansion strategy and formed alliances with regional leaders with best distribution channel in their respective countries. It helped the company to choose right places to provide its services.
Promotion
ARAMEX adopted the pull strategy for the promotion of its product and services. They spent a huge amount on the promoting their brand name.
People
ARAMEX believes that quality people consistently provide excellent services. They adopted talent management strategy to attract and retain the best talent.
Process
ARAMEX incorporated core values in its service processes to ensure that every customer get same type of quality services.
Physical Evidence
Some tangible components such as positive responses from other customers help in attracting other customers. ARAMEX adopted feedback strategies to gather responses from its customers in the form of testimonials, feedback forms, etc.
SWOT analysis
Strengths
Following the non-asset based approach which is different form industry trend but ARAMEX get remarkable success by following this approach.
Aramex is looking forward to increase its management capacity by acquisitions in the US and Asia market in the near future which can potentially be a restraint for it.
The strong position of net cash on the balance sheet, further strengthen the expansion plans of the ARAMEX.
The diverse revenue base i.e. earning revenue from six different sectors, due to which its revenues has been growing at a CAGR of 28 percent since 2002.
The ARAMEX is one of the founding members of global distribution alliance, which comprises of 40 logistics companies over the world. So giving ARAMEX ease to expand in the GDA countries (Aramex, 2008).
Weakness
The aggressive plans of Aramex to increase its presence in the US and Asian countries by too many acquisitions can potentially be a restraint for it.
Opportunities
Aramex has already marked its presence in number of geographical regions in the world. But still there are lot of potential for international expansion especially in the regions like North America and Asia, which accounts for only 3 percent of the net company's sales.
Threats
As logistics sector is one of the attractive sectors in the Middle East, thus involves lot of national and multinationals for e.g. DHL and UPS. Also launching of IPO by EMPOST is the clear indication of increase in competition for ARAMEX.
Competitor Analysis
The low bargaining power of suppliers- ARAMEX depends on number of airlines for carrying out its goods to different destinations, as there is no contract between these airlines. So ARAMEX has flexibility to choose from the many regional airlines for carrying its good.
The medium barriers to entry- As ARAMEX deals in different logistics services, of which not all poses strong entry barriers. Thus it follows the singular and distinctive industry wide approach which virtually requires no investment in assets.
The low bargaining power of customers: Over fifty thousand solid customer base, there are no issues related to the customer concentration. It has further made many strategies for targeting SME's customer to increase in customer base.
The low threat form substitutes- As ARAMEX operates in multiple logistics businesses i.e. from freight to warehousing which is not only limited to land, sea or air alone so have little threat from substitutes (Aramex, 2008).
