FedEx Strategy Analysis

Subject: Strategic Management
Pages: 6
Words: 1839
Reading time:
7 min
Study level: PhD

Company current position

FedEx Corporation is a delivery service company that is renowned worldwide due to the provision of the articulate small parcel and document transport. It is the first company to be awarded the Malcolm Baldrige national quality award in the service category. Also, FedEx is considered as the leader in the market on the technology side as they spend 10% of their income in technology development to develop its system rapidly. In addition, it is classified as the best in the overnight services. The company’s growth has made it shift focus to global clients after dominating the American market.

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FedEx has 1300 offices in the U.S and established others globally. This number of offices gave FedEx a 49% market share in the U.S market. The company plans to increase this percentage by expanding an international network which is expected to generate a high profit for the company. The success will be dependant on the client’s demand for their services throughout the branches of the company. In addition, FedEx is developing its ground fleet to enhance the ground services; this will go a long way in the improvement of the services offered to clients.

During the year 2009 FedEx suffered from the economic recession and the fuel high prices, this was transmitted to the year 2010 where the first quarter posted a 52% decline in net revenue meaning the company posted losses with income standing at $181 million.

Strategy analysis (Porter’s Five Forces)

Competitive Rivalry

FedEx took the lead by offering their customer a high technology system; they allowed their customer to track their shipment all the time and everywhere the shipment was. The company has also given information technology special attention which allows FedEx to provide high-quality services to its customer and keep the customer loyal to the company. The main rivalries for FedEx in the world are United Parcel Service (UPS), DHL, and the local government post office around the world like (USPS) United State Postal Service.

FedEx vs. United Parcel Service (UPS)

UPS is the world’s prime small-package transporter, in terms of revenue and volume. It provides ground air, ocean cargo shipping, and other shipping-connected services to its clients. It transports approximately 14.4 million packages daily which may be either business-related or personal worldwide. It’s the biggest competitor against FedEx in the United States.

UPS has the biggest truck number in the United States but FedEx is developing their ground services by increasing their truck number to compete with UPS and enhance their ground services. In 2010 UPS has reduced their prices by 10%, which has resulted in an increase in their revenue but the high-quality service that FedEx provides allow them to keep their market share as it is. In addition, FedEx has expanded globally better than

FedEx vs. DHL

DHL is one of the largest private courier companies in the world and it is in third place after FedEx and UPS. Being a private courier DHL has one of the biggest fleets in the world which allows DHL to have a high market share in the logistic services market which is more profitable than the small packaging courier market. In addition, DHL is increasing its ground fleet which will enhance its ground service.

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In terms of prices, DHL usually has a higher price than FedEx and if they could lower their prices they will enhance their competitive advantage in the market since they have a good reputation among clients and they provide quality service.

FedEx vs. (USPS) United State Postal Service

USPS is owned by the United States government and is the largest carrier in the United States. It has the largest number of branches in the United States. It has an advantage in that it provides its services to all parts of the United State i.e. all cities and towns. USPS carries all the United States government shipments. It also enjoys the loyalty of the citizen of the state since it is the official courier of the State and it’s the oldest in the state. In addition, USPS provides lower prices than the private companies though it has less service quality.

All other local government post offices in the world are a potential competitor against FedEx as well as the small local companies which are more flexible and could adjust their plans and operations faster than the big company and provide low prices. The small companies may not pose a risk as a competitor for the large firms but could play a major role if the alliance with the big company could be enhanced.

The threat of New Entry

A new entry is not a big threat to the existing company because, first, the transportation industry is a mass industry where is the size f the company will make a big difference in the services that they provide. Secondly, any company in a position to compete with the big company in this business will need huge capital, and the success in this business needs a wide distribution network and wide link networks of air, maritime, and ground transport. Also, it will be difficult to start such a business because the existing company will fight the new entrants. In addition, the existing company has already gained their client’s loyalty and it will be hard for the new entrant to compete with them because they have a very higher reputation.

The big companies also have other contracts with other big company which makes their business stable. The big company offers different kinds of service which will make it difficult for the new entrant to compete against. Moreover, the big companies have an advantage with their supplier as their size gives them an advantage of economies of scale.

The threat of Substitute

The market of goods in transportation does not face the real threat of finding a substitute because whatever the mode of transport the goods at one point, it will pass to one of the transportation companies to get them to the final consumer. On the other hand, the transfer of documents and letters is in real danger because the Internet and email provide a rapid, reliable alternative and many companies that deal with documents have modified their operations to provide services through the Internet, for example, banks provide services most of its services through their website, which will save the banks and their client money and time.

The advancement in technological constitutes a threat to any field of business as well as the transportation business. If a new technology is invented it could change the balance of power in the transportation business where the company that owns the new technology will control and dominate the market. Even though that a huge paradigm shift in the transportation industry is less likely to happen in the coming years the big company should keep watching what is the new technology that may affect their business.

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Buyer Bargaining Power

Competition in the field of transport is very difficult because the number of customers is high and the destinations of transportation are many. Also, the customer can switch easily from one company to the other. Usually, the individual customer looks for a lower price and the firm looks for a lower price with good quality. Recently the electronic commerce had an evolution which increased the demand in the transportation company as the retail store were a potential customer for the transportation company and this also increased the computation level where the store had more demand than the individual company in teams of time and price.

To reduce the power of the buyer to bargain, transportation companies have to invent new ways to ensure that their customer will stay loyal to them. For example, some companies make their customer open an account with them and then offer them discounts after several deals. Also, the transportation companies may offer the customers a credit facility to attract the big company.

Suppliers Bargaining Power

Oil suppliers have the most impact in the courier industry because oil represents the biggest amount of the transportation company cost and therefore affects their prices. Since the transportation companies can not predict oil prices they add additional fees to their prices to avoid any losses in case of an increase in the oil prices happen. This way they protect the transportation when the oil price goes up but it might cause them to lose some of their customers to other companies with lower prices. The established institutions like the rail Company; huge shipping companies and airlines companies have also a great impact on the transportation company because it’s not easy to find an alternative for them.

Suppliers other than oil suppler and Train companies do not have a great effect on the transportation companies because it’s easy to find an alternative for them. For example trucks, plastic, paper or any other kind of material will be easy for the transportation company to swatch them. In addition, the software company doesn’t have great power because it is easy to find an alternative and most of the big company have an IT department unless they provide a unique technology which the transportation company doesn’t have and can’t develop it by their it department.

Complements

There are a lot of factors that affect the transportation business from the customers’ point of view and the most important factor is price. Other factors may affect the preference of the service which is considered complementary. Packing and insurance are some complimentary services but they are very important because a lot of customers want to make sure that their packages will be delivered at the right time and without any damages.

Also, the delivery way may affect the preference of the customers because some companies offer a door-to-door service while other companies will ask the customer to come and collect their packages. Complementary services that accompany the service will make clients admire and trade with the company.

Recommendation

In the courier services business oil represent the biggest part of the operational cost thus it is important for, FedEx to make a hedge for the oil price which will allow them to control their cost and therefore their prices in that case they don’t have to add additional fees to their prices. Also, the Higden for the oil price will allow them to sign long-term contracts with their clients. FedEx should ally with the local governmental post office around the world to take advantage of their wide deployment. They also need to partner with successful small companies to expand their business and avoid any future competition.

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FedEx should invest in new technology that will enable them to tap all the benefits of any technology change. They should also seek to diversify their operations and introduce new services to clients. The company should also extend its reach to less invested markets that will help tap the potential of the regions. Finally, they should focus on developing appropriate customer service mechanisms to make sure that their customers will be loyal also create a competitive advantage.