FedEx was founded in 1971 by Fredrick Smith in the little rock, Arkansas. After formation there are several events that have occurred in the company leading to the success. Initially, the company traded as FDX but later changed to FedEx. After two years of operation the company relocated to Memphis, Tenn. The company had a growth strategy and the reality of the strategy was realized when the company was listed in the New York Stock Exchange in 1978(FedEx website, 2003).
FedEx emerged as one of the successful companies in the logistics and transport industry due to the products they produced. Due to the importance of strategic marketing management, the company developed some strategies in 2000 after reviewing its initial strategies. This led to the further achievement of the company in the industry (CNBC, 2003).
From this paper, it is evident that it highlights the strategies developed by FedEx and the outcomes of the strategies. Therefore, in this paper I am going to analyze the industry of logistics and transportation using the Porter’s Five Forces and Value Chain, and point out at the core competencies of FedEx that have contributed to its present success. With reference to the strategies developed by the company in 2000, I am going to point out their advantages to the company and the impact they have on the technological position of the company in the next years of operation (Johnson, Scholes & Whittington, 2005).
Industry Life Cycle
FedEx offers varieties of transportation services, and accommodates to the widest range of shipments. FedEx is in the logistics and transportation industry, which is oligopolistic industry with few established competitors. The logistics and transport industry can be classified among life cycle industries. Competitors in this industry, such as DHL, UPS, USPS, and FedEx, have brand loyal customers and low cost operations hence creating barriers to new entrants into this industry (CNBC, 2003).
Due to the level of competition in the industry, these firms have reorganized themselves hence avoiding price wars. In mature industries, when demand is stable the level of competition between industries decreases in intensity. However, a trickle down may be caused by unpredictable economic activities. For instance, slump in the economy may decrease demand in the industry, and result into fight among companies to make profits leading to price war in the industry. Therefore, unpredictable future events may break down price leadership in the industry (Johnson, Scholes & Whittington, 2005).
The logistics and transportation industry is very dynamic. The various consumers’ needs explain the energetic nature of the industry. Small businesses, E-Commerce Companies, Global Corporations and individual consumers have a need to ship documents or packages to other individuals or businesses; however, the services vary in nature. Since the company ships large quantities, their needs call for a larger firm too to adequately offer the services for instance, FedEx Corporation. The company also offers discounts incase of large quantities shipment. In addition, FedEx Corporation may offer assistance in the documentation of customs, which is an international requirement in the shipping industry. The industry needs a reflection of the dynamics of relevant industries so as to adjust and sustain operation in the ever changing business environment (Johnson, Scholes & Whittington, 2005).
Internet has greatly reshaped and changed the logistics and transportation industry and other relevant industries globally in the recent past. With the use of information technology and internet, customers have changed their shopping trends due to the ability to shop from home without visiting the relevant stores. This advancement has enabled consumers to shop anytime, any product anywhere and pay online. The technological advancement also enables the consumers to get any information related to the industry at any given time. This has led to a change in way of business especially in logistics and transport industry.
However, it has not come to the realization of many that it is not long since the establishment of tracking application website by FedEx to authorize customers to access individual shipment through a unique code. This development has really increased customers’ convenience since they can get in touch with their shipment services from pick up to delivery. However, the present development in technology has also enabled wireless tracking of the shipment services. For instance, FedEx offers customers a wireless solution that enables them to access package tracking of data via FedEx home and ground delivery web enabled devices. This Personal Data Assistance (PDAs) or phone allows clients to access tracking data from virtually anytime and anywhere. Like other industries, shipping service industry constantly adjusts to technological changes so as to meet the market requirements and demands of the customers (Johnson, Scholes & Whittington, 2005).
FedEx is not the only company in the logistics and transportation industry that incorporates technology in offering of services. Their major competitor, UPS, is also taking advantage of the technological advancement to improve their services. In the recent past, UPS has adopted new technological systems, including hardware and software process changes so as to deliver more reliable and customized solutions or services. The company has many various enhancements among them; handling unusual or unique delivery instructions so as to provide customized time commitments, and allowing customers to make in-transit changes on deliveries of packages. In this industry, innovation is application is evident not only from the operations of FedEx, but there close competitor UPS too. As UPS’s stated in its press release: “Our flexibilities corresponds to present complex supply chains globally which demand frequent change and speed” (CNBC, 2003).
Nature of the package industry makes competition global. FedEx Corporation competes with USPS (United States Postal Service), DHL, UPS (United Parcel Service) and other several smaller entities locally and abroad. FedEx supplies about 214 countries with packages same with key players in the industry such as DHL and UPS. Apart from competing with large entities, FedEx also has to compete with other regional and global delivery companies which serve local markets (FedEx Website, 2003).
Competition in the industry is loosing a global outlook due to mergers, consolidation of companies and the recent alliance formation. These events have exposed the shakeout within the industry and its key players (Miriam, 2006).
The logistics and transportation industry is complementary to other industries in the global market. Though the industry has numerous key players, they all posses a unique twist in their service provision. Operations of FedEx Ground are greatly influenced by local conditions to a greater extent. In addition, FedEx has to monitor moves of UPS since it’s the most established player in this sector. On the other hand, FedEx Express is faced with the effects of changes in global environment. FedEx Express operations have to address local factor conditions, demand conditions, and support industries of individual country which it serves (Johnson, Scholes & Whittington, 2005).
In the United States, FedEx Corporation administers several advanced factors of production. These are physical infrastructure, logistics know-how, and managerial sophistication. One of the major advanced factors which FedEx develops and uses to manage complex hubs is logistics. Airport is one of the major infrastructures that FedEx uses in conjunction with ports and roads (Miriam, 2006).
Local Demand Conditions
FedEx is trusted by United States’ demand conditions, not forgetting its competitors; to continuously upgrade its services. As customers consistently desire their delivery services to be cheaper and faster, the industry must consistently improve customer responsiveness and services. The intense rivalry among close competitors is fueled by high buyer bargaining power and low switching cost. Definite shipping needs of various individuals and companies demand extensive use of technology and innovative approaches (Johnson, Scholes & Whittington, 2005).
Competitiveness of Related and Supporting Industries
The existence of globally related industries and competitive suppliers in the United States serves as a complimenting attribute of local advantage for operations of FedEx (Murtha ‘et al’, 1998).
Intensity of Rivalry
As mentioned before, shipping service industry is faced with rigorous market share competition. Established companies have to continuously improve quality, lower price, and innovate. Level of rivalry in this industry is intensified by the prevailing low switching cost. Furthermore, intense competition is also propelled by high fixed costs for the maintenance of infrastructure which posse’s barrier to exit by existing companies. Rivalry forces entities in the industry to upgrade services, and makes them fit for global competition (Miriam, 2006).
|– The cost of infrastructure acts as a barrier for new entrants |
– Leadership of FedEx in global express delivery
– Increased need for express delivery is created by E-commerce
– Globalization offers expansion opportunities
|– Maintenance of infrastructure is an exit barrier due to high fixed costs |
– Capital is determined by sales volume, high fixed costs may hurt when times are slow
– Nature of this industry, makes it impossible to become the key player
– There is low returns on the invested capital due to the nature of the industry
– Low shipping charges and rates are demanded by the E-retailing industry to pull customers from this industry
– Major competitors are; DHL,UPS, the airborne
FedEx Express’ value chain can be seen as commencing with pick-up of packages. The packages are gathered by FedEx employees from various locations as residences, businesses and drop boxes. Customer Value is created by making package pick-ups possible anytime or anywhere. FedEx guarantees money back for customers, whose packages arrive late or delay, therefore creating value through timely delivery of packages. After the initial pick up of packages, they are then transported to a hub. The packages pass through several hands before delivery to their intended destination. The packages are stored at the hub awaiting transportation of either plane or truck (FedEx website, 2003).
Delivery of packages is the greatest value creation act for FedEx Express. Truck or plane drivers must efficiently perform their duties to increase the perceived service value. The drivers have to ensure the trucks get to their intended destination on time despite the circumstances that might cause delay. Value is increased and positive result achieved by exceeding or meeting expectations customers (Johnson, Scholes & Whittington, 2005).
Customer service is the final primary activity. This function is to offer support and after sales services, however, FedEx offers customer services by authorizing customers to track their packages during the delivery process. This increases customer value and meets their expectation because they are able to know the status of their products hence satisfying their security anxiety of their products (CNBC, 2003).
Primary activities are effectively executed due to support such as company infrastructure, which are trucks, buildings, planes, among others. Another support activity is Information systems which enable customers to place orders on-line and track their products. Human resources and Materials management are also support activities. Materials management is the flow of services or goods via production into distribution or logistics. Generally, support activities allow for the commencement and correct functioning of primary activities. FedEx has a competitive advantage due to their efficient company infrastructure and information systems. Their advanced systems of information allows for precise tracking of packages, which some companies lack in the industry. Customers are able to track their package via the Internet, without contacting customer service agents, which may consume time. Other companies offer tracking numbers which are not effective in tracking packages (FedEx website, 2003).
The massive fleet of automobiles, airplanes, and employee’s summing up to the enormous infrastructure of the company. This infrastructure makes the services of the company reliable. FedEx trusts their time restrictive package delivery service; they guarantee time delivery of packages upon requests by customers (FedEx website, 2003).
It is necessary to determine the industry where FedEx operates, and their position in the respective industry so as to ascertain their strategies in the market. Presently, FedEx is constituted of six independent units: FedEx Express, FedEx Trade Networks, FedEx Ground, FedEx Freight, FedEx Services, and FedEx Custom Critical each competing in different sector of transport industry so as to tailor the whole FedEx service to effectively meet customers’ needs. The main company is FedEx Corporation, which provides strategic leadership and financial accountability for all the units. The business model applied at FedEx Corporation is “Operating independently, competing collectively.” The most dominant product technology incorporated by FedEx for management of operations of all units in the industry is the internet. The company was among the first to harness Internet power, launching a company website in 1994 with a package tracking application. Due to the technological advancement and growth in number of Internet users, the company is bound to grow in the next coming years if it consistently uses the application and upgrade it as it advances (CNBC, 2003).
Change of strategies by the company in the year 2000 greatly contributed to the long-term success of the company. Therefore, a company has to consistently review its strategies hence determine whether to change, adjust or introduce new strategies. This enables a business to adequately respond to market changes. Based on the analysis, it is advisable to purchase stock of the company due to their potential in the market. Finally, it is true that strategies are the core pillars of success in business and they have to be realistic.
CNBC. (2003). FedEx Key Developments: FedEx Express extends pick up and drop off times. Web.
FedEx website, (2003). About FedEx: FedEx corporate history. Web.
Johnson, G. Scholes, K. and Whittington, K. (2005). Exploring Corporate Strategy: Text And Cases. London: Financial Times Prentice Hall.
Miriam, M. (2006). Global corporate strategy. Norderstedt Germany: GRIN Verlag.
Murtha, A. (1998). Global Mind-sets and cognitive shift in a complex Multinational Corporation. Strategic Management Journal , 12-34.
Calculation of stock price changes of FedEx
Capital Asset Pricing Model Components:
- CAPM = R+ ß(R–R) + ∝f mf
- CAPM= 5.62 +.75(7.40) + 5.33 = 16.50
Build-up model components:
- E(Ri) = Rf+ (Rm–Rf) + RPs+ RPu
- WACC = (K×W) + (K[1–t] ×W)e ed d (16.50 ×65%) + (7.04 [1–38%] ×35%) = 12.3