Case Study – FedEx Corporation

Table of content

1. Executive Summary

TASK ONE

2. Porter’s Five Forces

3. Porter’s Value Chain

4. Core competencies and capabilities

5. Advantages and disadvantages of international trade to FedEx Corporation

TASK TWO

6. Whittington’s ‘Classical’ and ‘Evolutionary’ Schools of Thought

TASK THREE

7. Stacey’s four loops

8. Appendix

9. List of References

1. Executive Summary

The FedEx Corporation founded in 1971 in Memphis is a logistic company which provides transportation, e-commerce, and business services. The company is globally presence in 220 countries and has more than 260,000 employees. In 1973 FedEx introduced the next-day delivery revolutionising the distribution industry. Since the foundation FedEx made large investments in research and development as well as in its logistic infrastructure. As of January 2000, FedEx created a worldwide network consisting of 34,000 drop-off locations, 10 million square feet of warehouse space, 648 aircrafts, and 60,000 vehicles. In addition FedEx introduced several technological innovations which in turn has given the company an enormous competitive advantage. Nevertheless the environment changes constantly due to the increasing number of competitors, financial crisis or globalisation. Due to this strategic management becomes more and more important for FedEx.

This report presents a critical analysis and evaluation of the strategic development of the FedEx Corporation. This report is divided into three parts. In the first part the external environment of FedEx is presented within the scope of Porter’s five forces. Further Porter’s Value Chain techniques will be outlined and their practical relevance to strategic planners at FedEx Corporation will be described. Then the core competencies and capabilities of FedEx between 1973 and 2000 will be identified. At the end of the first part the main advantages and disadvantages of international trade to FedEx Corporation will be mentioned. In the second part Whittington’s ‘Classical’ and ‘Evolutionary’ Schools of Thought in the context of strategy development at FedEx from 1973 to 2000 will be presented. Last but not least in the third part the implications for strategic management of Stacey’s four loops including the rational, the overt politics, the covert politics, and the culture and cognition will be critically evaluated.

TASK ONE

2. Porter’s Five Forces

Michael Porter’s model considers the five competitive forces -threats of new entrants, bargaining power of suppliers, bargaining power of customers, rivalry among current competitors, and threat of substitute products and services- that influence a business success or failure (Sunderland Contemporary of Development, 2005, p.11-12). The strength of each of the five competitive forces is a function of industry structure or the underlying economic and technical characteristics of an industry (De wit, B. and Meyer, R., 2004, p.259).

Suppliers - Bargaining power of suppliers

The suppliers can increase the prices for goods or services if there are no substitutes for the supplies they offer or if there are only a few suppliers. Furthermore suppliers have great power if supplier’s prices form a large part of the business’s total costs (Sunderland Contemporary Developments, 2005, p.13).

The FedEx Company depends on several suppliers such as fuel suppliers, airports, shipping materials manufactures as well as vehicle and airplane manufactures. Fuel suppliers have strong bargaining power because there are only a few of them as well there is no adequate substitutes for fuel. The fluctuating price of oil affects the profitability of fed ex. Based on the graphics the fuel price increased dramatically in 2008 which lead to $ 1.9 billion more operating expenses for fuel. To decrease expenses for fuel and the bargaining power of fuel suppliers FedEx must renew the aircraft fleet and buy new more fuel-efficient aircrafts.

Furthermore shipping materials manufactures which supply packaging equipment such as boxes and plastics have not strong bargaining power because there are a lot of existing substitute products and these costs represent a relatively small proportion of FedEx total expenses. Due to the high number of vehicle manufactures FedEx has a strong bargaining power towards their supplier because the company does not depend on one single manufacturer. However, it exist an oligopoly within the aircraft industry -Boeing and Airbusand the transportation vehicles such as trains have a limited capacity. Therefore these suppliers do have a bargaining power.

Buyers - Bargaining power of buyers

Buyers have a great power if buyers are concentrated and there are few of them or if the product from the organisation is not clearly differentiated from the product from other suppliers (Sunderland Contemporary Developments, 2005, p.14).

There are more than enough potential customers. As business expanded beyond national boundaries, the demand for express delivery/transportation increased. Furthermore e- commerce has been rising constantly. Companies such as Dell must ensure that they can deliver their products to any part of the world. Due to this FedEx provides customer solutions to these companies. Since prices of the competitors are similar to FedEx, FedEx created value-added services for customers in order to differentiate their service from their competitors. Furthermore individual customers have the choice of several shipping or delivery providers. They do not depend on one provider and can choose the cheapest price. Due to this FedEx tries to achieve economic of sales by going global as well as to reduce the operating expenses in order to offer lower prices. In conclusion, there is a medium bargaining power of buyers.

Potential Entrants - Threat of new entrants

New entrants may enter an industry if there are no significant barriers to enter. According to Porter there are seven major barriers to entry:

- Economic of scale
- Product differentiation
- Capital requirements
- Switching costs
- Access to distribution channels
- Cost disadvantages independent of scale - Government policy

(Sunderland Contemporary Developments, 2005, p.15)

The threat of entrants within this industry is low. New entrants must make large investment in order to be competitive. They must set up a large network of distribution centres as well as buying a new transportation fleet including trucks and aircrafts. Furthermore FedEx as well as UPS have strong brand images. New entrants must invest in marketing to make their brand famous. This is also known as market power of advertising. In addition, many suppliers already have contracts with the major players in the market which makes it difficult for new entrants to get access to them, too. Another barrier is customer loyalty. FedEx has many regular customers which are loyalty due to its long experience with FedEx. Moreover trade tariffs and international regulations could present a problem to potential entrants. By operating global FedEx is achieving more and more economic of scale, another entry barrier for entrants. In conclusion, for new entrants the initial costs would be too high to be profitable in a short term.

Substitutes - Threat of substitute products or services

Freight shipments can be transported by trains, trucks, boats or aircrafts. FedEx covers all ways of transportation. However, document delivery can be replaced by internet providers. For instance, banks offer to their customer online banking which reduces the delivery of paper bank statements. Furthermore traditional letters are increasingly substituted by electronic mails. There is no substitute for the delivery of packages. Therefore the threat of substitute services can be seen as low.

Industry competitors - Rivalry among existing firms

Generally high competitive rivalry is likely to occur if:

- Competitors are of roughly equal size
- The market is only growing slowly
- Fixed costs are high
- Extra production capacity is only available in large increments
- Product differentiation is difficult
- Exit from the industry is difficult
- Entrants have said that they will achieve a strategic stake in the market. (Sunderland Contemporary Developments, 2005, p.17)

The competition in the transport/delivery industry is intense. The main competitors of FedEx are: UPS, DHL and TNT. Together with FedEx they are the leading companies within the industry with a market share of 90 per cent (De wit, B. and Meyer, R., 2004, p.658). In the highly competitive industry FedEx carefully monitors their rivals and adjust their own operations to maximise their sustainable competitive advantage through innovation, acquisitions, lowering prices and improvement in quality. Through the acquisition of Caliber Systems in 1998, FedEx had built a powerful technical architecture that had the potential to pioneer in e-commerce. Moreover to lower prices FedEx reduced the length of the order cycle and achieved more and more economic of scale by going global in order to reduce the total costs. However, the very high fixed costs of FedEx resulting from maintaining the infrastructure represent an exit barrier. Furthermore the very low switching cost for customers in this industry as well as the difficulty to differ their service from the competitors increases the rivalry among existing firm.

Porter’s five forces model - FedEx Corporation

The five-forces framework also allows a FedEx to see through the complexity and pinpoint of those factors that are critical to competition in its industry, as well as to identify those strategic innovations that would most improve the industry’s -and its o- profitability (De wit, B. and Meyer, R., 2004, p.259).

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