fedex - company analysis - academic assignment - top grade papers - academic assignment
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Group 7, Dr. SewellMGT 527-02W Summer I 2010Strategic Management Group ProjectFEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS
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Research Proposal
A Research Proposal Examining the Company Known as Federal Express Corporation (FedEx)
and Their Industry Analysis and Competition
By:
Layla Lewis
Brandon Cherry
Matt Hanson
Jonathan McDonald
Steven Snapka
Frank Townsend
Texas A&M University
Strategic ManagementSummer I 2010, MGT 527-02W
Professor: Dr. Sewell
July 02, 2010
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Group 7, Dr. SewellMGT 527-02W Summer I 2010Strategic Management Group ProjectFEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS
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Introduction
Title
A Research Proposal Examining the Company Known as Federal Express Corporation
(FedEx) and Their Industry Analysis and Competition
Background
History & Company Purpose of IBM
Federal Express is an express transportation company, founded in 1971, by
Frederick W. Smith. Federal Express more commonly known as FedEx specializes in overnight
delivery of packages, documents, and heavy freight. FedEx operates in four categories which are
FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services. FedEx employs over
210,000 worldwide. Federal Express invented the express package industry in 1973 (Senn,
1998). FedEx Express provides fast and reliable delivery to every U.S. address and to more than
220 countries and territories.
FedEx's mission statement is to produce superior financial returns for its
shareowners by providing high value-added logistics, transportation and related information
services through focused operating companies (Quillinan, 2000). Safety will be the first
consideration in all operations. Corporate activities will be conducted to the highest ethical and
professional standards (www.fedex.com).
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Group 7, Dr. SewellMGT 527-02W Summer I 2010Strategic Management Group ProjectFEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS
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Identification of the Industry
FedEx is in the air delivery and freight services industry, but is starting to corner
the logistics services industry as well (FedEx Services, 2006). FedEx has two main competitors
domestically, United Parcel Service and United States Postal Service. In addition to competition
in the United States FedEx competes globally with Canada Post, FCML Couriers, TNT N.V.,
Deutsche Post (DHL), Royal Mail, LDH Express, Japan Post, India Post, and other regional
carriers (Senn, 1998).
UPS
FedEX
USPS
Industry Analysis
Intensity of Rivalry
Despite the presence of only a few competitors (FedEx, UPS, and USPS), air freight and
express logistics remain competitive industries (Senn, 1998). The market for FedExs services
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Group 7, Dr. SewellMGT 527-02W Summer I 2010Strategic Management Group ProjectFEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS
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remains competitive due to price-conscious consumers, a lack of differentiation between
companies, and a low penalty for changing logistics providers (Logistics Industry, 2008).
Threat of New Entrants
The threat of new competitors within the industry is low due to the high cost of entry.
For example, capital equipment, such as aircraft, cost in the tens or hundreds of millions apiece,
not to mention the logistics hubs and information infrastructure necessary to provide the levels of
service and reliability expected of FedEx and its competitors (Airfreight, 2009). The difficulty
for even an established company to penetrate the US market is evidenced by DHLs failed bid to
compete in the domestic market.
Threatof Substitutes
The threat for substitutes is low to moderate due to limited alternatives to shipping
products such as air freight. Shipping services involving air freight must be handled with speed
and accuracy (Airfreight, 2009). Few companies have the ability to offer delivery solutions
compared to FedEx or UPS. While many types of documents, music and software can be
distributed electronically, many consumer and B2B products must still be physically delivered.
Bargaining Power of Suppliers
In this area, bargaining power is low. Companies that provide products to these high-end
logistic companies usually provide their products in bulk and at a price reduction. If a supplier
chooses to gouge prices, the logistic companies can seek alternative suppliers. The majority of
purchased products are accessible from other vendors which quickly eliminates bargaining
power (Parnell, 2009).
Bargaining Power of Buyers
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Group 7, Dr. SewellMGT 527-02W Summer I 2010Strategic Management Group ProjectFEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS
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The bargaining power of buyers in this industry is low to medium. Individual consumers
have the opportunity to change service providers at their discretion depending on their needs at
the time. Although, an individual does not have the opportunity to negotiate pricing on services,
he or she does have a choice in which logistics provider they use (FedEx Services, 2006). A
larger buyer such as a company may be able to receive special pricing through exclusive
arrangements.
Porters five forces model FedEx Corporation
Industry Profitability
Porters five forces model is an excellent tool for analyzing FedExs profitability, which
encompasses the forces that drive an industrys profitability (Parnell, 2009). These competitive
Suppliers PowerLOW
- Products suppliedto the industry
Threat of EntryLOW
-High start up costs
Threat of SubstitutesLOW
Limited services for large
freight and air freight
Buyers PowerLOW - MEDIUM-
Shipping choices- Large Buyers
Existing RivalsHIGH
- FedEx, UPS, USPS, DHL
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Group 7, Dr. SewellMGT 527-02W Summer I 2010Strategic Management Group ProjectFEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS
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forces include: intensity of rivalry, threat of new entrants, threat of substitutes, bargaining Power
of suppliers and bargaining of buyers. As stated previously, FedEx is a corporation that provides
many different products and services, so applying Porters five forces model to the industry can
be quite complicated. To ensure understanding, we will rate each force as they affect FedEx.
Who Has Succeeded and What Are the Critical Success Factors?
Companies who have experienced success in the logistics services industry include
FedEx, UPS, and DHL. Companies who have lagged in this industry include USPS, and other
national or regional logistics service providers, who have not adapted to economic, social, and
technological changes. Factors critical to success in this industry include a global presence and
ability to incorporate new technology into their business infrastructure. Firms in this industry
must have a global outreach in order to meet the ever growing demand for domestic and
international shipping (Devan, 2010). This is especially important in Asia-Pacific market where
industry growth is expected to increase immensely over the next few years. (Global logistics,
2008).
The internet has radically accelerated global e-commerce and international trade, further
fueling the demand for international shipping. Changes in technology include, laser and camera-
based label scanners, automated handling equipment, hand-held computer devices used by
delivery personnel, and GPS (Industry Overview, n.d.). Businesses must adapt to technological
changes in order to adhere to customers demand for speed, flexibility, and reliability, while also
giving them the ability to cut costs.
Macro-environmental Properties
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Group 7, Dr. SewellMGT 527-02W Summer I 2010Strategic Management Group ProjectFEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS
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What Political / Legal Forces Affect the Industry?
While the legal and regulatory environment does not affect the logistics industry in the
same way as others, such as telecommunications or oil drilling, certain factors still bear
discussion here. The most pronounced issue facing FedEx appears to be labor laws, with lesser
issues in areas such as anti-trust. For example, when DHL chose to close its operations in the
US, it opted to contract UPS for the domestic portion of its international business. This move
was challenged as potentially leading to a drop in competition, and therefore a rise in prices
(Page, 2008).
Of greater note is a recent showdown with the IRS over FedExs labor practices. One
contentious practice used by FedEx is to hire workers, such as deliverers, as independent
contractors rather than regular employees. This allows the company to save up to 30% on
personnel expenses by skirting a variety of responsibilities, such as health and unemployment
insurance, FICA, Medicare, and more (Griffing, 2010). The IRS filed a $319M injunction
against FedEx in 2009, claiming that the company exerted too much control over its contractors
(Orey, 2009). For example, even though these contractors own their own vehicles, they are
painted with FedEx logos, and wear FedEx uniforms. They drive routes specified by the
company, and most importantly, are prevented from providing delivery services to any other
company (Griffing). It would not be a stretch to refer to them as contractors in name only.
In a related issue, rival UPS has lobbied congress to end a loophole that makes it
extremely difficult to unionize the company. FedEx employees are regulated by the Railway
Labor Act because the company was originally founded as an airline. FedEx uses this status to
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block unionization of every employee, such as truck drivers, even though their duties are
completely unrelated to the air transport segment of the business (Helm & Herbst, 2009). FedEx
has countered with an ad campaign against the brown bailout, adding additional pressure on
congress by threatening to cancel a large order of Boeing 777s.
Economic Forces
As a huge corporation, FedEx must consider economic forces as they affect industry and
customer behavior. One of the strongest to encounter is Gross Domestic Product. Naturally,
FedEx embarks on global competition and is affected by the changes in GDP. In our struggling
economy and that of others, GDP has fallen and FedEx has felt the pressure (The Associated
Press, 2009).
Other forces that affect the company are inflation, interest and exchange rates. All of
these impact the companys bottom line. High inflation rates are very detrimental as they raise
the cost of doing business (Parnell, 2009). In the case of interest rates, companies like FedEx
watch as interest rates fall as this could increase business due to an increase of customer
spending (Dade, 2008). The same can be said for exchange rates. In order for a company to
profit while doing business in the global market, the exchange rates must remain low. When an
increase occurs, the cost of doing business rises (Mester, 2005). Ultimately, a rise in either of
these rates decreases consumers purchasing power which negatively influences the bottom line.
Social Forces
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Group 7, Dr. SewellMGT 527-02W Summer I 2010Strategic Management Group ProjectFEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS
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Federal Express has many social forces that it faces and the industry itself has many
more. The freight market is enormous and happens minute by minute on a global scale.
Operations and logistics are occurring 24 hours a day to and from every corner of the globe.
Each of these locations have different social forces that shape their culture and business
activities. No executive in the freight & logistics industry would send a female executive to
negotiate a deal with a Middle East country due to their lack of acceptance of women in the work
place. While those same corporations understand they need to send someone who will embrace
and grow a relationship with the local Middle East industry because they require knowledge and
trust with the people they perform business with.
Societal traditions have big impacts on business endeavors as certain geographic
locations may only use one company as a matter of loyalty and respect or may be paying them a
fee to use them as is customary in certain societies. Some traditions dictate that to even do
business in that region you need to visit the religious leader to receive a blessing and good
fortune and if you don't you won't be permitted to do business in that particular region. You
might even have to fight the stigma that your work is cursed by the locals if you don't go through
the proper channels. Other countries do not have such traditions and simply require the right
price for the right service. Consumers psychology can be greatly affected by those behaviors
performed by a certain cultural learning process as research suggests where a child's buying and
loyalty habits are shaped by the environment and influences they grow up with (Foxman,
Tanshuhaj, & Ekstrom, 1989). Thus, creating a perpetual wheel of teach, grow and change that
the industry leaders must anticipate and adapt to.
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Group 7, Dr. SewellMGT 527-02W Summer I 2010Strategic Management Group ProjectFEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS
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China will not allow most companies to operate in its borders without hiring a local
workforce. These requirements of businesses in the workplace require different strategy levels
for different circumstances. Japan has certain well known characteristics such as they don't mix
personal family life with business, unlike in Europe where you might do business at the home of
the CEO (Williams, 1988). Fed Ex will still be able to use its core competencies to produce a
logistical solution and ship the freight where it needs to go, but will need to approach and operate
differently in each societal location. This has forced some area's to not grow and expand as you
see in the Middle East and North Africa where the development has been stifled by societal
forces such as rebels, dictators, tribes, or lack of functioning government or authority.
What Technical Forces Affect the Industry?
FedEx first became engaged in e-commerce in the 1970s, and was one of the first
shipping companies to harness the Internet for customer ordering, package tracking and process
monitoring. The company has always been considered a technological innovator in the shipping
industry. Because of their e-commerce business model, FedEx has been able to leverage its
information infrastructure to allow the company to extend beyond pure transportation and
address other service needs for the customer, allowing FedEx to become deeply integrated in its
customers internal processes (Epstein, 2004).
The first major system application breakthrough for FedEx was the introduction of COSMOS in
1979, which reported real-time status and location of a shipment, and was accessible to
customers through an 800 number. Other innovations include FedEx PowerShip, a PC-based
workstation given to business customers to manage their shipping needs on-site in 1987...
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Group 7, Dr. SewellMGT 527-02W Summer I 2010Strategic Management Group ProjectFEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS
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Finally, wwwfedex.com was launched in 1994, which offered information about the company,
shipping rates, tracking, and the ability to allow users to complete and print shipping labels over
the Internet (Hargrove, 2001).
Micro-environmental Properties
Current Firm-Level Strategy?
FedEx provides transportation, e-commerce and business services. The corporate profile
is made up of six companies that operate independently, compete collectively and manage
collaboratively under the FedEx brand in four business segments: FedEx Express, FedEx
Ground, FedEx Freight and FedEx Services. The six companies are FedEx Home Delivery,
FedEx Office, FedEx National LTL, FedEx Custom Critical, FedEx Trade Networks, and FedEx
Supply Chain. The firms profile indicates that it operates in multiple related industries
(Hoovers.com).
The current strategic alternative for the company is to increase size and sales using the
internal growth and strategic alliances models (Parnell, 2009). FedEx has focus on five core
strategies to grow as a company: grow core package business, grow internationally, grow supply
chain capabilities, grow using e-commerce and technology, and grow new services and alliances
(FedEx.com).
The core package business has been a significant contributor to revenue and earnings
historically and is a critical business in the overall growth strategy. Because international global
air freight shipping is growing and profitable in the transportation industry, worldwide expansion
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Group 7, Dr. SewellMGT 527-02W Summer I 2010Strategic Management Group ProjectFEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS
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has to be a continued part of the growth strategy. The supply chain business has to expand its
capabilities to offer more modular and scalable solutions to remain competitive and attract more
customers (Upshaw & Taylor, 2000). E-commerce is a 329 billion dollar a year business. To
grow market share, FedEx has to continue incorporating new technologies to provide efficiencies
and reliability for its customers. FedEx will need new service offerings going forward to
maintain continued growth in all areas of the business. Alliances will be beneficial to keep up
with technological advances, fend off competitors, and help in gaining market share.
Current Business-Level Strategy
Looking at Porters generic strategy topologies, FedEx as a company is best matched
with the differentiation strategy (no focus) from a large business perspective. FedEx is proficient
from a technical innovation standpoint and has used this ability to develop services and
technologies that are marketable to the entire shipping and logistics industry (Parnell, 2009). The
companys most notable strength is in the level of service it provides for its customers. By
differentiating the level and quality of service from their competitors, customers are willing to
pay more for FedExs service offerings.
The Miles and Snow prospector strategy framework aligns with the current business-level
strategy of FedEx. The prospector characteristics of being first movers, entrepreneurship, and
creating new business ventures within their existing firm (intrepreneurship) are ever present in
FedExs business level strategy (Parnell, 2009). FedEx is credited with innovation and redesign
of the shipping and logistics industry as we know it today.
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Group 7, Dr. SewellMGT 527-02W Summer I 2010Strategic Management Group ProjectFEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS
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What makes the organization unique in relation to its competitors is its differentiation in
meeting the customers needs. FedEx divided its business into six different segments of FedEx
Home Delivery, FedEx Office, FedEx National LTL, FedEx Custom Critical, FedEx Trade
Networks, and FedEx Supply Chain to address the specific needs of its customers. Another
notable differentiation that FedEx has over its competitors is the ability to provide global
services due to its large infrastructure and fleet of 663 aircraft (Hedley, 2002). When customers
think of global delivery services they think of FedEx.
Competitors Business-Level Strategies Being Employed
FedEx must be aware of the business-level strategies of its two main competitors, USPS
and UPS. The USPS focuses its efforts on their central business unit, which is U.S. domestic
package shipping. They look to provide customers with the greatest value in domestic shipping
by keeping costs low for the customer as well as themselves through operational efficiency,
standardization, process control, and technology. As part of their strategic plan the USPS plans
to, Reduce the cost of meeting universal service obligations by focusing on major cost drivers,
especially delivery operations (Strategic, 2007). This puts them in the low-cost strategic
approach of Porters Generic Strategies (Parnell, 2009).
UPS, FedExs closest competitor, has three core business units: (1) U.S. domestic
package, (2) international package, and (3) non-package. Their business-level strategies for each
of these units have to do with expanding operations and staying on the cutting edge of
technology to meet customers need and expectations (UPS Charter, n.d.). UPS attempts to use
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the differentiation strategy approach of Porters Generic Strategies, by offering customers
products and services that their competitors dont (Parnell, 2009).
Current Functional Strategies
Marketing Strategy
FedExs universal marketing objective is to produce a trustworthy, brand imaging and
propose across all end user relations (Savage, 2004). Their marketing strategy revolves around a
marketing mix that is tailored to fit a specific target customer: businesses and individuals
globally. By proceeding with maximum globalization and extending their services into
uncharted markets, FedEx is able to homogenize its product (Maddox, 2007). FedEx understands
that diverse customers have special logistic needs. FedEx uses to its advantage the fact that it is
broken into individual business units to satisfy specific segments of the market. This allows to
better service the needs of all consumers while allowing each to operate independently of one
another yet still compete collectively (Creamer, 2005). By doing so, FedEx has created the
opportunity for each unit to allow for a more attentive approach to their own market. An
approach such as this frees up the business units from worrying what each other is doing and
provides an advantage over competitors (Creamer).
FedExs brand priorities are to better communicate its full bundle of shipping and
communications services to business and individual audiences and use fully integrated marketing
to tell its story (Maddox, 2007). An example of this is the 2009, strategic advertisement
campaign of We Understand. that consists of TV spots, online, radio, print and direct-to-
consumer advertisement vying to show FedExs continual effort to provide for customers needs
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Group 7, Dr. SewellMGT 527-02W Summer I 2010Strategic Management Group ProjectFEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS
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(Tucker, 2009). FedEx changed their advertisement slogan because FedEx felt that their previous
slogan, Relax, its FedEx was not appropriate for their customers anymore. Their new
campaign message reflects empathy toward its customers, and has breadth-showing all the things
FedEx can do for customers, including providing easy and economical shipping and services
(Tucker).
Financial Strategy & Position of the Firm
FedEx has had three straight years of declining net income which may not come to any
surprise because of the weak economy. FedEx has substantially lowered its total liabilities the
past three years which would help if they need to raise money in a debt offering. FedEx
continues to pay a dividend to reward their shareholders and to focus on the main goal of an
organization which is to maximize shareholder wealth. FedEx began paying a dividend in July
2002 which was five cents (Brooks, 2002). FedEx has accomplished an outstanding feat by
having better leverage ratios than the industry and its largest competitor UPS. The return on
equity is quite alarming for FedEx, while UPS has a huge edge on them. Below you will find
financial ratios for FedEx, UPS, and the industry average.
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Summary of Firm and Industry Ratios for [2010]
Industry: Air Delivery & Freight Services
Brooks, R. (2002). FedEx Corp. plans to pay dividend, first in its history. Wall Street Journal,239(107), 82-84.
Production and Purchasing strategies
As a service company, FedExs purchasing concerns are not as far-reaching as those in
production industries. Just the same, FedEx does have a large amount of capital equipment, such
as trucks and aircraft that are expensive to maintain and service, in addition to a few key
consumables such as cardboard and other paper products. According to Birkland (2008), FedEx
Ratios FedEx Industry Avg UPS Notes
Current Ratio 1.6 1.6 1.4 2-1 ratio is desirable
Quick Ratio 1.5 1.5 1.4 # represents how fast a businesscan come up with cash on shortnotice.
Asset Turnover 1.4 1.8 1.4 Measures efficiency ofcompany's total assets on sales
Inventory Turnover 68.6 15.8 N/A Indicates how many timesinventory of finished goods issold per year
Leverage Ratios 1.8 3.2 4.3 Used to understand acompany's ability to meet itslong term financial obligations
Debt/Equity .14 .8 1.32 Indicates the % of fundsprovided by creditors ascompared with owners
Gross Margin 25.3 24.0 23.8 Company's efficiency duringthe production process
Return on Assets 4.8 7.8 6.9 Return on total assets employed
Return on Equity 8.6 24.8 31.9 Measures a firm's profitabilityin comparison to the total
amount of shareholder equityReturn on Capital 5.9 10.9 9.1 Measure of how effectively a
company used the moneyborrowed or owned invested inoperations
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employs nearly 1700 technicians in 673 shops to service its fleet vehicles; one technique to
ensure quality parts are used is to try out a new suppliers components on limited number of
vehicles for a year before committing to wider implementation. Another way that FedEx
mitigates vehicle expenses is by relying on contract drivers who own their own vehicles
(Griffing, 2010).
Some costs, such as fuel, are simply passed directly on to consumers rather than being
mitigated directly: www.FedEx.com lists a table of fuel surcharges which can be quite
substantial-up to 19% on FedEx Express when fuel prices are above $3.28 a gallon. Besides
cost, FedEx considers other factors, such as diversity, in choosing its suppliers: According to
Mary McDaniel, VP for materiel and corporate sourcing, FedEx tries to exceed its goal of 5% of
purchases through diverse vendors. FedEx uses third party certification to control admittance to
a list of preferred diverse suppliers, and all suppliers are graded on timeliness, quality and cost
(Avery 2005).
Human Resource & Information Systems Strategy
FedEx has multiple current strategies in its various functional areas of business due to its
multiple entities operating in different theaters. However, the information system that FedEx
uses has been specifically designed to integrate each business level activity so that FedEx can
create a business level strategy for each company. FedEx has the motto of operate
independently, compete collectively (Alghalith, 2007). This belief allows each business entity
to operate itself independently while incorporating the same goals shaped by FedEx Corporate,
creating a greater competitive advantage in each market (Alghalith). FedEx with the slowdown
of the economy has slowed its IT expansion to test new systems.
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The Human Resources department has two main responsibilities. The current system that
needs to be managed, through ensuring that FedEx retains the correct people and to continue its
successful smooth operations that people have grown to trust. FedEx with the downturn of the
economy in 2008, instituted a pay increase freeze that was recently lifted to make sure they can
still maintain the competitive edge when it comes to human capital, but more importantly to
ensure that the knowledge management that can't be easily replaced and has made them the
leader in the industry isn't lost to competitor's (Levitz, 2009). Secondly, there are many new
area's globally that FedEx is looking to start operating in and H/R needs to focus on obtaining
local support and expertise to make the right strategic planning decisions and subsequent
expansion's.
SWOT Analysis
Strengths
Innovative: FedEx has been able to grow and stay competitive because they have always
been able to stay on the cutting edge. They have made innovation part of the
organizations culture, which has not only allowed them to incorporate new technologies
to deliver new products and services (Knudson, n.d.). FedEx has even established FedEx
Labs, where teams of eight to twenty-five people work on creating new technologies and
products (Innovators, n.d.).
Global: FedEx is truly an international organization, this allows them to not only better
serve existing customers, but to reach out to new customers and increase their market
share (FedEx Express, n.d.). This includes countries such as China, India, and Brazil,
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which are expected to see higher growth than the U.S. and European markets (Lennard,
2009).
Strong Brand Name: FedEx is able to rely heavily on their strong brand name to generate
business. This not only allows them to generate revenue, but also means that they can
save costs in marketing and promotions. FedEx ranked thirteenth on Fortunes 2010,
Worlds Most Admired Companies list (Worlds, n.d.). Having a strong brand name
gives FedEx an advantage when attempting to penetrate new markets or in further
international expansion.
Weaknesses
Energy Reliant: FedExs package delivery infrastructure relies too heavily on fossil
fuels, even as they transition to greener technology (Fuel, n.d.). This can have a large
effect on the organizations bottom line, even though FedEx passes on some fuel costs to
their customers. For the June 7, 2010July 4, 2010 time period, FedEx has a fuel
surcharge of 17%, for FedEx Express, if fuel is priced at $3.04 per gallon (FedEx
Guide, n.d.). This will impact customers and affect their decision on whether or not to
do business with FedEx.
Decreasing Profits and ROA: FedEx has experienced decreased profits and return on
assets, robbing the company of funds necessary for its expansion plans. The companys
net income has decreased from over $2 billion in 2007 to $1,184 million in 2010, and
their return on profit has also decreased over the same period from 8.4 in 2007 to 4.8 in
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2010 (FedEx Corp, n.d.). These statistics show how efficiently an organization is
operating, and FedEx is going backwards.
Heavily Reliant on U.S.: FedEx relies too heavily on the United States for revenue.
Despite global expansion, FedEx is still too reliant on the U.S. for much of their business.
In 2008, the U.S. provided 71.9% of FedExs total revenue (Global Road, 2009). Over
reliance on a single country leaves FedEx vulnerable in the event that economic, social,
or political difficulties disrupt business.
Opportunities
International expansion: Express logistics is well established in the U.S. and Europe, but
lags in other parts of the world such as India and Asia. For example, the air express
market in China is expected to grow at 34%, compared to the global average of 11%,
through 2020 (Datamonitor, FedEx Corporation, 2009).
Expansion in online shopping: Online shopping, which depends on companies like
FedEx for delivery, is projected to grow at a compound annual growth rate of 13.9%
through 2012 (Datamonitor, FedEx Corporation, 2009).
Threats
Technological effects: Changing technology and falling prices for professional-grade
printing equipment allows individuals and small companies to accomplish publishing
tasks in-house rather than at businesses like FedEx Office (Palmeri, 2008). Palmeri also
notes that cut-rate prices on basic copy and print services at office supply stores have
commoditized this segment of the business. Technological substitutes such as fax email
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and online forums will likely continue to cut into mail volumes (Datamonitor, FedEx
Corporation, 2009).
Fuel Prices: The express logistics industry is already price competitive. FedEx must
accept low profits when fuel prices rise, or pass on the cost to customers via a fuel
surcharge, which could drive away customers and reduce revenue (Datamonitor,
Company profile, 2009).
Sensitivity to health of the economy: While there are some promising signs of economic
recovery, fears remain about a double-dip recession or a cascade effect of economic
troubles emanating from Europe (Periman, 2010). As FedEx is a supporter of consumer
spending and other businesses, any effect on the economy as a whole will be immediately
felt at FedEx (Datamonitor, Company profile, 2009).
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SW/OT Matrix
Opportunities
#1 International expansion
#2 Expand online presence
Threats
#1 Technological effects
#2 Fuel prices
#3 Sensitivity to health ofeconomy
Strengths
#1 Innovative
#2 Global
#3 Strong brand name
Alternative #1: Expand global presence.
Alternative #2: Using innovative ideas to offset increasingfuel prices.
Weaknesses
#1 Energy inefficient
#2 Decreasing profits/ROA
#3 Relies Heavily on US forrevenue
Alternative explanation with Pros and Cons
Alternative #1 - Expand FedEx global business endeavors (S2, W2). FedEx relies heavily on its
domestic business for revenue. The company should continue expanding globally in order to
increase market share and mitigate the risk of economic downturn in any one region. .
Pros -
Use of in-region offices strategy strengthens presence in the region and provides
customers with enhanced freight forwarding services.
Allows for direct access to local personnel with industry experience and cultural
expertise to meet customer needs.
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Increased access to the FedEx global network and seamless support across other FedEx
operating companies in markets.
Cons -
International political pressures
Government drivers: trade policies, technical standards, regulations
Cost drivers: location of strategic resources, differences in country operating costs.
Alternative #2 - Use of hybrid trucks to overcome fuel expenses (S1, T2). With rising fuel
prices and public relations benefit of Going Green, hybrid fuel trucks are an alternative to
offsetting high fuel costs while demonstrating FedExs commitment to the green initiative.
Pros -
Fuel savings will eventually make up for the premium paid for initial up front capital
costs.
Fuel savings will help FedEx remain competitive in the economic downturn that started
in late 2008.
Unlike the diesel from petroleum that is currently used in most commercial vehicles, bio-
diesel and others are a renewable resource. This use of fossil fuels supports the
companys green initiative, and contributes to the overall health of the environment.
Cons -
Initial cost of vehicles is higher than the traditional delivery truck.
Even with the savings realized of using a hybrid truck, the average ROI is 8 years.
Bio-diesel fuel is not readily available in all 50 states or international markets.
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Analysis and recommendation of the Alternatives
FedEx going green could lead to a multitude of success. FedEx hybrid trucks are getting
40% better gas mileage and emit 95% less pollution than the rest of the fleet (Warner, 2008).
Going green is sometimes a difference-maker in a customer's choice on which they use for their
service (Gunther, 2009). Government subsidies may provide additional help for FedEx to convert
solely into hybrid trucks. The volatility of oil prices could cause a huge concern for FedEx if
they do not convert to hybrid trucks (Dries, 2009). FedEx must realize that going green is going
to be costly upfront, but will pay dividends in the long term (Seymour, 2007). Government
regulations could be enacted on businesses to that create pollution harmful to the environment; at
that point FedEx would be forced to spend the money to convert all their trucks anyway, and
possibly pay a fine or damages.
A more proactive approach is to make the conversion on their own terms and avoid
higher conversion costs as demand for such trucks would certainly rise steeply if spurred by
government regulation. Doing business the most ethical way will lead to long term success
(Ling, 2007). FedEx started the process of converting to hybrid trucks in 2003, but hit some
major roadblocks. The recent spill of BP and economic factors could lead to oil prices rising
exponentially, and could create an advantage for FedEx over its competitors if it continues to go
green and convert all their trucks to hybrids.
FedEx global business expansion sounds great, but going away from its cash cow
operations in the United States may not lead to success. While businesses try to keep their heads
above the water, the cost of expansion outweighs any market share they could gain. In order to
be successful you cannot over extend yourself and jeopardize other parts of your business (Reiss,
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2010). Also the more you expand overseas the more emphasis you have on currency risk, which
could result in a losing proposition for the company. Expansion may drive new government
restrictions may apply and force FedEx to change some of their core strategies (Alsever, 2010).
Business expansion will continue to be on the forefront, but going green is the best strategy
today.
Implementation
FedEx has a complete understanding of going green, but needs to implement it effectively
in order to reach their goals. After failing to reach their first goal, set in 2003, of having all
hybrid trucks in 2010, FedEx must learn from their key mistakes. FedEx must commit to a large
enough order to drive down the unit cost of the new vehicles (Risher, 2009). Going to hybrid
vehicles should start in the U.S. and once they have ironed out all the problems then start
producing them for their overseas divisions. Profits will be enhanced long term due to the
incredible amounts of money FedEx will save on gas.
FedEx should set strategic goals and maximize on any government subsidies. Marketing
can also tout FedExs green initiative and tie it to reduced rates for the consumer. FedEx should
also investigate the new battery electric vehicles (BEVs), and incorporate them when the
technology and price are right (Loveday, 2010). FedEx must commit to the significant up-front
cost in order to achieve economies of scale and reap substantial dividends down the road.
Control
1. We will measure the reduction of gas usage companywide to ensure, that the technology
being implemented, will meet the targeted goals financially to support the global fleet
conversion. This measurement will ensure that the completed conversion of U.S.
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domestic transports is sustainable for future ROI. Even if the change to the greener
vehicles is not deemed profitable certain benefits needs to be given significant credence
such as public perception, marketing options, and competitive advantages of technical
competence.
2. Competitive benchmarking needs to be monitored between our largest competitors (UPS,
USPS) to distinguish ourselves as different and helpful to a patrons reasoning for
picking FedEx and the environment causes it supports. Individual markets that embrace
this Green culture need to be the focus and continuing expansion in those large urban
areas like Chicago, New York, Los Angeles, Austin, and so forth.
3. Executives will have formal control over many areas that involve FedExs technology
improvements and business process reengineering where technology and creativity
(Parnell, 2008) give a customer an appeal to shop you over a competitor. The cost of
conversion if very high to green technology, so FedEx executives need to be vigilant to
monitor the introduction of technologies that promise certain attributes or levels of output
while capturing the devotions and hopes of people and inevitably dont deliver.
4. Standards need to be contestant that they continually replace a certain percentage of
gasoline on a continual basis. However if efficiencies decline the technologies could be
abandoned resulting in significant short term financial, and long term inventory losses.
5.
Implementation of these technologies needs to be certain and precise that FedEx doesnt
end up having to fix out of control problems. The management of a crisis is the ultimate
goal and making sure parts, technology, and knowledge are uniform and is efficient
enough to justify the cost and risk. While we monitor and observe to see if numbers do
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seem unfavorable because its better to avoid an issue of ambiguity of cause, effect, and
means of resolution, and a belief that the organization must respond quickly (Parnell,
2008) to ensure some salvation of investment.
Future Prospects for the Company
As FedEx proceeds into the future, they must be vigilant. FedExs biggest risk exposure
includes: unpredictable economic and political conditions, increased prices in fuel and other
supplies, customer retention, and relations with foreign countries. In order to be prepared and
least effected, FedEx must develop strategies that will allow them to remain profitable in an
unsteady market. Suggestions would be for FedEx to remain current on the risks of a global
recession and aware of the current and future relations with foreign countries. Another
suggestion would be for FedEx to try and negotiate fuel prices for future purchases. If they are
able to do so, than an increase in fuel prices will not hinder them as it might others in the
industry. This gives FedEx time to continue research and development of alternative fuel
sources (Loveday, 2010). FedEx must devise strategies to offset problems such as: speed,
complexity, and the trade-off between size and flexibility. With these measures, FedEx will be
better able to anticipate and adapt to changing situations.
The rapid advancement of technology along with the growth of online shopping provides
many opportunities for FedEx. If FedEx continues to focus on and improve their green
advancements, they have every bit of potential to gain a competitive edge in the industry
(Loveday, 2010). Social trends are moving towards a greener approach in all areas of life,
FedEx does not want to get caught playing catch-up to its competitors (Gunther, 2009). By
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following this strategy, FedEx will have the opportunity to gain revenue and increase market
share.
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