FedEx: Porter’s 5 Analysis
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Published: Mon, 02 Jul 2018
External environment analysis refers to analysis of events, factors, and entities that surround an organization. These elements tend to influence an organization operation, its opportunities and risks. In business when we talk about external environment analysis of an organization, we essentially concentrate on conditions to which such an institution operates. This relates to both social, political/legal, economic, competition, and technological environment. This paper therefore gives external environment analysis of FedEx, a transportation company found in the air delivery and freight services industry.
Federal Express (FedEx) is a delivery company found in the logistic industry. Frederick W. Smith established the company, in the year 1971 and it chiefly specializes in delivery of documents and freight across many cities in the world. The company employs more than 200000 employees globally, and operates under four main categories namely, FedEx Services, FedEx Freight, FedEx Express, and FedEx Ground (FedEx.com).
Identification of the industry
FEDEX can be categorized in the transport industry, and its main domestic competitors are United Parcel Service (UPS), and the United States Postal Service. In addition to competition at home, the company competes globally with well-established companies such as Deutsche Post (DHL), FCML Couriers, LDH Express, Royal Mail, and other private and public regional carriers. The company has a global presence, but USA and Europe is its largest market (Devan, 2010).
Porter’s five forces model – FedEx Corporation
LOW- Products supplied to the industry
Threat of Entry
LOW- High start up costs
Threat of Substitutes
LOW -Limited services for large freight and air freight
LOW – MEDIUM-Shipping choices
HIGH- FeDEX, UPS, USPS, DHL
Source: Datamonitor (2009). FedEx, Inc.: company profiles. Retrieved from Lexis Nexis database.
External Environment Analysis
As mentioned earlier, FedEx is found in the logistic industry that is determined by Porter’s five forces model, which includes-
Intensity of Rivalry – Regardless of few competitors, logistic industry still remain a competitive sector due to large numbers of consumers, low cost of changing providers and poor demarcation among competitors.
According to Parnell (2009), various type of information is required to evaluate this porter’s force. This rivalry is measured by elements such as industry concentration that measures the percentage market share of its rival competitors such DHL, United Parcel Service (UPS), and the United States Postal Service.
The CR ratio of FedEx is moderate and this is attributed by progressive EPS and P/E ratio that tend to combat this discrepancy. In pursuing a competitive advantage over its rivals, FedEx continuously lowers prices to gain temporal advantage over its rivals .The company also employs strategic alternatives which include the concept of increasing size and sales using tactical alliances and internal growth models .FedEx also maintain a competitive edge by focusing on specific five core strategies that make it grow a company. These strategies include growing core business packages, growing e-commerce networks, growing competent new products and alliances, growing internationally, and growing capable supply networks (FedEx.com).
The only disadvantage of this material is that its labor intensive, and at times there is no readily available data on resources required for each type of service. In conclusion, we can say the source is very credible.
Threat of Substitutes – In contrast to other sectors, the threat for substitutes in logistic industry is very low because of low number of alternatives .This is attributed to availability of few companies offering air delivery services.
From the article, FedEx maintain this force by establishing high level of universal marketing objective that is aimed at producing high quality products that are trustworthy across all end users. The company focus on threat of substitute revolves around a marketing technique that concentrates on specific customer need.
Generally this article is very conclusive has it spells out the strategies undertaken by the company to beat rival substitutes.
Threat of New Entrants – This industry is credited to have minimal threat of new entrants due to the high costs involved. This includes high cost of operations, and capital equipments.
When appraised with Porter’s Generic Strategies, FedEx and its rivals uses a focused-low cost approach that makes entrance of new competitors very difficult. According to the FedEx Corporation Company, profile (2009). For any company to remain functional in the industry, it must consider the economic environment especially GDP.
This material is very pertinent and useful to other players in that it provides interventions that can be used by other companies to reduce risks of new rivals entering the market.
Bargaining Power of Suppliers – unlike beverage industry, logistic industry tends to have low bargaining power because they provide their product in bulk. Most of the products are tentatively available from other market leaders hence this tends to eliminate bargaining power. FedEx tends to have low bargaining power of suppliers because most of their products are also standardized and due to availability of backward integration.
Sources used here include the company website and Beijing Review, 49(34), 36-37.As the two sources assess the idea; it emanates that suppliers uniqueness can be a great indicator of the nature of interventions necessary for the successful implementation of stable suppliers bargaining.
Bargaining Power of Buyers – just like bargaining power of suppliers, the bargaining power of buyers is also low but at times, it fluctuates. Customers have the sole discretion to choose their providers according to their taste and needs, though they do not have rights to negotiate prices.
According to, http://www.quickmba.com/strategy/porter.html,the bargaining power of buyers is very concrete on making a particular industry successful. Many of buyer’s of FedEx have low bargaining power because most of them are fragmented in different areas hence they have no particular influence on the product and its price (Devan, 2010).
Conclusion and Future Prospects for the Company
As days go by and the company proceeds into the future, management of the company must be vigilant if they want to remain competitive in the market. Just like any company in the industry, FedEx’s major risk includes increased global fuel prices, erratic economic and political conditions in their target markets, and client retention. In order to emerge the winner, FedEx must adopt strategies that will give them a chance to remain in the market.
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