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Porter's five forces analysis is an absolutely fundamental technique in strategy. Using this framework to map out environmental forces affecting the FedEx Corporation would result in the discovery of what the main sources of competitive pressure are and how strong each competitive force is in the shipping industry world. This analytical step is essential because we cannot create a successful strategy without in depth understanding of the industry's competitive character.
Porter's five forces model - FedEx Corporation
The potential entry of new competitors
Established companies had managed to effectively raise the barriers to entry bringing it to a high and making it difficult for potential new competitors to enter the market. This is so due to the fact that these companies have taken competitive advantage of cost by achieving large volume of shipment and economies of scale. In addition, there is a high fixed cost associated with entering the International transportation network. For example, fleet of aircraft, ground handling, vehicles etc.
Extent of rivalry between established firms
There are both local and global competitors in the shipping industry i.e. UPS, FedEx, DHL and TNT. Although these companies competed vigorously for a market share in the industry, FedEx and UPS quickly gained prominence by responding to the changing environment through the use of technological advances. These companies competed by strictly focusing on lower pricing, customer segmentation, quality of service and innovation. This has caused rivalry to be intense among competitors because customers could easily switch to preferred companies with better offers.
Bargaining power of buyers
The bargaining power of large buyers in the shipping industry is high. This is because buyers can easily switch to larger shipping providers for a lower price and faster service. For example IBM which provides large volume of shipment at a lower price.
Bargaining power of suppliers
The supplier power within this industry is fairly low. Large shipping service provider can affect prices of supplies by placing better offers on packaging materials. This is because they buy in large quantities and can turn to different suppliers easily.
Threat of substitute products
There are no substitutes to shipping. In this day and age where many businesses have a strong online presence and a small physical presence, it would be difficult to find a substitute in delivering their product. Shipping services are very much similar to a commodity, in that it is not easily replaced with another service or even a similar service.
Porter's Value Chain Analysis
The use of Porter's value chain analysis will help to better understand the activities through which FedEx can develop a competitive advantage and create shareholder value.
The FedEx value chain begins with same day collection of packages. FedEx employees collect the packages from various locations that are convenient to the customers such as businesses or at their homes. Customers can comfortably request pickups via the internet or telephones.
After the packages have been picked up, they are transported to one of FedEx's regional hubs for onward distribution. A hub is a central location where FedEx employees sort the packages according to their destinations. The packages remain at the hub until they are collected and shipped either by aircraft or truck.
The efficient distribution of the packages by the aircraft and truck drivers to their various locations are integral to the value of the service. The packages must get to their destinations on time at anyway.
Marketing and Sales
Support activities such as company infrastructure e.g. truck; aircraft etc provide the enabling environment for the primary activities to function properly. Other important support activities include information systems, which allow customers to place their orders on- line and track their products.
FedEx further facilitates customer comfort and security during the use of its service by allowing customers to track their packages while on route. Customer service is usually seen as a final primary activity and provides after sales support and service, however, it is an important part of the FedEx process.
FedEx over a number of years had improved its core competencies and capabilities through the use of infrastructure, a stronger brand name than rivals and embracing new technology.
FedEx realized that by acquiring its own transportation fleet e.g. regional hubs, trucks and aircraft would set them apart from its competitors. By doing this, the company had managed to achieve over one billion dollars on revenues making it difficult for potential and existing competitors to imitate since it took a lot of capital needed to compete with this company.
FedEx brand name was considered to be one of its greatest assets; the name had placed an image of reliable service and fast delivery in the mind of its customers. This had also made it difficult for other entrants in the market to compete because FedEx had a lot of trucks and aircraft to back them up.
Innovation and New Technology
Technological breakthrough and application of innovation promoted significant advances for customer ordering, package tracking and process monitoring. Example FedEx was the first company in the shipping industry to introduce the use of new technology that allows millions of people to connect via the World Wide Web through its website www.fedex.com. FedEx had also made it possible for people to track their package at the point of picking up to the stage of the delivery. Finally FedEx had built a small warehouse in Memphis. This was it first attempt at multi- client warehousing where customers can call up and place an order and the said order will be picked up on the same day.