The Competitive Advantage Of Fedex Commerce Essay

Government rules and regulations are the primary political factors affecting an organization. FedEx being an international company needs to interact with different nations that don’t implement tough trading rules and regulations, allowing them to make use of better international services. Business standards, political stability and industrial limitations are few other political factors that can affect the business. FedEx is successful in the international market because it firmly and strictly adheres to all relevant laws.

Economical

The economic factors which can distress the customers and can have effect on the business are interest rates, rise in fuel prices, inflation and exchange rates. The financial assets of the company are affected by recession in the market. FedEx is affected by the economic situation around the world; as a result it has to respond to the varying economic factors. FedEx need to be flexible with its charges depending on the economic condition of that country. Saturation of the US market has also affected FedEx negatively. Also the instability in the US dollar and EURO has affected the business which in turn has negative effect on the organizations like FedEx.

Social

Population and the education status of the country are the social factors that can affect an organization. These two affect the decisions that an organization makes in order to meet the demands of the customers. Increased urbanization goes in the favour of FedEx as there are more educated people to use their services. Also customers’ expectations are increasing with time, so FedEx has to provide fast and reliable services which are world class quality but modified to suit the local culture and custom.

Technological Factors

FedEx is successful like many other companies due to advancement in technology. The company used the Internet to its full benefit by providing anywhere in the world the electronic services. Consumers can check the status of their package from the comfort of their house. E-Commerce another great innovation which allows FedEx to connect with the world for the business transactions.

Chapter III: INTERNAL ANALYSIS

Internal Service Quality

5C Frame work

A. Competitive Advantage

The competitive advantage of FedEx as compared to its competitor, the UPS is low in the shipping industry as their return on investment is below the industry average.

A Model of Competitive advantage

Source: http://www.quickmba.com/strategy/competitive-advantage/

B. Distinctive Competencies

FedEx mainly possess existing rather than distinctive competencies. The proficiencies which facilitated FedEx to become the leading express organization globally are its ferocious assurance to innovation, technology, brand equity and strong infrastructure.

With the express package delivery FedEx is the name that comes first to the customers mind. A quote from allaboutbranding.com says it all, “FedEx is a great brand. Great brands provide a source of identification. These brands differentiate great brands and cement their leadership credentials assurance of quality”.

FedEx infrastructure is its next prevailing competency. FedEx has spent a hugh capital to build globally network of hubs, trucks and airplanes. So FedEx is in a position to harm any new entrant by just cutting down its prices.

The third competency for FedEx is its devotion to innovation and implementation of latest technologies. This obligation of better serving the customers keeps FedEx Express as the leading giant worldwide. This dedication is not a new thing as Frederick Smith of FedEx said in 1979 “The information about a package is just as important as the package itself.”

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FedEx’s vision guides its strategies. The motivation to be the world leaders has leaded them to their core existing competencies. UPS were world leaders in the shipping industry before 1980’s but changes in the Motor carrier Act and Staggers Rail Act in early 1980’s paved the way for FedEx to compete with UPS in many fields.

C. Strategies

FedEx current strategies are the fruit of its distinctive competencies which were built over a period of three decades. During this period FedEx has expanded its global network by offering fastest delivery time, like by starting the next day delivery to and from Taiwan on 2nd September 2003.Similar FedEx entered the Iraq market by offering door-to-door pick-up and delivery service. This characteristic aptitude of offering services where no one else has gone makes it difficult for its competitors to move into this shipping market

Other strategy aspect of FedEx is its involvement in the latest technology which they achieved by establishing the FedEx Technology Institute at the University of Memphis in 2003. FedEx is the only firm that offers its customers automated and package tracking option.

D. Four Building Blocks

The evaluation of FedEx against the four building blocks i.e. quality, efficiency, innovation and customer satisfaction does not give it a competitive gain against its competitors like UPS. The reason being that FedEx has invested such a hugh capital that their ROIC is not as decent as UPS.

E. Image

To big organizations like FedEx and UPS the element of image is very essential for their survival. In well-developed industries image becomes the key differentiator for the purchase decision.

According to Forbes magazine (Jan 02), “Being most admired is all about delivering what you promise to multiple audience, and that’s something FedEx has down pat…FedEx has successfully transcended its image as simply an air express carrier for business to become a one-stop shop for any shipping need.”

Positive market campaign through advertisements reinforces the image of FedEx Corporation in the competitive industry. While image is further build by extending hands into the community projects. FedEx further improved their image by introducing steps to reduce their carbon emission and energy consumption.

Chapter IV: BUSINESS-LEVEL

A. FedEx’s Business Level Strategy

A distinctive business strategy is setup by FedEx on the basis of its strength in logistics and technological innovation. FedEx sets a standard which is difficult to be followed by its competitors. Being labelled as Innovators FedEx has to convey this message to its customers that they provide only high quality of services. FedEx like its rivals is capable of fast delivery but they are more customers friendly. FedEx home delivery (new e-commerce residential service) is one of the other business strategies which separate it from its rivals.

B. Issues in Differentiation

To differentiate from rivals in shipping industry is very difficult as customers are very price conscious. They usually are not brand loyal as they might like to use the services of cheaper courier. Their aim is just to deliver their parcels on low cost, fast and efficiently on time. They are not bother about how advance the company is in technology and innovation. Affordability is the main concern of these customers. So to be the leader FedEx needs to differentiate itself from their rivals in every aspect of the business so that the customers recognize them as reliable industry.

C. Targeting Customer Needs

To meet the need of the customers FedEx have six different divisions in its corporation. As different customers have specific need each amenity covers a particular sector of the market. By targeting different market sections FedEx tries to satisfy the psychological needs of the customers who need guaranteed delivery within time specified period. Different services may be required by the customers at different times so FedEx will always be there to serve them.

Case Profile – FedEx

http://image.slidesharecdn.com/fedex

D. Market Segmentation

FedEx is formed of different business units which work collectively as a whole unit under the banner of FedEx Corporation. These units concentrate on single market and operate independently rather than focusing on the whole market. This gives FedEx a competitive edge over its competitors.

FedEx Express is the industry’s global leader which provides rapid, steadfast and time-definite delivery. FedEx Ground supplies small package, less time-sensitive service to business. FedEx Home Delivery is dedicated to residential services and operates from FedEx Ground. The third unit FedEx Freight is responsible for delivery of heavy packages across whole length of haul. Under it also works the FedEx Custom Critical unit which specializes in time-specific customer critical shipment. To meet the demand of the international customers FedEx Trade Networks works to provide support to the international market and hence international trading. Lastly FedEx Supply Chain Services operates to provide customer satisfaction by co-ordinating the movement of good.

FedEx Express and Ground are the profitable segments of the company and responsible for the major part of the FedEx business. FedEx conceits itself mainly on FedEx Express which gives a good successful picture of the company.

It becomes clear that FedEx markets itself according to the demands of the customers and not by demographic areas.

E. Differentiation of Quality

To meet the demands of its customers FedEx invested hugh capital in building its infrastructure. The transportation system and logistics play an important role in running the business and are the main functional units. There is good coordination among different functional units of the company which results in smooth running of the business and hence this forms the basis of good quality service to the customers.

F. Differentiation in the World

In US FedEx is often compared with UPS, while FedEx has made every effort to differentiate itself from its competitors. The market value of the UPS in US is more because of its pricing while FedEx is recognised globally for its services. FedEx resources allow them to run their business on much higher grounds than its rival, but with future globalization of the big businesses its competitors will try to overcome this differentiation. FedEx has 600 aircrafts in its fleet and has hubs all over the world, the quality which will be very difficult to overcome.

FedEx strategies keep them apart and different from their competitors. This helped them to make large customer base. Being labelled as innovators it is easy for FedEx to set up new hubs and package tracking systems.

G. The Impact of their Strategy

The same strategic dimensions are used by most of the businesses and the one common strategy is the investment of hugh capitol in research and development to develop better technologies. The firms using the latest and better technology tend to have better market share nationally and internationally and this gives a competitive advantage to the company.

The major competitor of FedEx, UPS took some years to build an infrastructure to take control of the domestic ground market in US of which now it holds major share. While at the same time FedEx started looking for ways to expand themselves internationally and build an infrastructure for competency in that market. The installation of the international hubs puts FedEx one step ahead of their competitors and thus gives them a competitive advantage.

For any company the prominent growth opportunity is the international market place. FedEx entered the global market with the introduction of FedEx Express which is known for its fast and reliable transportation service. FedEx is a recognised leader in the global economy and offers its customers more options and limitless places. The second thing which goes in the favour of FedEx is the E-commerce. Customers can purchase any product from the internet and it can be shipped anywhere in the world.

Fig: Acer and FedEx: Stream lines returns [2]

(Source: http://www.fedex.com/us/solutions/downloads/acer.pdf)

Assessed on 4th Dec 2012

Chapter V: VALUE CHAIN, TECHNOLOGIES, GLOBAL STRATEGY

A. Value Chain

Value Chain has primary and support activities.

Primary Activities:

Inbound Logistics: the products that need to be shipped are handling and stored.

Operations: Value chain analysis, financial analysis, logistics, shipping of products, handling and checking orders.

Outbound Logistics: receiving payments and transporting products.

Marketing and Sales: Making people feel satisfied and comfortable with the product by developing a positive image of the product.

Services: Customer satisfaction the main objective.

Support Activities:

Procurement: Purchasing assets, trucks, aeroplanes.

Technology development: Financing in innovation, research and development, IT and e-commerce.

HR Management: Hiring, training and development of employees

Firm Infrastructure: Management, planning, legal support, law and government regulations which are necessary for the support of value chain

B. Product Technology

Product technology dominant all businesses in transportation in which FedEx operates. Internet is the prominent technology that is used by FedEx in handling its operations.

“FedEx has always been a technology trailblazer, and the success of fedex.com is testament to that.” FedEx was the first to develop its Web site in 1994.Daily around 2.3 million customers connect to its web site which is known for its speed and customer focused features.

The Web Marketing Association praised fedex.com as the “Best Transportation Web Site” and e-Week saluted it as a top e-business innovator.”

FedEx Solution is an example of another latest technology used by FedEx which is a selection of various electronic tools.

C. Impact of national context on the industry

Shipping industry and in particular FedEx depends to a greater extent on the national context. The market value of FedEx is improving as it is expanding its horizon without any limitations. The economic downturn in America has led it; to bring changes in its foreign policies. These changes will help FedEx and the other shipping industries to turn to the foreign markets.

D. Response to Differences among Nations

The opportunity of growth with globalization will help FedEx to reach its goal of brand building and standardizing its products in the new and diverse market.

To overcome the barriers of governmental rules and regulations in different countries FedEx designed an online business planning tool FedEx Global Trade Manager to help the international customers to obtain the necessary information about the fees and charges for overseas shipping.

E. Global Dimensions of Strategy

Global strategy shadows every dimension of FedEx. Therefore FedEx is divided into:

FedEx 5 Geographical Zones:

United States

Asia-Pacific

Canada

Europe, Middle East and Africa

Latin America-Caribbean

Global Factors:

Globalization – leading to more integrated markets

Borderless business transaction

The basic concern of any customer in any part of the world is timely delivery of their product whether individual or business. This consistency does need FedEx to tailor their services. This helps FedEx to establish there successful pricing strategy instead of raising the cost of their services. In this way they can use their resources to upgrade their technology and to focus on time-sensitive ability to deliver.

Another part of global strategy is having only few locations as the main centre for managing the operations, like Hong Kong for Asia-Pacific Network and Miami and two cities in Mexico for Latin America-Caribbean Network

In short, low cost, standardized service and few key locations internationally to serve 210 countries show the FedEx global strategy is on the right track.

Chapter VI: CORPORATE-LEVEL STRATEGY

A. FedEx Corporation

FedEx Corporation offers the main strategic leadership as well as the main financial liability for all the company. FedEx is currently divided into different units which run independently but mould the entire services to meet the customers need. The main motto of the company is “Operate independently, compete collectively.” The decision making ranking at FedEx Corporation is as follows:

FedEx Express EMEA abridged organization chart.

http://www.palgrave-journals.com

FedEx reorganized world-wide on 19th January 2000 with 5 geographical zones and with 6 subdivisions.

For customers to have a single access point a single brand system was created.

Standardized names of subsidiaries -leverage the FedEx brand name.

Establishment of FedEx Services-hub for the growing portfolio of independent FedEx services.

FedEx Services

Further support for the FedEx family was provided by combining marketing, sales and technology.

An extensive range of services and pricing schemes was set up by single sale force.

Customers were provided with single point of access to all range of FedEx services

Helps customers in invoicing, tracing of packages and also claims.

Website www.fedex.com and common toll free number for all the services.

B. Horizontal Integration

Horizontal integration is merger of similar companies and procurement sought out by the industry leaders. It is a way of trying to increase the industry value of the company by lowering the price, increasing the product value and bargaining power of the company and managing industry rivalry’s. FedEx from as early as 1980’s has been involved in this.

The purchase of Flying Tiger air fleet and American Freight are the example of this.

C. Vertical Integration

The strategy of vertical integration of FedEx is very aggressive. Having a very strong infrastructure gives FedEx a competitive edge in the shipping market. As they control most of the distribution channels they still purchase from independent suppliers. Most of these suppliers give maintenance services and some provide them with packaging services.

D. Fill in the Blanks

FedEx need to consider some fill in the blanks strategies which depend on existing competence’s like:

• Increasing their ground service abilities.

• Paying attention to recyclable material for packaging which will reduce their material cost and will show the public that they are concerned about the environment.

Conclusion

The unit describes the Strategic Management of an organization and how its helps in setting up the standards to achieve its goals and objectives.

FedEx a name, a leader in the Shipping industry whose basic function is to bind the nation through business. Its aim to provide a fast, reliable and efficient service to its customers in all areas of shipping industry. FedEx known for its innovation, keeping its cost down, using latest technology to speed up the transactions of goods.

Focusing on the customers is always a key to the success of business and keeping them happy allows developing brand loyalty.

To beat its rival FedEx has to understand that meeting the demands of the market place is essential. This can be achieved by setting tough targets for the future and then trying to achieve them. FedEx have shown how strategy helps in decision making and brings better results for the company.

Over the past 30 years FedEx has been a company which has changed the way we view express transportation and delivery services. FedEx has shown that a company is not only about technology, managers and profit making. It places their employees on pole position, as they are the ones that keep the company going and serve the customers.

Strategy Recommendation

Business Level

ƒ˜ Integrated Cost Leadership and Differentiation Strategy

Global key account management

Key partnerships with major customers

Advance IT devices providing real-time information

Continuous innovations and first mover advantages

FedEx Online

Continuous improvement of organizational operation and cost reduction program

o E.g. Spent US$1.1 billion in 2002 for purchase of fuel

o Purchasing policy of 2-3 suppliers or use fuel saving vehicles

ƒ˜ Market Penetration Strategy

Increase market share by aggressively targeting at fast developing countries like China and member countries of AFTA

Reduce its dependence on US market sales (more than 60%)

Reduce the risk of fierce competition with UPS in US market

Corporate Level

ƒ˜ Restructuring Strategy

Optimize FedEx Express and FedEx Ground’s operation

o Consist more than 80% of total sales for FedEx

o E.g. same pick-up team for customers

Improve synergy among subsidiaries

o Leverage the existing resources among subsidiaries

o Shared activities, exchange of competencies (knowledge, staffs, success stories)

o Regularly assess the current and new locations for office and warehouse and take advantage of different time zone in different countries to shorten the lead time for deliveries

ƒ˜ Financial Strategy

Sell and lease back of aircrafts: 648 aircrafts with value of US$5.8 billion

Huge fund for business expansion, tip-top condition of aircrafts, tax advantages, no problem with old aircrafts

ƒ˜ Concentric Diversification

Outsourcing trend of supply chain by customers is on the rise

Demand Responsive Model

Innovative technology and information system

Part of re-engineering strategy to turnaround the FedEx Services into profitability

ƒ˜ Cooperative Strategy

For minor areas, form JV, partnerships or subcontract the delivery services to local postal companies or couriers to capture the business opportunities