Free research paper sample on Fedex:
Federal Express Corporation (Fedex) was established in 1973. Since then, Fedex had become a global logistics and supply chain management. The company had invested heavily in information technology systems. It had a powerful technical architecture that had the potential to pioneer in Internet commerce. However, there are some difficulties, the company’s logistic and supply chain operations have trouble to keep up the company’s image, The transportation volume growth was slowing down because the competitive industry was too intense. In early 2000 The company announced major reorganization within the entire Fedex family. Each five subsidiary companies was to function independently but to compete collectively.
In order to analyze the situation carefully an external and internal analysis of the company and industry must be done so a complete picture of the industry could be understood.
Determinants of threat of new competitors:
The global express transportation and logistic industry has a very high barrier to entry because it requires enormous capital resources, economies of scale and brand identity.
Large firms have a cost and performance advantage in the industry. All of the established firms had a very strong foothold in the global market as they have established brand identities. There are economies of scale in the industry: firms have to be big enough to provide services in many countries. Also firms have to be big enough to achieve cost saving and to make profit. It is extreemly hard or almost impossible for a new competitor to enter the industry. Currently there is no substantial differentiation in products and services among competing firms in the industry. All of the firms provide similar service such as express, ground, logistics and freight. Also there is no switching cost for individual customers in the industry beside the fact that they might have to get new software for their computers and the software are provided freely by the couriers. Since it is not easy to enter the business of logistics and supply chain in any country, the threat of new competitors is very low. However, in the long term one should not generate the same conclusion because the environment that the firm is operating in right now would be changed. There are no absolute cost advantages in the industry because companies basically are using the same technology for tracking packages. New technologies adapted by one firm are easily imitate by others because these firms have the same capability and resources. Also, since the delivery and tracking methods are similar to each other, it is difficult for one firm to have advantage over the others.
Determinants of industry internal competitive rivalry:
Although all of the firms in the industry represent in many countries in the world, the industry is still on the growth stage because not every business out there is using express service. As the speed of business is going faster, the need for express services will be realized and the market share thus would be increased. Currently, including Fedex, there are four players in the international courier, which held over ninety percent of the world market. The other three players are DHL, UPS and TNT. They all use web based package tracking system and pick up parcel upon request. All of the players in the market are almost the same size and had established a strong reputation in the business so there is equality in competitive advantage among the existing firms. All of the firms in the industry have a diversified business that revolves around transportation and shipping.
Determinants of substitution threat:
Although the postal services in every country also provide express service at a lower cost, the speed of these delivery is not that fast and most don’t have an up to date tracking system like that of Fedex or the other three leading firms. This limitation is completely offset their low price. The postal express service is mainly targeted to individual, not businesses. Next day delivery is rarely heard from any postal services. Therefore, Fedex still maintain its competitive advantage. Fedex’s customers are not likely to switch to a substitute of other three firms or postal service anytime unless Fedex raise its price to an unreasonable amount. There is no switching cost for individual customers but the need of each segment is different so the postal express service is not a threat to Fedex at any level.
Determinants of supplier power:
Fedex needs air and ground transportation vehicles for its delivery services, maintenance services for these vehicles. Also, up to date software for tracking device and electronics equipment that supporting these software. All of the input that Fedex need could be easily purchase from any suppliers in the market. Supplier does not possess a lot of power since Fedex inputs are standard rather than unique or differentiated. Fedex is a big firm and it always buy in high volume so Fedex has the bargain power. Fedex could threaten to switch to another supplier if current suppliers don’t satisfy company’s demand.
Determinants of buying power.
Currently, there are a large number of customers relative to the number of firm in the business so customers don’t have much choice here. The large number of customers with relatively small purchase minimized bargaining power of customers. The four firms in the industry have a similar price for services, only postal service provides a lower price. However, the speed of postal service is really slow so the target customers of postal service would not be the same as Fedex and the other big three
Since Fedex is not in the manufacturing industry, its value chain is somewhat different than a manufacturing company. Fedex does not design and manufacture products instead it provides service to clients. The linked set of activities and functions it perform internally will not include sales. To increase its value chain, Fedex performs service for its vehicle internally. This activities will increase the margin for the company
Opportunities for Fedex:
Since Fedex is the biggest express-service company in the world, it set the standard for the whole industry. Being the pioneer putting new software into its business infrastructure will save a lot of money for the company in the long term. Also, Fedex should always keep an eye on information technology and try to adapt to the new emerging technology because it would reduce the operating cost and make the delivery business become more efficient.
Since each subsidiary operates independently and collectively compete with each other, it will become more dynamic, more productive and more efficient than ever before. Decentralization will give subsidiaries more power to perform on its own. Therefore, Fedex could expand Viking Freight so that it could compete on the international market. This would be a big step to gain the global market share for the freight business.
Since Fedex is in the transportation business, a rise in fuel price could affect the company tremendously. However, a rise in fuel price would also affect the entire industry rather than Fedex alone. Customers might switch to other alternatives in that case.
Another threat is that competitors might try to cut the price. However, it is unlikely to happen because the other three firms don’t want to initiate a price war. No body will win in a price war. The postal express service would become a threat only when they could really increase the delivery speed equal to that of Fedex. This is very difficult to achieve because postal service only operates within domestic market.
Fedex has many strengths. One is the established brand name. The Fedex name is recognized globally. Its name mean reliable, fast delivery service. The company also had a very strong foothold in the every country. The company could capitalize on the name by diversify the business into other area that is not transportation when it has the capabilities and resources.
Since Fedex is a big corporation, customer responsiveness could be slower than other organization. However, the company could overcome this by investing heavily into research and marketing. One of the mistake in the past is that the company had been ignore the value of the brand. Customers need was not up where it supposed to be when the company ignore the home delivery in the 90’s.
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