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Strategic Management Project: FedEx Introduction The Federal Express Corporation was founded in 1971 by Fred Smith in Little Rock, Arkansas, as express transportation company. In 1973, Company moved its headquarters to Memphis, Tennessee. It was the first air cargo company in American history to provide one-day delivery service to its customers in 25 cities nationwide. The innovative delivery methods, used by the Company, have led to its rapid growth, since the time of its founding. When Federal Express became operative in 1973, its fleet consisted of only 14 Dassault Falcons airplanes.
By now, the number of Companys planes has grown to 373. In 2000, Company changed its name to FedEx Corporation. So far, FedEx management has dealt with this problem by acquiring smaller delivery companies, rightfully considering it the best competition strategy, under the given circumstances. In 2001, FedEx had bought American Freightways and a year later, it acquired Viking Freight, which allowed it to considerably increase the scope of its ground operations. In 2004, FedEx acquired publishing company Kinko, thus becoming the first self-efficient transportation company in American history. The cost of the deal was $ 2. 4 billion and it certainly did make sense, at the time when it was concluded.
However, the drastic progress of digital technologies had undermined the positive effects of Kinkos acquisition, because people increasingly rely on internet, when it comes to sending documents. It is very likely that FedEx is going to try getting rid of Kinko in very near future. There are some well-grounded doubts about whether Fed Exs current operating strategy is going to remain effective, as time goes by. This is largely because new digital technologies make people less dependant on delivery companies.
In this paper, we will analyze Companys strengths and weaknesses and will outline the business opportunities that might become available to FedEx managers, if proper competitive strategy is deployed. Financial analysis FedEx shares on NYSE are currently being traded at $ 98. 47 per share. This indicates that the value of companys public assets continues to grow, because 2 years ago, FedEx stock was traded at $ 81 per share. Companys Gross Profit Margin in 2007 was 53. 1 %, which also points out to the improvement of Fed Exs financial standing, over the course of last 3 years. In 2005, the total amount of FedEx sales reached $ 30. 9 billion. By the year 2006, Companys market value was $ 32, 588 million.
Fed Exs yearly gross income is expected to continue to rise, yet a certain stagnation tendencies affect Companys effectiveness on the progressive scale. Many economists point out to the fact that it is going to be an ever-harder task for FedEx to survive competition with its main rivals UPS, DHL and USPS. The Companys long-term growth is defined by 15 %, however, this ratio is likely to decrease, as time goes by. FedEx annual net income is $ 21 million. Its stockholders equity is $ 9, 588. 0 million. From 1995 to 2005, Fed Exs annual ratio of total return to investors was 18. 9 %.
Module 1 SWOT 1) Strength As it was being mentioned earlier, the FedEx is the largest express transportation company not just in U. S. , but also in the whole world. It is estimated that FedEx average package volume reaches up to 3. 5 million packages every day. This points out to the fact that FedEx enjoys popularity among great many people. In another words, it has established a secular brand name. Another Fed Exs strength is that its market share in airborne services accounts for 70 % in continental U.
S. , which allows this company to obtain certain financial and competitive dividends, which are usually associated with commercial monopoly. This improves Companys financial stability by guaranteeing the steady flow of investments. FedEx uses a sophisticated web system to track parcels that are in transit. Companys competitors have only begun providing similar service to their customers in recent years, while FedEx had established WWW tracking as early as 1997. This allowed FedEx to gain valuable experience in this field.
This system makes losing packages, along the way, practically impossible. We can also mention a legendary reliability of FedEx services. Company advertises that 99 % of parcels get to their destinations on time. However, this can be explained by the nature of air transportation rather than by the high operational effectiveness of Companys employees. Nevertheless, FedEx is considered as being much more reliable than its competitors, when it comes to delivering goods on time.
According to the statistical surveys, people that use express transportation services, consider on time delivery as the single most important factor, for which they are willing to pay extra money. With great degree of probability, we can say that these people will most certainly choose FedEx over other companies, because of Companys reputation of accurateness and reliability. 2) Weaknesses We can also mention a few weaknesses, which undermine Companys overall effectiveness. The most important of them, in my opinion, is the fact that Fed Exs ability to correspond to the market dynamics is being increasingly undermined, due to its sheer size. The autocratic managing style, practiced by the Fed Exs top executives, makes it harder for the local managers to adjust functioning of their branches to the specifics of the areas where they operate. One of other major Fed Exs weaknesses is that its ground market share accounts for only 13 %.
As practice showed, FedEx expectations of more and more people giving preference to the express air transportation proved to be a mistake. Quite contrary to this - the ground express transportation becomes more popular, due to the fact that many new regulations have been introduced recently to make air traffic safer, yet they often result in flight delays. This also makes air cargo services more expensive. FedEx operating model lacks a well-grounded competitive strategy. Until now, it was based on two principles: expansion and establishing its network abroad. Yet, the economic aspects of Globalization processes and emergence of the new technologies were not taken into account.
This resulted in FedEx losing its competitive edge to the smaller rivals, within a context of ground transportation. Many economists predict that in very near future, the great number of products will become available locally in the world, thus making express air transportation unnecessary. Also, since 25 % of all packages sent with FedEx are of informational nature (documents, brochures, books), the new internet technologies will negatively affect this sector of Fed Exs market. While talking about FedEx weaknesses, we also have to mention a very serious problem that continues to undermine Companys efficiency. That is ongoing labor dispute. It was only 10 years ago that FedEx pilots were allowed to unionize, on the condition that they will never use strikes as a method of making their demands heard by Fed Exs executives.
Right after this, the other personnel also began to demand better wages. Since 70 % of FedEx employees are experts in their fields, boosting the team spirit, hiring illegals and other Wal-Mart tricks cannot be used to help the situation. 3) Opportunities There are a few business opportunities that FedEx might be able to exploit in the future. Company can invest in filling bigger portion of ground market without any considerable risk. The maintaining of Fed Exs European branches operational is not cost-effective; therefore, it would be much more appropriate to close them down and to divert the freed finances into expansion of ground services in U.
S. At the same time, company needs to invest into expansion of its net in Asia, as it will allow FedEx as much as 100 % of growth in the next few years. It is being predicted by economists that close to 80 % of all consumer goods will be manufactured in that region in very near future. In order for FedEx to beat the competition, it needs to move into potential markets well ahead of time. In my opinion, FedEx will need to change its essence from express transportation company into global supply provider.
The potential profit that is associated with becoming a transportation sub-contractor is more substantial, comparing to what can be earned by operating independently. FedEx needs to strive to become a monopolist on the market, since it has a potential to accomplish this. It will also make Company less susceptible to many threats that come as result of new geopolitical realities in the world. 4) Threats Presently, UPS has adopted an aggressive air market share gaining policy, which directly threatens FedEx dominance there. If this is to remain unchallenged, FedEx is likely to lose a considerable portion of its yearly income, since UPS offers competitive prices on its air transportation services. It is very likely that prices for jet fuel will continue to rise steadily, thus forcing FedEx to increase tariffs on its products and services. In the long run, it can result in FedEx having no other choice but to disband the portion of its air fleet and to lay off many employees.
The rising of new broadband services will diminish peoples need in courier deliveries. In my opinion, this is the gravest threat to FedEx, since it has no way of influencing current trends in internet technology. This threat is organically related to another the emergence of non-asset based online providers, such as Expeditors and Circle. These companies employ truly innovative methods of transporting goods and it is expected that their popularity will increase dramatically in the future, as more people become acquainted with them.
The list of threats would be incomplete if we did not mention the impact of rising interest rates on FedEx. Although, one might say that this affects other commercial organizations as well, the companies like FedEx are especially susceptible to it, since issuance of insurance certificates is an integral part of how Company conducts its business. It can be compensated by the growing rate of inflation, but the problem is that inflation will diminish peoples commercial freedom, which will negatively affect FedEx. Module 2 Porters Five Forces According to Michael Porter, the competitive rivalry, within the industry, is defined by the dynamics of customers and suppliers bargaining power. It is also affected by the threat of new entrants and by the threat of substitute products.
Let us apply this theory to evaluate the FedEx from commercial perspective. 1) Customers bargaining power It is impossible to deny the fact that the customers bargaining power has considerably increased in recent years, in regards to FedEx services. This comes as the direct result of rivalry, on the part of UPS, DHL and USPS. 2) Bargaining power of suppliers The bargaining power of suppliers can be considered as such that remained the same. Even though that McDonald Douglas became part of Boeing, the recent commercial successes of Airbus Corporation does not allow Boeing to charge monopolistic prices for the delivery of new planes. 3) Threat of new entrants The threat of new entrants has too many independent variables, which prevents us from defining its probability with accuracy. However, it is most likely to increase, since many large corporations show tendency to expand to previously unexplored markets. Despite this, the successful...
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Research essay sample on Express Transportation Company Bargaining Power Of Suppliers
