EXAMINING THE CASE OF FEDERAL EXPRESS 9
Examiningthe case of Federal Express
Thesmall parcel delivery industry is very composite and competitiveindustry that requires a strategic planning in order to continueearning profit. Majority of these companies uses Michael Porter`sFive Forces tool to enable it make savings at a lower risk andweakening the bargaining power of suppliers (Hill & Jones 2013).These tools are powerful for identifying potentials in the businesssituation, strength of the industry`s competitive position and theenvironment to operate. The presence of competitors in the industryis a challenge that leads to lower prices due to the bargain byconsumers, hence low collections by these industries.
Porter`sFive forces are used to analyze whether new products or business ideawill be profitable. They identify the competitiveness in the businessenvironment. The risk of entry by competitors is the first force. Itidentifies that restrictions are high. This is due to the costinvolved in developing an international network. In addition, theexisting businesses can also manipulate these firms in order takeadvantage of voluminous and economies of scale (Choucri, 2011).
Extentof competitors between established firms. Firms in shipping industrycompete so as to maintain their share in the market as portrayed byFederal Express and DHL. The winning firm is the one that responds tothe changes in the environment quickly (Hill & Jones 2013). Thisforce further explains that the company will survive in the industrywhen they offer goods and services of good quality, innovation andlow prices. The other force is the buyers bargaining power (Levy &Newell 2009). The buyers are bargaining so much. The cost involves inchanging from one service to the next is low and hence consumers canchange from one shipping provider to the other that offers lowerrates, faster service and has the best and latest technology. Forinstance, a company like IBM can transact voluminous goods and hencegain on quantity discounts.
Theother power that porter argues is the bargaining power of suppliers.This power is very low in the industries (Levy & Newell 2009).Shipping providers can interfere with the prices of supplies such aspackaging. It happens because they can be able to buy in bulk. Thelast force is threats of substitute goods. In the transportationindustries, there are no many substitutes.
Historyof Federal Express
TheFederal Express developed in the twentieth century. Later, it wastransformed from express delivery firm to a global supply avenuemanagement firm. This company has invested heavily on its informationsystems and since the introduction of internet, the systems have beenintegrated with new technologies so as to enhance better services tothe customers (Hill & Jones 2013). Federal Express has improvedon the infrastructures of the systems with powerful technicians whomaintain these systems to achieve a smooth flow of its services. Despite having succeeded in developing systems and e-commerce, therewere also hinders that prevented it from dominating the market.Competition was one of the factors hindering its success. A studyconducted on the progress of express delivery industries showed thatthe Federal Express industry was declining despite advancement intechnology and e-commerce. Later in the year 2000, the FederalExpress company reorganized in groups in order to conduct business asa corporation (Choucri, 2011).
FederalExpress’s Value Creation Frontier
TheFederal express strategic competitiveness is based on improving thedelivery speed and reliability as a key value creation frontier tocustomers. This firm believes that this value would greatly benefitthe company if the critical elements were met according to theirurgency. These processes are expensive, and the federal express hasbeen able to deliver urgent materials fast thus becoming a reliablemeans of transportation (Levy & Newell 2009). Majority of peoplewho were clients of this industry are in an attempt to copy thebusiness model. Controlling on incoming and outgoing activities helpsreduce cost and can provide adequate services by managing theirsupply chains.
Thesignificant value for most of the clients is from advancement intechnology whereby they can track the whereabouts of their parcelsthrough websites. Use of technology is another competitive advantageover the rivals. The biggest rival in this market is UPS. Thiscompany develops its value through use of technology to improve theirmanagement of the services offered to customers. In order to succeed,Federal Express should follow suit and match its competitors approach(Levy & Newell 2009). They should enhance networked computers,wireless modems and employ programmers and experts.
Inorder for Federal Express industry to continue maintaining an aboveaverage profitability, there is a need to have four building blocksof competitive advantage. They include efficiency, better quality,technology and customer responsiveness. It is also argued thatFederal Express is with no competitive advantage. In arguingefficiency, it is essential to note that federal express emergedfirst in the use of wireless technology (Hill & Jones 2013). Thisenables members of staff to access company data. The informationnetworks provided data to employees all day with the help of barcodesand scan packages. Federal Express had injected huge capitalinvestment that further facilitated quicker recording of packagesinto the firm`s tracking systems thus reducing chances of errors.Federal Express has a long way in order to match its competitorsrank.
Inanalyzing quality, Federal Express`s devotion to quality ismanifested. They spend part of their capital expenditure onimprovising new technologies that greatly improved the quality ofservices to customers thus making it a reliable source (Levy &Newell 2009). The parcel tracking on their websites and scan checkerhelps gain customer confidence in the company. These technologieshave helped reduce expenses, lateness of packages, wrong postings anddissatisfaction amongst clients.
FederalExpress has greatly invested in new technologies that help improvethe service delivery to their customers. Technology is achieved inview of the proposal of federal Express to merge with the Universityof Memphis. This will ensure that they updated in case of theintroduction of a new technology. This ranks first to implement anyadvancement in technology. Further, this ensures that they have spentenough for any future technology (Hill & Jones 2013).
Federal`smain priority are customers. This is because it has been trying tomeet customer`s needs by making sure that their technology is up todate for customers convenience. Advancement in technology makes iteasier for customers to continue enjoying their services. It alsohelps differentiate it from its competitors. For instance, FederalExpress increased the drop off period by four hours so that customersget enough time to meet the delivery deadline. Further, theypartnered with competitors to establish their post offices in theirfirms (Choucri, 2011). This was due to customer’s preferenceswanting more time to drop packages and establishment of locationsnear them.
AlthoughFederal Express has been successful in all the four blocks ofcompetitive advantage, it has not been able to conquer itscompetitor, UPS. This does not mean that UPS has been a super perfectfirm, but rather because Federal Express has invested so much incapital investment for a long period, and the returns on investmenthas not been as good as those of UPS. In the future, this return oninvestment will make Federal Express have a competitive advantagewhen it starts to pay back (Hill & Jones 2013).
ProductDifferentiation and Capacity Control
TheFederal Express are in a position to develop an advantage over thecompetition on customers who buy on behalf of their businesses by consolidating their plans on managing stock while the services arestill being out. This is achieved by means of barcode mechanism andusing the internet commonly provided to noncommercial clients.Product differential and capacity control reduces administration andoverheads expenses (Choucri, 2011). Further, improvement intechnology can be used to enhance security and to track theoperations of the company that leads to an efficient managementcontrol measures on the customer`s supply chains particularly thosesystems that are specializing in distribution of goods and servicesin the international market.
Inaddition, capacity control and product differentiation will enablethe firm to control the transportation of goods and services inlocally or abroad via air, land or sea services at differentproduction points worldwide (Levy & Newell 2009). Productdifferentiation will facilitate an easy way to inspect the quality ofgoods, verify and comply with the numerous local and internationalrequirements needed before goods are received or send. By so doing,customers will be forced to look for other key areas such asbranding, marketing strategies, sales approaches and other essentialelements that help keep the company growing.
FederalsExpress differential policies are necessary because when theyseparate themselves from the rivals it can lead to customerawareness of their existence and can create a brand loyalty. It isalso very simple for Federal Express to inject tracking systems withgreater efficiency (Hill & Jones 2013). Developing strategiesthat cannot be duplicated by competitors provides an opportunity todominate that market. This will enable federals to charge higherprices for its products as compared to other firms in the market.
Efficiencyof Federal Expresses Current Business Model
FederalExpress operated a unique business whereby its main aim was tofunction solely by competing with other companies. This enabledFederal Express to operate other five subsidiaries that includedFederal Express, Federal Logistics, Federal Ground, Federal customand federal trade networks. They perform activities suchdistribution, transportation amongst others and work for the purposeof the customers. Each subsidiary has own costing methods, transportsystems and different cultures that match specific market portion.Cost leadership is one of the best strategies that a company deemsnecessary gain a competitive advantage over its competitors (Hill &Jones 2013). This strategy enables a company to continue makingprofits, despite the presence of competitors, new businesses,substitutes, suppliers and customer’s power. Federal Express canonly succeed if the correct measure is adopted to control costs.
Theother way to identify how the companies’ resources can add value tothe industry is by scrutinizing all the operations of theorganization. This will help identify the loopholes and try tominimize these operational costs and establish ways that can help addvalue to customers thus having a competitive advantage (Choucri,2011). This strategy will help keep rivals ways because customerswill go for the less costly commodities meaning that these firms willcontinue earning profits. Federal Express will experience higherrates before customers. Further, this can act as a barrier to blocknew entrants into the market. New and mushrooming businesses can bediscouraged from entering the market through reduction of prices andproducing efficiently.
GlobalCompetition and the Impact on Suggested Business Strategy
Theoverall global competition may change the new sales strategy in anumber of ways. Federal express should know that competition in theglobal market has different returns on profit due to changes oncurrency. Many of these companies worldwide are government owned andthus the provision of services is at subsidized rates. Thesecompanies are rich in resources and earn less leading to competitionin prices. Rules and regulations apply to different countries, andthis has an impact on sales (Hill & Jones 2013). Some of the lawsare harsh and discourages the survival of any new business. Forinstance, it was a costly investment to operate DHL delivery servicesdue to the procedures involved and regulations to be adhered to.Rules consequently led to the withdrawal of DHL from theinternational market leading to a great loss. It had invested heavilyon technology.
FederalsExpress can deliver its services in the international community byobserving the rules and policies put in place by INCOTERMS 2010 (Levy& Newell 2009). The rules protect the company from variousgovernment regulations on purchasing and selling by taking theposition of middleman in the distribution of goods and services.INCOTERMS also have strategies established to help businesses inglobal competition. However, this would discourage some companies tothose countries that have agreements with Conventions ofInternational Sale of Goods. The other best strategy is via mergersand acquisition of already established firms (Choucri, 2011).
Choucri,N. (2011). Globalaccord: Environmental challenges and international responses.Cambridge, Mass: MIT Press.
Hill,C., & Jones, G. R. (2013). Strategicmanagement: An integrated approach(10th
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Levy,D. L., & Newell, P. (2009). Thebusiness of global environmental governance.Cambridge, Mass: MIT Press.