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Federal Express Corporation - External Analysis

Essay by   •  July 18, 2010  •  Case Study  •  1,352 Words (6 Pages)  •  2,687 Views

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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.

External analysis:

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.




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