FedEx Corporation Strategic Management Project. FedEx provides many benefits to its customers. The shipping industry, however, is one of extreme competition. Not only are customers confronted with the choice of carrier, they are also confronted with a

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FedEx Corporation

Strategic Management Project

Prepared for:

DR. Robert Ch. Wood

BUSINESS 189 – Strategic Management

Prepared by:

SAN JOSE CONSULTING GROUP:

Billy CRANE

Brad LANDTHORN

Bob MIRI

Jeremy RELPH

Chris SANCHEZ

Andrea VERNEROVA

December 9, 2003

TABLE OF CONTENTS

EXECUTIVE SUMMARY         ……………………………………………………………… 3-5

Chapter I: HISTORY                ……………………………………………………………… 6 -9

Chapter II:  EXTERNAL ANALYSIS         ……………………………………………….9-15

A.  Industry Life Cycle

B.  Industry Dynamics

C.  Porter’s Five Forces

D. Global Competition

E.  National Context

F.  Opportunities and Threats

Chapter III: INTERNAL ANALYSIS        ………………………………………………16-23

A.  Competitive Advantage

B.  Distinctive Competencies

C.  Strategies

D.  Four Building Blocks

  1. Strengths
  2. Weaknesses
  3. Image

Chapter IV: BUSINESS-LEVEL         ………………………………………………………23-28

  1. Business Level Strategy                
  2. Issues in Differentiation
  3. Targeting Customer Needs
  4. Market Segmentation
  5. Differentiation of Quality
  6. Differentiation in World
  7. Advantages of Differentiation
  8. Impact of Strategy    

Chapter V:  VALUE CHAIN                 ……………………………………………………… 28-34

  1. Value Chain
  2. Product Technology
  3. Impact of National Context of Industry
  4. Response to Differences Among Nations
  5. Global Dimensions of Strategy        

Chapter VI: CORPORATE-LEVEL STRATEGY         ………………………………………. 35-41

  1. Fedex Corporation        
  2. Express
  3. Ground
  4. New Offerings
  5. Horizontal Integration
  6. Vertical Integration
  7. Fill in the Blanks, H.  White Spaces

I.   Premier Plus 10,   J.  Mega Opportunities

REFRENCES………………………………………………………………… 42-44

        

EXECUTIVE SUMMARY

        

During one of his two combat tours in Vietnam, Federal Express CEO Frederick Smith got a quick lesson in survival from a crusty Marine sergeant.  “Lieutenant,” the sergeant told Smith, “there’s only three things you gotta remember: shoot, move, and communicate.(Fortune, Nov. 1997)

        Some thirty plus years later, and at the helm of one the shipping industry’s largest competitors, Smith has utilized that same tactical advice in the business world.  His maneuvering of FedEx has incorporated an aggressive shooting strategy as the company has emerged into numerous shipping regions around the world such as Asia, and furthermore, FedEx continuously has been pursuing and developing a solid foundation and infrastructure for the company and its future.  One example is the addition of a new hub in the Philippines, at Subic Bay. His movement has guided the company to innovate its products and develop with the needs of its customers.  Finally, the use of communication has emerged as one of the company’s greatest competencies, not only with customers, but internally as well.  “FedEx has always been a technology trailblazer, and the success of fedex.com is testament to that.” The company was one of the first to harness the power of the Internet, launching its Web site in 1994 with a bold new package tracking application one of the first true corporate Web services. Soon after, FedEx became the first transportation company with Web site features that allowed customers to generate their own unique bar-coded shipping labels and request couriers to pick up shipments.  FedEx Ground is taking advantage of the wireless LAN technology by expediting the movement of shipping information from delivery workers' terminals to a central database.

It is with these tactics along with FedEx strong competencies and worldwide infrastructure, which will be discussed in further detail hereafter, that will foster the companies success and eventual competitive advantage in years to come.

FedEx provides many benefits to its customers.  The shipping industry, however, is one of extreme competition.  Not only are customers confronted with the choice of carrier, they are also confronted with a choice of means of shipment.  It is further complex, as the pricing strategy of the sector has companies, for instance, who lead cost in one form of shipment such as ground and follow in another form of shipment such as international delivery.

FedEx foresaw the importance of differentiation early on, as did most of the sector players.  FedEx realized that it was in the information business.  Customers are not only concerned with the product getting from point A to B, but further, are interested in the knowledge of where the cargo originated from, its present whereabouts, destination, estimated time of arrival, price and cost of shipment.  All these elements are just as important to some businesses and consumers as receiving a safe delivery.  To support this need, and differentiate itself from competitors, FedEx created state-of-the-art technology for customers to track and validate shipments.  Shipments are virtually traceable from their origin to their destination all with the convenience of the personal computer.  Additionally, FedEx has forecasted the important strategic trend of a continuously global shipping market.  The differentiation of products is a continuous process in this competitive industry as innovations are often quickly imitated.  FedEx strives to develop innovations and listens to customers wants and needs.

Further meeting the needs of customers worldwide, the company has invested extensively in global infrastructure. Fedex connects some of the most important areas of the world that make up 90% of the world’s gross domestic product, some of the new hubs were built in the Philippines at Subic bay and in Europe at Charles de Gaulle, in Paris.   Particular emphasis has been placed on gaining a strong presence in the spawning Asian market.  Countries such as China, which had been predominantly exporting countries, are now large importers of goods from all parts of the World.  Since 1984 they have expanded service to over 300 cities within China.(Business Source Premier)

It is with this keen sense of “the big picture” that FedEx finds itself without a current sustained competitive advantage within the shipping industry.  The Fedex return-on-equity percentage of 10% falls far below the industry average of nearly 20%.  The company has invested heavily in aircraft and development of strategic worldwide airline hubs.  In 1997, FedEx foresaw the opportunity of Internet commerce and its implications on the shipping industry.  It is this same intuition that we at the San Jose Consulting Firm believe FedEx is positioning themselves as the future leader, with sustained competitive advantage, in the international market of the shipping industry.

The extensive infrastructure and resources FedEx has compiled are quite impressive.  The company has added several optimum hubs, the Euro One Hub in Paris, the Asia One Hub at Subic Bay, and the new Iraq hub to increase the reach and accessibility in blossoming new economies and manufacturing locations.  This infrastructure, coupled with FedEx’s continuous innovations and fulfillment of customers needs, is what will create continued success, and eventual sector competitive advantage in the years to come.  

Chapter I: HISTORY

Key events and dates in the history of FedEx Corporation.

(In italics: the entry of FedEx’s major competitor, UPS Corporation.)

1907 – UPS created by Jim Casey as the American Messenger Company in Seattle, Washington.

1953 - UPS resumes air operations. Blue Label Air provides two-day service to Chicago, Detroit, and several major cities on the east and west coasts.

1957 - UPS serves areas of five states within 150-mile radius of Chicago.

1971 – Federal Express Corporation is founded in Little Rock, Arkansas.

Frederick Smith realized the tremendous need for one to two day package and air-freight delivery that was better than the current distribution system.

1973 - Federal Express relocates operations to Memphis, Tenn.

On the first night of continuous operation, 389 Federal Express employees and 14 aircrafts deliver 186 packages overnight to 25 U.S. cities — and the modern air/ground express industry is born.

1975 - Federal Express installs the first Federal Express Drop Box.

1975 - UPS forges "Golden Link," becomes first package delivery company to serve every address in the 48 contiguous United States.

1977 - After two years of lobbying led by Federal Express, Congress passes Public Law 95-163 enabling FedEx and other cargo airlines to use larger aircraft with no geographic restrictions on routes.

1977 - UPS provides air service to all 50 U.S. States

1978 - Federal Express Corporation is listed on the New York Stock Exchange; ticker symbol is FDX.

1981 - Federal Express introduces the Overnight Letter.

           Federal Express begins international delivery with service to Canada.

           Federal Express opens its Super Hub adjacent to Memphis International Airport.

1981 – UPS purchased first aircraft for use in air delivery service.

1983 - Federal Express becomes the first U.S. company to reach revenues of $1 billion without merger or acquisition.

1984 - Federal Express acquires Gelco Express International and launches operations in Asia Pacific. The first PC-based automated shipping system, later named FedEx PowerShip®, is introduced.

1985 - RPS Inc. (now FedEx Ground) is founded in Pittsburgh, Pa., and introduces bar code labeling to the ground transportation industry.

1985 – UPS started international air service between U.S. and six European countries.

1986 - Federal Express introduces the SuperTracker®, a hand-held bar code scanner system that captures detailed package information.

1989 - Federal Express purchases Flying Tigers to expand its international presence.

1990 -Federal Express becomes the first company to win the Malcolm Baldrige National Quality Award in the service category.

1990 – UPS - first scheduled flights to Asia on UPS aircraft.

1992 – UPS - electronic tracking of all ground packages begins.

1992 - UPS is delivering to more than 200 countries and territories; delivering 11.5 million 

packages and documents a day for more than one million regular customers.

1993 - RPS (now FedEx Ground) exceeds $1 billion in annual revenue in its ninth year of existence, recording the fastest growth of any ground transportation company.

1993 - The UPS Logistics Group is established to provide global supply chain management solutions.

1994 - Federal Express officially adopts "FedEx" as its brand for recognition as the worldwide standard for fast, reliable service.

- FedEx launches fedex.com as the first transportation Web site to offer online package status tracking, enabling customers to conduct business via the Internet.

- FedEx Ship® software (now FedEx Ship Manager QuickShip) allows customers to process and manage shipping from their desktop.

1994 - UPS.com goes live.

1995 - FedEx acquires air routes from Evergreen International with authority to serve China.

FedEx opens the Asia Pacific Hub in Subic Bay, Philippines, launching the FedEx AsiaOne® Network.

1996 - RPS (now FedEx Ground) achieves 100 percent coverage of North America.

1998 - FedEx acquires Caliber System Inc. and creates FDX Corporation.

1988 - UPS receives authorization from the FAA to operate its own aircraft, thereby officially becoming an airline.

1989 – UPS worldwide Express Service expands to deliver packages and documents to more than 175 countries

1999 - FedEx Marketplace launches on fedex.com, providing easy access to online merchants that offer fast, reliable FedEx express shipping.

-  FedEx Corp. acquires Caribbean Transportation Services.

2000 - Parent company FDX is renamed "FedEx Corporation." Services are divided into companies that operate independently yet compete collectively: FedEx Express, FedEx Ground, FedEx Global Logistics, FedEx Custom Critical and FedEx Services.

- FedEx Ground launches FedEx Home Delivery, an innovative business-to-residential service, in major U.S. markets.

- FedEx Trade Networks is created with the acquisitions of Tower Group International and WorldTariff.

- FedEx Custom Critical acquires Passport Transport.

- FedEx teams with Amazon.com on a major e-commerce event, delivering the book "Harry Potter and the Goblet of Fire" to 250,000 eager customers on the Saturday of its release.

- FedEx introduces customer technology solutions including a redesigned fedex.com, FedEx e-Commerce Builder, FedEx Global Trade Manager and FedEx Ship Manager.

2001 - FedEx Express and the U.S. Postal Service forge a public-private alliance. FedEx Express provides air transportation of some U.S. mail and places FedEx Drop Boxes at post offices nationwide.

- FedEx Corp. acquires American Freightways, a less-than-truckload carrier serving the 40 eastern states in the U.S.

2001 –UPS launches direct flights to China with China Express

2002 - FedEx Corp. brands two of its LTL companies, American Freightways and Viking Freight, together as FedEx Freight.

- FedEx Trade Networks reorganizes; Tower Group International becomes FedEx Trade Networks Transport & Brokerage Inc., and a new subsidiary is created, incorporating the services of WorldTariff, called FedEx Trade Networks Trade Services.

- FedEx Home Delivery completes its expansion to serve virtually 100 percent of the U.S. population.

2003 - FedEx marks a 30-year milestone; Federal Express (now FedEx Express) began its first night of continuous operations in 1973.

- FedEx teams again with Amazon.com -  FedEx Express and FedEx Home Delivery delivered over 400,000 copies of "Harry Potter and the Order of the Phoenix" (up from the previous release of 250,000) in a single day. (About FedEx, FedEx Historical Timeline; About UPS, Company History).

         

Chapter II:  EXTERNAL ANALYSIS

A.  Industry Life Cycle

FedEx offers a wide range of transportation services and they accommodate to the widest range of shipments.  FedEx is in the shipping services industry, which is an oligopolistic industry with few established competitors.  The shipping services industry can be classified as being in the mature stage of the industry life cycle.  The few competitors in this industry, such as UPS, DHL and USPS, in addition to FedEx, each have their own brand loyal customers and low cost operations that create significant barriers to entry into this industry.

As for the intensity of competition, in mature industries "companies tend to recognize their interdependence and try to avoid price wars."  (Hill Jones, p.57)  For mature industries a stable demand reduces the threat of intense rivalry between the established companies.  However, unpredictable economic activity can cause a "trickle down" effect, such as a slump in an economy causing a decrease through-out industry demand, and as companies fight to make money a price war begins among companies in an industry, therefore, price leadership can be broken down by unpredictable future events.

B.  Industry Dynamics

The shipping service industry is very dynamic. The variety of consumers needs explains the energetic nature of this industry. Global Corporations, E-Commerce Companies, small businesses, as well as individual consumers all have a need to ship packages or documents to other businesses or individuals; however, the nature of these services will vary. IBM Corporation, for example, is a large company that depends on shipping their products to a large extent. Due to the IBM’s large shipping volume, their shipping needs call for specific conditions provided by their shipping service provider, FedEx Corporation. IBM uses discounts on large quantity of shipments. In addition, they can use FedEx Corporation for aid with the customs documentation that is required for shipping internationally. The shipping industry needs to reflect the dynamics of other industries to keep up and sustain in today’s ever changing environment.

The major innovation that has reshaped the shipping service industry and changed the world in the past decade is the Internet. With the use of internet and information technology, customers do not have to drive to drop of their packages at the nearest location any more. They can simply order a pick up on the internet or by calling in. This technology also makes it possible for customers to receive information on the shipment status at any time

Join now!

.

This might seem as an established form of doing business in shipping service industry. However, many of us do not realize that it has been only since 1994 when FedEx established the first tracking applications website and provided each customer with a unique bar code to individualize each shipment.  This form of shipment tracking already provides customers with a very convenient way of staying in touch with their shipments from pick up to delivery. Yet, today’s information technology allows for even better way to do that, the wireless solution. An example of wireless solutions that FedEx offers to its ...

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