FedEx Case Study

FedEx Case Study

FedEx Case Study

Question 1:

Porters Generic Strategies

Applying Porters Generic Strategies to the industry is not an easy task provided that FedEx Corporation provides various shipping services. For simplicity, we examined and applied the Porter's five forces model to the ground and air-shipping sector. In FedEx, these two sectors are represented by FedEx Express and FedEx Ground. FedEx Express is the world's largest express transportation company. FedEx Ground, on the other hand, is North America's second largest provider of small-package ground delivery service, following the lead of UPS. Other segments of shipping service industry are for example e-commerce and supply chain management services, which are not included in the Porters Generic Strategies analysis (www.allaboutbranding.com).

Risk of new entry by potential competitors

The barriers to entry are very high. One of the reasons that there is a high entry barrier is the high fixed cost associated with establishing the international transportation network. This includes hubs, ground transportation vehicles, air fleet, etc. Additionally, existing companies can take advantage of the absolute cost advantage achieved by large volume of shipments and economies of scale(libaccess.sjsu.edu:2173).



Extent of rivalry between established firms

Established players in shipping service industry complete rigorously for a market share, as demonstrated by the constant battle between FedEx and UPS, the company who responses first to the constantly changing environment wins. Established companies have to strive for continuous improvement in quality, lowering price, and innovation. There is very low switching cost for consumers in this industry making rivalry even more intense. In addition, intense rivalry is also due to the fact that maintaining the infrastructure of an express delivery company presents an exit barrier due to high fixed costs (biz.yahoo.com).

Bargaining power of buyers

The bargaining power of large buyers in shipping service industry is high. Cost associated with switching from one shipping service to another is very low. Therefore, buyers can turn to a shipping provider that offer faster service, lower price, or service innovation with ease. This is especially true for large corporations, like IBM, which ships in large volumes and can bargain quantity discounts.

Bargaining power of suppliers

The supplier power within this industry is fairly low. Large shipping service provider can affect prices of supplies, like packaging materials. This is because they buy in large quantities and can turn to different suppliers easily.

Threat of substitute products

There are not many substitutes to shipping. In this day and age where many businesses have strong online presence and a small physical presence, it would be difficult to find a substitute in delivering their product. Shipping services are very much similar to a commodity, in that it is not easily replaced with another service or even a similar service (www.fedex.com).

B.

FedEx does not have a competitive advantage in the shipping services industry because their return on investment is below the industry average. When the FedEx return on equity percentages are compared to the returns of their leading competitor, the United Parcel Service (UPS), the FedEx returns are half that of the shipping ...