Federal Express Company: Global Environment’ Strategies

Abstract

Analysis of history and progress of Federal Express shows that pricing, technology, globalization, and services are important building blocks, which have contributed to its development for about four decades. To maintain profits above average, Federal Express needs to focus on globalization, which is the most important building block. In the aspect of product differentiation, logistics services comprise a product that Federal Express can use to gain a competitive advantage over its rivals in the delivery industry. Although the business model of Federal Express is efficient, focused differentiation is a new business-level strategy, which, if adopted, would augment competitiveness significantly. Nevertheless, global competition affects focused differentiation because some countries, in conjunction with competitors, impose trade barriers and flight restrictions. To confront global competition, Federal Express should collaborate with local delivery companies and lobby for global recognition.

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Introduction

Federal Express is a rapid delivery company of small packages that have dominated the delivery industry in the United States for four decades. Although Federal Express commenced its operations in 1973, it has significantly transformed the delivery industry, for it offers competitive services in the delivery of small packages. During the 1970s and 1980s, Federal Express grew rapidly, given that it monopolized markets in the United States. However, the entry of competitive companies such as United Parcels Service, the United States Postal Service, and Airborne Express reduced the monopoly of Federal Express and increased competition in the delivery industry. Since the 1990s, the four companies have been vigorously competing using numerous frontiers. According to Hill (2012), Federal Express applies pricing, technology, services, and globalization as major strategies in gaining competitive advantage in the delivery industry. These strategies have enabled Federal Express to withstand competitive forces and remain in the market, unlike other competitors that went out of the competitive market. Therefore, the purpose of the research paper is to examine the evolution of Federal Express by analyzing its value creation frontier, determining the most competitive building block, identifying its effective product differentiation strategy, and analyzing the impact of globalization.

Value Creation Frontier

Federal express applies several strategies in value creation frontier, which makes it a competitive small package company that owns a considerable market share of the delivery industry in the United States and across the world. During its inception in 1973, Federal Express focused on the provision of a rapid delivery service of small packages. The value creation frontier, in this case, is the provision of rapid and reliable delivery service in the delivery industry in which freight cargo dominates. Hill (2012) asserts that the concept of Federal Express emanated from the fact that passengers require the convenience of daytime, while small packages require the convenience of nighttime. The provision of nighttime services in the delivery of small packages presented a unique opportunity because it allowed Federal Express to transport packages during the night and made it achieve next-day delivery. The next-day delivery became a rapid delivery service because airlines did not have the capacity and efficiency in delivering packages within a short period. Consequently, Federal Express came up with second-day delivery and premium services, which expanded the nature of delivery services it offers to customers.

In the 1990s, competition in the delivery industry increased because of the new entrants such as United Parcels Service, the United States Postal Service, and Airborne Express. Before the emergence of the new entrants, Federal Express monopolized the markets and made huge profits. Since 1990, pricing strategy has played a significant role as a strategy that enhances the competitive advantage of Federal Express. Hill (2012) states that increased competition among cargo carriers compelled Federal Express to reduce prices significantly; hence, causing a marked decrease in profit margins. The development of the second-day delivery product provided an opportunity for Federal Express to offer cheap services and meet the needs of customers. Premium service of Early AM was a pricing strategy that targeted urgent packages that were required at the offices early in the morning for crucial businesses of the day.

The emergence of information technology created a platform for Federal Express to enhance the efficiency of its operations. Manual operations were not effective and efficient because they are cumbersome and prone to errors. Delivery companies strived to augment their efficiency and effectiveness by incorporating information technology into their operations. Hill (2012) argues that Federal Express incorporated scanners, computerized tracking systems, and barcode technology, which enhanced the reliability, efficiency, and effectiveness of their services. In this view, information technology gave a competitive advantage to Federal Express and made it deliver services in a reliable, effective, and efficient manner.

Federal Express enhanced its competitiveness in the global markets by adopting numerous globalization strategies. Mass manufacture of products in industries requires their speedy and timely delivery to customers across the world. Electronic, clothing, computer software, and pharmaceutical industries manufacture products that need fast and precise delivery to various global destinations. The existence of such industries prompted Federal Express to establish global networks that supply diverse products to customers. To establish global networks, Federal Express acquired 17 delivery companies globally and purchased Flying Tigers, which granted it not only freight services of 328 aircraft but also landing rights in 103 countries. Therefore, the global expansion provides an opportunity for Federal Express to penetrate global markets and consequently gain a competitive advantage over its competitors.

The Most Competitive Building Block

Globalization is the most competitive building block Federal Express needs to use in maintaining above-average profitability. Given that Federal Express has exploited delivery markets in the United States, global markets offer massive opportunities, which require extensive exploitation. Fundamentally, most countries in South America, North America, Europe, Asia, and Africa have strong economies that drive globalization. Basing on globalization trends, Hill (2012) regards globalization as a competitive building block that has a long-term impact on the growth and development of the delivery industry because market forecasts indicate that global air express will grow at the rate of 18% until 2016. Hence, globalization increases the global movement of products, promotes the growth of air transport, and provides a growth opportunity for Federal Express.

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Analysis of the global markets indicates that the restriction of flights in some countries hinders the growth of air transport, and consequently, the growth of Federal Express. For instance, Asian countries, such as Japan and China, denied Federal Express to make direct flights from the United States to Tokyo and Osaka because of trade barriers. To access international markets, Federal Express had to purchase a fleet of 328 aircraft from Flying Tigers in 1889 to gain landing rights in 103 countries (Hill, 2012). Despite the purchase of Flying Tigers, Federal Express continued to suffer losses owing to international restrictions and trade barriers. However, Wang (2010) argues that multilateral trade agreements remove trade barriers, speed the growth of international trade, and promote globalization. Hence, the creation of multilateral trade agreements will remove trade barriers and consequently enhance accessibility to restricted regions. According to Grancay (2010), the liberalization of air transport contributes to the elimination of trade barriers and the enhancement of globalization. In this view, Federal Express should focus on globalizing its services to maintain profitability above average.

Product Differentiation and Capacity Control

Logistics services comprise the major aspect of product differentiation, which Federal Express should apply in promoting its competitiveness in the global markets. Globalization has compelled manufacturing industries and companies to transport products to global markets with a view of expanding their markets and increasing profit margins. Since business enterprises are unable to own aircraft, they rely on the logistic services of air express operators. Hill (2012) asserts that air express operators have differentiated their products into logistics services so that they can take advantage of transportation, assembly, storage, and distribution demands of diverse business enterprises. Essentially, logistics services enable business enterprises to transport products to various destinations promptly.

In the realm of transportation and international trade, logistics services have become a significant aspect that promotes a continuous and reliable supply chain. Without logistics services, it is difficult for international business enterprises to transport, store, and distribute urgent products to respective distributors or customers in time. Skrinjar, Drljaca, and Kavran (2013) state that logistics has become an important entity of the industrial sector that boosts supply chain, offers rapid delivery, reduces the risks of damage and theft, and enhances flexibility, reliability, and accessibility of delivery systems. In this view, Federal Express needs to ensure that it offers logistics services to diverse business enterprises because they have the potential of boosting market share, augmenting profit margins, and enhancing competitive advantage. Globalization increases the movement of products from one nation to another, and thus, stimulates the demand for logistics services. Normally, logistics services allow business enterprises to delegate their responsibilities to trustworthy and specialized transport companies, who can handle logistics services such as transportation, distribution, safety, storage, quality management, clearance, and planning.

The efficiency of Federal Express

Analysis of the current business model of Federal Express indicates that it applies the independent contractor model in providing services to its customers. The model enables Federal Express to undertake endless numbers of contracts so long as it can comply with the stated terms and conditions of services. Essentially, the current business model of Federal Express is efficient because it allows the performance of numerous operations in the delivery industry without any restrictions on the part of the clients. Given that the terms and conditions stipulated in the contract reflect the quality of service, the current business model delivers efficient services.

A new business-level strategy that offers a competitive advantage to Federal Express over its competitors is the focused differentiation strategy. In the delivery industry, customers have diverse needs in that a single product cannot satisfy them, and thus, they require differential satisfaction. Differentiation strategy entails the creation of diverse products to satisfy the unique needs of customers in each market segment and gain customer loyalty (Ireland, Hoskisson, & Hitt, 2008). Since competitors of Federal Express have not differentiated their products to meet the unique needs of customers, Federal Express should employ a focused differentiation strategy. Specifically, Federal Express should differentiate its products into next-day delivery, second-day delivery, premium services, and logistics services in the global markets for it to gain a competitive advantage over its competitors.

Global Competition

As a new business strategy, a focused differentiation strategy experiences significant impacts from global competition. The global markets are difficult to penetrate because of the trade barriers and restrictions imposed on aircraft routes that relate to global competition. Fundamentally, trade barriers and flight restrictions hinder Federal Express from offering differentiated products, namely, next-day delivery, second-day delivery, premium services, and logistics services. Moreover, bureaucratic processes involved in package clearing take a significantly long time, which delays the delivery of packages. Although Federal Express offers premium services and next-day delivery, these services are not tenable in some global destinations where the clearance process causes significant delay.

To confront global competition, Federal Express needs to collaborate with local delivery companies. Formation of strategic alliances with local delivery companies in diverse global destinations that are difficult to penetrate due to trade barriers and flight restrictions offers a competitive advantage to Federal Express. Since local delivery companies have advanced logistics structures, understand legal requirements, and have service delivery permits, they offer Federal Express a fertile platform for undertaking various operations. Moreover, lobbying for global recognition is another way that Federal Express can confront global competition. The global recognition makes countries allow Federal Express to conduct its operations and offer the required support.

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Conclusion

Federal Express is a delivery company that offers rapid delivery services. Since its inception in 1973 in the United States, it has progressively expanded and ventured into global markets. An analysis of its progress indicates that Federal Express experiences stiff competition in the local and international markets. To augment its global competitiveness, Federal Express needs to use globalization as a building block and differentiate its products according to the needs of customers. Moreover, the business-level strategy of focused differentiation is essential for Federal Express to penetrate competitive global markets. Collaboration with diverse local delivery companies and lobbying for global recognition are ways that Federal Express can use to overcome trade barriers and flight restrictions in some countries.

References

Grancay, M. (2010). The economic impacts of air transport liberalization. Zagreb International Review of Economics & Business, 13(2), 73-78.

Hill, C. (2012). The Evolution of the Small Package Express Delivery Industry, 1973-2010. In C. Hill & G. Jones (Eds.). Strategic Management: An Integrated Approach (pp. 83-95). New York: Cengage Learning.

Ireland, R., Hoskisson, R., & Hitt, M. (2008). Understanding Business Strategy: Concepts and Cases. New York: Cengage Learning.

Skrinjar, J., Drljaca, M., & Kavran, Z. (2013). Logistics of international express shipping and air traffic. Traffic & Transportation, 25(3), 209-215.

Wang, N. (2010). The relationship between regional trading blocs and globalization. International Journal of Economics and Finance, 2(1), 171-173.

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