Executive summary
The paper highlights FedEx and the ways of operation the company adopted. The company had strategies that were aimed and surviving in the global market. The paper analyzes the logistics and transportation industry. This is the industry where FedEx operates. The paper analyzes the industry with the aid of Porter’s Five Forces and Value Chain. From the analysis, it is evident that FedEx has some competencies that greatly contribute to its success among them is the advanced product technology which has enabled the company to gain a competitive advantage over other firms in the logistics and transport industry globally.
The paper also highlights the various strategies that have been developed by the company since 2000 to enforce its accounting status in the industry. These strategies were aimed at improving the quality of the company’s products and creating diverse products hence increasing income or profit levels. The company developed a branding strategy, one point of access, and delivery of residential services at low costs.
These strategies led to the country growing into a great workplace. Finally, the paper discusses recommendations that the company should take into consideration to ensure it improves its accounting function and increase their profit level and market share in the respective market or industry. The recommendations if considered by the company might also give them a competitive advantage over other firms or companies in the respective industry.
Introduction
Management is the most important aspect of the operation of businesses irrespective of the sizes or nature of businesses they engage in. There are several functions of management. Though all companies and organizations consider management as the most important aspect of operations, companies opt to adopt strategic management systems. This may enhance the operations of businesses and increase their profit levels in the long run.
Though all functions of management are important, their importance in operations varies. However, they must be effectively coordinated towards the achievements of the goals of the respective organization or company. Companies should develop both short-term and long-term strategies to ensure that they achieve both long-term and short-term goals. This paper highlights accounting strategies developed by FedEx and other related strategies that have enabled the company to gain a competitive advantage in the market. It also provides recommendations that the company should consider to enhance accounting functions in the company, and increase their profit levels and market share in the respective industry.
FedEx was founded in 1971 by Fredrick Smith in little rock, Arkansas. After its formation, several events have occurred in the company leading to its success. Initially, the company traded as FDX but later changed to FedEx. After two years of operation, the company relocated to Memphis, Tenn. FedEx is among the oldest companies in the luxury products industry hence have good knowledge of the industry. Furthermore, the company strives to maintain its profit levels by increasing its area of operation. The company had a growth strategy and the reality of the strategy was realized when the company was listed on the New York Stock Exchange in 1978 (FedEx website 2003).
Though the company increased in size it maintained the production of quality products in the industry hence increasing customers’ satisfaction. FedEx emerged as one of the successful companies in the logistics and transport industry due to the products it produced. Due to the importance of strategic marketing management, the company developed some strategies in 2000 after reviewing its initial strategies. This led to the further achievement of the company in the industry (FedEx website 2003).
From this paper, it is evident that it highlights the strategies developed by FedEx and the outcomes of the strategies. Therefore, in this paper, I am going to analyze the industry of logistics and transportation using Porter’s Five Forces and Value Chain and point out the core competencies of FedEx that have contributed to its present financial success. Concerning the strategies developed by the company in 2000, I am going to point out their advantages to the company and the impact they have on the technological position of the company in the next successive years of operation (Meyer 2010).
Industry Life Cycle
FedEx offers varieties of transportation services and accommodates the widest range of shipments. FedEx is in the logistics and transportation industry, which is an oligopolistic industry with few established competitors. The logistics and transport industry can be classified among life cycle industries. Competitors in this industry, such as DHL, UPS, USPS, and FedEx, have brand-loyal customers and low-cost operations hence creating barriers to new entrants into this industry (Lenix 1985).
The transport and logistics industry is among the most competitive industries in the globe. This is because the industry has close competitors hence increasing the level of competition in the market. Due to the level of competition in the industry, these firms have reorganized themselves hence avoiding price wars. In mature industries, when demand is stable the level of competition between industries decreases in intensity. However, a trickle-down may be caused by unpredictable economic activities. For instance, a slump in the economy may decrease demand in the industry, and result in a fight among companies to make profits leading to a price war in the industry. Therefore, unpredictable future events may break down price leadership in the industry (Mintzberg 1998).
Industry Dynamics
The logistics and transportation industry is very dynamic. This is because operations in the industry are greatly influenced by technology, and technology is dynamic due to frequent developments. The various consumers’ needs explain the energetic nature of the industry. Small businesses, E-Commerce Companies, Global Corporations and individual consumers have a need to ship documents or packages to other individuals or businesses; however, the services vary in nature. For example, IBM Corporation ships its products to large extents. Since the company ships large quantities, their needs call for a larger firm too to adequately offer the services for instance, FedEx Corporation.
The company also offers discounts in case of large quantities shipment. In addition, FedEx Corporation may offer assistance in the documentation of customs, which is an international requirement in the shipping industry. The industry needs a reflection of the dynamics of relevant industries so as to adjust and sustain operation in the ever changing business environment (Mintzberg 1998).
Internet has greatly reshaped and changed the logistics and transportation industry and other relevant industries globally in the recent past. This is because there is increased internet use or subscriptions due to increased technological awareness in the globe, and embracement of technological use by industries in the globe. With the use of information technology and internet, customers have changed their shopping trends due to the ability to shop from home without visiting the relevant stores. This advancement has enabled consumers to shop anytime, any product anywhere and pay online. The technological advancement also enables the consumers to get any information related to the industry at any given time. This has led to a change in way of business especially in logistics and transport industry (Stewart 2007).
However, it has not come to the realization of many that it is not long since the establishment of tracking application website by FedEx to authorize customers to access individual shipment through a unique code. This development has really increased customers’ convenience since they can get in touch with their shipment services from pick up to delivery. However, the present development in technology has also enabled wireless tracking of the shipment services.
For instance, FedEx offers customers a wireless solution that enables them to access package tracking of data via FedEx home and ground delivery web enabled devices. This Personal Data Assistance (PDAs) or phone allows clients to access tracking data from virtually anytime and anywhere. Like other industries, shipping service industry constantly adjusts to technological changes so as to meet the market requirements and demands of the customers (Chevrol 2003).
FedEx is not the only company in the logistics and transportation industry that incorporates technology in offering of services. Their major competitor, UPS, is also taking advantage of the technological advancement to improve their services. In the recent past, UPS has adopted new technological systems, including hardware and software process changes so as to deliver more reliable and customized solutions or services.
The company has many various enhancements among them; handling unusual or unique delivery instructions so as to provide customized time commitments, and allowing customers to make in-transit changes on deliveries of packages. In this industry, innovation is application is evident not only from the operations of FedEx, but there close competitor UPS too. As UPS’s stated in its press release: “Our flexibilities corresponds to present complex supply chains globally which demand frequent change and speed” (Stewart 2007).
Porter’s Five Forces
Application of Porter’s five forces model in the analysis of this industry is not easy due to the provision of several shipping services by FedEx Corporation. For simplicity, it’s easy to examine and apply Porter’s five forces model on air-shipping and the ground sector. In FedEx Corporation, these sectors are represented by FedEx Ground and FedEx Express. The largest company in express transportation globally is FedEx Express. On the other hand, FedEx Ground is following UPS’s lead in the provision of small-package ground delivery in North America. Other segments are supply chain and e-commerce management services, which are excluded in Porter’s five forces analysis (Chevrol 2003).
Risk of new entry by potential competitors
The barrier of new entrants is high in this industry. One of the major contributors to the entry barrier is the high fixed cost which is associated with the establishment of an international transport network. This includes air fleet, ground transportation, and hubs among others. Furthermore, existing companies may get the opportunity in absolute cost existing due to large shipments quantities and economies of scale (Chevrol 2003).
The extent of rivalry between established firms
There is intense competition among established companies in the industry; this is evident due to the constant battle between UPS and FedEx, the company enterprise that responds early enough and adequately to the business environment changes wins. Established companies are constantly striving to improve quality, lower prices, and introduce innovations. Cost switching for consumers is very low in the industry, leading to intense rivalry among companies. In addition, maintenance of express delivery company’s infrastructure is costly leading to exit barriers and hence intensifying competition (FedEx Website 2003).
Bargaining power of buyers
In this industry, buyers have high bargaining power. This has led to the low cost of switching from one service to another. Therefore, buyers can switch to providers offering service innovation, lower prices, and fast services with ease. This is common to large corporations for instance; IBM which bargains quantity discounts due to shipment of large volumes (Chevrol 2003).
Bargaining power of suppliers
On the other hand, suppliers in this industry have low bargaining power. Their prices can be affected by established shipping service providers, for example, packaging materials. This is because large corporations buy in large quantities and may switch to another supplier easily (Suk and Seung 2006).
The threat of substitute products
The shipping industry products have no close substitutes. Due to the present business trends where businesses prefer selling online to physical stores, it is very difficult to find substitutes in the delivery of their products. These services are somehow similar to commodities, which are not easily replaceable with similar services or another service (Chevrol 2003).
Global Competition
The nature of the packaging industry makes competition global. FedEx Corporation competes with USPS (United States Postal Service), DHL, UPS (United Parcel Service), and other several smaller entities locally and abroad. FedEx supplies about 214 countries with packages same with key players in the industry such as DHL and UPS. Apart from competing with large entities, FedEx also has to compete with other regional and global delivery companies which serve local markets (Chevrol 2003).
Competition in the industry is losing a global outlook due to mergers, consolidation of companies, and the recent alliance formation. These events have exposed the shakeout within the industry and its key players (Meyer 2010).
National Context
The logistics and transportation industry is complementary to other industries in the global market. Though the industry has numerous key players, they all possess a unique twist in their service provision. Operations of FedEx Ground are greatly influenced by local conditions to a greater extent. In addition, FedEx has to monitor the moves of UPS since it’s the most established player in this sector. On the other hand, FedEx Express is faced with the effects of changes in a global environment. FedEx Express operations have to address local factor conditions, demand conditions, and support industries of the individual country which it serves (Mintzberg 1998).
Factor Endowments
In the United States, FedEx Corporation administers several advanced factors of production. These are physical infrastructure, logistics know-how, and managerial sophistication. One of the major advanced factors which FedEx develops and uses to manage complex hubs is logistics. The airport is one of the major infrastructures that FedEx uses in conjunction with ports and roads (Lenix 1985).
Local Demand Conditions
FedEx is trusted by United States’ demand conditions, not forgetting its competitors, to continuously upgrade its services. As customers consistently desire their delivery services to be cheaper and faster, the industry must consistently improve customer responsiveness and services. The intense rivalry among close competitors is fuelled by high buyer bargaining power and low switching cost. The definite shipping needs of various individuals and companies demand extensive use of technology and innovative approaches (Stewart 2007).
Competitiveness of Related and Supporting Industries
The existence of globally related industries and competitive suppliers in the United States serves as a complimenting attribute of local advantage for operations of FedEx (Murtha 1998).
Intensity of Rivalry
As mentioned before, the shipping service industry is faced with rigorous market share competition. Established companies have to continuously improve quality, lower prices, and innovate. The level of rivalry in this industry is intensified by the prevailing low switching cost. Furthermore, intense competition is also propelled by high fixed costs for the maintenance of infrastructure which poses a barrier to exit by existing companies. Rivalry forces entities in the industry to upgrade services and make them fit for global competition (Lenix 1985).
Value chain
FedEx Express’ value chain can be seen as commencing with the pick-up of packages. The packages are gathered by FedEx employees from various locations such as residences, businesses, and drop boxes. Customer Value is created by making package pick-ups possible anytime or anywhere. FedEx guarantees money back for customers, whose packages arrive late or delay, therefore creating value through timely delivery of packages. After the initial pick up of packages, they are then transported to a hub. The packages pass through several hands before delivery to their intended destination. The packages are stored at the hub awaiting transportation of either plane or truck (FedEx website 2003).
Delivery of packages is the greatest value creation act for FedEx Express. Truck or plane drivers must efficiently perform their duties to increase the perceived service value. The drivers have to ensure the trucks get to their intended destination on time despite the circumstances that might cause delay. Value is increased and the positive result is achieved by exceeding or meeting the expectations of customers (Meyer 2010).
Customer service is the final primary activity. This function is to offer support and after-sales services, however, FedEx offers customer services by authorizing customers to track their packages during the delivery process. This increases customer value and meets their expectation because they can know the status of their products hence satisfying the security anxiety of their products (FedEx website 2003).
Primary activities are effectively executed due to support such as company infrastructure, which are trucks, buildings, planes, among others. Another support activity is Information systems which enable customers to place orders online and track their products. Human resources and Materials management also supports activities. Materials management is the flow of services or goods via production into distribution or logistics.
Generally, support activities allow for the commencement and correct functioning of primary activities. FedEx has a competitive advantage due to its efficient company infrastructure and information systems. Their advanced systems of information allow for precise tracking of packages, which some companies lack in the industry. Customers can track their package via the Internet, without contacting customer service agents, which may consume time. Other companies offer tracking numbers that are not effective in tracking packages (Murtha 1998).
The massive fleet of automobiles, airplanes and employees sum up to the enormous infrastructure of the company. This infrastructure makes the services of the company reliable. FedEx trusts their time restrictive package delivery service; they guarantee time delivery of packages upon requests by customers (Meyer 2010).
FedEx Corporation
It is necessary to determine the industry where FedEx operates, and their position in the respective industry to ascertain their strategies in the market. Presently, FedEx is constituted of six independent units: FedEx Express, FedEx Trade Networks, FedEx Ground, FedEx Freight, FedEx Services, and FedEx Custom Critical each competing in different sectors of the transport industry so as to tailor the whole FedEx service to effectively meet customers’ needs. The main company is FedEx Corporation, which provides strategic leadership and financial accountability for all the units.
The business model applied at FedEx Corporation is “Operating independently, competing collectively.” The most dominant product technology incorporated by FedEx for management of operations of all units in the industry is the internet. The company was among the first to harness Internet power, launching a company website in 1994 with a package tracking application. Due to the technological advancement and growth in number of Internet users, the company is bound to grow in the next coming years if it consistently uses the application and upgrade it as it advances (Suk and Seung 2006).
Conclusion
Change of strategies by the company in the year 2000 greatly contributed to the long-term success of the company. Therefore, a company has to consistently review its strategies hence determine whether to change, adjust or introduce new strategies. This enables a business to adequately respond to market changes. Finally, it is true that strategies are the core pillars of success in business and they have to be realistic.
Recommendations
FedEx Corporation has developed an effective strategy that has enabled it to effectively operate in the last ten years. It has developed different units but collectively competing towards increment of the corporation’s income. Therefore, FedEx should enforce and consistently review the strategy and ensure effective coordination of the units. This will enhance increment in profit level and maintenance of financial stability. Furthermore, the company should carry out market research on accounting strategies developed by close competitors so that they can effectively compete against other companies in the industry. FedEx Corporation should develop and establish effective accounting strategies that can effectively enhance financial performance of the company and increase accounting functions efficiency.
Marketing changes
A company has to possess a good and experienced marketing team hence respond to the marketing changes in each environment the company opt to operate. This enables the company to avoid unnecessary losses. It is through marketing that a company reaches the target groups hence need to be effective. Marketing is a process and needs to be consistently and frequently reviewed. The company should establish and effective marketing process, this will enable the business to effectively and adequately address dynamic business factors and respond to accounting practice changes in the market. It will also enable the company to establish flexible accounting strategies hence increase their profit level and market share in the respective industry (Meyer 2010).
Choosing of location
Before a company sets up a business it has to carry out market research hence determine if the location favors the nature of the business. It should be located where the operation costs are reasonable. Operation requires finances to be successful. However, organizations or companies need to operate under limited budget to ensure it obtains profit. Strategic location of a business entity assist an organization reduces costs it incurs in support services and general cost of operation. In return, this increases profit level for an organization or company. Therefore, FedEx opt to locate its premises in strategic places where costs of operations are low to increase profit levels. It will also enhance effective accounting process by the organization (Meyer 2010).
Risk management
When a business is incorporated, it is bound to loss or profit. Therefore, a company should effectively have an effective risk management plan. This will allow the business to have a competitive advantage over other companies and hence increase their level of income. FedEx opt to establish an effective risk management plan to ensure that it effectively and efficiently respond to uncertainties in the business environment. This will also boost accounting practice by the company and avoid unnecessary losses by establishing emergency funds to respond to any uncertainties in the business environment (Meyer 2010).
List of References
Chevrol, M. 2003, The Strategy Gap: Leverage Technology to Execute Winning Strategies. New Jersey: John Wiley & Sons, Inc.
FedEx website, 2003, About FedEx: FedEx corporate history. Web.
Lenix, J. 1985, Multinational Corporate Strategy: Planning For World Markets. New York: Simon and Schuster Inc.
Meyer, R. 2010, Strategy Synthesis: Resolving Strategy Paradoxes to Create Competitive Advantage. Indiana: Pearson Education.
Mintzberg, A. 1998, Strategy Safari: Financial Strategy. London: Financial Times Prentice Hall.
Murtha, T. 1998, Global Mind-sets and cognitive shift in a complex multinational Corporation, Strategic Management Journal, vol. 2, no. 5, pp.17-20.
Stewart, J. 2007, Contemporary Corporate Strategy: Global Perspective. New York: Routledge.
Suk, K and Seung, H. 2006, Global Corporate Finance: Text and Cases. Australia: Blackwell Publishing.