FedEx is the company that pushed the development in the small package express delivery industry by Fred Smith’s vision of the overnight delivery. In addition, this company made a difference between passengers and packages transportation by using different types of aircraft and another schedule. During the industry’s history in USA, business models have been changed, values delivered to customers have been broadened, and attempts to capture the global market have been made.
A Rationale on FedEx’s Value Creation Frontier And Profitability of its Competitive Advantage
In the small package express delivery industry, market competition is based on quality/cost compromise. Value creation frontier is formed as a curve between the two axes: one is product differentiation (vertical), and the other is cost leadership (horizontal) (Hitt, 2009). This curve represents the maximum amount of goods that different firms are able to provide at any moment by usage a particular business model. This curve also shows three main indicators such as cost, pricing, and differentiation. The location of the firm on this curve means that it is profitable and successful in certain industry. There are represented tree main players in the small package express delivery industry in the US market, which are: FedEx, UPS, and USPS (Hill, 2012). The global market is holden by DHL, FedEx, UPS, TNT, and some other small companies. FedEx and UPS hold together almost alike market shares nationwide, and they have used very alike business models to operate on the market (Hill, 2012). They are able to offer overnight delivery, deferred air, and ground transportation. Companies compete with each other using cost leadership business strategy by UPS and differentiation strategy by FedEx.
During a long time, FedEx has been followed pricing policy of UPS and it works the same in other way: if one company decreases or increases prices, the other company will follow this tendency (Hill, 2012). The only way companies are able to get a new client is mostly by stealing it from rivals by offering better prices. Generally, this technique is used for big clients to whom they offer corporate discount plans.
The main four building blocks of value creation frontier are superior efficiency, superior quality, superior innovation, and superior responsiveness to customers (Hitt, 2009). Value orientation has been changed during the history of the industry development. The superior innovation, by presenting overnight delivery by FedEx, was the main value, which brought them to above average profitability on the market. The few other things in which companies competed were:
- Different kinds of services (early morning delivery, picking up a package at any place any time);
- Technology (tracking the location of the package through the internet web site);
- The global expansion (delivery to more than 200 countries all around the world).
The US market is mature; there is almost nothing to differentiate, and companies provide the same services and the same price. While the UPS’ main business model is cost leadership, which delivery in different ways lowers the costs for customers, FedEx works on quality. It expands a lot in the global scale, develops logistics, and guarantees the terms of delivery (Hill, 2012).
The global market of the small packages delivery industry is growing. The shipments of the high-technological and high-valued goods will be growing. Thus, FedEx should be more concentrated on making the delivery of these goods safer and timely, which means innovation. FedEx already provides customers with the SenseAware service, which is used on some transport modes (FedEx Corporation, n.d.).
FedEx and Rivals: Product Differentiation and Capacity Control
The product differentiation is the main tool to distinguish rivals from each other, and it gives advantage to gain above-average profit. FedEx has the same set of services, which they provide to customers. However, there are few main differences, such as guarantees on on-time delivery or they will return money; effective clearance system on customs; customer service around the world; simplistic paperwork; real-time tracking information. In addition, people made a verb from FedEx, so when they want to deliver something very fast, they say ‘FedEx it’.
FedEx try to differentiate its product basically on innovations and implementing of new technologies, which gives a ‘controlled and safe delivery’ message to customers of high-technological and high-valued goods. They dedicate their work to better service, which has brought them the second position in the world among express shippers in the US market (The Statistic Portal, n.d.). Their market share is based on revenue accounted globally as 27%, when the DHL holds 32%, and UPS – 21% (The Statistic Portal, n.d.). FedEx differs from the other companies by innovation. They were the first company who opened a website to communicate with their customers and offered them opportunities for immediate placing of the order, gave them abilities to know about their services and locations available for shipping. The main differentiative thing is that they have managed to make a tool for real time tracking of the package, which saves a lot of time on customer service and makes customers less worried about their packages. As Frederick Smith said, ‘Information about package has no less importance than the package itself [FedEx Corporation, n.d.]’.
The capacity control is based on flexibility that a company can build from its fleet, ability to use different types of delivery (air, ground, ocean) and different types of transport units, and logistics network (hubs and warehouses) to carry a certain amount of cargo. In addition, the better choice of transport unit to delivery in certain terms may provide the carrier with better cost efficiency. FedEx was established originally as overnight air delivery carrier, but with time it started to develop a ground network for deferred delivery following this trend from UPS Company which was the largest ground carrier in the USA. Now FedEx is aimed to expand its abilities in ocean transportation as it is less costly by fuel prices. Deferred delivery has started to grow in demand after the world economic crisis and became a way for saving clients’ money, for those, who were not in a hurry with delivery terms.
The other crucial point for capacity control is matching capacity of network with anticipated shipment volumes. The delivery system should stay balanced between two main indicators such as capacity and demand. Whether there is an increase or decrease in demand, company should be able to provide the service on the same level independently of the goods that they need to deliver. Especially, when the market in the US is so mature, competition is very high, and there is no cost to switch from one service provider to another. The company should provide an excellent performance, because every mistake can cost them a lot in result.
To sum up, the main product differentiation for FedEx is based on better customer satisfaction, innovation, and customer responsiveness. The control under capacity ability of a company is performed by increasing variety of transport units, expanding their network, better logistics solutions, and innovation.
Current and New: Business Models of FedEx
FedEx develops its global strategy. The 2012 year for the company was not very successful in Europe because of the decrease in shipment volumes. However, they look for growth opportunities in China, Brazil, India, and Mexico as those markets shows an increase in shipment volumes. Considering the long-term perspective, shipment volumes will be growing as the globalization of the economy allows for emerging markets expand all over the world. FedEx strategy is to fully satisfy growing customers’ needs so they could effectively perform on the market and have above the average profit. Growing trends in the world generate growing amount of small packages needs to be delivered from the manufacturer to the end consumer. With this regard, FedEx use unique opportunities of their fleet as they have transport units with distinct advantages for the nonstop flights and the long range shipments every day. The demand for air shipments is not constant in global scale; it is more cycled, so the company tries to better match this condition.
Global market develops in the direction of growing goods in the high-tech industry, which could be shipped to the end consumer or as a part of something bigger to the other part of the production process. Thus, FedEx customizes its fleet the way so they could offer flexible conditions for different types of cargo by the weight, size, overall dimensions, delivery terms, path length delivery, and conditions of carriage. FedEx operates the largest all-cargo fleet in the world (FedEx Corporation, n.d.). Last trends dictate FedEx to open more of freight-forwarding offices. From 2008 till the end of the 2012 financial year, there were 47 of them opened worldwide. In addition, they open stations in Europe and expand their presence by acquisitions. For example, in 2012 there were made few of them with transportation companies in Brazil, France, and Poland. These steps allow customers to get better local services and provide them with opportunities to achieve global market.
Overall, FedEx pursues global strategy with its low cost structure, standardized globally service, and number of key locations. With its strategy, FedEx holds the second position on the global market after DHL. DHL is also oriented on the quality of service they provide rather than on the price; they offer reliability, flexibility, and quality as FedEx does. One of the possible changes in business level strategy could be to make the company transnational.
New Business Strategy in Global Scale
FedEx is easier to operate in global strategy because it uses standards accepted worldwide and it does not need to customize them in global scale (FedEx Corporation, n.d.). The new strategy offers them to operate with a wider set of standards customized for each country based on their needs as even mostly it works in global scale (Stonehouse, 2010). The main idea is to take part in the local shipments with resources located there. In a greater scale, it relates to developing countries such Brazil and Indonesia. With offering to those countries transportation on a local scale by their variety of transport units, FedEx may achieve a wider market share and become more profitable. In a long term perspective by achieving market share of local customers, with time, they may tend to achieve global market. FedEx, as their service provider on a local scale, may assist with it on the global scale with its capabilities, resources, knowledge, and innovation.
Overall, this strategy holds more of local responsiveness. Transnational strategy is more complicated than global because faces the problem of adapting for global standardization and adaptation to host-governments standards (Stonehouse, 2010). FedEx with its experience in innovation , has good chances to be successful in implanting new technologies.
FedEx has become a successful company in national and global scale; it has the largest fleet in the world and holds the second place in the global market. It was the first company who offered an overnight delivery and developed a web site for better customer service. Current business level strategy allows them to use their capability in the efficient way, but failure to offer a competitive advantage to achieve a world leadership. The new offered strategy may help with achieving even better use of current capabilities along with gaining more sustainable competitive advantage.