FedEx Express: Globally Competitive
FedEx was founded by Fred Smith after his tour in Vietnam, and he continues to run the company today, as the only CEO that FedEx has ever known. The company began by offering overnight courier services, an industry that to that point had not existed. Today, that unit is known as FedEx Express and it is still the largest in the company. There are competitors, however, mostly notably UPS, DHL and TNT. In most Western markets, the industry is relatively concentrated, with these companies and a few local competitors (such as Purolator in Canada) dominating the business. In the developing world, there may be more competitors and the industry less concentrated. FedEx remains a strong competitor in the overnight delivery industry. Today, industry growth is concentrated on emerging markets. As such, most of the notable moves from FedEx Express have related to these markets. Recent moves in China for example have included opening a third station in Suzhou, a wealthy and historic city near Shanghai (Berman, 2011) and opening its largest operations station in the country last month in the Pudong area of Shanghai (Lopez, 2011).
FedEx is expanding in India, having made a major acquisition there this year of AFL and Unifreight India (FedEx, 2011). The company is also launching a new service in India to help it capture a larger share of that growing market (Ashby, 2011). The company is also expanding in Brazil and the Southern Cone region of South America including Argentina and Chile (FedEx, 2007). These expansions, as well as those in Europe, point to the company’s commitment to not only take advantage of the opportunities presented by globalization, but to spur further globalization by providing better market access between expanding economies and mature ones.
FedEx Express Industry
The global courier market is expanding, in large part due to the long-run trend of globalization. Technology has aided in the boom, as FedEx has benefited from increased sending of documents and of items purchased on the Internet. Some of the company’s major customers, from Apple Computer to semiconductor manufacturers in the Philippines, are information technology firms. FedEx has been gaining market share in the US in recent years, in particular after DHL exited the market. The company gained market share in 2009, for example, despite a decline in revenue (Reuters, 2009). The company is currently adding aircraft capacity in the form of Boeing 777s in order to help it expand its international presence. Recent aircraft purchases have been earmarked for Shanghai, Hong Kong, Osaka, Shenzhen, London, Seoul, Dubai and Delhi (Jackman, 2011).
The industry is characterized by oligopoly conditions on the global level, with only four worldwide carriers. There are numerous minor and local carriers that also provide competition. Economies of both scale and scope are key drivers of business. Economies of scale allow the company to have a lower per unit (package or kilogram) cost. Economies of scope allow FedEx to deliver a higher level of service than its competitors. In particular, being able to operate stations in areas where competitors cannot do so profitably gives FedEx a significant competitive advantage. In addition, high volume levels allow FedEx to offer better service. A good example of this would be Shenzhen. Because FedEx is able to fly a 777 nonstop from Shenzhen to Memphis, it can leave two hours later than competitor planes – competitors may have to run a shuttle plane to Hong Kong before beginning their trans-Pacific journey. As a result of this, manufacturers are able to get an additional two hours of work on a given work day (Jackman, 2011). This improves the bottom line of the FedEx customers, something that helps it to improve market share.
On the cost side, fuel costs are the single biggest cost component for FedEx, followed closely by labor. A third...
Please join StudyMode to read the full document