Figure 1: Porter’s Five Forces
Applying the Porter’s Five Forces model to the industry is not an easy task provided that FedEx Corporation provides various shipping services. 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 the North America’s second largest provider of small-package ground delivery service, following the lead of United Parcel Service (UPS).
1. Risk of new entry by potential competitors
The barriers to entry are very high. One of the reasons there is a high entry barriers is the high fixed cost associated with the 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 shipment and economies of scale.
2. 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 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.
3. 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.
4. 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.
5. 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 products. Shipping services are very much similar to a commodity, in that it is not easily replaced with another service or even a similar service.
Figure 2: Porter’s Five Forces model ―FedEx Corporation.
Figure 3: Porter’s Value Chain techniques.
The value chain for FedEx Express can be seen as starting with the pick-up of the packages. FedEx employees gather the packages from various locations such as drop boxes, businesses and residences. Value is created for the customers by making package pick-ups possible just about anywhere or anytime. FedEx has a money back guarantee for those people, whose packages do not arrive on time, therefore creating value by assuring timely delivery of the packages.
After the packages are initially picked up, they must then be transported to a hub. The hub is a central location where packages are sorted according to their destinations. The packages will likely pass through many hands before reaching their final destination. The packages stay at the hub until they are picked up and shipped either by truck or plane.
The package delivery is probably the greatest value creation activity for FedEx Express. The drivers of the planes and trucks must perform their activities efficiently to increase the perceived value of the service. The drivers must absolutely no matter what, get the packages to their...
References: 1. Garten, 1998.
2. Bruner, R.F and Bulkley, D., “The Battle for Value: Federal Express Corporation versus United Parcel Service of America, Inc. (Abridged)”, University Darden School Foundation, 1995.
3. Whittington, R. (2000) What is Strategy and does it matter? Thompson Learning.
4. Stacey, R.D (1996) Strategic Management and Organizational Dynamics, Second edition, Pitman, London.
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