Porter’s Five Forces model and macro-environmental factors
Risk of entry by potential competitors
Entry into the air package delivery business is barred by the cost of aircraft and personnel (Appendix A). The entire firm had about 115, 300 full time employees and 7,200 part-time employees in 2002. The knowledge and expertise required in the industry is a barrier to entry.
Rivalry among established firms
The intensity of rivalry in the industry is high. Airborne Express found it difficult to increase its market share despite using costly televised advertisement. There are three big firms and several smaller firms (Appendix B). The growth of industry gave rise to many competitors and competitive pricing (Appendix C).
Bargaining power of suppliers
There are many suppliers which reduces their bargaining power. Airborne Express has a wide range of airlines which include all-cargo aircrafts and passenger aircrafts that can deliver parcels on its behalf. Airborne is able to use many foreign agents to make its international deliveries.
Bargaining power of buyers
The firm relies on high volume customers who can bargain for higher discounts. They include frequent users who spend more than $20,000 on deliveries per month. About 80% of the firm’s revenue is generated from corporate customers. Corporate customers have a high bargaining power as it can be seen in the IBM express packages deal. Airborne had to lower its price by 84% that of FedEx to obtain a 3-year contract.
Threat of substitute products
The threat of substitutes is posed by the ability of customers to use their own vehicles to make deliveries instead of using the air express services or the ground service. It is not easily substitutable because Airborne provided the lowest cost.
Special role of compliments
Compliments may be considered as services that may be provided together with parcel delivery such as passenger aircraft. In the international express business, Airborne does not find it unnecessary to use its own aircraft because finding space for cargo is not difficult.
Macro-environmental factors
International business is affected by exchange rates. Airborne is affected by a small proportion because its international operations consist of 70% outbound and 30% inbound packages. It means about 70% of the payments are made locally.
Airborne’s use of information technology has been helpful in creating unique products, and reducing labor cost. The LIBRA II system, FOCUS, and EDI have assisted the company in providing unique products, and better customer service (Appendix D). The C-container patent creates competitiveness for the company.
One of the social factors that affect the air express industry is the new trend of globalization. Many companies seek to operate on a global front which creates the need for Airborne to seek the assistance of local agents in foreign countries.
Airborne Express is not affected directly by demographics rather than reliance on a high number of corporate customers.
One of political and legal factors that allowed Airborne Express to gain a competitive edge is the 1977-deregulation that allowed it to own Wilmington Airport as a hub.
In the global factors, an issue that affects Airborne’s business strategy is the high number of corporations that are extending their operations into the global market. The firms need delivering firms to have a global delivery network.
Competitive advantages
Airborne has lower costs than its major competitor FedEx. Airborne has an advantage over competitive pricing. Airborne is charged lower cost by third parties for the delivery of clients’ products. The C-container patent prevents duplication. The Foreign Trade Zone (FTZ) increases competitiveness by lowering inventory holding costs for customers.
Recommendation
Airborne should purchase fuel-efficient airplanes because fuel costs are a major concern.
Appendices
Appendix D
