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An Analysis of FedEx Global Strategy Essay


Introduction

A Global strategy is a single, cautiously crafted plan of action for a network of subsidiaries and branches comprising many different countries, simultaneously applied and leveraging synergies across these countries. The main benefit of a well-designed global strategy is that it helps the firms gain competitive advantage over its competitors when the strategy is implemented.

Competitive advantage is in terms of economies of scale, efficiency and diversification that is a wider portfolio of investments. Global strategy has three main dimensions: co-ordination of activities of the multinational firm across different countries, standardization of the goods and services and finally the integration of the competitive moves of the multinational company across country markets.

The above dimensions can be pursued simultaneously however; it does not mean that they have to be achieved at the highest degree. A firm can set a level for each of the dimension, which it wants to pursue.

With the technological advancement in today’s business, arena multinational companies are better placed. The different subsidiaries can hold meetings making use of video conferencing that is laptops and mobile phones. Communication and information gathering process have been simplified for global partners.

This promotes accuracy, timeliness and accessibility of information. The internet offers a better support system in that it provides an arena for market participation, marketing, development of competitive moves and quality products through information sharing.

Firms face many challenges in the implementation of the global strategy. Different countries have different needs and cultural behaviour.

They have different tastes and preferences hence it is hard to come up with a standardized product to be used globally. The complexity and dynamism of the business environment poses a problem when it comes to the integration of competitive moves to be undertaken by all the global partners in different markets.

FEDEX’S Global Strategy

FedEx is a multinational company, which was founded in 1971 by Frederick W. Smith, a former marine pilot in Vietnam. Frederick W. Smith saw an opportunity in the market and developed a vision. He did not see why the aircrafts should only be used to ferry passengers.

In a term paper, he wrote while in Yale University for an economic class he said that a company that specializes in airfreight should look at other business prospects rather than concentrating on passenger services. He sourced for funds and in 1971, FedEx was incorporated. Today, FedEx is the world’s leading express shipping company. It was initially known as Federal Express Corporation.

It operated an overnight package delivery system. Provision of services commenced in the late 70s. The company operated a number of cities using a fleet of approximately 15 aircrafts. The packages were taken to the airport and transported to Memphis where they are sorted and ferried to the nearby airport and then delivered by trucks to their destination. The volume reached was 10,000 packages per day.

Today, FedEx is operating in 210 cities with a fleet of 640 aircrafts, 45000 ground vehicles and 43000 drop-off locations. FedEx handles packages of about 3million per day. This is all attributed to the technological advancement, which has enabled the expansion of FedEx to what it is now.

Frederick main aim was expansion that is going global and serving many people but at the same time, he emphasized on quality of the service provided. Customer satisfaction was a key concept. FedEx works under the philosophy ‘People-Service-Profit’. In 1994, FedEx went online providing an avenue for its customer to communicate and monitor their shipment in transit.

The single concept envisioned by Frederick has now been developed to a variety of delivery options. FedEx now offers many services to meet the different needs of its consumers. The FedEx Same Day and the FedEx First Overnight are some of the delivery services that were initiated. It not only provides delivery services but it also performs other functions in the value chain process.

It offers brokerage services, warehousing and urgent deliveries. FedEx has re-branded its subsidiaries to the following the FedEx Freight, FedEx Ground, FedEx Services, FedEx trade networks, FedEx custom critical and finally FedEx express.

Challenges Facing FedEx

FedEx however, has faced so many challenges. One of the challenges facing the company in the expansion process is the restrictions presented by new markets. That is different countries have their own regulations which tend to hinder new entrants into the market. FedEx is not immune to this limitations and this is one of the major challenges it’s facing.

Some countries have strict policies and regulations that must be adhered to failure to which one cannot carry out any business in the country. For example in 1990, it took FedEx six years of intense negotiation with the Taiwan administration for it to be given the right to own cargo facilities in that country.

Hong Kong has the most restrictive air regulations and one cannot just move in and out. However, FedEx is the only shipping company that can move to and from traffic intra Asia. There regulations limit firms from exploring their potential and many resources are used up to get this restrictions lifted.

Secondly, one of the strategic challenges facing FedEx is rapid changes in the technological environment. FedEx prides itself for the use of state of the art technology and being a New-Economy Company. A new economy company is defined by technology, globalism, strategic vision, communication and innovation. However, the technology is characterized by rapid changes. This poses a challenge to FedEx.

For it to maintain its title as a new-economy company, it has to keep on updating its system to meet its customers demand efficiently and maintain a competitive advantage over its competitors. This is very expensive in terms of purchase of the machinery and training of the employees and still strives to achieve low costs to the customers.

Countries and cities are differently endowed with infrastructure. Some countries are highly developed while others are still lagging behind. Some areas do not have airports, which make it impossible to make a speedy delivery. As a result, FedEx will not achieve what it promises on time delivery.

External Environment

The external environment consists of the political, economical, social-cultural and the technological variables. These components of the business environment have an effect on the company and in this case FedEx Company.

The environment can have a positive effect or a negative effect on a company. It can have Positive effect in terms of creating new opportunities and negative effect in terms of threats. PEST and SWOT analysis are used in the evaluation of the business environment to determine its effect on the business.

The political variable consists of political stability of a country, rules and regulations of the same country, trade restrictions and employment laws in the country. These factors tend to affect the business negatively. When there is political instability, businesses cannot operate because people are scared they might lose their shipment.

For example, FedEx in times of political insecurity it cannot take the risk of transporting goods by trucks since the drivers may be attacked and the goods damaged resulting to a loss to both the company and the individual. Different countries have different policies and laws. To operate in the different countries FedEx has to comply with the rules and regulations of the different countries.

However if it is not possible the FedEx company can apply for deregulation like the one it has done before to get the restrictions removed. In the setting up of subsidiaries, FedEx should consider the employment laws before making any appointment to avoid any litigation against the company, which would reflect badly on the company.

The economic factors comprise of the inflation rate, the international interest rate and the monetary policies and fiscal policies. Currently there is global recession. During a recession businesses shut down, others retrench employees to cut down on to their expenses and generally, companies look for ways to reduce their cost of production in order to survive. FedEx is no exception.

The recession reduces the number of business activities implying that there are few shipments to be transported. The oil prices in the world have gone up. This has had an adverse effect on the economy of different countries in that the prices of all commodities have gone up. The transport industry in particular has been hard hit. Hence posing a threat to the firms in the transport industry and that includes FedEx.

That firm is not keen in evaluating the economic environment may end up making huge losses and losing its competitive advantage. In the macro perspective, the increase in oil prices results to the inflation rate in some countries to go up.

Therefore, for FedEx to remain relevant it needs to be flexible to adjust prices to reflect the current situation in the economies of the different countries. Since FedEx provides services around the world in needs to keep tabs with the varying economic factors to be efficient and effective.

Social cultural factors mainly focus on the tastes and preferences of the consumers, the demographic factors, the level of education and the population pattern. The consumers dictate what a company will produce or the services to offer. Therefore, it is important to study the population to determine the needs of the consumers in order to establish what to produce or what to offer.

The literacy level of the society in question should be considered in determining the mode of addressing the public, the product or service to offer or most importantly where to locate the business. For a business to succeed it needs, to have literate employees and the consumers should be able to understand and communicate with the firm.

FedEx makes use of modern technology therefore it needs to be located in a place where the consumers can use computers to monitor and control there shipment or rather they understand.

Densely populated areas are the best location for setting up a business and in particular one that is involved in service provision. FedEx Company being in the service industry should choose densely populated environments since these areas provide more opportunities.

Finally, technology is one of the important factors in business. Most businesses are going online and have developed websites where they carry out businesses. E-commerce is the talk of the business world. Therefore, it is important for the firm to keep abreast with the changes. FedEx takes advantage of the technological changes to have a competitive advantage over its competitors.

It has a website, which provides an opportunity for the consumers to interact with the company, voice complains and monitor their shipment. FedEx has taken full advantage of the development of the internet to provide services to customers all over the world. The consumers can make payments online; buy goods and order there shipment online.

Company Resource Audit

Company resource audit is the process of identifying all the resources possessed and owned by a company. Resources may be internally owned, jointly owned or provided by the suppliers. FedEx Company has many resources.

The resources can be categorized as finance resources these finance the operations of FedEx company and they include long-term debt, share capital, accounts payable, accrued expenses and retained earnings. Human resource is also one of the resources in FedEx Company, which includes the employees and the skills they bring to the company.

FedEx has over 260000 employees globally. Physical resources include the tangible assets, which consist of plant and machinery, aircrafts, trucks and inventory. Finally, the intangible resource, which include is e up of goodwill. The total assets of fed now stand at 26,202 million.

FedEx Company has strong existing competencies. These competencies enable it to have a competitive advantage over other firms like UPS and DHL.

The core competencies include brand equity, well-developed infrastructure and finally its commitment to innovation and technology. These competencies not only distinguish it from its competitors but it makes it hard for them to imitate FedEx because of the high cost involved.

FedEx has strongly imprinted itself in the minds of the customers in that when one wants to make an urgent delivery he only thinks FedEx. FedEx is a brand name that implies express delivery and most people relate to it. Its strong brand name has a captivating tune to it that sets it apart from UPS and DHL.

Over time, FedEx has shown its reliability and it has the resources to boost. This gives it an edge over its competitors in that they cannot imitate.

The second competency is the infrastructure. FedEx has the infrastructure to support its global operations. It has spent a lot of it resources on capital expenditures. In 2003 alone, FedEx spent 1.5 billion in the creation of network of hubs, purchase of trucks and aircrafts.

Firms cannot be able to adapt this infrastructure one because of the cost involved and secondly even if they adapt the infrastructure FedEx can decide to engage in price wars hence limiting new entrants join the industry.

Lastly, innovation and technology is FedEx strongest point. FedEx is very much committed to embracing new technologies. This is what makes it the world’s leading express shipping company with a market share of over 50 percent. FedEx was the first company to adapt the World Wide Web making its website the most visited website in the shipping industry with an average of 1 million hits and a network of about two million people.

FedEx website enables the customers to track their package from the moment it is sent up to the point of delivery. Finally, it has teamed up with the University of Memphis and developed FedEx institute of technology. This gives FedEx the opportunity to have access to the newest technology way before it reaches the market.

FedEx commitment to customer satisfaction is what drives the company to embrace new technology. Use of new technology is synonymous to cost reduction, efficiency, faster shipping times and quality services.

FedEx works constantly to maintain and improve its core competencies with a constant focus on the satisfaction of its consumers all over the world.

Current Strategy

For a company to have an edge in its industry it must effectively carry out an environmental analysis before developing its strategy. A strategy provides a direction for the achievement of the organizations objectives. Some strategies cut across the three different levels of strategies that is the corporate, business unit and globally.

FedEx aims at providing faster delivery times and global expansion of its networks. It is constantly working towards exploring new markets. It was the first to have operations in china when it introduced the next day delivery in 2003. It was also the first to introduce the door-to-door pickup and delivery in Iraq.

FedEx explores new markets to gain advantage over its competitors in that being the first it will have already created a mental image in the minds of the consumer therefore creating brand loyalty by the time firms join the market. This worked towards the development of the distinctive competencies of FedEx.

FedEx also uses the technological front to gain advantage. They believe in automation, use of unique barcodes to personalize the shipments for the purpose of consumer tracking. These are the corporate strategy.

FedEx has also used differentiation strategy in the business unit level. It strives to differentiate itself from its competitors by providing high quality services that cannot be matched by other firms in the industry. FedEx charges a higher price for its differentiated products.

The premium in price is considered the cost incurred in offering quality services. Rival firms can make faster deliveries and therefore to create a stronger customer base FedEx differentiates its product. This is done by offering tracking systems, picking the deliveries from home and providing customer support. FedEx goes all the way to ensure it stands out among its rivals.

FedEx works towards satisfying the needs of different customers. This led to the development of different business units to be used to serve the needs of the different market segments efficiently and effectively. The business units work independently to satisfy the customers but compete as a whole unit.

The market segments consist of FedEx express, FedEx ground, FedEx trade networks, FedEx freight, FedEx custom critical and FedEx supply chain services. Each business unit concentrates on a specific market instead of service the whole market. For example, the FedEx home delivery deals with home deliveries only while FedEx ground has a focus on the business-to-business deliveries. This promotes efficiency.

FedEx global strategy is to provide better quality services than other firms in the shipping industry. FedEx intensive use of advanced technology has enabled this since deliveries can be made across different continents at the least time possible. FedEx coordinates its activities from a central point.

FedEx strategies are only sustainable to the extent that its rivals remain dormant in the purchase of new resources or taking the risk of expanding their boundaries. This is because currently it does not have competitive advantage but rather FedEx is working towards achieving this. Secondly the strategies have not led to the development of new distinctive competencies rather maximizes on the existing ones.

FedEx Strategy Implementation

Strategy implementation refers to the use of the organizational structure, control systems and culture to implement objectives and goals. This is important to obtain competitive advantage and bolster profitability. Strategy implementation is a key concept to the success of a firm. Poorly implemented strategies will result to misuse of resources. Effective implementation of resources requires all the above dimensions to be considered.

The organization structure is responsible for the allocation of the tasks among the different employees or the departments to ensure these tasks are performed efficiently resulting to customer satisfaction. Control system monitors the implementation process of the strategies to ensure that tasks are performed according to specification and if not, corrective measures are taken.

FedEx Company has many resources, which enable it to implement its strategy effectively. It also works under the philosophy Service for Profit. That is it emphasizes more on quality of the service provided rather than the profit attainable. FedEx management believes that when the quality of the services is high automatically the company will have an edge over its competitors.

FedEx has different business unit, which can be allocated with the tasks that are relevant to the service they are providing. FedEx uses the global approach in the implementation of its strategies. That is a single strategy for the entire networks. Therefore, when it comes to implementing change it is done globally.

Conclusion

In the emerging economies, the cost of capital is very high. The oil prices are high, cost of equipment is high and the cost of living is very high. This has negative impacts on the firms especially in the shipping industry. The supply of qualified labour is also an issue that needs to be addressed urgently. FedEx Company should also address the issue of literacy level in implementing its global strategy.

That is standardization of the products offered may limit its demand since different countries have differing literacy rates and it might not make sense to introduce some services to a an illiterate market. Another issue is the high cost of the services offered by FedEx due to differentiation. Consumers might not be willing to pay the surplus prices yet they can use another cheaper company to provide the same services.

In my opinion, FedEx Company is better placed in the shipping industry. However, it needs to cut down on the investment in capital assets to reduce the cost of its services and be able to survive in these tough times. Secondly, FedEx should concentrate on exhausting its current market first before venturing into new markets. It should engage in intensive research to develop new distinctive competencies, which give it more advantage.

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