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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS

Research Proposal

A Research Proposal Examining the Company Known as Federal Express Corporation (FedEx) and Their Industry Analysis and Competition

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By: Layla Lewis Brandon Cherry Matt Hanson Jonathan McDonald Steven Snapka Frank Townsend Texas A&M University Strategic Management Summer I 2010, MGT 527-02W Professor: Dr. Sewell July 02, 2010
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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS Introduction Title

A Research Proposal Examining the Company Known as Federal Express Corporation (FedEx) and Their Industry Analysis and Competition

History & Company Purpose of IBM

Federal Express is an express transportation company, founded in 1971, by Frederick W. Smith. Federal Express more commonly known as FedEx specializes in overnight

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220 countries and territories.

delivery of packages, documents, and heavy freight. FedEx operates in four categories which are FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services. FedEx employs over 210,000 worldwide. Federal Express invented the express package industry in 1973 (Senn, 1998). FedEx Express provides fast and reliable delivery to every U.S. address and to more than

FedEx's mission statement is to produce superior financial returns for its

shareowners by providing high value-added logistics, transportation and related information services through focused operating companies (Quillinan, 2000). Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards (www.fedex.com).

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Background

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS Identification of the Industry

the logistics services industry as well (FedEx Services, 2006). FedEx has two main competitors

domestically, United Parcel Service and United States Postal Service. In addition to competition in the United States FedEx competes globally with Canada Post, FCML Couriers, TNT N.V., Deutsche Post (DHL), Royal Mail, LDH Express, Japan Post, India Post, and other regional carriers (Senn, 1998).

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Industry Analysis Intensity of Rivalry
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Despite the presence of only a few competitors (FedEx, UPS, and USPS), air freight and express logistics remain competitive industries (Senn, 1998). The market for FedExs services

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UPS FedEX USPS

FedEx is in the air delivery and freight services industry, but is starting to corner

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS remains competitive due to price-conscious consumers, a lack of differentiation between companies, and a low penalty for changing logistics providers (Logistics Industry, 2008). Threat of New Entrants

The threat of new competitors within the industry is low due to the high cost of entry.

For example, capital equipment, such as aircraft, cost in the tens or hundreds of millions apiece,

not to mention the logistics hubs and information infrastructure necessary to provide the levels of service and reliability expected of FedEx and its competitors (Airfreight, 2009). The difficulty

compete in the domestic market. Threat of Substitutes

The threat for substitutes is low to moderate due to limited alternatives to shipping products such as air freight. Shipping services involving air freight must be handled with speed

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Bargaining Power of Suppliers power (Parnell, 2009). Bargaining Power of Buyers

and accuracy (Airfreight, 2009). Few companies have the ability to offer delivery solutions compared to FedEx or UPS. While many types of documents, music and software can be distributed electronically, many consumer and B2B products must still be physically delivered.

In this area, bargaining power is low. Companies that provide products to these high-end

logistic companies usually provide their products in bulk and at a price reduction. If a supplier chooses to gouge prices, the logistic companies can seek alternative suppliers. The majority of purchased products are accessible from other vendors which quickly eliminates bargaining

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for even an established company to penetrate the US market is evidenced by DHLs failed bid to

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS

The bargaining power of buyers in this industry is low to medium. Individual consumers have the opportunity to change service providers at their discretion depending on their needs at the time. Although, an individual does not have the opportunity to negotiate pricing on services, he or she does have a choice in which logistics provider they use (FedEx Services, 2006). A larger buyer such as a company may be able to receive special pricing through exclusive arrangements.

Porters five forces model FedEx Corporation

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Threat of Entry LOW - High start up costs Existing Rivals HIGH - FedEx, UPS, USPS, DHL Threat of Substitutes LOW Limited services for large freight and air freight
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Industry Profitability

Suppliers Power LOW - Products supplied to the industry

Porters five forces model is an excellent tool for analyzing FedExs profitability, which encompasses the forces that drive an industrys profitability (Parnell, 2009). These competitive

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Buyers Power LOW - MEDIUM - Shipping choices - Large Buyers

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS

forces include: intensity of rivalry, threat of new entrants, threat of substitutes, bargaining Power of suppliers and bargaining of buyers. As stated previously, FedEx is a corporation that provides many different products and services, so applying Porters five forces model to the industry can be quite complicated. To ensure understanding, we will rate each force as they affect FedEx. Who Has Succeeded and What Are the Critical Success Factors?

Companies who have experienced success in the logistics services industry include FedEx, UPS, and DHL. Companies who have lagged in this industry include USPS, and other national or regional logistics service providers, who have not adapted to economic, social, and technological changes. Factors critical to success in this industry include a global presence and ability to incorporate new technology into their business infrastructure. Firms in this industry must have a global outreach in order to meet the ever growing demand for domestic and

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2008). giving them the ability to cut costs.

international shipping (Devan, 2010). This is especially important in Asia-Pacific market where industry growth is expected to increase immensely over the next few years. (Global logistics,

The internet has radically accelerated global e-commerce and international trade, further

fueling the demand for international shipping. Changes in technology include, laser and camerabased label scanners, automated handling equipment, hand-held computer devices used by delivery personnel, and GPS (Industry Overview, n.d.). Businesses must adapt to technological changes in order to adhere to customers demand for speed, flexibility, and reliability, while also

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Macro-environmental Properties

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS What Political / Legal Forces Affect the Industry? While the legal and regulatory environment does not affect the logistics industry in the same way as others, such as telecommunications or oil drilling, certain factors still bear

discussion here. The most pronounced issue facing FedEx appears to be labor laws, with lesser issues in areas such as anti-trust. For example, when DHL chose to close its operations in the

US, it opted to contract UPS for the domestic portion of its international business. This move was challenged as potentially leading to a drop in competition, and therefore a rise in prices (Page, 2008).

Of greater note is a recent showdown with the IRS over FedExs labor practices. One contentious practice used by FedEx is to hire workers, such as deliverers, as independent contractors rather than regular employees. This allows the company to save up to 30% on

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personnel expenses by skirting a variety of responsibilities, such as health and unemployment insurance, FICA, Medicare, and more (Griffing, 2010). The IRS filed a $319M injunction against FedEx in 2009, claiming that the company exerted too much control over its contractors (Orey, 2009). For example, even though these contractors own their own vehicles, they are painted with FedEx logos, and wear FedEx uniforms. They drive routes specified by the company, and most importantly, are prevented from providing delivery services to any other

company (Griffing). It would not be a stretch to refer to them as contractors in name only. In a related issue, rival UPS has lobbied congress to end a loophole that makes it extremely difficult to unionize the company. FedEx employees are regulated by the Railway Labor Act because the company was originally founded as an airline. FedEx uses this status to

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS block unionization of every employee, such as truck drivers, even though their duties are

completely unrelated to the air transport segment of the business (Helm & Herbst, 2009). FedEx has countered with an ad campaign against the brown bailout, adding additional pressure on congress by threatening to cancel a large order of Boeing 777s. Economic Forces

As a huge corporation, FedEx must consider economic forces as they affect industry and customer behavior. One of the strongest to encounter is Gross Domestic Product. Naturally, FedEx embarks on global competition and is affected by the changes in GDP. In our struggling economy and that of others, GDP has fallen and FedEx has felt the pressure (The Associated Press, 2009).

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Social Forces

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Other forces that affect the company are inflation, interest and exchange rates. All of

these impact the companys bottom line. High inflation rates are very detrimental as they raise the cost of doing business (Parnell, 2009). In the case of interest rates, companies like FedEx watch as interest rates fall as this could increase business due to an increase of customer spending (Dade, 2008). The same can be said for exchange rates. In order for a company to profit while doing business in the global market, the exchange rates must remain low. When an increase occurs, the cost of doing business rises (Mester, 2005). Ultimately, a rise in either of these rates decreases consumers purchasing power which negatively influences the bottom line.

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS Federal Express has many social forces that it faces and the industry itself has many more. The freight market is enormous and happens minute by minute on a global scale. Operations and logistics are occurring 24 hours a day to and from every corner of the globe. Each of these locations have different social forces that shape their culture and business

activities. No executive in the freight & logistics industry would send a female executive to

negotiate a deal with a Middle East country due to their lack of acceptance of women in the work place. While those same corporations understand they need to send someone who will embrace

trust with the people they perform business with.

Societal traditions have big impacts on business endeavors as certain geographic locations may only use one company as a matter of loyalty and respect or may be paying them a

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fee to use them as is customary in certain societies. Some traditions dictate that to even do business in that region you need to visit the religious leader to receive a blessing and good fortune and if you don't you won't be permitted to do business in that particular region. You might even have to fight the stigma that your work is cursed by the locals if you don't go through the proper channels. Other countries do not have such traditions and simply require the right price for the right service. Consumers psychology can be greatly affected by those behaviors performed by a certain cultural learning process as research suggests where a child's buying and loyalty habits are shaped by the environment and influences they grow up with (Foxman, Tanshuhaj, & Ekstrom, 1989). Thus, creating a perpetual wheel of teach, grow and change that the industry leaders must anticipate and adapt to.

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and grow a relationship with the local Middle East industry because they require knowledge and

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS China will not allow most companies to operate in its borders without hiring a local workforce. These requirements of businesses in the workplace require different strategy levels

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for different circumstances. Japan has certain well known characteristics such as they don't mix

personal family life with business, unlike in Europe where you might do business at the home of the CEO (Williams, 1988). Fed Ex will still be able to use its core competencies to produce a

logistical solution and ship the freight where it needs to go, but will need to approach and operate differently in each societal location. This has forced some area's to not grow and expand as you

forces such as rebels, dictators, tribes, or lack of functioning government or authority. What Technical Forces Affect the Industry?

FedEx first became engaged in e-commerce in the 1970s, and was one of the first

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shipping companies to harness the Internet for customer ordering, package tracking and process monitoring. The company has always been considered a technological innovator in the shipping industry. Because of their e-commerce business model, FedEx has been able to leverage its information infrastructure to allow the company to extend beyond pure transportation and

address other service needs for the customer, allowing FedEx to become deeply integrated in its customers internal processes (Epstein, 2004). The first major system application breakthrough for FedEx was the introduction of COSMOS in 1979, which reported real-time status and location of a shipment, and was accessible to customers through an 800 number. Other innovations include FedEx PowerShip, a PC-based workstation given to business customers to manage their shipping needs on-site in 1987...

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see in the Middle East and North Africa where the development has been stifled by societal

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS Finally, wwwfedex.com was launched in 1994, which offered information about the company,

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shipping rates, tracking, and the ability to allow users to complete and print shipping labels over the Internet (Hargrove, 2001).

Micro-environmental Properties Current Firm-Level Strategy?

FedEx provides transportation, e-commerce and business services. The corporate profile

collaboratively under the FedEx brand in four business segments: FedEx Express, FedEx Ground, FedEx Freight and FedEx Services. The six companies are FedEx Home Delivery, FedEx Office, FedEx National LTL, FedEx Custom Critical, FedEx Trade Networks, and FedEx

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(FedEx.com).

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(Hoovers.com).

Supply Chain. The firms profile indicates that it operates in multiple related industries

The current strategic alternative for the company is to increase size and sales using the

internal growth and strategic alliances models (Parnell, 2009). FedEx has focus on five core strategies to grow as a company: grow core package business, grow internationally, grow supply chain capabilities, grow using e-commerce and technology, and grow new services and alliances

The core package business has been a significant contributor to revenue and earnings

historically and is a critical business in the overall growth strategy. Because international global air freight shipping is growing and profitable in the transportation industry, worldwide expansion

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is made up of six companies that operate independently, compete collectively and manage

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS has to be a continued part of the growth strategy. The supply chain business has to expand its

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capabilities to offer more modular and scalable solutions to remain competitive and attract more customers (Upshaw & Taylor, 2000). E-commerce is a 329 billion dollar a year business. To

grow market share, FedEx has to continue incorporating new technologies to provide efficiencies and reliability for its customers. FedEx will need new service offerings going forward to

maintain continued growth in all areas of the business. Alliances will be beneficial to keep up with technological advances, fend off competitors, and help in gaining market share. Current Business-Level Strategy

Looking at Porters generic strategy topologies, FedEx as a company is best matched with the differentiation strategy (no focus) from a large business perspective. FedEx is proficient from a technical innovation standpoint and has used this ability to develop services and

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pay more for FedExs service offerings.

technologies that are marketable to the entire shipping and logistics industry (Parnell, 2009). The companys most notable strength is in the level of service it provides for its customers. By differentiating the level and quality of service from their competitors, customers are willing to

The Miles and Snow prospector strategy framework aligns with the current business-level

strategy of FedEx. The prospector characteristics of being first movers, entrepreneurship, and creating new business ventures within their existing firm (intrepreneurship) are ever present in FedExs business level strategy (Parnell, 2009). FedEx is credited with innovation and redesign of the shipping and logistics industry as we know it today.

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS

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What makes the organization unique in relation to its competitors is its differentiation in meeting the customers needs. FedEx divided its business into six different segments of FedEx Home Delivery, FedEx Office, FedEx National LTL, FedEx Custom Critical, FedEx Trade

Networks, and FedEx Supply Chain to address the specific needs of its customers. Another notable differentiation that FedEx has over its competitors is the ability to provide global

services due to its large infrastructure and fleet of 663 aircraft (Hedley, 2002). When customers think of global delivery services they think of FedEx.

Competitors Business-Level Strategies Being Employed

FedEx must be aware of the business-level strategies of its two main competitors, USPS and UPS. The USPS focuses its efforts on their central business unit, which is U.S. domestic package shipping. They look to provide customers with the greatest value in domestic shipping

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by keeping costs low for the customer as well as themselves through operational efficiency, standardization, process control, and technology. As part of their strategic plan the USPS plans to, Reduce the cost of meeting universal service obligations by focusing on major cost drivers, especially delivery operations (Strategic, 2007). This puts them in the low-cost strategic approach of Porters Generic Strategies (Parnell, 2009). UPS, FedExs closest competitor, has three core business units: (1) U.S. domestic

package, (2) international package, and (3) non-package. Their business-level strategies for each of these units have to do with expanding operations and staying on the cutting edge of technology to meet customers need and expectations (UPS Charter, n.d.). UPS attempts to use

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS the differentiation strategy approach of Porters Generic Strategies, by offering customers products and services that their competitors dont (Parnell, 2009). Current Functional Strategies Marketing Strategy

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FedExs universal marketing objective is to produce a trustworthy, brand imaging and propose across all end user relations (Savage, 2004). Their marketing strategy revolves around a

globally. By proceeding with maximum globalization and extending their services into uncharted markets, FedEx is able to homogenize its product (Maddox, 2007). FedEx understands that diverse customers have special logistic needs. FedEx uses to its advantage the fact that it is

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broken into individual business units to satisfy specific segments of the market. This allows to better service the needs of all consumers while allowing each to operate independently of one

another yet still compete collectively (Creamer, 2005). By doing so, FedEx has created the opportunity for each unit to allow for a more attentive approach to their own market. An approach such as this frees up the business units from worrying what each other is doing and provides an advantage over competitors (Creamer). FedExs brand priorities are to better communicate its full bundle of shipping and

communications services to business and individual audiences and use fully integrated marketing to tell its story (Maddox, 2007). An example of this is the 2009, strategic advertisement campaign of We Understand. that consists of TV spots, online, radio, print and direct-toconsumer advertisement vying to show FedExs continual effort to provide for customers needs

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marketing mix that is tailored to fit a specific target customer: businesses and individuals

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS

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(Tucker, 2009). FedEx changed their advertisement slogan because FedEx felt that their previous slogan, Relax, its FedEx was not appropriate for their customers anymore. Their new campaign message reflects empathy toward its customers, and has breadth-showing all the things FedEx can do for customers, including providing easy and economical shipping and services (Tucker). Financial Strategy & Position of the Firm

FedEx has had three straight years of declining net income which may not come to any surprise because of the weak economy. FedEx has substantially lowered its total liabilities the past three years which would help if they need to raise money in a debt offering. FedEx continues to pay a dividend to reward their shareholders and to focus on the main goal of an organization which is to maximize shareholder wealth. FedEx began paying a dividend in July

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2002 which was five cents (Brooks, 2002). FedEx has accomplished an outstanding feat by having better leverage ratios than the industry and its largest competitor UPS. The return on equity is quite alarming for FedEx, while UPS has a huge edge on them. Below you will find financial ratios for FedEx, UPS, and the industry average.

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS Summary of Firm and Industry Ratios for [2010] Industry: Air Delivery & Freight Services Ratios Current Ratio Quick Ratio

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Notes 2-1 ratio is desirable # represents how fast a business can come up with cash on short notice. Asset Turnover 1.4 1.8 1.4 Measures efficiency of company's total assets on sales Inventory Turnover 68.6 15.8 N/A Indicates how many times inventory of finished goods is sold per year Leverage Ratios 1.8 3.2 4.3 Used to understand a company's ability to meet its long term financial obligations Debt/Equity .14 .8 1.32 Indicates the % of funds provided by creditors as compared with owners Gross Margin 25.3 24.0 23.8 Company's efficiency during the production process Return on Assets 4.8 7.8 6.9 Return on total assets employed Return on Equity 8.6 24.8 31.9 Measures a firm's profitability in comparison to the total amount of shareholder equity Return on Capital 5.9 10.9 9.1 Measure of how effectively a company used the money borrowed or owned invested in operations Brooks, R. (2002). FedEx Corp. plans to pay dividend, first in its history. Wall Street Journal, 239(107), 82-84.

FedEx 1.6 1.5

Industry Avg 1.6 1.5

UPS 1.4 1.4

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Production and Purchasing strategies

As a service company, FedExs purchasing concerns are not as far-reaching as those in

production industries. Just the same, FedEx does have a large amount of capital equipment, such as trucks and aircraft that are expensive to maintain and service, in addition to a few key consumables such as cardboard and other paper products. According to Birkland (2008), FedEx

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS employs nearly 1700 technicians in 673 shops to service its fleet vehicles; one technique to ensure quality parts are used is to try out a new suppliers components on limited number of vehicles for a year before committing to wider implementation. Another way that FedEx mitigates vehicle expenses is by relying on contract drivers who own their own vehicles (Griffing, 2010).

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Some costs, such as fuel, are simply passed directly on to consumers rather than being mitigated directly: www.FedEx.com lists a table of fuel surcharges which can be quite

cost, FedEx considers other factors, such as diversity, in choosing its suppliers: According to Mary McDaniel, VP for materiel and corporate sourcing, FedEx tries to exceed its goal of 5% of purchases through diverse vendors. FedEx uses third party certification to control admittance to a list of preferred diverse suppliers, and all suppliers are graded on timeliness, quality and cost

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(Avery 2005).

Human Resource & Information Systems Strategy FedEx has multiple current strategies in its various functional areas of business due to its

multiple entities operating in different theaters. However, the information system that FedEx uses has been specifically designed to integrate each business level activity so that FedEx can create a business level strategy for each company. FedEx has the motto of operate independently, compete collectively (Alghalith, 2007). This belief allows each business entity to operate itself independently while incorporating the same goals shaped by FedEx Corporate, creating a greater competitive advantage in each market (Alghalith). FedEx with the slowdown of the economy has slowed its IT expansion to test new systems.

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substantial-up to 19% on FedEx Express when fuel prices are above $3.28 a gallon. Besides

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS

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The Human Resources department has two main responsibilities. The current system that needs to be managed, through ensuring that FedEx retains the correct people and to continue its successful smooth operations that people have grown to trust. FedEx with the downturn of the

economy in 2008, instituted a pay increase freeze that was recently lifted to make sure they can still maintain the competitive edge when it comes to human capital, but more importantly to ensure that the knowledge management that can't be easily replaced and has made them the leader in the industry isn't lost to competitor's (Levitz, 2009). Secondly, there are many new

local support and expertise to make the right strategic planning decisions and subsequent expansion's.

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Strengths products (Innovators, n.d.).

Innovative: FedEx has been able to grow and stay competitive because they have always been able to stay on the cutting edge. They have made innovation part of the organizations culture, which has not only allowed them to incorporate new technologies to deliver new products and services (Knudson, n.d.). FedEx has even established FedEx Labs, where teams of eight to twenty-five people work on creating new technologies and

Global: FedEx is truly an international organization, this allows them to not only better serve existing customers, but to reach out to new customers and increase their market share (FedEx Express, n.d.). This includes countries such as China, India, and Brazil,

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area's globally that FedEx is looking to start operating in and H/R needs to focus on obtaining

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS which are expected to see higher growth than the U.S. and European markets (Lennard, 2009).

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Strong Brand Name: FedEx is able to rely heavily on their strong brand name to generate business. This not only allows them to generate revenue, but also means that they can

Worlds Most Admired Companies list (Worlds, n.d.). Having a strong brand name gives FedEx an advantage when attempting to penetrate new markets or in further international expansion. Weaknesses

Energy Reliant: FedExs package delivery infrastructure relies too heavily on fossil fuels, even as they transition to greener technology (Fuel, n.d.). This can have a large effect on the organizations bottom line, even though FedEx passes on some fuel costs to their customers. For the June 7, 2010July 4, 2010 time period, FedEx has a fuel

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do business with FedEx.

surcharge of 17%, for FedEx Express, if fuel is priced at $3.04 per gallon (FedEx Guide, n.d.). This will impact customers and affect their decision on whether or not to

Decreasing Profits and ROA: FedEx has experienced decreased profits and return on assets, robbing the company of funds necessary for its expansion plans. The companys net income has decreased from over $2 billion in 2007 to $1,184 million in 2010, and their return on profit has also decreased over the same period from 8.4 in 2007 to 4.8 in

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save costs in marketing and promotions. FedEx ranked thirteenth on Fortunes 2010,

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS 2010 (FedEx Corp, n.d.). These statistics show how efficiently an organization is operating, and FedEx is going backwards. Heavily Reliant on U.S.: FedEx relies too heavily on the United States for revenue.

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Despite global expansion, FedEx is still too reliant on the U.S. for much of their business. In 2008, the U.S. provided 71.9% of FedExs total revenue (Global Road, 2009). Over reliance on a single country leaves FedEx vulnerable in the event that economic, social, or political difficulties disrupt business. Opportunities

International expansion: Express logistics is well established in the U.S. and Europe, but lags in other parts of the world such as India and Asia. For example, the air express market in China is expected to grow at 34%, compared to the global average of 11%,

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Threats

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through 2020 (Datamonitor, FedEx Corporation, 2009). Expansion in online shopping: Online shopping, which depends on companies like FedEx for delivery, is projected to grow at a compound annual growth rate of 13.9% through 2012 (Datamonitor, FedEx Corporation, 2009).

Technological effects: Changing technology and falling prices for professional-grade printing equipment allows individuals and small companies to accomplish publishing tasks in-house rather than at businesses like FedEx Office (Palmeri, 2008). Palmeri also notes that cut-rate prices on basic copy and print services at office supply stores have commoditized this segment of the business. Technological substitutes such as fax email

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS and online forums will likely continue to cut into mail volumes (Datamonitor, FedEx Corporation, 2009). Fuel Prices: The express logistics industry is already price competitive. FedEx must accept low profits when fuel prices rise, or pass on the cost to customers via a fuel

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Company profile, 2009).

Sensitivity to health of the economy: While there are some promising signs of economic recovery, fears remain about a double-dip recession or a cascade effect of economic troubles emanating from Europe (Periman, 2010). As FedEx is a supporter of consumer spending and other businesses, any effect on the economy as a whole will be immediately felt at FedEx (Datamonitor, Company profile, 2009).

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surcharge, which could drive away customers and reduce revenue (Datamonitor,

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS SW/OT Matrix Opportunities Threats

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#1 International expansion #2 Expand online presence

Strengths #1 Innovative #2 Global #3 Strong brand name

Alternative #1: Expand global presence. Alternative #2: Using innovative ideas to offset increasing fuel prices.

Weaknesses

#1 Energy inefficient #2 Decreasing profits/ROA #3 Relies Heavily on US for revenue

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Pros

Alternative explanation with Pros and Cons Alternative #1 - Expand FedEx global business endeavors (S2, W2). FedEx relies heavily on its

domestic business for revenue. The company should continue expanding globally in order to increase market share and mitigate the risk of economic downturn in any one region. .

Use of in-region offices strategy strengthens presence in the region and provides customers with enhanced freight forwarding services. Allows for direct access to local personnel with industry experience and cultural expertise to meet customer needs.

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#1 Technological effects #2 Fuel prices #3 Sensitivity to health of economy

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS

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Increased access to the FedEx global network and seamless support across other FedEx operating companies in markets.

Cons International political pressures

Government drivers: trade policies, technical standards, regulations

Cost drivers: location of strategic resources, differences in country operating costs.

Alternative #2 - Use of hybrid trucks to overcome fuel expenses (S1, T2). With rising fuel

offsetting high fuel costs while demonstrating FedExs commitment to the green initiative. Pros

Fuel savings will eventually make up for the premium paid for initial up front capital costs.

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in late 2008.

Fuel savings will help FedEx remain competitive in the economic downturn that started

Unlike the diesel from petroleum that is currently used in most commercial vehicles, biodiesel and others are a renewable resource. This use of fossil fuels supports the companys green initiative, and contributes to the overall health of the environment.

Initial cost of vehicles is higher than the traditional delivery truck. Even with the savings realized of using a hybrid truck, the average ROI is 8 years. Bio-diesel fuel is not readily available in all 50 states or international markets.

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prices and public relations benefit of Going Green, hybrid fuel trucks are an alternative to

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS Analysis and recommendation of the Alternatives

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40% better gas mileage and emit 95% less pollution than the rest of the fleet (Warner, 2008).

Going green is sometimes a difference-maker in a customer's choice on which they use for their

service (Gunther, 2009). Government subsidies may provide additional help for FedEx to convert solely into hybrid trucks. The volatility of oil prices could cause a huge concern for FedEx if they do not convert to hybrid trucks (Dries, 2009). FedEx must realize that going green is going to be costly upfront, but will pay dividends in the long term (Seymour, 2007). Government regulations could be enacted on businesses to that create pollution harmful to the environment; at that point FedEx would be forced to spend the money to convert all their trucks anyway, and possibly pay a fine or damages.

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A more proactive approach is to make the conversion on their own terms and avoid

higher conversion costs as demand for such trucks would certainly rise steeply if spurred by government regulation. Doing business the most ethical way will lead to long term success (Ling, 2007). FedEx started the process of converting to hybrid trucks in 2003, but hit some major roadblocks. The recent spill of BP and economic factors could lead to oil prices rising exponentially, and could create an advantage for FedEx over its competitors if it continues to go green and convert all their trucks to hybrids. FedEx global business expansion sounds great, but going away from its cash cow

operations in the United States may not lead to success. While businesses try to keep their heads above the water, the cost of expansion outweighs any market share they could gain. In order to be successful you cannot over extend yourself and jeopardize other parts of your business (Reiss,

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FedEx going green could lead to a multitude of success. FedEx hybrid trucks are getting

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS

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2010). Also the more you expand overseas the more emphasis you have on currency risk, which could result in a losing proposition for the company. Expansion may drive new government restrictions may apply and force FedEx to change some of their core strategies (Alsever, 2010). Business expansion will continue to be on the forefront, but going green is the best strategy today. Implementation

FedEx has a complete understanding of going green, but needs to implement it effectively in order to reach their goals. After failing to reach their first goal, set in 2003, of having all hybrid trucks in 2010, FedEx must learn from their key mistakes. FedEx must commit to a large enough order to drive down the unit cost of the new vehicles (Risher, 2009). Going to hybrid vehicles should start in the U.S. and once they have ironed out all the problems then start

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producing them for their overseas divisions. Profits will be enhanced long term due to the incredible amounts of money FedEx will save on gas. FedEx should set strategic goals and maximize on any government subsidies. Marketing

can also tout FedExs green initiative and tie it to reduced rates for the consumer. FedEx should also investigate the new battery electric vehicles (BEVs), and incorporate them when the technology and price are right (Loveday, 2010). FedEx must commit to the significant up-front cost in order to achieve economies of scale and reap substantial dividends down the road.

1. We will measure the reduction of gas usage companywide to ensure, that the technology being implemented, will meet the targeted goals financially to support the global fleet conversion. This measurement will ensure that the completed conversion of U.S.

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS domestic transports is sustainable for future ROI. Even if the change to the greener

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vehicles is not deemed profitable certain benefits needs to be given significant credence such as public perception, marketing options, and competitive advantages of technical competence.

2. Competitive benchmarking needs to be monitored between our largest competitors (UPS, USPS) to distinguish ourselves as different and helpful to a patrons reasoning for picking FedEx and the environment causes it supports. Individual markets that embrace

areas like Chicago, New York, Los Angeles, Austin, and so forth. 3. Executives will have formal control over many areas that involve FedExs technology improvements and business process reengineering where technology and creativity (Parnell, 2008) give a customer an appeal to shop you over a competitor. The cost of

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conversion if very high to green technology, so FedEx executives need to be vigilant to monitor the introduction of technologies that promise certain attributes or levels of output while capturing the devotions and hopes of people and inevitably dont deliver.

4. Standards need to be contestant that they continually replace a certain percentage of gasoline on a continual basis. However if efficiencies decline the technologies could be abandoned resulting in significant short term financial, and long term inventory losses.

5. Implementation of these technologies needs to be certain and precise that FedEx doesnt end up having to fix out of control problems. The management of a crisis is the ultimate goal and making sure parts, technology, and knowledge are uniform and is efficient enough to justify the cost and risk. While we monitor and observe to see if numbers do

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this Green culture need to be the focus and continuing expansion in those large urban

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS

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seem unfavorable because its better to avoid an issue of ambiguity of cause, effect, and means of resolution, and a belief that the organization must respond quickly (Parnell, 2008) to ensure some salvation of investment.

Future Prospects for the Company

includes: unpredictable economic and political conditions, increased prices in fuel and other supplies, customer retention, and relations with foreign countries. In order to be prepared and least effected, FedEx must develop strategies that will allow them to remain profitable in an unsteady market. Suggestions would be for FedEx to remain current on the risks of a global recession and aware of the current and future relations with foreign countries. Another suggestion would be for FedEx to try and negotiate fuel prices for future purchases. If they are

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able to do so, than an increase in fuel prices will not hinder them as it might others in the industry. This gives FedEx time to continue research and development of alternative fuel sources (Loveday, 2010). FedEx must devise strategies to offset problems such as: speed, complexity, and the trade-off between size and flexibility. With these measures, FedEx will be better able to anticipate and adapt to changing situations. The rapid advancement of technology along with the growth of online shopping provides

many opportunities for FedEx. If FedEx continues to focus on and improve their green advancements, they have every bit of potential to gain a competitive edge in the industry (Loveday, 2010). Social trends are moving towards a greener approach in all areas of life, FedEx does not want to get caught playing catch-up to its competitors (Gunther, 2009). By

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As FedEx proceeds into the future, they must be vigilant. FedExs biggest risk exposure

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS following this strategy, FedEx will have the opportunity to gain revenue and increase market share.

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS References

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS Dividend Growth Investor, (2009). FedEx. Retrieved June 25th from http://www.istockanalyst.com/article/viewarticle/articleid/3056121 Dries, B. (2009). Fred Smith talks green: Helps the environment and FedEx's bottom line. Retrieved July 1st, 2010 from

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Group 7, Dr. Sewell MGT 527-02W Summer I 2010 Strategic Management Group Project FEDERAL EXPRESS CORPORATION (FedEx) CASE ANALYSIS Savage, M. (2004). An eye on every facet of fedex. Media; Asia, 21. Seymour, J.A. (2007). 'Going Green' Puts Business in the Red. Retrieved July 1st, 2010 from http://www.businessandmedia.org/articles/2007/20071031144306.aspx

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