INDUS INSTITUTE OF HIGHER EDUCATION

STRATEGIC MANAGEMENT

REPORT ON STRATEGIC
MANAGEMENT

Submitted to:
Sir. Mehmood shah

Submitted by:
Iftikhar Ali Khan
Muhammad Kashif

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 Letter of Transmittal

June 21, 2010

Sir. Mehmood shah

Indus Institute of Higher Education
Karachi, Pakistan.

Respected Sir . Mehmood

Enclosed is a copy of Report on “Strategic Management of FedEx” which was assigned

to our group for the course Strategic Management conducted by you. This Report is a
summary of our study and findings of Strategic Management.
This report shows the critical analysis of the Strategic Management and the processes
applied in Strategic Management. A number of basic principles being applied have also
been explained.
We are grateful to Allah and all the people who helped us in completing this report. If you
have any questions and/or comments regarding the interpretation of this report please feel
free to contact us. Thank you for your initiation of this report.

Sincerely,

IFTIKHAR ALI KHAN

MUHAMMAD KASHIF

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Executive Summary

FedEx is one of the fastest growing companies in America and in the world. It is
recognized as one of the largest airlines in the world, mostly consumed with
shipping freight rather than people. FedEx makes a business out of many
different markets and concepts. It works with IT, business solutions, and even e-
commerce so it is well documented that FedEx is a broad company trying to
reach every consumer.

FedEx’s primary competitive advantage has been its IT infrastructure, client-

provided software, and website. With this infrastructure serving as the umbrella
between the different companies’ operations, combined with the company
philosophy of “operating independently, competing collectively and managed
collaboratively”, there exists a very large synergistic force that is driving the
company forward.

In this strategic audit, we aim to inform educators and analysts of the various
important factors in the company’s internal and external environments and how
those factors can affect the FedEx both positively as well as negatively. Also we
intend to highlights the facts and issues that can be critical for FedEx in the long
run.

After having considered all the circumstances and factors affecting the company,
we judge that the strategic issues that FedEx is confronting with include, pilot
unionization & employees’ satisfaction, fuel price fluctuations, and complicated
organizational structure and diminishing competitive advantage of FedEx.

So to coup up with such concerns, we recommend that FedEx should run its
subsidiaries together. It should contracts with large corporations and go for joint-
ventures in order to add cost-saving and value-adding benefits to its services. In
order to deal with fuel price fluxes, it should focus on the utilization of alternate
energy, lowering cost by enhancing freight capacity, and enter into strategic
contracts with oil suppliers. The issue relating to pilot unionization & employees’
satisfaction can be tackled by ensuring that the employees, especially pilots, are
well compensated. Since FedEx is a service company, employees are critical to
its success.

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Corporate Analysis
Background

FedEx Corporation (“FedEx”) is an express transportation company, founded in

1973 by Frederick W. Smith. During his college years, he recognized that the
United States was becoming a service-oriented economy and needed a reliable,
overnight delivery service company designed to solely transport packages and
documents. He wrote a term paper on this idea, and received a ‘C’. His professor
thought it would never work. Fortunately for Frederick Smith, he didn’t take it to
heart and ended up building that company he dreamed of.

He found investors willing to contribute $40 million, used $8 million in family

money, and received bank financing. He started Federal Express, headquarters in
Memphis, Tennessee, with over $80 million, making it the largest company of its
time ever funded by venture capital.

Philosophy

FedEx Corporation holds a People-Service-Profit philosophy, in particular. The

‘People’ goal is the continuous improvement of management’s leadership. The
‘Service’ standard is 100 percent customer satisfaction. The ‘Profit’ goal is much
like any other company’s goal, and is essential to long-term viability. This
philosophy governs how FEDEX runs its business, and defines strategies.

Objectives

o To protect and respect the environment through outstanding environmental

performance and efficiency in the conduct of its operations.

o To adapt to changing customer needs to ensure customer satisfaction.

o To improve on the ability to compete collectively.

o To differentiate the company from competitors.

o Improve FedEx’s competitive position.

o To dynamically align resources to critical priorities while improving cycle

time and return on investment.

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Corporate Strategy

o Implement new technological innovations to differentiate FedEx.

o Integrate with other companies when there is a common synergy that helps
save costs and provide new business opportunities.

o Cut costs to gain a competitive advantage over competitors.

o Instead of assigning employees to specific business units, reassign teams

from one project to another to effectively distribute people with critical
talent.

o Built a variety of systems to provide a variety of choices to customers.

Business Portfolio

FedEx is considered to be the U.S. market leader in providing next-day and 2nd-
day regional less-than-truckload (LTL) freight services. It ships more than 80,000
shipments daily, holds approx 36,000 employees. In 2007, Fortune Magazine
ranked FedEx as number six in most admired companies in the world.

FedEx Corporation provides a broad portfolio of transportation, e-commerce and

business services through companies operating independently, competing
collectively and managed collaboratively under the respected FedEx brand.

These operating companies are primarily represented by:

FedEx Express- Largest U.S. company, offering time-certain delivery of

envelopes, packages, multi-piece shipments and freight up to 150lbs., within one
to three business days and serving 214 countries including every U.S. address.

FedEx Ground- FedEx Ground is North America's second largest provider of

business and residential money-back-guaranteed small-package ground delivery
service, behind UPS. FedEx Ground provides low-cost residential delivery to
nearly 100% of U.S. residences through its FedEx Home Delivery service.

FedEx Freight- One of the top 5 carriers providing next-day and second-day
regional LTL (less than- truckload) heavyweight consolidated freight services,
over 150 lbs in both the United States and international markets.

FedEx Custom Critical- Offers non-stop, time-specific, door-to-door delivery of

time-critical and special-handling shipments within the United States, Canada and
Europe.

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FedEx Kinko’s- Provides personal and business publishing/copying solutions as
well as being a FedEx shipping center, through a network of more than 1,200
digitally connected locations in 10 countries.

FedEx Trade Networks- Provides international trade services including customs

brokerage, trade advisory services, information technology, e-clearance and air
and ocean freight forwarding.

FedEx Services- a provider of customer-facing sales, marketing and information

technology functions, primarily for FedEx Express and FedEx Ground.

FedEx Supply Chain Services- FedEx Supply Chain Services, Inc., a contract
logistics provider.

FedEx SmartPost- FedEx SmartPost, Inc., a small-parcel consolidator.

Caribbean Transportation Services- Caribbean Transportation Services, Inc., a

provider of airfreight forwarding services.

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 The FedEx Global Network

Today the FedEx network links customers to many locations in over 220 countries and territories, in two to three business
days.

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Competitive Advantage

FedEx’s primary competitive advantage has been its IT infrastructure, client-

provided software, and website. With this infrastructure serving as the umbrella
between the different companies’ operations, combined with the company
approach of “operating independently, competing collectively”, there exists a very
large synergistic force that is driving the company forward.

Information technology has always been critical to FedEx, as their strategy is to

substitute inventory with information. Typically, the technology links created with
customers are intimate, and hard to imitate. There is a lock-in, involved with using
FedEx's IT interfaces from the customer's point of view. That has not deterred
customers from selecting FedEx solutions. FedEx has pioneered Web based
package tracking, a concept which is enormously popular with its customers, and
later led to imitation by competitors like UPS.

Several business customers are signed up for FedEx services like Virtual Order,
and had created extensive online catalogs. This was essentially an online catalog
and hosting system. The idea was to provide an integrated e-commerce
backbone, and let the business customer figure out the product offering. The
customer could build a catalog from scratch, and use it on this backbone, which
incorporated FedEx's traditional services like online tracking (see figure below).

Individual customers could also build integrated web sites using FedEx APIs
(Applications Programming Interfaces), and incorporate the free Web page code
that would enable their customers to track packages directly from their site
through the interface. Some of these included, Carsons Ribs, a Chicago based
company that sold barbecued ribs, and Unique Photo, a wholesaler of
photographic supplies.

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Performance Analysis

Service-Profit Chain

Internal service quality

Treat employees fairly – Employee complaints are treated at different level of

the organization and will escalate, if necessary, up to the CEO’s office.

Employee empowerment – They have a “Discretionary effort” which allows them

to do something they judge necessary for customers in tricky situations.
Ex.: flat tire on delivery truck, take a cab to finish delivery. No question asked.

Growing from within – 91% of promotions are internal. Allow to keep the culture
strong. Top-bottom approach: they teach by example.

Leadership institutes – Teach their managers: what it is to be a servant leader,

to listen to employees and provide them with what they need and to get out of
their way to let them do their work.

Employee satisfaction

Greatest asset for FedEx is their people. They are committed to providing a
workplace where their employees and contractors feel respected, satisfied and

Operating Strategy a
appreciated. Their policies are designed to promote fairness and respect for
everyone. They hire, evaluate and promote employees, and engage contractors,
based on their skills and performance. With this in mind, they will not tolerate

Service Delivery Sys

certain behaviors. These include harassment, violence, intimidation and
discrimination of any kind involving race, color, religion, national origin, gender,
sexual orientation, age, disability, veteran status or, where applicable, marital
status. They do a survey every year.

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Asks for 3 basic questions:

1) How would employees rate their overall satisfaction with working at FedEx?
2) Would they recommend it to others as a place to work?
3) How likely is the employee to continue working at FedEx?

Among the 100 best companies to work for – 9 years in a row. 2006, ranked 64th.
UPS was not in that list. It is one of the 50 companies in America for minorities.

“When people are placed first, they will provide the highest possible service and
profits will follow”
Frederick Smith (FedEx CEO and founder)

Employee retention

They do the careful and transparent selection of employees. It costs more but
results in very low attrition rate. They also measure the Employee Loyalty Index
(ELI) yearly.

Employee productivity

Measure used: Revenues/employee

FedEx: 113 000 UPS: 104 000

Measure used: Profit/employee

FedEx: 14,400 UPS: $9,490

External service value

Purple promise: make every FedEx experience outstanding (inside and out)

Integration of FedEx services within supply chain of its customers –

seamless process for customers’ customers.

Advantages: broader portfolio of services and best global network

Customer satisfaction

At FedEx, people from different places and different backgrounds rallying around
a common mission: To make every customer experience outstanding. Our
customer is at the heart of everything we do.

No matter what your transportation needs, lucky for you, there is a FedEx for
that…
We provide resources to help you increase your efficiency and security in getting
your products to Market

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 • Global Network: connecting nearly 90% of the world’s GDP in less than 48
hours
• Supply Chain Services and consulting
• Phenomenal portfolio of tailored products and services to fit the unique
needs of our customers

We have created a network of Operating Companies to ensure that we have a

solution to make sure we are Absolutely, Positively meeting your needs.

Frederick Smith

The key element to FedEx’s strategic success was offering its customers the
“whole package” of products and services that could not be reproduced by
competitors. Patented products, strong brands and reputations, its position in the
industry, and strengthening its relationships with suppliers and customers allowed
FedEx to increase its competencies. Not only was FedEx able to compete with
others in packaging and delivering, they were able to dominate their industry
because they valued their goals and objectives.

Customer Loyalty
Integration strengthens the relationship and favours open communication and
commitment on each side which affect loyalty positively.

Revenue Growth
Average over last 5 years: FedEx: 8.4%, UPS: 7.0%

Profitability
Return on sales: FedEx: 12.7%; UPS: 9.1%

Financial Data

Acc
Current Current Total Total Total Net Fixed Receiv
Year Sales Assets Liabilities Debt Assets Equity Income Assets ables

2003 22,487 3,941 3,335 8,097 15,385 7,288 830 11,444 2,627
2004 24,710 4,970 4,732 11,098 19,134 8,036 838 14,164 3,027
2005 29,363 5,269 4,734 10,816 20,404 9,588 1,449 15,135 3,297
2006 32,294 6,464 5,473 11,179 22,690 11,511 1,806 16,226 3,516

2007 35,214 6,629 5,428 11,344 24,000 12,656 2,016 17,371 3,942

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 Financial Ratios

Debt Debt Net Return on Total Fixed

Current to to Profit Total Receivable Asset Asset
Year Ratio Asset Equity Margin Assets Turnover Turnover Turnover

2003 1.18 0.71 1.11 0.04 0.07 8.56 1.96 1.96

2004 1.05 0.78 1.38 0.03 0.06 8.16 1.74 1.74
2005 1.11 0.71 1.24 0.05 0.10 8.91 1.94 1.94
2006 1.18 0.69 0.97 0.06 0.11 9.18 1.99 1.99
2007 1.22 0.65 0.90 0.06 0.12 8.93 2.03 2.03

Sales Data

40,000 29,363 32,294 35,214

22,487 24,710
20,000
0
2003 2004 2005 2006 2007

N et In co m e

3000
1,806 2,016
2000 1,449
830 838
1000
0
2003 2004 2005 2006 2007

Fixed Asset Turnover

2.20 2.03
1.96 1.94 1.99
2.00
1.74
1.80
1.60
2003 2004 2005 2006 2007

Total Asset Turnover

2.20 2.03
1.96 1.94 1.99
2.00
1.74
1.80
1.60
2003 2004 2005 2006 2007

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 Receivable Turnover

9.50 9.18
8.91 8.93
9.00 8.56
8.50 8.16
8.00
7.50
2003 2004 2005 2006 2007

Return-on-Assets

0.20 0.07 0.10 0.11 0.12

0.06
0.10
0.00
2003 2004 2005 2006 2007

Debt-to-Asset Ratio

0.80 0.78

0.75 0.71 0.71

0.69
0.70
0.65
0.65
0.60
0.55
2003 2004 2005 2006 2007

Debt-to-Equity Ratio

1.50 1.38
1.24
1.11
0.97 0.90
1.00

0.50

0.00
2003 2004 2005 2006 2007

Net Profit Margin

0.08 0.06
0.05 0.06
0.06 0.04 0.03
0.04
0.02
0.00
2003 2004 2005 2006 2007

Current Ratio

1.22 1.30
1.18 1.18
1.11 1.20
1.05 1.10
1.00
0.90
2003 2004 2005 2006 2007

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Environmental Analysis

P.E.S.T. ANALYSIS

Political-Legal
Opportunities

FedEx Express currently holds certificates of authority to serve more foreign

countries than any other U.S. all-cargo air carriers—FedEx has an opportunity to
offer single-carrier service to many points not served by its principal competitors.

Threats

Many of FedEx Express' competitors in the international market are government-

owned, government-controlled, or government-subsidized carriers. It entails that
they may have greater resources, lower cost, less profit sensitivity, and more
favorable operating conditions than FedEx does.
Under the Federal Aviation Act of 1958; both the U.S. Department of
Transportation (or DOT) and the Federal Aviation Administration (or FAA)
exercise regulatory authority over FedEx Express and may from time to time,
affect the ability of FedEx Express to operate its aircraft in the most efficient
manner.
The Aviation and Transportation Security Act. may adopt security related
regulations, including new requirements for cargo security, which could impact
These regulations have had a restrictive effect on FedEx Express' aircraft
operations in some domestic areas.

Economic
Opportunities

Globalization—as a trend, the world's economy has become more fully integrated,
and barriers and borders to trade continue to decrease.

Steady growth in U.S. gross domestic product—U.S. GDP related to international

trade has increased substantially over the past 30 years and continues to grow.

Continued recovery in Asia’s economy—it may have a favorable impact on the

growth of the transportation industry with the acceleration of domestic as well as
foreign trade.

Threats
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Unpredictable energy prices—a substantial reduction of oil supplies from oil-
producing regions or refining capacity and other events as well causing a
substantial reduction in the supply of aviation fuel. It could have an adverse effect
on FedEx operations.

The rising costs in transportation security and insurance, especially in

international freight due to the continuing threats from terrorism.

Socio-cultural
Opportunities

Growing Internet users and e-commerce.

E-commerce is a major catalyst of the economy and remains a vital growth
engine for businesses today.

Change in consumer behavior.

Consumer purchases over the Internet continue to grow. The survey
involving interviews with 42,238 people in 37 countries worldwide revealed
that almost a quarter of internet users have shopped online and 15% plan
to do so during the next six months. This represents an opportunity for
FedEx as a provider of small-package delivery service.

People are increasingly using the Internet as a time-saving resource.

People engage in numerous activities online, such as e-mail, planning
trips, online banking and online research for their future purchases, all of
which are easily completed online. With its sophisticated online services,
FedEx can satisfy the consumer requirement of convenience.

Change in sales channel combinations used by retailers.

According to one study, a significant number of US retailers are selling
through a combination of the Internet, in stores, and catalogs. This
represents a growing demand for the business-to-customer package
delivery service.

Business customers increasingly seek for a single solution that can meet all of
their global transportation needs, and more businesses are outsourcing their non-
core operations.

FedEx, as a result, provides its customers access to an integrated set of business

solutions and offers a number of initiatives to enhance customer experience.

The rise of environmentalism.

Today, companies are increasingly expected to take greater responsibility
for environmental consequences. To respond, FedEx uses environmental-

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 friendly recycled and recyclable packaging and has attempted to reduce
harmful emissions into the environment through the usage of hybrid
vehicles.
Such FedEx’s posture toward environmentalism gives consumers an
impression that FedEx does make contribution to environmental protection
and safeness.

Threats
o Customers have become less tolerant of service failures and likely to
expect better services that are more than the average.
o Consumers today demand more for personalized services. It can be a
difficult task for FedEx and other businesses to satisfy all customer needs
and still be profitable.

Technological
Opportunities

Improved information technology—enabling FedEx to integrate subsidiaries and

business functions altogether, assisting its single-point-of-access concept.

Improvement in wireless technology—FedEx is looking into wireless technology to

cut costs and improve customer service.

In Asia, it's experimenting with a digital/ink pen called Anoto Chatpen. The cigar
sized device, made by Ericsson, uses Bluetooth wireless technology to transport
written information, such as a signature or an address, into a database.

The Internet—FedEx.com gets about 4.5 million unique visitors a month, which is
saving the company $25 million each month by eliminating human involvement in
processing package tracking requests.

Improvements in aircrafts—the high capacity, cost-efficiency aircrafts make it

ideally for FedEx as an air cargo carrier to operate globally.

Threats

High implementation, maintenance and failure cost associated with the adoption
of sophisticated information technologies.

Due to the complexity of today’s businesses, benefit derived from highly

integrated information system may not be quantifiable for evaluation purposes.

Failure in large-scale information technology systems could damage a company’s

image and credibility—for FedEx, it can also create a logistic nightmare.

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Growing concern over hacking and protection of customer information.

Rate of Internet penetration—to better serve household and small business

customers outside the U.S., the timing and market readiness for its single-point-
of-access concept, or information-intensive services, need to be assessed from
country to country.

Porter’s MODEL

Threat of New Entrants

There is a high barrier for new entrants to overcome because it is very expensive
and time consuming to start up an express transportation company that is so
large. Acquiring a large fleet of aircraft and/or trucks along with quickly creating a
large efficient distribution network are the primary operational hurdles that deter
potentials entrants, in addition to the massive marketing costs needed to establish
a presence (within an already very competitive industry). Another factor
threatening potential entrants is trade tariffs and international regulations. Most
companies currently in the industry have already established relations with foreign
countries. New companies will have to prove themselves to foreign companies,
suppliers, and customers. Lastly, the fact that FedEx exploits new technology as
soon as it becomes available makes the barrier even harder to overcome since
regularly updated technology is harder to imitate.

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Bargaining Power of Buyers

Opportunities

The enhanced infrastructure FedEx has through alliances with such companies
as La Poste may cause customers to perceive FedEx as a better company to do
business with due to expanded service coverage and reliability.

Threats

Since shipping is a ubiquitous service and while FedEx is not the only carrier in
the various market segments it operates in, these conditions allow customers a
variety of choices. With internet access, buyers can easily and quickly compare
prices and services of other carriers to FedEx’s.

Due to the extremely competitive industry nature of its Freight and Trade
Networks subsidiaries, time-volume contracts with large customers are the norm.
Large buyers can easily negotiate rates and can play competitors against each
other to obtain lower prices.

Threats of Substitute Product or Services

Although FedEx has differentiated itself with the reliability of its services coupled
with powerful, user friendly IT services for tracking and account oversight, it still
may not be enough. Fax machines, electronic communications such as EDI, and
other technologies offer an alternative for delivering bills, statements, shared
business data and personal messages.

Bargaining Power of Suppliers

Suppliers that are involved in this industry are: vehicle manufacturers, airplane
manufacturers, fuel suppliers, labor, airports, and shipping materials
manufacturers.

Opportunities

FedEx has ensured that they have the best suppliers with a scorecard system
where FedEx scores its suppliers to measure their performances while the
supplier in return gets to give FedEx feedback on how FedEx can improve.
Because the system helps both sides, it may strengthen the customer-supplier
relationship.

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Threats

FedEx’s tracking and ERP systems are very crucial to their business operations,
thus consultants and contract programmers contributing to it are very important to
the company. Although certain long-term IT projects can be outsourced abroad to
save money, FedEx cannot bargain with suppliers for remedying crucial business
functions that need immediate attention.

Outsourcing activities such as aircraft/truck maintenance and acquiring or leasing

the services of regional carriers where FedEx needs to expand operations,
provide these suppliers a great amount of bargaining power.

Rivalry among Competing Firms

This is a strong force in this industry because the competitors use price cuts to
compete, and the companies in this industry diversify and acquire other
companies for strategic growth and synergy

Possible strategic alliances and acquisitions by UPS and DHL in geographic

markets where FedEx is present, pose a significant threat. A good example of this
is in China where Sinotrans, the nation’s most prominent domestic airfreight
carrier has started partnerships with UPS and DHL.

Thus FedEx has to move up with new strategies & additional strategic alliances
and acquisitions in Europe, South America, and Asia to tackle the fierce
competition.

S.W.O.T. Analysis
Company Strengths:

Globalize: Federal Express operates on a global scale. They operate in around

220 countries. They provide services that appeal to most of the world. They have
such a large market in which to operate, and thus realize tremendous revenues.
They can also achieve global economies of scale.

Innovation: Federal Express took airplanes and trucks and used them differently
than any other company before them. This is innovation. They have a first-mover
advantage in name recognition because of this innovation. This has helped them
to remain the industry leader since 1973.

Technology and Communication: Federal Express uses and continues to

search for new technology. They allow spending of around $1billion a year, 10%

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of total revenues, for information technology. That commitment keeps customers
from switching to other providers. Federal Express also has excellent
communication with their customers. They use tracking devices on all shipments,
and customers can find out where their shipment is through many different
avenues including a user-friendly web site.

First-Mover Advantage: Federal Express has had first-mover advantage in

several areas.(1) Being a global express transportation company. (2) Advanced
technology and communication throughout the company’s operations. (3)
Incorporating smaller companies with similar operations under its belt to
synergize and control more of the market.

Company Weaknesses:

Labor Disputes with Pilots: Federal Express pilots have formed the FedEx
Pilots Association. This organization demanded changes in the pilots’ salaries,
retirement benefits, and the fact that Federal Express outsourced some foreign
flights instead of giving their own pilots the job. The pilots have a web site where
news is posted and feelings are discussed. During a busy Christmas season in
past, the pilots threatened to strike. Federal Express and the FedEx Pilots
Association have developed a tentative agreement, which is published on the
pilots’ web site. However, the pilots do not believe this agreement fully meets their
expectations. This dispute is definitely an internal weakness for Federal Express,
considering they have a huge pilot base, employed with them. Their operations
would suffer if there were strikes. When UPS employees went on strike in 1997,
Federal Express took the extra 800,000 shipments a day. If Federal Express
employees went on strike, their competitors could gain an advantage.

Rising Prices: Federal Express’ prices are above their competitors’. This can be
a weakness if their customers do not perceive a difference between Federal
Express and its competitors’ services.

Running Subsidiaries Separately: FedEx has deliberately chosen to keep their

companies separate. FedEx’s, CEO Frederick Smith states, "Simply layering the
unique resource and operating requirements of a time-definite, global, express-
delivery network onto a day-definite, ground small-package network would surely
result in diminished service quality and increased costs. Under the FEDEX
umbrella, we will leverage our shared strengths while operating each delivery
network independently, with each focused on its respective markets." Frederick
Smith is confident this will be strength, instead of a weakness. Time will tell.

Company Opportunities:

Expansion Globally: Federal Express can continue to expand globally, including

the other companies under FEDEX.

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Expansion Internally: Federal Express can continue to acquire more companies,
and expand into new technologies or areas in their industry.

Run Subsidiaries Together: If FEDEX doesn’t profit from running the

subsidiaries separately, they can change to integrating their operations to achieve
better synergies and economies of scale.

Contracts with Large Corporations: To stay the industry leader, Federal

Express should form contracts with companies who will add cost-saving or value-
adding benefits to their services.

Joint-Ventures: Federal Express can form joint ventures, such as already with
Netscape and American Express, to enjoy the growth of integrating their customer
bases.

Expansion of e-commerce: Federal Express already has a major presence of

shipping online. They should keep finding Internet companies to contract delivery
of their products. Since the growth of e-commerce is rapid now, Federal Express
could enjoy both profits and brand name recognition from this kind of expansion.

Company Threats:

Relations with Foreign Countries: Through Federal Express’ expansions

globally, they are subject to laws and regulations of all foreign countries. There
could be major problems in this area, stunting growth and raising costs. Already,
Great Britain will not let Federal Express fly their own planes for shipments.
Federal Express must either load their cargo on to British planes, or use ground
transportation. This is very inefficient for Federal Express; however, it keeps
competition out for British Air Transportation companies. Everywhere Federal
Express goes, they are at risk for regulations that hinder their operations or
efficiency.

Economic and Political Conditions: Federal Express is subject to the entire

world’s economic and political condition in the areas of fuel prices and supply,
customer purchase of their services, and relations with foreign countries. As a
global company, they are subject to much more risk than domestic companies.

Resource Analysis
MARKETING

Strengths

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o High brand awareness—with the image of high-quality service, reliability
and speed.

o Emphasis on e-commerce and information technology.

o Approximately 70% of FedEx shipments are automated.
o FedEx.com—which gets about 4.5 million unique visitors a month,
saving the company $25 million each month; it costs 4 cents to track
a package online, compared with $2.14 when customer service gets
involved.
o MyFedEx.com—a customer portal that goes beyond simple tracking
and tracing capabilities to offer personalized services for registered
users.
o Freight.FedEx.com—a fully integrated Website, which combines the
resources of its operating company Web sites to create a one-stop
LTL information source, including a bill of lading generator and e-
mail delivery notification, make freight shipping easier and bring
customers closer to their own account information.

o The full portfolio of offerings to meet various customer needs—

FedEx’s service portfolio includes: express, ground, freight, logistics,
supply chain, customs brokerage, trade facilitation and electronic
commerce solutions.

FedEx Express
• Delivering packages, documents and freight to a large
number of countries.
• Overnight service virtually extends to the entire United States
population.
• Offers the most comprehensive international freight service in the
industry.
• Backed by a money-back guarantee, real-time tracking and
advanced customs clearance.
• Alliances with certain retailers for drop-off sites—providing
customers the opportunity to drop off packages at locations in office
buildings, shopping centers, corporate or industrial parks and
outside U.S. Post Offices.

FedEx Ground: FedEx Home Delivery

• Offering unique, convenient, customized service, most of
which are not offered by competitors, including extended evening
delivery, Saturday delivery, and premium services, such as day-
specific, signature and appointment delivery.
• Provides ground service to 100% of the United States population.
• Overnight service to approximately 92% of the United States
population.

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 • Also provided to 100% of the Canadian population through a
subsidiary.

FedEx Freight
• Has a fully integrated Website, Freight.FedEx.com, which combines
the resources of its operating company websites to create information
source, including a bill of lading generator and e-mail delivery
notification, make freight shipping easier and bring customers closer to
their own account information.

FedEx Trade Networks

A leading provider of international trade services, offering services for
international businesses.

FedEx Services
• To enhance its single-point-of-access strategy.
• Much of marketing activities for FedEx Express and FedEx Ground
are combined under FedEx Services to more effectively sell the entire
portfolio of express, ground and e-commerce services.
• Sells and markets the full portfolio of services offered by
subsidiaries and provides customer-facing solutions that meet customer
needs.

Weaknesses

• FedEx Express lags behind its competitor DHL in foreign markets.

• UPS is the largest provider of business and residential ground delivery
services in North America, while FedEx Ground is the second.
• Service benefits not easily communicated; complexity of its offering mix
may confuse customers.
• Little differentiation in service width and depth against competitive
offerings.
• Similar price structures to the competitors’; giving no intensive for
customers who seek low cost shipment.

OPERATIONS AND LOGISTICS

Strengths

• FedEx Ground in recent past, operated primarily with 15,300 owner-

operated vehicles and 17,600 company-owned trailers. Having the trucks
being owner-operated keeps asset costs low and is a common practice
among carriers in the industry.

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 • FedEx Express, Ground, and Services are ISO 9001 certified, which is
currently “the most rigorous standard for Quality Management and
Assurance.”
• Each of FedEx’s subsidiaries serves a separate and specific market
sector where it has expertise, which results in “optimal service quality
levels, reliability and profitability from each of the businesses.” This
strategy is known as the “operate independently, compete collectively,
manage collaboratively”

Weaknesses

• The air operations of FedEx are vulnerable to strikes from its pilots which
belong to the Air Line Pilots Association, FedEx’s only union.
• FedEx Supply Chain Services is a subsidiary of FedEx Services, and not
a distinct company such as other large companies has. Examples include:
Maersk Logistics, and UPS Supply Chain Solutions.

HUMAN RESOURCES

Strengths

• FedEx Express has over 52% of its employees being part-time, which
allows for flexibility in scheduling and adjusting to variable periods of
demand.
• All Part-time employees at FedEx are offered full benefits. FedEx Express
has been able to reduce its workforce to meet flat growth rates in its
domestic business through "early retirement incentives with enhanced
pension and postretirement healthcare benefits" to certain employees
aged 50+, and through voluntary cash severance incentives offered to
eligible employees.

Weaknesses

• The Airline Pilots Association contends that FedEx "often forces its pilots
to put in as many hours as it can and gives them little say on flight
schedules." This is a result of its flyers working primarily at nighttime and
the growth of FedEx's international business.
• Some pilots are flying longer and "more tiring" flights. If a new agreement
with the pilots' union isn't reached, there can be serious ramifications for
short-term operations suspension.

INFORMATION SYSTEMS

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Strengths

Primary customer IS solutions include:

• FedEx Ship Manager Software, API, and server for pickup, cancellation,
and tracking.
• FedEx Insight, a web-based system for enhanced level of shipment
visibility.
• FedEx Global Trade Manager, which provides import/export forms,
licensing requirements, country regulation/duty/embargo information.
• FedEx NetReturn API, which integrates with a company’s order/inventory
management apps.
• FedEx EDI Electronic Invoice and Remittance, which sends invoice data
electronically into the Accounts Payable systems of its clients.
• MyFedEx.com offers a customized portal solution for registered customers
that offered personalized services, going “beyond simple tracking and
tracing.”

Strategic Issues

COMPLICATED ORGINAZATIONAL STRUCTURE AND DIMINISHING

COMPETITIVE ADVANTAGE:

Each subsidiary company was to continue operating independently to provide

wide range of business solutions. But for customers, benefits include easier mean
of doing business with FedEx. New group structure has a major flaw as far as
customer facilitation is concerned. There are still different teams of delivery and
pickup staff for different operations. One person has to pickup package sent by
Ground and another person has to pickup package sent by Express from the
same company. Companies like UPS have one person for above stated
operation.

Also since FedEx was pioneers in the implementation of e-commerce and e-

tracking system which was a competitive advantage for them, but with the change
in time this competitive advantage becomes industry norm and other companies
were also competing with FedEx in IT field.

FUEL PRICE FLUCTUATIONS:

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Businesses like FedEx operate in a competitive pricing environment exacerbated
by continuing high fuel prices. Their fuel surcharges have been sufficient to offset
increased fuel prices, but the overall economy can’t be predicted if fuel costs
significantly fluctuate from current levels and will impact on the overall economy.
Volatility in fuel costs impact earnings because adjustments to fuel surcharges lag
changes in actual fuel prices paid and also impact on delivery cost charged to
consumers. For the same reason consumers are switching to substitutes by
delivering through emails and fax.

PILOT UNIONIZATION:

The formation of Pilot’s union is itself a threat to FedEx. Demand for increment in
salaries and retirement benefits have already been on their top agenda. Same
issues have already been posted on website prepared by Pilot’s association.
Strike by UPS employees in recent past provided extra shipment to FedEx. If
3500 FedEx pilot’s go on strike then it would result in colossal revenue loss to
FedEx because much of the business would then be taken by its competitors.

Recommendations:

HANDLING STRUCTURAL ISSUES:

o Run Subsidiaries Together:

If FDX doesn’t profit from running the subsidiaries separately, they can
change to integrating their operations to achieve better synergies and
economies of scale.

o Contracts with Large Corporations:

To stay the industry leader, Federal Express should form contracts with
companies who will add cost-saving or value-adding benefits to their
services.

o Joint-Ventures:

Federal Express can form joint ventures, such as already with Netscape
and American Express, to enjoy the growth of integrating their customer
bases.

HANDLING FUEL PRICES:

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 o Use of alternate energy:

They should look for alternate energy sources for their transportation since
there is a hike in fuel price and this trend seems to remain in future. FedEx
should focus on solar power or bio-fuels as an alternative energy source.

o Lowering cost by enhancing planes capacity:

FedEx should increase the capacity of their planes in order to carry large
number of packages which will drastically cover their cost of transportation.

o Contracts with Oil Suppliers:

Federal Express should developed contracts with oil suppliers to cover

fluctuating fuel costs and volatility of supply.

COMPENSATING EMPLOYEES AND PILOTS:

Ensure that the employees, especially pilots, are well compensated. Since
Federal Express is a service company, employees are critical to its success.
Place pilots’ salaries at or above the industry average. They need to maintain a
strong presence on the Internet, in case of a shakedown, and find ways to make
their e-commerce user-friendly and profitable through its IT staff. They need to
keep prices within 10 % of their competitor’s prices, or make sure that their
customers view their service as worth the price.

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