The problem of a global environment remains the acute one for many enterprises. Despite its attractiveness and all the possibilities it offers, the challenges the companies have to face are rather numerous and serious. Very often, a firm that has been successful on the domestic market finds itself to be in much less favorable conditions after entering the global trading zone (Jennings, 2012). FedEx Corporation can be an example of such situation. It is an American delivery company which innovative business model allowed it to use reliability and high delivery speed as main value-creating factors and become a leader in the sphere of logistics. However, nowadays, after the expansion of the global market, it has to struggle for maintaining its position against its main competitors – United Parcel Service (UPS) and DHL. Therefore, the following research is dedicated to the analysis of FedEx’s value creation frontier and business strategy as well as to the development of ways for their improvement.
An examination of the works on the executing strategies in a global environment clearly shows the four main blocks of maintaining a competitive edge on the market as well as the possibilities for improving the existing business strategy.
During the research, a complex of scientific and specialized methods has been used. This complex includes dialectical approach describing the business model of FedEx and statistical one for providing the necessary information for the research such as the data on the market growth. One more approach used is analytical for studying the given information.
Value Creation Frontier
Since its establishment by Frederick W. Smith more than 30 years ago, FedEx’s competitiveness on the market was based on the two pillars: reliability and delivery speed. FedEx was the first company to revolutionize the express delivery industry by offering the service of shipping the required products or materials in one night. Despite its higher price, the new service corresponded to the main aspects of the competitiveness of the company and was in demand among customers. As a result, the very concept of providing the enterprises with the essential materials or goods in the shortest terms possible has become the main value creation factor for FedEx (Birla, 2013). Therefore, the value creation frontier of the company has depended on the following aspects:
· Novelty. FedEx was the first to offer a service of overnight shipment, thus creating a market of express delivery in the U.S.;
· Insufficient level of strategic planning. About 20-30 years ago, such concepts as lean manufacturing were not as widespread in business as nowadays, so many companies did not have precise plans for the use of products and materials (which, in turn, lead to the situations when the running out supply had to be refilled as fast as possible). Therefore, the tasks of planning and logistics were partially transferred to the delivery company, thus providing additional value for its business operations.
However, during last years, the situation on the market has changed. Modern companies pay more attention to the strategic planning. Moreover, the competitors, such as UPS with its truck deliveries and DHL which has received an indestructible reputation in the field of air shipments are using the latest technologies that provide the highest value for their customers. All this poses a challenge for the FedEx’s profitability. Therefore, it is paramount for a company to strengthen its competitive advantage. Taking into account the fast development of technology in many spheres of human life, it is possible to say that nowadays, innovation proves to be the main value creation factor for the majority of consumers. For example, UPS provides its customers with the ability to track the route of the delivery via the Internet, giving them more control over their supply chains, thus creating additional value by the means of technology (Birla, 2013). Therefore, FedEx should use the block of innovation in order to satisfy the changing needs of its customers as well as to keep in pace with the technical capabilities of its competitors.
Product Differentiation and Capacity Control
During the creation of competitive advantage through differentiation, it is imperative to focus on consumer’s priorities and interests of the customer. Moreover, any novelty of the product or service must be of much value for the client (Jennings, 2012). Thus, FedEx may differentiate its delivery service from those of competitors by introducing a GPS tracking system for medium and large-size deliveries which are often ordered by the companies rather than individuals. Therefore, the customer will receive the data on the precise location of his delivery at any time by using a PC, tablet, smartphone, or a GPS navigator. As in the case of UPS, this initiative will allow clients to gain more control over their supply chains and take the necessary actions in the case of force majeure, which is especially critical for the enterprises using the JIT (just in time) business strategy. However, it is also important to ensure that FedEx has enough resources – financial for purchasing the necessary equipment and labor to provide the qualified operators – to back up the new service. This task requires a competent capacity control from FedEx; it is preferable to use the approach of managing demand for the service depending on the amount of resources the company has (for example, providing a service only for commercial customers with the possibility of its further extension) (Kersten, Blecker, & Herstatt, 2007). As a result, this measure will prevent the shortfall in sales as well as its customers looking for alternatives at the competitor companies.
When FedEx has entered the market of courier services, it did not try to oust competitors with lower prices or pushy marketing. The managers of the company realized that people need quick and safe delivery, but this requirement was not met by anyone yet, and, therefore, it was possible to take a vacant niche on the market. Therefore, FedEx has applied a diversified business model – the company possesses several independent branches (FedEx Express, FedEx Logistics, FedEx Ground, etc.); each of them specialize in a particular market segment. As a result, such diversification allows the company to meet the requirements of different categories of customers with equal efficiency (Birla, 2013). However, in order to maintain its competitive advantage, the company must constantly improve its existing business model. For example, possessing its air fleet and a developed delivery network, FedEx does not pay much attention to partnership programs. Therefore, it is possible to recommend the introduction of a new business-level strategy that provides for the establishment of a long-term partnership. The most reasonable candidate for such initiative is a global healthcare products provider such as Cardinal Health since nowadays the global shipments of healthcare products are worth about 7.5 billion dollars and are expected to grow up to 9.3 billion dollars in the following years. As a result, logistics spend for these products will also increase. The growth in the pharmacy sector will attract investments into the creation and maintenance of new supply chains. Moreover, the demand for pharmaceutical goods increases not only because of the advance in medical technology but also due to a global increase in life expectancy (Kros & Brown, 2013). Therefore, to maximize their revenues, healthcare product providers seek to expand their offerings, which can be achieved with the help of delivery companies. Such business strategy will not only increase FedEx’s profitability but also maintain its competitive position, serving as a response to the similar initiative of UPS.
The proposed business-level strategy can be affected by the global competition in a variety of ways. For example, despite the competition in the sphere of international shipment of drugs is not very harsh, it should be noted that FedEx’s main competitor, UPS, has formed its Healthcare Shipment Division much earlier and has successfully established itself in this market segment. Therefore, it may be difficult to enter the healthcare logistics market. Other important aspects that may affect FedEx’s partnership with Cardinal Health include complicated licensing system, relatively low infrastructure development in the market, high dependence on production plans and capacities, and special conditions of storage and transportation (Kros & Brown, 2013).
Therefore, in order to confront the global competition, FedEx should take into account the main specificity of the global pharmaceutical market: the consumer is unable to assess the effectiveness of the drug. He/she cannot check the quality of the product and its real value as the choice of drug depends on the doctor’s decision (in the case of prescription medicine). Thus, it is imperative to establish connections with physicians and pharmacists to create an integrated information space (preferably, in the form of a digital database). As a result, it will be possible to obtain the necessary data for improving the forecasts of commodity needs and the quality of communication at all stages of the supply chain. This information platform will minimize the risks of accumulation of goods in warehouses or the lack of them (Kros & Brown, 2013). Considering that Cardinal Health will outsource the processes of warehouse processing and transportation to FedEx, overall logistics costs will be reduced while maintaining a high level of service for consumers. As a result, FedEx will create an additional value by the means of technology and high-quality service, thus increasing its revenues and improving its competitive advantage on the logistics market.
FedEx’s innovative business model has ensured its success on the logistics market. However, the concept of innovation is inapplicable in the long run in the conditions of global competition since anything new is quickly assimilated and applied both by the competitors and other players on the market. As a result, any company must constantly review and renew its business strategy in order to maintain its competitive advantage. Therefore, FedEx should consider the possibility of introduction of new technological innovations such as GPS tracking of the delivery. It should also add the plans for the establishment of partnership programs in the healthcare logistics segment to its business strategy. Finally, it is important to provide the information support for its new supply chains to minimize the possible risks.