Five Forces Analysis
Industry Competitor: High
Increasing in the competition of express service and independent Freight Carriers and Air Freight companies
Other companies have introduced new services to make their service competitive with lower cost. For example UPS offers discount on bigger customers and shippers that ship over 250 pieces.
Competitors are buying small rivals at a fast pace domestically and internationally.
Existing competitors make Federal Express hard to enter to newer market.
The competitors might join forces or co-operate against Federal Express.
Local mail services, Post Offices, may have provided unique and specialized services.
Threat of New Entrants: Low
The threat of new entry is comparative low because there are already strong competition on the market that have long-term experience and well-known reputation on delivery service.
Fed Express has well known on-time delivery service reputation and overnight express delivery business
Federal has 53% of the market, and it has the economies of scale, so it is hard for new comers to break into the market.
Deliver service is hard to be differentiated from one another.
The initial investment for new comers is high for example employment cost, equipment and etc.
Threat of Substitute Product: Low
Facsimile Machines and E-mail can take over overnight letter and documents delivery services.
There are very few ways to deliver parcels or non-document items.
There is low switch cost for buyers to switch between service providers.
Federal Express provides an excellent service to customers, so there is not too much competitor can provide this kind of service like Federal Express does.
Threat of Buyer’s Growing Bargaining Power: High
The express delivery market is somewhat price sensitive market.
When buyers are more knowledgeable about the market, the lower the profitability is.
There are lots of choices for delivery services in the market, buyers will force them to lower the price and promote the service.
There are more and more companies that have international branches, so their bargain power is larger and larger.
Since more and more companies provide the same services, the customers have lower switching cost.
Federal Express has reduced some of the buyer’s bargaining power by providing customer with consistency high quality service in this very customer-oriented market.
Threat of Suppliers’ Growing Bargaining Power: Moderate
There are no many substitute ways to send non-document item or package by express delivery service.
Onerous foreign regulation
There are lots of express delivery services in the market.
There is no too much differentiation between competitors now.
Airlines and other cargo agents threat to enter to the market.
Sending documents or packages by priority mail was view as a necessary convenience.
If I were Thomas Oliver, I would address the following problems first:
- Operational management problem should be addressed first because this problem will affect the future Federal Express that operates this company.
- Union Problem. Because Federal Express traditional had been a nonunion shop, while the flying Tigers’ employees were predominately unionized.
- Company Name and employees’ uniform after the Merger because lots of Flying Tigers’ employees were loyal to the name of the old company.
- Retraining program. The program can train or teach the employees of old Flying Tigers to know about the company and its operational standard, procedures, rule and expectations. After the retraining program, all of the employees from Flying Tigers should follow company’s operational rule to do. Otherwise, they could choose not to stay.
I would recommend to Fred Smith to do following managerial policy changes:
- Intensive training program on new-hired, recurrent training and leadership training because employee performance, especially the quality of service provided to customers is critical to its business success.
- Mix current Federal Express employees with Flying Tigers Employees together because Flying Tigers’ employees can know company’s culture, concept and the expectation easier and better.
- Cross training both employees in both computer systems, and improve the operational efficiency.
- Creating retraining programs for Flying Tigers’ employees and forcing them to adopt the Federal Express’s operational procedure.
- Keep operates the Flying Tigers’ market on heavy cargoes with Federal Express’s philosophy, and it would not damage too much on its original profit and market share.
- Federal Express should slow its oversea operation a little and pick up the domestic business first in order to deal with it over spending problem or financial problem.
- Before Merging, the company must have a great blue-plan on how to solve human resource management problem. For example, job offering and job assignments.
- Moderate long-term plans on the international business will help the company to solve its financial problem.
- The Flying Tigers has previous business history on the heavy cargo business, so Fred Smith should put more attention on change its current problem, and then Federal Express can use Flying Tigers’ route to go on and expand its business smoothly.
- Since Federal Express stands at the service and customer-oriented industry, human resource management is most important factor to affect profit generating. Therefore, after the merge with Flying Tigers, Federal Express needs to put more attention on quality service training and skill training on those employees from Flying Tigers.
- Upgrading and setting up necessary equipment and maintenance them overtime, it will help Federal Express generate long-term profit.
- Solve the computer problem by rewrite the computer program or change the entire system for both small package and large volume cargoes to eliminate the existing limited communication problem.
- Since the delivering service is so competitive, Federal Express has to find out other way to increase its service quality and quantity. For example, Federal Express can co-operate with some large companies and set small counters in their offices. As they have something need to be delivered, Federal will come by and collect them.
- Schedule different training program for new-hired and current employees on the leadership and skill training- Make service and management quality better.