International Strategy

The Case of FedEx

By Albin Pinard Msc International Business Development

Contents

International Strategies:Strategic Choices Review FedEx Background Information Why a Global Strategy for FedEx ? Conclusion

Strategic Choice Framework: Strategic Choices Review

4 different strategic choices:
Multi-domestic strategy High local responsiveness / low cost reduction pressures/based on Decentralization/products and services tailored to local markets International strategy Particularly adapted to firms which enjoy a valuable core competence that competitors in foreign markets dont have Transnational strategy Adapted to firms which want to simultaneously achieve low cost and differentiation advantages.This strategy remains hard to implement because both pressures are often in conflict. Global strategy (FedEx,Texas Instrument)

Global Strategy Aspects

Standardisation (products/services) Uniform Marketing (homogeneity of customer response to the marketing mix) Large geographical coverage Based on cost reduction strategies (scales economies/Scope economies/Location economies/Learning Curves) Adapted to low responsiveness demand locations

Source: Yip,G.S (1989) and Viswanathan & Dickson (2007)

FedEx Background Information

Nationality: USA Since 1973 /International presence since 1984 (FedEx

made the express delivery industry) Activity: Express delivery of packages and documents worldwide Third party logistics provider (supply chain solutions) Annual revenue 2007: $ 35,214 (million) Presence in 220 countries and 375 airports 3,3 million package shipped everyday 679 aircrafts (biggest fleet in the industry), 43500 trucks and 15 international hubs 260 000 employees worldwide Main competitors: DHL,UPS,TNT

Why a global strategy is the most appropriated one for FedEx ?

Pushing the standardisation to its maximum (very law local responsiveness in the express delivery industry) Focusing on cost reduction strategies Centralized control: Top management takes all the decisions Extending its geographical coverage through acquisitions Forcing air deregulation

Total standardisation
Services and delivery methods Very similar demand worldwide/low local responsiveness

ISO 9001 certification Reinforce the standardisation of the FedExs Services worldwide

Marketing Pricing: same prices worldwide Advertising:global advertising campaign Relax Its FedEx

Standard Technology International compatibility of wireless applications FedEx SuperTracker : shipping information available to employees and customers worldwide FedEx e-business website (international standard technology)

Cost Reduction Through Scope Economies: The FedExs Hub and Spoke Network
The optimal combinaison of transport modes (aircraft + train/trucks) allows Fedex to achieve scope economies

International hub

Cost Reduction Through the Experience Curve

Cost reduction achieved over the time thanks to: Experience of FedEx in its industry (first moveradvantage) Learning effects through learning by doing
-

Better knowledge of international routes (gain of time) Decrease of the number of lost packages over the time
Delivery time

1973

2008

Time

Through Scale Economies

Recent acquisition of 9 Boeing A380 carry 300,000 lbs of freight (twice as much as the previous MD-11 model)

Single marketing strategy: significant economies of scale through advertising and R&D

Extension of the Geographical Coverage Through Acquisitions of Local Freight Companies

2 recent exemples: 2006: acquisition of HLC Holdings Ltd (UK) FedEx gains the coverage of 80 UK cities + 2200 vehicules 2006: acquisition of DTW (China) allowed FedEx to touch 300 new cities in China Acquisitions of freight companies allow FedEx to : Increase its customer base/fleet/resources Enjoy the benefice of an already existing business quicker access to market

By Forcing Air Cargo Deregulation

Leading role in Lobbying air deregulation U.S Air Cargo Deregulation Act 1977 Encouraging U.S government to include air cargo rights in its negotiations with countries in which FedEx wants to operate Open Skies Agreement with China in 2005

Matrix Structure
Cons: - Generate conflicts Pros: - Does not allow long-term working relationships - Speed up the decision-making - Reduce bureaucracy - More interdepartemental communication

Through Centralisation FedExs Worldwide Area Structure

Tight control: Facilitate coordination Consistency of decisions Avoids Duplication Easier to make change
Headquarters Memphis (USA)

Middle East and Africa Division

Canada Division

Asia Pacific Division

USA Division

Latin America Division

Conclusion
Pros: First-mover advantage in its international expansion (since 1984) Core-compentences based at home (no outsourcing) Significant E-business advance of FedEx KEY strengh as Internet reinforces standardisation Cons: Cross cultural problems increase with global strategy management innefective Global strategy increases the FedEx reliance on National regulations (especially towards air regulation)
Regulations have a strong impact on the ability of a company to standardize (Visvanathan and Dickson,2007,p.55)