Airborne Express - Five Forces
Exhibit: Five Forces Outline
1. Barriers to Entry—Medium to High for the following reasons: a) Economies of scale—the top three carriers (Federal Express, UPS, and Airborne Express) serve slightly more than 85% of the domestic express mail market. All three carriers deliver a high volume of packages, and thus, are able to spread fixed costs over more units. Also, each carrier has integrated technological systems that improved operational efficiency. In addition, intensive training programs of employees increase service and delivery efficiency. b) Extremely large capital requirements are necessary to enter the market. Hub facilities at airports (e.g. FedEx’s hub near Dallas cost $250 million); capital expenditures for air and ground fleets are large (e.g. New Boeing 767 cargo plane cost $90 million); large number of employees and high training costs. c) Supporting the physical distribution network of each company is an extensive infrastructure devoted to customer service and information management. The distribution networks for a company in the express mail industry require a heavily integrated and complex information system. Sophisticated information systems plan optimal routes for packages, assist in billing, and permit the tracing of packages. In addition, a large number of service representatives are necessary to assist customers, schedule package pickups, track packages, and obtain rate information. d) If a company were to enter the market and attempt to directly compete with either FedEx or UPS (i.e. not differentiating significantly and not attempting to service a specific market segment), then the dominant carrier companies could: lower prices, increase quality of service, and increase variation of services. 2. Threat of Substitutes—Low to Medium for the following reasons: a) Email (electronic mail) has a cost of 0 cents. Documents can be scanned into the computer and emailed directly to the receiver. A five-page
1. Barriers to Entry—Medium to High for the following reasons: a) Economies of scale—the top three carriers (Federal Express, UPS, and Airborne Express) serve slightly more than 85% of the domestic express mail market. All three carriers deliver a high volume of packages, and thus, are able to spread fixed costs over more units. Also, each carrier has integrated technological systems that improved operational efficiency. In addition, intensive training programs of employees increase service and delivery efficiency. b) Extremely large capital requirements are necessary to enter the market. Hub facilities at airports (e.g. FedEx’s hub near Dallas cost $250 million); capital expenditures for air and ground fleets are large (e.g. New Boeing 767 cargo plane cost $90 million); large number of employees and high training costs. c) Supporting the physical distribution network of each company is an extensive infrastructure devoted to customer service and information management. The distribution networks for a company in the express mail industry require a heavily integrated and complex information system. Sophisticated information systems plan optimal routes for packages, assist in billing, and permit the tracing of packages. In addition, a large number of service representatives are necessary to assist customers, schedule package pickups, track packages, and obtain rate information. d) If a company were to enter the market and attempt to directly compete with either FedEx or UPS (i.e. not differentiating significantly and not attempting to service a specific market segment), then the dominant carrier companies could: lower prices, increase quality of service, and increase variation of services. 2. Threat of Substitutes—Low to Medium for the following reasons: a) Email (electronic mail) has a cost of 0 cents. Documents can be scanned into the computer and emailed directly to the receiver. A five-page