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UPS vs. FedEx
Case Overview
Battling for dominance in the $19 billion express and air delivery market are two formidable competitors: Federal Express Corporation (FedEx) with nearly $6 billion in assets and the almost twice larger United Parcel Service of America, Inc. ... The case spans the 1980’s through 1995, a particularly challenging time period for both companies and one that included:
· Intense focus on product innovation, customer satisfaction, total quality management, and process reengineering,
· Large investment outlays toward optimizing efficiency and customer service through modern technology,
· Shifting market dominance as the overnight delivery market matured and efforts toward the 2-3 day delivery market heated up,
· Changes in the business environment that included deregulation in the airline and trucking industries and the effects of inflation,
· Rising global competitiveness and a movement toward “just-in-time” inventory processes,
· An intensely competitive oligopolistic environment involving mutual interdependence in products, pricing, procedures, and promotion. ... His strategy was to actually purchase planes (with a $4 million inheritance and $91 million in venture capital) and use an innovative hub-and-spoke distribution pattern out of the home base in Memphis, Tennessee, to provide a cheaper, faster service than his competitors. ... Founded by Jim Casey in 1907 as a bicycle messenger service on the promise: “Best service - lowest rates” and a $100 initial outlay, UPS has grown into the world’s largest global transportation company. ...
Key Issues
Does the financial data provide insights as to how each firm was meeting the competitive challenges listed above, and does one firm emerge as a leader in creating value? ...
Industry Analysis
The competitive environment of the express delivery industry in the 1970s and 1980s reflected companies in very different situations. ... However, there were three main factors driving the changes: globalization, technological developments, and service enhancements. ... FedEx acquired Gelco Express in 1984 to penetrate the European market. Additional acquisitions in Britain, the Netherlands, and the United Arab Emirates quickly followed. ... ”
The rapid evolution of information technology also had a dramatic impact on the delivery express industry. ...
The billions of dollars spent by the two companies on information technology was a means of enhancing service. ... In fact, FedEx was offering 10:30 AM delivery in 1982, while it took FedEx eight additional years to offer the same service. ... UPS also implemented same-day pick up, a service that had always been employed by FedEx. FedEx introduced two-day service in 1990 in an attempt to compete in UPS’s core market. Three years later, UPS offered a cheaper three-day service to challenge the Fed-Ex’s two-day service. ... Secondly, UPS’ WACC calculation included percentage of Market Value of Equity number, which is skeptically high. The company estimated its own stock price and then used it to calculate its Equity Market Value. ... Neither can it be said that FedEx successfully created shareholder’s value. ... 4B of shareholder’s value over 10 years. ... Despite the fact that UPS’ total return could have been overestimated, it is inarguable that it added more value to its shareholders than FedEx during 1982-1994 years. ... 33 percent and its total market value of equity declined $85 million. ... This means that the intrinsic price, the present value of all future cash flows on a per share basis, should be the same as the market price. ... From Exhibit 1 in the case, it is evident the two companies dominate the air-express delivery market and increases in one company’s market share means a decreases in its rival’s market share. ... Thus, if the market is perfectly efficient and reacts immediately to new information, the market value of FedEx was reduced by the present value of the lost annual cash flow, and accordingly, the stock price was decreased by the amount of present value per share. ... 33% and the total market value of equity decline of $85 million. ... ”
¯ Federal Express Mission Statement
“[We will] maintain a financially strong, manager-owned company earning a reasonable profit, providing long-term competitive returns to our shareholders.”
¯ United Parcel Service Mission Statement
As can be noted, FedEx appears to be setting a very high standard for themselves by choosing adjectives such as “outstanding,” “totally reliable,” and “competitively superior. ... FedEx believes that by working as a team, they can deliver exemplary customer service, which would then translate into “outstanding” financial returns to their shareholders.
Approximate Word count = 3573
Approximate Pages = 14.3
(250 words per page double spaced)
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