FedEx in Saudi Arabia Essay Sample
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FedEx in Saudi Arabia Essay Sample
1.0 Executive Summary
The FedEx Corporation has its headquarters in Memphis, Tennessee. Its business is divided into four operational areas, which are directly involved in the transportation, commercial services and e-commerce segments. These four operational areas include the Federal Express Corporation, more popularly known as FedEx Express, and which is the world’s leading provider of express transport services. It delivers an estimated three and a half million packages every day, to clients in more than 220 countries (Annual Report, 2008; “Air Courier Services”, 2008).
The FedEx Ground Package System Inc., which is famously known as FedEx Ground, provides overland delivery of small packages, while FedEx Freight Corporation provides less than truckload freight services. Its FedEx Services subsidiary provides “customer-facing sales, marketing and information technology support, as well as retail access for customers through FedEx Office and Print Services, Inc. (“FedEx Office”), formerly FedEx Kinko’s, primarily for the benefit of FedEx Express and FedEx Ground” (Annual Report, p.27).
Faced with a rapidly maturing market in the US, high and rising fuel costs, and intensifying competition, FedEx has increasingly began shifting its attention to foreign markets as a way of driving its growth (Annual Report, 2008; “Air Courier Services”, 2008). One of these markets that the company has turned to is Saudi Arabia. In this paper, we shall present the marketing plan of the FedEx Express in relation to the Saudi Arabian market.
2.0 Situational Analysis
2.1 Market Summary
2.1.1 Market Demographics
Geography: Saudi Arabia is located in South West Asia, more precisely in the Middle East, and occupies a total area of 2, 240,000 square kilometres. To the west, it is bordered by the Red Sea, while Kuwait, Iraq, and Jordan border it to the North. Its southern neighbours include Oman and Yemen. To the East, Saudi Arabia is bounded by the United Arab Emirates, Bahrain, Qatar and the Arabian Gulf. It has wide coastlines, which give it a significant advantage in shipping, especially through the Suez Canal and the Persian Gulf, a factor that could prove significant to FedEx’s freight and shipping business (CIA, 2008).
Demographics: According to the CIA (2008), Saudi Arabia had an estimated population of slightly over 28, 140,000 by July of this year. Out of this population, slightly over five million people in the country were not Saudi nationals. Close to 60% of the Saudi population falls in the 15-64 age bracket, with 38% falling in the 0-14 age bracket. Those over 64 years old are a small minority. With a median age of only 21.5 years, the Saudi population is therefore young.
It has a population growth rate of 1.95%, with males outnumbering females across all age brackets. 90% of the Saudi population is made up of Arabs, while the remaining 10% comprises of Afro-Asians. The predominant religion in the country is Islam, with 100% of the population professing to be Muslims. The main language spoken is Arabic, and the country’s literacy rate stands at 78% (CIA, 2008).
Political Factors: Saudi Arabia’s government is constituted as a monarchy, with its capital in Riyadh. It is divided into thirteen administrative divisions known as mintaqat. These administrative divisions include: “Al Bahah, Al Hudud ash Shamaliyah, Al Jawf, Al Madinah, Al Qasim, Ar Riyad, Ash Sharqiyah (Eastern Province), ‘Asir, Ha’il, Jizan, Makkah, Najran, (and) Tabuk” (CIA, 2008, P.3). Saudi Arabia is governed according to the Islamic Shariah law. Its legal system is also based on sharia law, although a few secular codes have also been enacted. The country has not consented to the compulsory jurisdiction of the International Commission of Jurists (ICJ). Its population enjoys limited suffrage, which is granted only to males who are at least 21 years old. The King is both the head of state and the head of government. The cabinet, also known as the “Council of Ministers”, is appointed by the King, and mostly comprises of members of his family. Since the country is a monarchy, no elections for the head of state or government are conducted (CIA, 2008).
Even though plans were announced to introduce elections for the legislative assembly, no elections have ever been held for legislators in the country. Instead, they are selected through the Council of Ministers. There are no political parties in the country, with the only pressure group that has been known to exist in the country being the Ansar Al Marah, which advocates for the rights of women. Some of the notable organizations in which Saudi Arabia is a member include the World Trade Organization (WTO), UNCTAD, and the Gulf Cooperation Council (GCC) (CIA, 2008).
Behaviour Factors: various models have been used to analyze the distinct behaviour of nation states, some of which include the model of Trompenaaars and Hampden-Turner and that of Geert Hofstede. For purposes of this report, we shall describe the Saudi behavioural factors using Hofstede’s analysis. The Hofstede analysis of country behaviour classifies behaviour along five dimensions. These dimensions are: the power index, individualism, masculinity, uncertainty avoidance, and long-term orientation. The power index refers to the extent of inequality or equality in the country, with a high score along this dimension indicating that power and wealth inequalities exist in the country and opportunities for upward mobility of its citizens are restricted while a low power index suggests equal opportunity for everyone and greater equality. The individualism dimension expresses the extent to which the society is collective or individualistic, with a high score indicating an individualistic society and a low score a collectivist one (Taylor, 2008).
The masculinity dimension refers to the extent to which the society reinforces the traditional male dominant role with a high score along this dimension indicating that the society in question encourages the differentiation of gender roles with males holding all the dominant power positions and females being subordinate to them. The uncertainty avoidance dimension examines the extent to which the society in question tolerates ambiguity and uncertainty. A low score along this dimension indicates that the country is open to differences of opinion and less averse to risk, while a high score indicates the contrary. Another dimension is the long-term orientation dimension, which indicates the extent to which “the country prescribes to the values of long-term commitments and respect for tradition. This is thought to support a strong work ethic where long-term rewards are expected as a result of today’s hard work” (Taylor, 2008).
Analysis of Saudi Arabia along these five dimensions reveals that Islam plays an instrumental role in shaping individual and society behaviour in the country. Saudi Arabia scores 80 on the power distance dimension, which suggests an extremely high power distance. In addition, it scores 68 on the uncertainty avoidance dimension, which is also an extremely high score that suggests that the country is less opinion to differences of opinion and less averse to risk (Taylor, 2008).
The scores on the two dimensions give a picture of a country that is highly rule oriented, and which has large inequalities of power and wealth, with a few people monopolizing the vast majority of the country’s resources / wealth and power. The society will have a lot of regulations, controls, and laws to reduce uncertainty with the leaders of the country wielding absolute power and using their positions to further entrench themselves (Taylor, 2008).
Saudi Arabia also scores relatively high on the masculinity index. It has a score of 52 against a global average of 50.2, which is an indication that there is still a lot of gender differentiation with men occupying the traditional dominant role and women still being considered inferior. Unlike in the preceding three dimensions where Saudi Arabia scores high, in the individualism index it scores only 38, indicating a society that is highly collectivist rather than individualistic. In such a society, there is a long-term commitment to member groups such as families, where loyalty to the members of these groups is a most important consideration (Taylor, 2008).
Saudi Arabia’s economy is predominantly based on oil. Oil contributes up to three quarters of the country’s revenues and slightly less than half of its Gross Domestic Product (GDP) (CIA, 2008).
In 2007, the country had a GDP based on a power parity mode of $546 billion. Its economy is projected to grow at annual rate of 3.5%. It has average per capita incomes of $19,800, with a high unemployment rate that has been estimated to stand between 13% and 25%. 2007 estimates put its inflation rate at 4.1%. It has a positive current account balance that stands at $86.62 billion. Its largest export partner is the US, with other major partners including Japan, South Korea, China and Taiwan. Its currency is the Saudi Riyal, exchanging at a mean rate of 3.745 to the dollar (CIA, 2008).
Saudi Arabia has a fairly well developed communications and transport infrastructure. In 1998 (the latest year in which statistics are available), the country had a total of 78 radio stations, and 117 TV stations. In 2007, it had 6.2 million internet users, over 141,000 internet hosts, and 28 million cell phones (about one for each person in the country). It has a modern telephone system based on microwave, fibre optic cable and co-axial cable. Through sub marine cable (FLAG, SEA-ME-WE-3 and SEA-ME-WE-4), satellite earth stations, and coaxial cable, the country is well connected to Asia, Europe, the Middle East, and the US (CIA, 2008).
In 2007, it had a well-developed transport infrastructure consisting of 213 airports, 8 heliports, extensive railways, roadways, and pipelines, 62 merchant marines, and four modern ports and terminals (CIA, 2008).
2.1.2 Market Needs
Customers typically look for high levels of efficiency (that is faster delivery of their packages or cargo), reliability, and high levels of customer service (Hoovers, 2008).
2.1.3 Market Trends
According to “Courier Services” (2008), the proliferation of e-commerce has shifted the market towards smaller, high volume, and individualized packages. In addition, the growth of technology is leading to the demand for and provision of faster, timely deliveries.
2.1.4 Market Growth
According to Hastings (1994), the express market in Saudi Arabia is growing extremely fast. While quoting a top Aramex official, Hastings (1994) estimate that the rate of growth of the Saudi Arabian express parcel services is between 25% and 45%. Another more conservative estimate, as quoted by Hastings (1994), is that given by a senior executive of the DHL, who estimates the Saudi market to be growing at a rate of 25% to 30%.
According to Hastings (1994), the entire Middle East express market is worth about $150 to $180 million, with Saudi Arabia contributing the lion’s share of this market. The Saudi market alone accounts for up to $100 million of the $180 million.
According to the “SNAS/DHL” (2002), the joint venture company SNAC / DHL controls 50% of this Saudi market. The main revenue centre for the Saudi express market is the shipment of documents, which generate about 80 out of every dollar generated, with packages / parcels making up just 20% of the market.
2.2 SWOT Analysis
FedEx has a number of strengths, which it can leverage on to exploit the Saudi market. Its large size grants the company economies of scale. For example, it can undertake bulk purchasing of fuel through which it gains significant volume discounts. It has managed to establish account relationships over its long years of existence. In addition, it has access to advanced logistical technologies. FedEx also enjoys the possession of proprietary assets and technologies. It has a proprietary computerized tracking system that allows the company to monitor the movement of parcels and cargo and be able to pinpoint their exact location as they move from the point of origin to the destination. Other technology it enjoys includes the Digitally Assisted Dispatch System, through which the company can communicate with its couriers in their vans from anywhere. Its Electronic Data Interchange (EDI) system, known as PowerShip, enables its clients to calculate their billing and to be able to track their cargo, and has established self-service centres built around the Automated Teller Machine (ATM) technology (Annual Report, 2008; “Air Courier Services”, 2008).
FedEx enjoys market leadership position in the world in the express transportation business. In addition, it has significant financial resources; infrastructure and assets that can help it exploit opportunities in the marketplace. According to “FedEx Appoints” (2002), these facilities help connect the company to areas that generate 90% of the entire world’s GDP in just twenty four to forty eight hours. It has a superior customer service that is backed with 32 call centres spread across the globe that handle in excess of 130,000 calls on a daily basis.
Another strength that FedEx enjoys is that it has achieved a strong, widely recognized, and highly regarded brand name. Having obtained first mover advantages, its name has become almost synonymous with the express transportation business. According to the company’s annual report (2008, p.51), “: “The FedEx brand name symbolizes high-quality service, reliability and speed. FedEx is one of the most widely recognized, trusted and respected brands in the world, and the FedEx brand is one of our most important and valuable assets. In addition, we have a strong reputation among customers and the general public for high standards of social and environmental responsibility and corporate governance and ethics.”
According to FedEx’s annual report (2008, p.32), most of the company’s pilots are employed under collective bargaining agreements, the effect of which has been to increase employee costs for the company, putting it at a relative disadvantage.
According to FedEx’s Annual Report (2008, p.51), many of its competitors in the Saudi market are either subsidized or controlled by the government, and others have more financial resources than FedEx, which gives them a higher capacity to raise cash and to compete more effectively than FedEx can.
Strong indicators of the Saudi economy provide enormous opportunities for FedEx to grow its earnings and market share. According to Hoovers (2008), demand for freight and trucking services is partly driven by domestic output. With a strong GDP that is supported by growing revenues from high crude prices, and an economic growth rate of 3.5%, there exists significant growth potential and demand in the market for FedEx to tap into. Strong growth of the express market in Saudi Arabia (at a rate of 30-35% as earlier explained) also suggests a generally rosy picture of the Saudi market that FedEx can tap into.
Hoovers (2008) also states that trucking is also largely dependent on consumer spending. With a low inflation rate (estimated at 4.1%, as earlier stated), disposable incomes in the country are likely to be high leading to discretionary expenditure on trucking services. This implies a high demand potential for FedEx’s services.
Saudi Arabia’s strategic location, which provides easy access to the rest of the world through the Suez Canal and the Persian Gulf, also gives an opportunity for easy accessibility. Saudi Arabia, which is a member of the Gulf Cooperating Countries (GCC), can also be used by FedEx as the gateway to the greater gulf region that includes countries such as Bahrain, Qatar, Dubai, and the United Arab Emirates. Through Saudi Arabia, FedEx could also expand to the North African region connected to the country via the Suez Canal.
The services offered by FedEx demand top of the class infrastructure and logistical support. Saudi Arabia’s well developed infrastructure, consisting of world class communication and transport facilities, offer the company opportunities to uphold and even improve the reliability, efficiency and quality of its service.
Even though Saudi Arabia’s economy is still highly controlled by the government, the country’s accession to the World Trade Organization (WTO) has given hope that these restrictions will be gradually eased. According to Minter (2008), the legislation known as the Foreign Investment Act of 2000 formally abolished the requirement that previously made it mandatory for foreign-owned firms to gain endorsement from merchant families before being allowed to enter the Saudi market. It also allowed foreign firms to enjoy a controlling stake in their enterprises. Consequently, Saudi Arabia was ranked sixteenth in the “World Bank’s Ease of Doing Business Index”, far ahead of its neighbours such as Bahrain, Qatar, the UAE, Kuwait, and Oman. FedEx can take advantage of these permissive regulatory requirements to expand its market presence in the Saudi Arabia.
Technological advances, and especially the heady proliferation of the internet, have brought about paradigm shifts in the traditional Business to Consumer (B2C) model. The internet is offering couriers the opportunity to cut out the intermediaries and to interface directly with the end consumers. Part of this is due to the increase in online shopping, whose convenience is attracting many people in the current generation, and triggering off a high demand for parcel delivery services. According to “Courier Services” (2008), this is resulting in a situation where higher volumes of smaller packages are being transacted, a trend that FedEx can take advantage of especially considering Saudi Arabia’s good rate of internet penetration.
Since Saudi Arabia follows the Islamic sharia law and has not consented to compulsory ICC jurisdiction, there is no guarantee of the protection of the property rights of foreign owned companies. There is also no guarantee that arbitration of commercial disputes would be just, which makes investment into the country a risky affair.
International terrorism is one of the greatest risk factors for the international courier, freight or trucking business. For example, following the 9/11 terrorist attack, FedEx’s business tumbled significantly. The holiest site of Islam is in Mecca, in Saudi Arabia. With Islam being the only religion in the country, and considering America’s role in the war against terror, American companies such as FedEx could be soft targets in the country. As the company’s annual report (2008, p.52) states, concerns about international terrorism have led governments everywhere to introduce more stringent security requirements which are likely to raise costs for the company.
In countries that have a high power distance and high uncertainty avoidance, power is not negotiated but forced upon the people. With large inequalities in wealth, there is usually instability festering and since new leadership cannot arise through diplomatic or democratic means, the potential for armed insurrection in such countries is potentially often high. Saudi Arabia has all the necessary ingredients for this to happen, especially considering that 40% of all population is composed of youths under fifteen years of age, where unemployment runs high (25%).
Even though Saudi Arabia has a high unemployment rate and a large youth population that offers a ready pool of labour, the CIA (2008, p.3) states that they “generally lack the education and technical skills the private sector needs.” As a result, FedEx may be forced to make use of expatriate workers, who at present number about five and a half million. The danger with using expatriate workers is that FedEx may not gain cultural acceptability and acceptance in the country, which may reduce its chances of success in the Saudi market. According to Minter (2008, P.2), “It is extremely difficult to get skilled manpower – . A limited skilled Saudi workforce makes ex-pat workers essential, but professionals demand high wages to work in the kingdom.”
The high uncertainty avoidance has led to a rule-oriented society, where laws, controls, and regulations are used to control uncertainty and reduce risk, which is likely to be an impediment to many businesses especially foreign owned ones such as FedEx. For example, according to Minter (2008), investment in certain sectors that are considered strategic is prohibited for foreigners. According to Hastings (1994, p.2), “The postal administrations in a number of Middle East countries still regard themselves as the only rightful carriers of letters and seek to place restrictions on private service companies.”
Because it trades in over 220 countries worldwide, FedEx is exposed to the risk of currency fluctuations. A weakening of any of those currencies against the dollar would see the company make losses arising from currency fluctuations. Given Saudi Arabia’s position as the dominant producer and exporter of oil in the world, such a situation is highly likely (FedEx Annual Report, 2008, p.50).
Another threat that FedEx faces is that from intensifying competition. Apart from facing seasoned competitors such as DHL Worldwide, TNT Express, and Aramex, there are also more competitors getting into the Saudi market, some of which include the American firm Emery Worldwide and the Nationwide Express Courier Services Bhd based in Iraq (Hastings, 1994).
The main competitors that FedEx faces in the Saudi Arabia market include DHL Worldwide, Aramex, and UPS. According to Hastings (1994), DHL Worldwide, through its local affiliate known as the SNAS Trading & Contracting, maintains the dominant market share of the Saudi market. The puts DHL’s market share at 50% of the air express industry in the country. Eight out of every ten shipments comprise of documents, while packages make up just twenty percent of all shipments. DHL / SNAS also make up half of the entire market for domestic shipments within the country.
With just one firm controlling half of the entire market, the Saudi market can be said to be highly concentrated. Increasingly, more competitors are getting into the industry, some of which include Emery Worldwide from the US, and the Nationwide Express Courier Services Bhd in Iraq (Hastings, 1994). This is bound to intensify competition in the market. With the gradual deregulation of the Saudi economy, most barriers to entry into the industry are also being brought down, which is also likely to raise the competitive stakes even higher. Other competitors, according to Hoovers (2008), include all firms that provide water, air or rail transportation of cargo.
2.4 Product Offering
Marketing theory distinguishes between three levels of a product: the core product, the actual product, and the augmented product. The core product that the company offers is “connection of individuals and businesses to new ideas, customers and markets around the world” (Annual Report, 2008, p.11).
According to FedEx’s annual report (2008, p.25), the company’s business is divided into four operational areas, covering transportation, commercial services, and e-commerce. Towards that end, the company’s actual product consists of the delivery of small packages on ground (through FedEx Ground), provision of Less Than Truckload (LTL) services (through FedEx Freight) and the provision of “customer-facing sales. Others are marketing and information technology support, as well as retail access for customers through FedEx Office and Print Services, Inc. (“FedEx Office”)” and express transportation services through FedEx Express.
The company’s augmented product consists of exceptional customer service, efficiency, and reliability. To achieve this, the company has actualized techniques such as shorter delivery times, a network of customer support centres, tracking systems that enable customers to monitor the movement of their cargo, enhanced consumer convenience, and so on.
2.5 Keys to Success
According to Hoovers (2008), the key to success for FedEx, like for all the large competitors in the freight forwarding and trucking businesses is to maintain a high degree of efficiency in operations, develop extensive carrier and network carrier relationships, and a high degree of expertise in the industry. In addition, given increasingly demanding consumers, it is necessary for firms competing in the industry to offer services that are reliable, efficient. The quality of the customer care that the company offers is also a key differentiator and critical element of success in the industry.
2.6 Critical Issues
As the analysis of the Saudi market in the preceding section shows, FedEx should address various critical issues before implementing its marketing plan into the country. The first issue has to do with the high degree that investing into the Saudi market entails. According to Schraeder (2002, p.32), economic success is closely tied to economic freedom, which in itself depends on the democratic space prevailing in the country. With an oppressive political climate prevailing in the country, a legal system that is based on the Islamic sharia laws, terrorism fears, and extensive government regulations, the degree of risk that FedEx faces in the Saudi market is extremely high, notwithstanding the growth opportunities that the marketing offers. To deal with this issue, the company may consider adopting a market entry strategy that offers the company the lowest exposure to risk. An export strategy would be ideal, but considering the exposure to foreign currency fluctuations that such a strategy may entail and the duties that it would attract, a joint venture strategy would be ideal.
By collaborating with a local company, FedEx would be able to avoid most of the risks associated with foreign currency fluctuations, it would evade import duties, it would more appropriately meet investment requirements imposed on foreign companies, and it would spread risks since the investment would be jointly undertaken with a Saudi firm. More importantly though, the Saudi firm will grant FedEx cultural acceptability and the sensitivity that is required of the Arabic culture, which is an essential element of success for any firm wishing to venture into a foreign market (Mercer, 1996).
To address the problem of the general lack of skilled labour in Saudi Arabia, FedEx should use a blend of local personnel sourced from the Saudi market and expatriate personnel from the US. The expatriates will provide technology transfer, management skills, and headquarter acceptability while the locals will provide the cultural sensitivity to the Saudi culture required as well as a commitment to the Saudi market. By reducing the cultural, economic, political, and technological distance between the US and Saudi Arabia, FedEx will be assured of success in this market. It makes sense therefore, that it is out of these considerations that in deciding to service the Saudi market, FedEx announced a joint venture partnership with a local Saudi company (Hastings, 1994).
3.0 Marketing Strategy
From the company’s website (2008), FedEx’s mission statement is expressed as follows:
“FedEx will produce superior financial returns for shareowners by providing high value-added supply chain, transportation, business and related information services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx will strive to develop mutually rewarding relationships with its employees, partners and suppliers. Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards.”
To implement this mission is embraces certain values, which include promoting diversity among and respect fro its employees, offering of a superior customer service that is also driven by customer needs, integrity, responsibility, and loyalty (FedEx website, 2008).
3.2 Marketing Objectives
The marketing objectives of the company have not been explicitly stated, but can be inferred from the overall strategy as expressed in the mission statement. The mission statement suggests a grand strategy of growth, which implies the marketing objective of growing sales revenues and enhancing market share. One other objective that is expressly stated in the mission statement is that of offering exceptional customer service and high value-added products. These objectives, by extension, will be the marketing objectives that FedEx will seek to attain in the Saudi Arabia market (FedEx website, 2008).
3.3 Financial objectives
According to FedEx’s annual report (2008, p.15), the company has an overall earnings target growth of between 10 and 15%. These financial objectives will also be extended to the Saudi Arabia market.
3.4 Target Markets
As stated previously, Saudi Arabia is divided into thirteen administrative divisions, which include “Al Bahah, Al Hudud ash Shamaliyah, Al Jawf, Al Madinah, Al Qasim, Ar Riyad, Ash Sharqiyah (Eastern Province), ‘Asir, Ha’il, Jizan, Makkah, Najran, (and) Tabuk.” FedEx will not segment the market geographically, but will offer its products in all these regions. This will enable the company take advantage of economies of scale, which as stated previously is primary to success in the trucking and freight market (CIA, 2008).
The markets will also be segmented based on whether they are institutional customers or individual customers (business and household segments). Within the individual customer segment, the market shall be segmented on the basis of psychographics. The VALS profiling system identifies eight consumer groups, which include the innovators, the thinkers, the achievers, the experiencers, the believers, the strivers, the makers, and the survivors (SRI, 2008).
The FedEx express service will primarily be targeted at large businesses and the innovator, experiencer, and thinker segments of the market. Given the high degree of uncertainty avoidance and power distance, these market segments are likely to be very small, but given the large expatriate population, these will make up the bulk of this market. The characteristics of these individual market segments is that the members are well educated, are well informed, and even though they may respect the status quo, they are often welcome and open to new ideas. They also have high levels of disposable income and are therefore in a position to pay for the faster delivery times that the express service offers. Experinecers may not have high levels of income, but are very open to experimentation with new ideas and will go out of their way to spend disproportionately high levels of their incomes on new products. The FedEx ground will be targeted at smaller businesses. By having a relatively lower price and longer delivery times, the product will be ideal for such businesses (SRI, 2008).
FedEx will be positioned as providing the best customer service, the fastest delivery, and the highest degree of reliability. This desired image will be achieved through marketing communication and branding.
Strategic management theory recognizes three levels of strategy: the corporate strategy level, the business strategy level, and the functional level of strategy. As previously stated, at the corporate level, FedEx follows a grand strategy of growth. According to Porter (1998), a company can adopt three strategies at the functional level of a business. These include the generic strategies of differentiation, cost leadership, or the niche / focus strategy.
In Saudi Arabia, FedEx will adopt a mix of differentiation and cost leadership strategies. The product will be differentiated from that of competitors based on exceptional customer service, high value-added quality, reliability and efficiency. The cost leadership strategy will be done by taking advantage of the company’s economies, and innovating more efficient processes (such as direct marketing through the internet to cut out middlemen and save costs) in order to reduce expenses and be able to offer lower charges especially for FedEx ground.
In line with the Ansoff Matrix, we shall adopt the four growth strategies that are available to firms pursuing a grand strategy of growth. These include the market penetration strategy, the market development strategy, product development strategy and the diversification strategy (Mercer, 1996, p.171).
In the market penetration strategy, we shall aim at increasing the current products in our product mix among current customers. Here, we shall try to convert low users into heavy users, and to transform the purchase of our product into a routine buy. Elements of the marketing mix will be used to achieve this goal. Under the market development strategy, we shall aim at bringing new customers on board. This will involve developing new markets for existing products. For example based on ongoing market developments, we may consider targeting additional market segments (such as the striver segment) or through adoption of new channels of distribution (Mercer, 1996).
In the product development strategy, we will aim at increasing sales revenues and market share through the innovation of new products, targeted at existing markets, while in the diversification strategy; the new products will be targeted at new markets.
FedEx has traditionally used the acquisition strategy to grow its sales, earnings, and market share (Mercer, 1996). According to its annual report (2008, p.31), “Our acquisition of FedEx National LTL extended our service offerings to the long-haul LTL freight sector. The acquisition of FedEx U.K. has allowed us to establish a domestic service in the United Kingdom and better serve the U.K. international market, while the DTW Group acquisition converted our joint venture with DTW Group into a wholly owned subsidiary and has increased our presence in China in the international market and established our presence in the domestic market. During 2007, we also made other immaterial acquisitions that are not presented in the table above.” FedEx will, consistent with established precedence, also use the acquisitions strategy to grow its sales and market share in Saudi Arabia.
3.7 Marketing Mix
The marketing mix refers to the set of controllable variables at the disposal of the marketer, to try to influence the market in favour of the firm. Traditionally, the marketing mix has consisted of the product, price, promotion, and place elements. Even though FedEx takes part in businesses across three sectors, in the Saudi Arabia market the product that will be offered is express transportation and ground delivery of small packages. The distinguishing features of our products, as previously outlined, will be exceptional performance, quality, and reliability, backed by an exceptional; degree of customer service (Mercer, 1996).
Two pricing strategies will be adopted: a penetration pricing strategy for the lower end of the market (the segment at which the ground delivery is targeted) and the premium pricing strategy (this will be offered for products targeted at the upscale end of the market – the express transport service). To achieve the strategy of market penetration, the four elements of the promotional mix will be extensively made use of. This will involve carrying out advertisements on TV, radio, newspapers, magazines, the internet, and using outside forms of advertising such as billboards positioned strategically in high visibility locations. The Advertisements will be based on FedEx’s current advertising theme of “Relax, its’ FedEx” but with minor modifications to adapt it to the Saudi culture. In addition, FedEx will make use of public relations, direct marketing through the internet, sales promotional techniques such as loyalty programs, and personal selling techniques. The distribution strategy that will be adopted will be the intensive distribution strategy. Channels will be short (ideally zero level or one level) to reduce middlemen costs (Mercer, 1996; FedEx website, 2008).
3.8 Marketing Research
FedEx will carry out ongoing research in order to adapt its products to shifts in customer preferences and tastes. Research will be conducted through primary means (gathered by customer care personnel and sales representatives from customers). Secondary sources such as industry publications and economic reviews will also be used.
According to Hastings (1994), the Saudi Arabia market is estimated to be worth $100 million, and growing at a rate of between 25% to 45%. DHL and its local Saudi partner currently enjoy 50% of this market. In the first year, we shall aim to make capture a twenty percent market share that translates into sales worth $20 million. According to FedEx’s annual report, the company has had an average margin of 9.3% (with the exception of this year when margins fell to 5.3%). Assuming only modest increases in efficiency, in line with the cost leadership strategy earlier discussed, we project an increase in the profit margin to 10%. Using the margin of 10%, this shall translate into profits worth $2,000,000. Consistent with the overall goal of registering growth earnings of 10 to 15%, our profitability in the Saudi market for the next five years will be presented as follows:
We are going to invest a total of $10 million dollars into the Saudi market. The investment will break even in 2013, so that after the end of the period in review, we expect to have a positive cash flow of $5.4 million. Our cash flow position will be represented by the cash flow analysis as shown below:
|Net cash flow||2m||2,200,000||2,420,000||2,662,000||2,928,000||3,221,020|
A team will be set up to oversee the implementation of the plan. This team will be made up of members drawn from the different functional areas of the company, and will also include members of the joint venture partner. The implementation will take a year and will involve identification of the joint venture partner, carrying out the valuation of the identified partner, negotiation of terms and agreements, putting up the required facilities, conducting the recruitment and training (including cross-cultural training), and rolling out distribution networks and the marketing plan. The goals will be broken down into a series of monthly goals whose implementation will be overseen by this team. Actual results will be compared against expected results, and deviations corrected.
The marketing organization of FedEx will be customer centred. Towards that end, a structure that is flexible, responsive and adaptive to customer needs will be used. This will be organic, with few management layers. Communication flows will mostly be lateral and will consist mostly of ideas and advice rather than vertical (and consisting of order and commands). It will make use of teamwork, and will be participative.
5.3 Contingency Planning
A contingency fund will be set aside to take care of any unforeseen events, which have the potential of upsetting the plans that may arise.
5.4 Difficulties and Risks
According to FedEx’s annual report (2008), the company is exposed to various risks, which include high fuel costs, potential terrorist attacks, seasonality of demand, potentially harmful regulatory actions by both the Saudi authorities and the Department of Transport (DOT), and potential fluctuations in foreign currency. The worst-case risks include high fuel costs and potential terrorist attacks.
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