Airborne Express - Five Forces Essay

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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
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However, such avenues of delivery limit the customer’s presentation options (cannot bind business reports / “deliverables”). Also, the customer cannot transport a non-paper package (e.g. a book, a desk) via this delivery system. b) Regular mail only cost 32 cents for letters. The post office is also very convenient. However, in regards to packages, the post office is very poor in quality service and efficiency (cannot track packages efficiently and has an on-time delivery record much worse than commercial carriers) 3. Bargaining Power of Suppliers—Medium for the following reasons: a) Postal materials—numerous suppliers of necessary postal and packaging materials. Switching costs are not high. The postal materials suppliers have low bargaining power. b) Software programs combined with extensive customized programming updates / additions. The software and software customization industries both have numerous suppliers. However, given the complexity and uniqueness of such an information network, there are probably only a limited number of software and customization companies that can provide a carrier with a high quality system that is capable of smoothly integrating all the operation and customer service divisions. Furthermore, the switching costs have the potential to be extremely high because such a transfer could disrupt communication between the divisions, leading to poor quality service. In addition, the company would
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