This thesis aims to evaluate and formulate business strategy for FedEx Express in Vietnam to further promote the company’s competitive advantages. Fred R. David’s Comprehensive strategic management Model is used for this strategic formulation.
At the first stage of this process, FedEx Vietnam quantitative evaluations of internal, external environments and its Competitive Ability Profile are created. A strategic group of five managers and specialists who are knowledgeable in air express transportation industry is formed up to determine factors of each matrix and weight/ score of each attributes of these components.
Data from this input stage shows the company’s Internal Factor score shows company’s weakest points are operating under agency contract.
FedEx External Factor score reveals the company is responsive to external environment. However the level of responsiveness to competitors and administration style in Vietnam is not high.
In Competitive Profile Matrix, FedEx ranks the second position among the four market leaders. The areas that company needs to look into for improvement is customer service and marketing.
With the data from input stage, SWOT matrix and Grand strategy matrix are used to formulate all applicable strategies.
At final stage of the formulation process, all alternative strategies that were selected in matching stage are put in Qualitative Strategic Planning Matrix (QSPM) to determine which strategies out of given alternative strategies are more attractive.
With the result, the thesis goes to some recommended tactics for some key functions to implement the two selected strategies for FedEx in Vietnam.
RATIONALE THE RESEARCH
As an infrastructure service, air express transportation playing more and more important role in the global economy. In Vietnam, the economic booming and dramatic growth of international trade bring very high demands for air express transportation. This demand is critical in both terms of transportation capacity and quality of service.
Being in Vietnam for more than 17 years, FedEx Express – the world leading air express transportation company, has been operating under agency contract with Seabornes Logistic. This business model gave FedEx an excellent access to Vietnam market at start up. However after more than 17 years of development, in new business context with stronger competition and higher customer demand the company is facing with following challenges:
Gap between customer needs and the ability of the operation team
Various customer demand for value added service versus the current core products
Harder competition from main competitors
This situation requires FedEx VN to review its strategy for necessary adjustment in order to maintain the good growth and steadily expand its market share. And that is my purpose to choose this topic for my thesis.
RESEARCH OBJECTIVES
The research has 3 main objectives:
Review strategy formulation models and theories that are applicable to the practical business.
Evaluate FedEx’s competition ability in the context of Vietnam air express industry.
The research will propose recommendations for FedEx business strategy in Vietnam from now to the year 2018.
This research will answer the following questions:
Why FedEx need to change its business strategy in Viet Nam?
What is attractive strategy for FedEx Vietnam to 2018?
RESEARCH METHODOLOGY
Fred R. David’s strategy formulation framework is used for the strategy evaluation and selection.
The model includes three stages: input stage, matching stage and decision stage.
In the input stage, a team of strategists with participation of fifteen members from regional and FedEx Express Vietnam sales, marketing, customer service and operation management was formed up.
The team discussed and agreed on list for internal factors (for Internal Factor Evaluation – IFE Matrix), external factors (for External Factor Evaluation – EFE matrix) and key success factors (for Competitiveness Profile Matrix).
After the three matrices created, members of the team score weight and rate of each component factor independently. The collective IFE, EFE and CPM are made up by average the score from each team member. These matrices then are brought to team discussion for final review and comment.
Secondary data from FedEx profiles, industry surveys/reports and related information from Internet was used for the team analysis and evaluation.
In the matching stage, outcome of the input stage is used to generate feasible alternative strategies. SWOT matrix and Grand Strategy Matrix are the two techniques in this stage. Result of matching stage is a consolidated work sheet with all alternative strategies. The strategies which are applicable in both matrices are picked up for analysis in Quantitative Strategic Planning Matrix (QSPM).
In QSPM strategist can determine which strategy is most attractive to the firm base on attractive score. This is the last stage of the process.
SCOPE AND LIMITATIONS
The research is for business strategy of FedEx Express in Vietnam from now to 2018. However strategic management is a continuous process containing of strategy formulation, implementation and evaluation. But in the scope of this research, the thesis will focus on some business strategies recommendation for FedEx Express Vietnam only.
Given the scope of the thesis, detail implementation plan and evaluation/feedback for continuous improvement which are equally important to ensure a successful strategy were not deeply mentioned in the research. Without evaluation and feedback, management cannot get all employees involved in the strategic management process and hence cannot take full advantage of the process.
CHAPTER I: THEORICAL FRAMEWORK
Strategy and Business Strategy
Definitions
Strategy is not a new concept. In modern economy, when talking about business, strategy is usually the first thing to be mentioned. It is considered as cornerstone of business which determines failure or success of a firm. There’ve been a lot of definitions by scholars and researchers over the world.
In an article “What is strategy?” on Havard Business Review in 1996 , Micheal E. Porter defined strategy as “creating fit among a company’s activities. The success of a strategy depends on doing many things well – not just a few – and integrating among them. If there is no fit among activities, there is no distinctive strategy and little sustainability.”
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Regarding corporate strategy, a definition by Kenneth R. Andrews in 1998 supposed “Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes and goals” and it “produces the principle policies and plans for achieving those goals, and defines the range of business the company is to pursue”. Strategy also defines the kind of economic and human contribution it intends to make to shareholders, employees, customers and communities.
Another definition by John A. Pearce in 2000, a strategy “reflects company’s awareness of how, when and where it should compete, against whom it should compete and for what purpose it should compete”.
In all mentioned definitions, strategy and business strategy are almost the same in a corporate or entrepreneur scope.
So, in general, a business strategy defines how a business/firm will go to succeed in its industry and market against its competitors. So, it should represent the ways that the management can make to define and secure the future of that business. In particular, a business strategy defines the scope of business, objectives, offering values, competitive advantages to meet customer needs as well as succeed now and in the future.
Furthermore, a business strategy should include both objectives to be accomplished and the actions must be done to follow that direction.
Business Strategy Management
Business strategy management is defined as the set of decisions and actions that result in the formulation and implementation of plan designed to achieve a company’s objectives. In general, business strategy management process includes three steps:
Figure 1: Strategy management process
Source: Strategic Management, Statistic Publishing House 2007
The formulation step includes analysis of current situation, forecast of future status to select and set up an appropriate strategy.
Implementation is a process to achieve strategic target(s) by using strategy formulation that set out in previous step.
To make the strategy working well, an important step is evaluate and adjustment. At this phase, the implementation is analyzed to see if there is any area that firms need to change to make the strategy more adaptable.
Business strategy management helps enterprise clearly determines its objectives and how to archive it. It is instrumental in archiving high performance, cost effective and action oriented.
With setting up of short term objectives in supporting for long-term ones, the process involves all members of the company, from front line employee to senior management level. This in return will enhance the firm to prevent troubles. Manager will get support from subordinates in forecasting of the strategic planning and in monitoring of the implementation stage.
The involvement of employees in strategic formulation also improves their knowledge of the productivity reward relationship in all strategic plans hence, it heightens their motivation.
The strategy management also helps the firm better adapt to changes of environment. The movement of environment, especially for those fast moving factors, usual creates opportunities as well as risks to the firm. Continuous strategic management which requires managers to analyze and forecast of the near and far future environments, helps manager to better manage and make the best of opportunities while minimize the risk that firm may have to face with.
However, business strategy management process usually requires a lot of time and effort from managers. This might has a negative impact to operational responsibilities. Manager must be trained to minimize this impact by scheduling their duties to allow necessary time for strategic activities.
Business Strategy Formulation Process:
To give out strategic decision, it requires a comprehensive study on internal and external environments of a firm in regard to the firm objectives.
Going to further details of the formulation process, it can be divided into 3 stages:
Figure 2: Strategy formulation process
Source: Strategic management concept and case, Fred R. David 2007
Input stage
In this stage, firm has to gather all basic input information that is required to formulate strategy. They include External Factor Evaluation Matrix (EFE), Internal Factor Evaluation Matrix (IFE) and Competitive Profile Matrix (CPM).
External Factor Evaluation:
EFE summaries and evaluates both macro and industry (micro) environments. Base on that evaluation, strategist can determine opportunities and threats to have appropriate solution. The aim is to promote opportunities and avoid or reduce impact of the threats.
Macro Environment: PEST model is a good tool for evaluation. The components of this model include:
Political: The direction and stability of the political factors are major consideration of managers in formulation strategy. Political factors define legal and regulatory frame in which the firm operates in. It includes law and regulation on fair trade, minimum wage, pollution, patent, trade mark and many other actions.
Economics: This regarding the nature, environment and direction the country’s economy in which a company operates. The factors to be evaluated include interest rate, inflation rate, finance policy, unemployment, risk level of investment, level of integration of the economy to world economy or to international organization that it is member of, trade balance, GDP growth rate and trends in growth of each economic sector.
Social: demography, social structure, life style, education, religion, etc are social factors that affect a firm.
Technology: Technological change can have a big impact on the industry that a firm operates. Creative technological adaptations can lead to possibilities for new products, for improvement of existing product.
Industry environment: Michael Porter’s Five Force Model is the tool for this analysis.
Competitors:
This is the major determinant of competitiveness of the industry. Factors to be evaluated are number of competitor, rate of industry growth, economic of scale, sustainable competitive advantages and fixed cost allocation per value added etc.
Suppliers:
The bargaining power of suppliers is measured by determining supplier switching cost versus the firm switching cost, degree of differentiation of inputs, present of substitute inputs.
Customers:
Bargaining power of customers is the ability of customer to force prices down, ask for more higher quality service and play competitors off each other. The level of this power depends on customer volume, switching cost, availability of substitute products and differentiation of products.
New entrants:
The new entrants bring threat of higher level of competition. This threat is measured through barriers to entry, switching cost, economics of scale, product differentiation, capital requirement etc.
Substitute products:
The existence of replacement product brings in threat of customer to switch to other alternatives. The determined factors are relative price of substitute, customer propensity to substitute, buyer switching cost, product differentiation.
Figure 3: Industry environment (Porter Five Forces Model)
Porter’s Five Forces
Source: Mindtool.com
After gathering information, all external factors are quantitatively evaluated with weight and rating score. Weight of a factor would indicate the relative importance of the factor to be successful in the firm’s industry. A weight assign to a factor can be from 0 to 1 with condition that total weight of all factors is 1.
Rating score measures responsive level of the firm to respective factor. It ranges from 1 to 4 with 1 = poor response, 2= below average response, 3 = above average response and 4 = superior response.
Figure 4: Steps to develop EFE matrix
Select key external factors.
Weigh importance of the factors from 0 to 1. Total weight of all factors must be equal to 1
Rate the level of response of the firm to each external factor from 1 to 4 with 4 is the highest rate
Calculate weighted score for each factor (TAS).
TAS = factor weight * rate
Total weighted score for the firm
The total weighted score (TAS) is equal to weighing score time rating score. The firm’s EFE TAS is sum of all external factors. This TAS shows the responsiveness of the firm to the external environment. If the score is 2.5 up, it means firm response to the environment well.
Internal Factor Evaluation
IFE summaries and evaluates major strengths and weaknesses in all areas of a firm. This includes:
Human resource:
The areas to be evaluated are ability to formulate and implement the firm’s strategy of it management at all level, readiness of the work force to implement that strategy, capacity of the organization structure in adapting with the changes of business environment.
Tangible asset:
Finance resource, facility, vehicle, raw material, etc. These items are normally reflected on company balance sheet
Intangible asset:
These are not assets that we can touch and see, but they are very often critical in creating the firm’s competitive advantages like brand name, company reputation, technical knowledge, patent and trade mark.
Functional groups:
Capacity and performance of each function of the firm like marketing, sales, finance, R&D, operation, quality management…
Similarly to EFE matrix, the IFE matrix is developed via 5 steps
Figure 5: Steps to develop IFE matrix
Select key internal factors.
Weigh the importance of the factors from 0 to 1. Total weight of all factors must be equal to 1
Rate the level of response of the firm to each internal factor from 1 to 4 with 4 is the highest rate
Calculate weighted score for each factor (TAS).
TAS = factor weight * rate
Total weighted score for the firm
The total IFE TAS of the firm shows how strong the firm is. If it is from 2,5 upward, it means the firm is in strong status.
Competitive profile Matrix
CPM identifies a firm major competitor and their particular strengths and weaknesses in relation to a sample firm’s strategic position (David, 2007). Different from EFE, critical success factor in a CPM are broader. They don’t include specific or fact data and even just focus on internal issues. The critical success factors in a Competitive Profile Matrix also are not grouped into opportunities and threats as they are in EFE. This provides internal strategic information that is also very important to the firm.
Matching stage
By matching and aligning key external and internal factors, this stage will generate all feasible alternative strategies. The technique use in this stage includes Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix, Grand strategy Matrix. Other matrices like Strategic Position and Action Evaluation (SPACE) Matrix, Internal-External (IE) Matrix, Boston Consulting Group (BCG) Matrix can be considered to use in this matching stage.
SWOT Matrix
The SWOT analysis was made popular by Andrew (1965). Through evaluating of components of a firm’s internal and external environments, this analysis enable the firm to approach its most feasible and applicable strategy to get its strategic objectives.
By answer the question how the company makes the most of its strengths, circumvent its weaknesses, capitalize on its opportunities and manage its threats, SWOT model provides an efficient tool for the company long range planning base on qualitative analysis rather than merely base on quantitative forecast (Edmund P. Learned, 1965).
SWOT matrix presents a mechanism for facilitating the linkage among company strengths – weaknesses – threats and opportunities in the market place. It also provide framework for strategy formulation with its 4 types of strategies: SO (Strengths-Opportunities) strategy, WO (Weaknesses-Opportunities) strategy, ST (Strength-Threats) strategy and WT (Weaknesses-Threats) strategy (Figure6).
Figure 6: SWOT/TOWS Strategic Alternatives Matrix
External Opportunities (O)
1.
2.
3.
4.
External Threats (T)
1.
2.
3.
4.
Internal Strengths (S)
1.
2.
3.
4.
SO
“Maxi-Maxi” Strategy
Strategies that use strengths to maximize opportunities.
ST
“Maxi-Mini” Strategy
Strategies that use strengths to minimize threats.
Internal Weaknesses (W)
1.
2.
3.
4.
WO
“Mini-Maxi” Strategy
Strategies that minimize weaknesses by taking advantage of opportunities.
WT
“Mini-Mini” Strategy
Strategies that minimize weaknesses and avoid threats.
Source: Mindtools.com
Manager can develop these 4 strategies by answering:
SO – How can his firm use its strengths to take advantage of the opportunities?
ST – How can his firm take advantage of its strengths to avoid real and potential threats?
WO – How can his firm use its opportunities to overcome the weaknesses you are experienced?
WT – How can his firm minimize its weaknesses and avoid threats?
Grand Strategy Matrix
Grand Strategy Matrix can be used by firm to select applicable strategies from all 15 principal grand strategies base on evaluating of two dimensions: competitive position and market growth.
The two dimensions of Grand Strategy Matrix make up a 4 quadrant axis.
Quadrant I is for firms which have strong competition position and operate in rapid growth industry. Aggressive strategies like market penetration, market development, and product development strategies are effective choice for the firm to further promote its competitiveness. The firm can also choose vertical integration to acquire business of its supplier or customer if it has excessive resources. If the firm in this Quadrant is too heavily committed to a single product, it can reduce the risk by using concentric diversification to expand its business through acquiring or generating related business in term of technology, market or product.
Quadrant II represents for firms that have a weak competitive position in a rapid growth industry. These firms must evaluate its present position to the marketplace and determine what make them to be ineffective in competing in the market. The firms should firstly apply intensive strategies like market penetration, market development, product development to improve it competitiveness. Using horizontal integration to acquire similar firm(s) operating at the same stage of the product-marketing chain is also a suitable alternative in case the firm lack of a distinctive competence or competitive advantage. In the worst case when there is no chance for competitiveness improvement, divestiture or liquidation should be considered.
Quadrant III is for firms operate in slow-growth industries and have weak competitive position. To avoid of further lost or even bankruptcy, the firm must take drastic changes. Retrenchment should be the first strategy that the firm considers to cut cost or reduce asset. Other options for firms on this quadrant are divestiture or liquidation.
Quadrant IV is for firms that have a strong competitive position but are in a slow growth industry. Diversification to more promising growth areas is the efficient strategy in this case. The firms can pursue concentric diversification strategy to expand its business to related areas or conglomerate diversification strategy to acquire business that not synergic to its current one but have high profit margin.
Figure 7: Grand strategy Matrix
Rapid Market growth
Quadrant II
Slow market growth
Strong competition
Position
Weak competition
Position
Quadrant IV
Quadrant I
Quadrant III
Source: Formulation, Implementation and Control of Competitive Strategy, Pearce/Robinson, 2000
Decision stage
At this final stage of strategy formulation, Quantitative Strategic Planning Matrix (QSPM) is used to evaluate feasible alternative strategies identified in Stage 2 with input information from Stage 1. Evaluation through QSPM reveals the relative attractiveness of alternative strategies and thus it is base for selecting specific strategies. This technique allows top managers to assess alternative strategies objectively based on a firm’s internal strengths/weaknesses and external opportunities/threats (David, 1986).
In QSPM, left column consists of key internal and external factors from Stage 1, and the top row includes feasible alternative strategies from Stage 2. Information of key internal/external factors and weight of each factors are extracted directly from the EFE Matrix and IFE Matrix. The top row of a QSPM includes alternative strategies derived from matrixes that used in Stage 2. These matching tools usually generate similar feasible alternatives (David, 2007).
QSPM determines best strategy to the firms by calculating total attractiveness scores (Multiply Attractiveness Score with Weight of each factor for each alternative strategy) and sum Total Attractiveness Scores of each alternative strategy in the QSPM table. As mentioned above, weights of the internal and external factors are directly transferred from IFE and EFE matrix in Stage 2 and Attractiveness Scores (AS) are defined as quantitative values with 1 for not attractive, 2 for somewhat attractive, 3 for reasonably attractive, and 4 for highly attractive.
Figure 8: Qualitative Strategic Planning Management (QSPM) model
Internal factors
Weight
Strategy alternative
Strategy 1
Strategy 2
AS
TAS
AS
TAS
1
2
3
External factors
1
2
3
Total attractive core
Total Attractiveness Scores will show the relative attractiveness of each optional strategy, considering the impact of the adjacent internal or external critical success factor. The higher the Total Attractiveness Score, the more attractive the strategic alternative is. The Sum Total Attractiveness Scores reveal most attractive strategy in each set of alternatives (Figure 8).
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