Table of Contents



Research & Analysis of Rival CompaniesBlair CannonJoey FlemingNikita GowinTable of ContentsPart I – Description.................……………………..……2-8Question 1………………………….…….2-3Question 2………………………………..3-5Question 3………………………………..5-8Part II – Opportunity..…………………………………..9Question 1………………………………..9Question 2………………………………..9Part III – Industry Analysis.....…………………………..10-15Question 1………………………………..10-12Question 2………………………………..12Question 3………………………………..12-14Question 4………………………………..15Question 5………………………………..15Part IV…………………………………………………..….16-17Question 1………………………………..16Question 2………………………………..16Question 3………………………………...17References………………………………………………….18-19PART IFor two publicly traded business rivals in the same industry, give the following information: Their Corporate addresses. Description of the businesses in which they compete against each other. The name of this industry according to IBISWorld or according to Standard & Poor’s Industry Survey. UPS World Headquarters is located at 55 Glenlake Parkway NE, Atlanta, GA 30328, United States. (7). FedEx Corporate Headquarters is located at 942 South Shady Grove Road, Memphis, Tennessee 38120, United States. (1).B) To illustrate the business environment these companies compete in we first examine their own descriptions of operations based on their annual Form 10-K filed with the Securities and Exchange Commission. In this document, FedEx describes their business operations as, “providing a broad portfolio of transportation, e-commerce and business service.” (1) In comparison, UPS describes their operations as, “the time-definite delivery of packages and documents worldwide.” We see commonality of transportation and delivery service, which is the focus of our research. UPS also provides global supply chain services and less-than-truckload delivery services which occur primarily in the United States. (5)FedEx Corporation provides a wider base of services when compared to UPS. The entire corporation is comprised of four main segments; FedEx Express, FedEx Ground, FedEx Freight, and FedEx Office. In comparison to UPS, we will omit the latter two components of FedEx, as they are not industry related. FedEx Express is the world’s largest express transportation service and consists of 46,000 drop-off locations, over 660 aircraft and approximately a 50,000-ground vehicle fleet. Cumulatively, this division delivers over three million packages daily and deals with 210 countries. The FedEx Ground division operates solely in the United States but is the leading small-package carrier within the US. This segment offers shipping services for both businesses and residential customers.In comparison to FedEx, the United Parcel Service operates in the two industry segments mentioned above. According to revenue and volume, UPS is the largest small-package carrier in the world. Much like FedEx, UPS is organized into three main business segments; Domestic Package Business, International Package Business, and Freight and Supply Chain Solutions. The only segment related to the US Couriers and Local Delivery Services industry is their Domestic Package Business division, which accounts for over half of their revenues at 62.1%. Their focus is on ground delivery services but also takes part in air shipping. Within the United States, UPS and FedEx are in head-to-head competition for market share in both air and ground shipping segments. Currently UPS holds the higher market share in ground services and is continually stealing air service market share from FedEx. UPS has the most dominance in the US market and is attempting to gain this same dominance abroad by expanding into Asia-Pacific, Latin America and European markets. (12).C)The United Parcel Service and FedEx Corporation compete in the Couriers and Local Messengers Industry, coded as “NAICS 49211” by IBIS World. This industry is composed of two distinct groups of businesses; couriers, and local messengers and delivery services. Couriers are large firms that transport and deliver packages across the country by means of ground and air transportation systems. The two major firms within this industry group are UPS and FedEx, which cumulatively account for approximately 60% of total industry revenue. The Courier industry is related to that of Local Freight Trucking, Long-Distance Freight Trucking, and Postal Service in the United States. (11).2) What are the employment prospects in the industry in which these businesses compete? In the Bureau of Labor Statistics “Career Guide to Industries, 2010-2011 Edition,” the industries with the closest relationship to the courier industry of FedEx and UPS are Truck Transportation and Warehousing and Air Transportation. Employment information provided for the Truck Transportation and Warehousing industry states that since 2008, many of these firms have consolidated their operations, which means they have cut jobs in order to decrease their workforce and related expenses. It is estimated that between 2008 and 2018, employment within this industry will grow by 11%. This includes all occupations that make up businesses and corporations in this industry, such as office and administrative positions, transportation and material moving occupations, sales, maintenance, and other managerial positions. Changes in employment trends of this industry tend to closely mirror that of the overall economy. This is evidenced by the drop in employee positions due to the recession that officially began in 2008. Much like other industries throughout the US, businesses were forced to condense their operations in attempts to cut losses and remain profitable. As the economy turns around, the sale of goods will increase and there will be an increase in demand for the transportation of these goods. The opposite is also true, when sales decrease, this industry is often one of the first affected with a decline in demand for their services. This direct correlation illustrates the relationship between the market for transportation delivery service and the overall national economic condition. With this highly correlated relationship and the evidence of our recovering economy, the employment outlook for this industry is favorable. Businesses in this industry will also likely be one of the first to recover since their demand directly relates to consumer sales. This will boost the need for not only drivers, but also lead to administrative and office employment opportunities. (10).The air transportation employment outlook is not as positive compared to the trucking and warehousing industry. Overall, employment growth between 2008 and 2018 is estimated to increase by 7.5%, but particular occupations related to the courier industry are estimated to have negative growth. The Bureau of Labor Statistics estimates the percentage of employees who work as laborers and freight, stock, and material movers will decrease by 3.4 percent by 2018. This prediction is offset by the truck transportation and warehousing industry because that same occupation is anticipated to increase by 3.4 percent by 2018. Though truck drivers, light or delivery services are expected to decrease by 1.3 percent. These fields seem to be most closely related to the operations of UPS and FedEx in the United States, therefore I believe their employment outlook is not as optimistic as the overall industry as reported by the Bureau of Labor Statistics. Restrictions are increasing making it harder for the average citizen to land a job in the air transportation industry. Employees must be in nearly immaculate health, especially to be a pilot, and it is becoming more prevalent for even flight attendants and other employees on-board aircraft to have some type of higher education degree. Emerging economies around the globe give a more positive outlook for the air transportation of UPS and FedEx, but based on their US operations the ground delivery services have the most optimistic growth and employment outlook. (9).Over the period 2006-2011, what has been the trend in strategic and financial ratios for each of these two businesses? For each business, plot the following metrics on separate line charts, each with the years 2006-2010 on the x-axis:Return on Equity, Stock Price Total Assets, Operational Efficiency Share of Industry Value.Refer to Figure 1Over the past five years, UPS has averaged an ROE of 26.89%. There is a positive correlation, but no consistent trend across the five years. UPS experienced a significant drop in ROE from 2006 to 2007 due to increased operating expenses, of which the majority was related to a nine million dollar increase in compensation and benefits. Net income in 2007 dipped down to $382 million as compared to $4.2 billion and $3.0 billion in 2006 and 2008 respectively. From 2008 forward, UPS decreased their average total equity, which helped increase ROE back to normal values that are reflective of 2006. FedEx has maintained a more consistent ROE compared to UPS. They have maintained relatively the same amount of total average equity throughout the past five years but decreasing net income, beginning in 2008, has caused the slight decrease in ROE from year to year. As noted in the chart key, the companies do not have the same fiscal year end. This means that varying economic conditions could have impacts on the years financial numbers but these differences are immaterial therefore we are still able to reliably compare their performance. (4) (7)Refer to Figure 2Comparing stock prices for both companies over the past five years shows relatively the same trend between the two. We see a drop in price from 2006 to 2008 leading up to the economic recession in the United States. Surprisingly, the stock price rebounds during the recession, which is interesting because the overall stock market was decreasing in value during this time. FedEx has maintained the highest value over UPS over these five historical years. However, this does not mean FedEx is more valuable than UPS because their stock may be overvalued. In order to determine this, much further in depth research would have to be completed to value each company. (4) (7)Refer to Figure 3Since 2006, total assets have a relatively flat correlation for both FedEx and UPS. This is surprising because many companies have incurred reconstruction charges over the past few years to help offset decreased revenues due to the down economy and in order to create future savings. Along with reconstructions, many firms have also written down the value of assets, of which is apparent in the financial statements for neither UPS nor FedEx. During 2007, UPS significantly decreased their cash and cash equivalents by approximately $1.5 billion, which attributed to the majority of their decrease in assets from 2007 to 2008. I predict this positive trend in assets to continue indefinitely into the future as both companies grow and the economic conditions improve. (4) (7)Refer to Figure 4As displayed by Figure 4, operating efficiency has varied for both UPS and FedEx throughout the last five years. This performance measure compares revenue to average total assets for the year. The large increase from 2007 to 2008 for UPS can be explained by the decrease in assets as afore mentioned. FedEx has continually increased their assets as illustrated by Figure 3, and diminishing revenues has caused their operating efficiency to drop since 2007. UPS revenues increased by approximately $4 billion in fiscal year 2009, which explains the increase in operating efficiency for the year. Based on this comparison, UPS currently hold the efficiency advantage over FedEx. (4) (7)Refer to Figure 5The share of industry value is effectively measured by annual revenues of each company compared to the revenues produced by the industry as a whole. Annual report 10-K for UPS and FedEx provides geographic revenues; therefore, we are able to separate US revenues from the entire company operations. This provides us with the means to compare with the US Courier industry total revenues to see the percent of market share based on revenues. As mentioned earlier, UPS holds Figure 5 also illustrates a bigger share of the US market compared to FedEx and this. As the graph shows, UPS and FedEx consistently account for over 75% of the entire industry revenues. Both companies have a positive correlation and have been continually increasing over the past five years. (4) (7)PART II: OPPORTUNITY1.?????? Define or describe the industry that these businesses compete in. ?The United Parcel Service and FedEx Corporation compete in the Couriers and Local Messengers Industry (16). According to IBIS World, couriers are establishments that primarily engage in delivery services between urban centers using a network of air and surface transportation systems. UPS and FedEx work with individuals as well as business to provide service all around the world and are recognizable around the world. They provide ground shipping, domestic air transit deliveries, international air transit deliveries, and messengers and local deliveries. These companies have been adapting to the growth of technology by adjusting and expanding their service to fit customer’s needs. With the growth of online use, UPS and FedEx have created package tracking systems and label print out capabilities. It is difficult for another company to compete with large established companies such as UPS and FedEx. Smaller courier service companies do exist but are usually not a threat. ??In the industry as you defined it, which geographic area is there currently the largest amount of demand?? How large is the amount of demand in this geographic area?? How fast is demand growing in this geographic area? The United States currently has the largest amount of demand in the Couriers and Local Messengers Industry (16). Both UPS and FedEx have expanded into other countries around the world but the focus of business is in the US. The current demand in the United States is $75 billion in 2011 with about a two percent projected growth each year (15). The expected growth rate is dependent on the US economy and competition from other industries. Technology is also another factor that must be considered when making demand projections. With the increased use of email and electronic technologies, the courier industry sees drops in demand for some services.? Part III: Industry Analysis1. Do a “5-forces” Analysis for the industry. For each force, state its power magnitude as either High, Moderate, or Low; and explain why you assigned it that magnitude of power. Rivalry:Rivalry is high within the courier industry. There is high competition due to the low number of companies in market. The main two competitors control approximately 60% of the market share, with all other competitors controlling less than one percent. (11) (12) (13)Buyer Power:The buying power for the industry is low. Producers threaten the company with forward integration. Producers can take over their own distribution and retailing. There are many, different buyers and no buyer has any particular control over a product or price. The couriers segment that is the majority of industry revenue is concentrated. (11) (12) (13)Threat to entry:The courier industry is a difficult market to enter. Barriers to entry in this industry are?low?and are?steady. These companies rely on skilled labor. Delivery personnel are required to have commercial driving licenses or pilot licenses, capital investment is at a high level and is needed for delivery systems that allow customers and couriers to track packages and confirm deliveries. These systems are critical for improving efficiency and productivity. Based on IBIS World reports, we rate the threat to entry as moderate. (11) (12) (13)Threat of SubstituteThreat of substitution is high within the industry, especially with the increase online services that substitute the need for paper documents, which traditionally are shipped. Further, competition from substitutes negatively influences each sector, but these differ in each category. The popularity of e-commerce has had a large effect on this industry. Alternative methods, such as e-mail and fax, have increased reducing demand for some industry services. The rising popularity of e-commerce has increased the speed of business transactions, which has boosted the demand for industry services. In addition, more people are purchasing items online, so there is a greater need for delivery services between retailers and customers. (11) (12)The US Couriers and Local Delivery Services industry is classified as having a high level of concentration. The top two competitors account for approximately 59.2% of the industry revenue. (11) (12) (13)Supplier Power:Within the courier industry, supplier power is moderate. Supplier power refers to the raw materials used by the companies. This leads to buyer-supplier relationships between the industry and the firms that provide the raw materials. Suppliers can influence the industry by selling raw materials at a high price in order to gain some of the profits. If these relationships are weak, it can result with companies having to increase their prices and losing customers to rivals. Thus making the supplier power a moderate risk that all depends upon the relationship between the buyer and supplier. (11) (12) (13)Count the LOW-power forces you identified in your 5-forces analysis and use the count to make a conclusion about whether the expected profitability for the average rival is High, Moderate, or Low. Briefly explain what that magnitude of profitability means financially.Based on our five forces analysis, we have two high power threats, two moderate threats, and one low power threat to profit. This leads us to conclude there is a moderate threat to profit for each of the companies being examined. The magnitude to which these treats gouge into their profits can highly affect their overall business and operations. Profits can be used to fund expansion, decrease debt making the business a less risky investment which obviously gives confidence to investors, and other such factors that benefit each respective company. The more a firm is able to profit, the more opportunities they have for things like expansion and growth. FedEx Corporation and UPS have used profits to their benefits and are both now growing their operations globally. The magnitude of profitability affects the ability of companies to make decisions such as going global, like FedEx and UPS have done.Explain the meaning of the term “Key Success Factor?” List and describe (in words, like a definition) at least four Key Success Factors that any competitor in this industry must be good at to be profitable.Key Success Factor (KSF): "those competitive factors that most affect industry members' ability to prosper in the marketplace - the particular strategy elements, product attributes, resources, competencies, capabilities, and market achievements that spell the difference between being a strong or weak competitor"; the label for the resources and capabilities that respond to buyer needs and defend against the high-powered threats to profit. KSF "by their very nature are so important ... that all firms in the industry must be competent at performing, or achieving, them or risk becoming an industry also-ran". (14)Refer to Table 1 (in part 4.1)Evaluating key success factors for companies is the best way of determining their ability to establish a sustainable competitive advantage over competitors. As determined by our group, four of the most imperative key success factors for the courier industry consist of the index of sustainable growth (G*), operating efficiency, economies of scale, and scale. As shown in Table 1, G* is calculated by subtracting the dividend payout ratio from one and multiplying that by the company’s return on equity. In the calculation of each company’s G*, FedEx and UPS, we referenced financial statistics supplied by Yahoo Finance. This sustainable growth statistic can be greatly affected by the amount of debt and financial leverage held by each individual company. Having high leverage magnifies profit and increases the return on equity. As a multiplier in the G* calculation, return on equity plays a vital role in the score of the G* statistic. Though using large amounts of debt to fund operations magnifies profits and increases ROE, it also magnifies any losses that may occur and makes the company riskier due to solvency issues. A higher score is most beneficial for gaining a sustainable competitive advantage. UPS ranks significantly higher than FedEx and scores the strongest in strength assessment between the two competitors (refer to Table 2 in part 4.2). (2) (6)To calculate operating efficiency, divide revenues by the average total assets. When comparing an income statement item to a balance sheet item, we must average the balance sheet item since the beginning and ending balances are only for a certain point in time whereas the income statement covers the entire period. This key success factor is specifically important to the courier industry because the large amount of assets held by UPS and FedEx including their fleets of delivery vehicles and aircraft. These assets are expensive to operate, especially with fuel prices soaring to new heights and threatening profits, it is important to operate efficiently. Effective quality control is crucial to ensuring the company is operating to their highest potential. Service providers deliver packages that are valuable or time sensitive. It is important for industry participants to have control systems to ensure deliveries are not lost or delayed.This efficiency could be greatly decreased if either company were completing less-than-truck-load deliveries or other inefficient operations for their services. Optimum capacity utilization is important for companies in order to maintain a high frequency of deliveries, to utilize all assets, and to maintain profitability. The higher the revenues compared to the least amount of assets is best for this performance measure, therefore a higher score is preferred. FedEx is stronger on this statistic than is UPS and is assigned the strongest score of five compared to the weakest score of one that is assigned to UPS (refer to Table 2 in part 4.2). (1) (5)Economies of scale is another important success factor that is established over time because it decreases costs within a company and allows for maximized profits, creating more value for the business and their investors. Dividing costs by total assets, and the lower the score, the better makes the calculation. Comparing the strength on this key success factor, UPS ranks higher than FedEx and deserves the strongest score of five while FedEx gets the weakest score of one (refer to Table 2 in part 4.2). (1) (5)Scale is the final key success factor examined for FedEx and UPS. This helps illustrate the capacity and the magnitude of each company’s operations. Simply total assets on the balance sheet measure this. A higher number is better for sustaining an advantage over the competition and helps to support economies of scale. Therefore, on strength assessment UPS ranks stronger than FedEx and scores a five while FedEx is distinctly weaker and scores a one (refer to Table 2 in part 4.2). (1) (5)Give a calculation that you can use to measure each KSF, and then for each of the two competitors do each calculation with data from a credible source available online at NCSU library.KSF 1: G*= (1 - dividend payout ratio) * ROE FedEx = (1-.11)*0.0898UPS = (1-.54)*.4431FedEx= .080UPS= .204KSF 2: Operating Efficiency= Sales / Avg Total AssetsFedEx = 32294/((22690+20404)/2)UPS = 47547/((33210+34947)/2)FedEx= 1.50UPS= 1.40KSF 3: Economies of Scale = Costs / Total AssetsFedEx = 32736/22690UPS = 43671/33210FedEx= 1.443UPS= 1.315KSF 4: Scale= Total AssetsFedEx= 22,690UPS= 33,210For two KSF you listed, explain how each separately protects profit from one Hi-Power Threat you listed in (III.1)Economies of scale are significant when protecting against the high threat of rivalry in the courier industry. This allows the business to operate at lower internal costs than their competitors. With rivals competing for consumer demand, the most attractive company typically offers the lowest price without sacrificing quality. When a company has established economies of scale, they are able to lower their prices to remain competitive while still remaining profitable and more importantly, more profitable than their competitors.Operating efficiency helps protect against the threat of substitution. It is hard to protect against advances in technology that consumers are able to complete on their own, such as the real time data communication via email. If the companies remain efficient in their operations, they will be able to retain customer demand and remain profitable. This profitability can help each company research, develop, and purchase new technological advancements that will help ward off the threat of other substitutes.Part IVFor two publicly traded business rivals in the same industry, present a table that shows the following information: Four Key Success Factors as row labels;A separate column for each business rival;Use the most recent available raw data for each competitor to calculate the KSF value for each and enter it into the appropriate cell. For each Key Success Factor, convert its raw score you calculated for each rival to a distinctive competency score on a scale of 1-5Table 1KEY SUCCESS FACTORSFedExUPSKSF : G* (1 - dividend payout ratio) * ROE (Higher score is better)0.0800.204KSF : Operating Efficiency Sales / Avg Total Assets (Higher score is better)1.50 1.40 KSF : Economies of Scale Costs / Total Assets (Lower score is better)1.4431.315KSF : Scale Total Assets (Higher score is better)22,69033,2102. Present another table that shows the following information:a) For each Key Success Factor, convert its raw score you calculated for each rival to a strength assessment score on a scale of 1-5.b) For each Competitor, calculate the average for its column of strength assessment scores. Table 2KEY SUCCESS FACTORSFedExUPSKSF : G* 15KSF : Operating Efficiency 51KSF : Economies of Scale 15KSF : Scale 15Average Score243. Use the strength assessment to identify the rival that is most likely to create and sustain competitive advantage against the other.Based on our calculations of key success factors and the strength and weakness rankings determined by our strength assessment, it is evident UPS has the most likely advantage of creating and maintaining competitive advantage over FedEx. UPS is strongest on three of the four key success factors examined and has an average score of four, compared to FedEx’s average score of two. Based on the factors studied during our research, UPS holds a major advantage and best ability of having a sustainable competitive advantage when compared to its industry’s largest competitor, FedEx.References(1) FedEx. "FedEx Corporation - Annual Report." Form 10-K. N.p., 15 July 2010. Web. 14 Apr. 2011. <;. (2) "FedEx Corporation - Key Statistics." Yahoo Finance. N.p., n.d. Web. 17 Apr. 2011. <;. (3) FedEx. "FedEx Corporation - Quarterly Report." Form 10-Q. N.p., 18 Mar. 2011. Web. 14 Apr. 2011. <;. (4) FedEx. "SEC Filings." FedEx Corporation - Investor Relations. N.p., n.d. Web. 14 Apr. 2011. <;. (5) "UPS - Key Statistics." Yahoo Finance. N.p., n.d. Web. 18 Apr. 2011. <;. (6) UPS. "Form 10-K." UPS - Annual Report. N.p., 28 Feb. 2011. Web. 14 Apr. 2011. <;. (7) UPS. "SEC Filings." UPS Investor Relations. N.p., n.d. Web. 14 Apr. 2011. <;. (8) UPS. "UPS Corporate and Regional Headquarters." Contact Information. N.p., n.d. Web. 14 Apr. 2011. <;. (9) United States Department Of Labor. "Air Transportation." Bureau Of Labor Statistics. N.p., 17 Dec. 2009. Web. 12 Apr. 2011. <;. (10) United States Department Of Labor. "Truck Transportation and Warehousing." Bureau Of Labor Statistics. N.p., 17 Dec. 2009. Web. 12 Apr. 2011. <;. (11) IBIS World. "U.S. Industry Report." Couriers And Local Delivery Service. N.p., 14 Jan. 2011. Web. 7 Apr. 2011. <;. (12) "Major Companies." IBIS World: Couriers & Local Delivery Services In The US. N.p., n.d. Web. 14 Apr. 2011. <;. (13) “Porters 5 Forces” 14 April 2011<;.(14) Young, Greg.?“MEASURING PERFORMANCE USING FINANCIAL RATIOS & SETTING OBJECTIVES”.?North Carolina State University, 22 Feb. 2011. Web. <;.(15) "Industry Outlook." IBIS World: Couriers & Local Delivery Services In The US. N.p., n.d. Web. 26 Apr. 2011. <;.(16) "Products & Markets." IBIS World: Couriers & Local Delivery Services In The US. N.p., n.d. Web. 26 Apr. 2011. <;. ................
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