Fedex Vietnam Strategic Annalysis Marketing Essay

Fedex Vietnam Strategic Annalysis Marketing Essay Established in 1973 under the name Federal Express by founder Frederick Smith, the company quickly became leading transportation service provider. In 1994, the company changed its mane to FedEx Corp. Nowadays, FedEx Corp includes seven subordinate companies that are FedEx Ground, FedEx Freight, FedEx Kinkos, FedEx Customs Critical, FedEx Trade Network and FedEx Service. These companies focus on its core services but also support each other in providing customer with full range of transportation services and logistics. FedEx is handling more than 3.6 mil packages a day and is very famous for its excellent services and for the innovation that it brings to the world of transportation.Eng-logo-4C.jpg FedEx Express operates with 2 sub-companies, which are FedEx Express International and FedEx Express US Domestic, FedEx Express is providing its services to more than 220 countries and territories worldwide. Under FedEx Express International are 3 Regional Divisions which are FedEx LAC (for US, Canada and Latin American), FedEx EMEA (for Euro, Middle East and Africa) and FedEx APAC (Asia Pacific region). FedEx Vietnam belongs to FedEx APAC Division (Federal Pacific Inc) with head office in Hong Kong. Mission and Strategy: Mission FedEx Corporation will produce superior financial returns for its shareowners by providing high value-added logistics, transportation and related business 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.  [1]   With this mission statement, FedEx defines the industry it develop the business, the financial returns for shareowners, relationships with shareholders. FedEx also commit for high quality and professional standard as well as safety to compete and develop the business. This mission is also going with P-S-P philosophy which stand for People Service Profit meaning FedEx focus and invest in People and believe that only best people can create valuable service. And certainly, valued service will bring money to the company. Strategy FedEx also defines the objectives which must work seamlessly and simultaneously on three levels: Competition: collectively  compete by standing as one brand worldwide. Just one FedEx brand and speak one voice. Operating must be independent  by focusing on independent worldwide networks to meet customer needs. Managing collaboratively  by working together to gain loyal relationships from workforce, customers and investors. FedEx Express in Vietnam Business history FedEx has established its operation in Vietnam since 1994, right after US government lifted the trade embargo to Vietnam. Its business model in Vietnam is agency in which FedEx services are provided to customers through FedExs partners. And FedEx global service partner (GSP) in Vietnam was Post and Telecommunication Express JSC; a company belong to Vietnam Post Corporation which has nationwide network for pickup and delivery until 2009. Since then, the contract with this GSP was terminated and Seabornes and Danatrans were appointed to be new GSPs in Vietnam. At the same time of launching its services in Vietnam, FedEx representative office was opened. The office role is to carry out market research, coordinate the communication among FedEx in VN and other countries, facilitating the implementation of contracts/agreements between FedEx Pacific Inc and other Vietnamese organizations Under the agency contract, the GSPs provide manpower, facilities, and vehicles to bring FedEx service to customers. It is also responsible for customs clearance site for import and export activities. FedEx take responsibilities of all sales and marketing activities. It also supervises and supports GSPs in making the service meet with FedEx global standard and customers requirement. These supports include but not limit to customer service, informatics technology, pricing, billing. Currently FedEx Vietnam provides country wide services with 2 main stations in Hanoi and Ho Chi Minh city but direct service is only provided to major provinces/cities. The station in Ho Chi Minh City handles all inbound and outbound shipment to and from the south of Vietnam (southern of Hue). It has its own gateway for customs clearance and 4 world service centres. The station in Hanoi handles shipments to and from north of Vietnam. Beside its own gateway in Hanoi, it also has 3 world service centres for walk in customers. FedEx is providing direct pick up and delivery service to all major cities/provinces in Vietnam. For the other areas, the pick up and delivery is made by using domestic express service of Vietnam Post Corp. Mission and Objectives: Mission: FedEx Vietnam together with its partners will implement FedEx philosophy People-Service-Profit. We will be market leader with the best international express service at global standard. We will gain profit base on our core business competitiveness and the efficiency of the investment in Vietnam. We will bring customer with satisfaction for each and every transaction. (FedEx Vietnam Mission statement) Main objectives: Standardize service in Vietnam at global standard by having its own employee to generate service to customer. Become customers top in mind express service Annual growing rate at 15% In the context of current recession in developed countries, these are challenging objectives. The downturn in industrial countries will lead to a decline in export of developing countries and Vietnam is not an exception. Demand for transportation of export commodities is predicted to be declined until 2014 along with a weak economy. To maintain the annual growing at 15%, FedEx needs to both extend the operation to new markets and expand its market share at current service area by promoting its competitive advantages. This is a hard time for all companies in air express industry, but it can be a good opportunity for FedEx to consolidate its position over the competitor. Competitive advantage is the key and more than ever a right strategy to promote competitiveness is very critical to FedEx. Organization: FedEx Representative Office With the roles to support and supervise GSP in providing FedEx services to customers, FedEx representative office is organized as functional model. Figure 9: FedEx VN representative office organization chart Country manager HAN Operation manager HAN Sales Manager HAN ramp manager SGN Operation manager HAN CS manager SGN CS manager Country coordinator SGN ramp manager SGN Sales Manager Inside sales Manager Revenue ops Manager Accounting Manager Marketing Manager Technology service Manager Direct report Indirect report Source: FedEx country Review, 2011 At top of the representative office is Chief Representative, Senior Manager for FedEx Indochina and Myanmar who has very good knowledge about market, culture and working style of Vietnamese people. He directly manages operation function and also gets indirect reports from other functional groups. Operations: This group includes station operation (for pick up and delivery), gateway operation (for customs clearance), ramp operation and customer service operation. The group is responsible for managing all operation activities in accordance to FedEx service standard Airport ramp: This group is under operation and responsible for aircraft operation include loading and unloading of shipment on/from aircraft, landing/take off paperworkà ¢Ã¢â€š ¬Ã‚ ¦ Country Coordinator: Admin the communication to all GSPs in Vietnam, Laos, Cambodia and Myanmar on policy, regulation issues Sales: This group report to regional sales. They are responsible for selling FedEx services to customer. Marketing: Perform market research, design and implement marketing plan under direction of regional marketing management. Billing and collection: Control all GSPs invoicing and collecting activities. All customer debts are managed by this group. Accounting: Control all payment transactions of FedEx in Vietnam and perform all other accounting activities. Technical service: Responsible for FedEx communication network, customer technology solutions. GSP organization GSP has two independent teams to work at FedEx agency in Hanoi and Ho Chi Minh city. They both report to Seabornes head office. But in daily operation, they are under supervision of FedEx functional groups from representative office. The team in Hanoi includes 69 GSP employees with 1 General Manager and 4 functional managers. In Ho Chi Minh number of employees is 125 with 1 General manager and 7 functional managers Business result overview Figure10: FedEx Vietnam revenue from 2006 to 2011 (Unit: 1000 USD) Source: FedEx country review 2011 As indicated in Figure 10, FedEx had very good growth in revenue. Total revenue grew by 3 times from 2006 to 2011. The revenue increased at 100% in 2008 after FedEx up gauged it feeder capacity from 3 tons to 6 tons to Ho Chi Minh city. FedExs core products International Priority (IP) and International Priority Freight (IPF) are the main contribution. After the sharp increase in 2008, revenue of these core services grew steadily at 10-12% a year. Revenue of IXF (air port to airport) service took a relatively small part of total revenue. However growing rate of this product has been extremely high since 2009 when the company sell this service to some forwarders to explore their existing customers. Figure 11: FedEx business performance from 2006 to 2011 (Unit: 1000USD) Source: FedEx country review 2011 Figure 11 shows both revenue and profit of FedEx on good growth. However with increased ratio of IXF shipment (which are low yield per kg for big shipments), expense was getting bigger and made profit growing rate in 2009, 2010 and 2011 lower than revenue growing rate. Strategic Annalysis Internal Factor Evaluation (IFE) Human resource The philosophy P-S-P (People-Service-Profit) is cornerstone of FedEx. This can be considered a success cycles of FedEx in which the company take care of its employees and assist them in generate excellent service to customer. That excellent service in return brings Profit to FedEx and enables the company to take a better care to its work force. Thank to this, FedEx is many times voted as most admired company by Fortune Magazine. In many major markets in LAC and APAC, FedEx is voted as one of the best companies to work for. Bring that philosophy in business, FedEx attracts a very excellent team for its representative office in Vietnam. Figure12: FedEx rep office personnel (Experienced and Education) Source: FedEx VN HR profile. Figure 12 shows number of FedEx employee divided by work group and education/experience categories. All FedEx managers (1 senior manager and 6 managers in Ho Chi Minh city, 4 managers in Hanoi) are very experienced in express industry. Sales team is young but very aggressive in selling with 10 for Ho Chi Minh city and 5 for Hanoi. Ramp team includes two groups with equal number of employee, one at Noi Bai airport and the other one at Tan Son Nhat airport. Functional group include employee at marketing, accounting and billing/collection As reflected, 100% FedEx representative office employees are graduated with 29.31% of the employees are holding master degree. With this strong back ground and excellent human development programs through training, couching all FedEx employees are skilful and knowledge in the field that they are responsible. Most of FedEx employees have long term commitment with the company. Many of them stay with the office since it was established. The package benefit and the reward program at FedEx not only keep its employees commit to stay a long time with the office, but also encourage them to perform their best in daily job. But in contrast, the FedEx GSP is a Vietnamese and young company so the recruitment, human resource policy is very different. This leads to poor quality of the work force and impacts to the image of the company in Vietnam. Employees in many cases are not care about productivities. Their attitude in making service is not very much acknowledged and appreciated by customers. This hit the level of FedEx service in Vietnam. However in recent years, with the changes of GSP management and higher demand from customers, some positive changes have been made. The GSP frontline managers and employees attitude to customers and to the service quality issue has been improved. Those employees that could not adapt to this change have been replaced. This in long run will have positive contribution to FedEx operation. But in short term, high turnover of employee impacts to the operation, especially when the new one lack of experience. Over all, the working skills of GSP employees are met with job requirement. However their English is not so good. Especially the couriers who are directly handling shipment for customers. This is room for improvement that FedEx can do to further standardize its service in Vietnam. Finance FedEx Vietnam is a dependent branch of FedEx Pacific Inc. All finance planning and management is performed at division level. The two major finance activities that done at local level are customer debt management and operation cost management. Customer debt management At FedEx, 90% of the shipment transportation charges are billed to customer accounts and the billing options can be to shipper, to consignee or to third party. That makes it very convenient for customer to ship with the company. But on the other hand it brings risk to the company if the payers refuse to pay and the re-bill is done in late (Shipper must takes the final responsibility to pay transportation charge when using FedEx service. In case the charge billed to recipient or 3rd party but payer refuse to pay, then it will be billed back to the shipper). Under agency contract GSP takes responsible for collection of the debt from customer. However their limitation in managing this area makes the on time collection of the payment is not high. Bad debt at 2% and over due debt at about 15% lower the working capital. However as reflected in Figure 11, FedEx revenue is increased year on year and the company has a good profit ratio. In addition, with FedEx Pacific Inc as a mother company, FedEx finance is on strong base. Operation cost management Though most of the ground operation costs are covered by GSP under agency contract, there are areas for FedEx to control and save cost. They include: Cost for using commercial flights (where FedEx flight is not in operation) Cost for revenue supplies (Supplies that provided to customer for them to use FedEx service like airway bill, packing materialà ¢Ã¢â€š ¬Ã‚ ¦) Cost for claim settlement (for damage, late or missing shipment) At FedEx there is an index call cost per package in which all costs raise from handling a package is taken into account and bi-weekly management has a meeting to review it. This is a good tool for continuous improvement of cost saving. In 2010 the company had saved in average 2.3% of its cost per package in compare to the previous year. Facilities All the ground facilities are under GSP charge. But with booming business in past few years, the investment of the GSP on to this did not meet with requirement. Size of business in 2011 was almost 3 times larger than the one in 2006, but there was no major investment to expand ground facilities. That makes the station buildings and warehouses become too congested for FedEx operation and impacts to productivity and the service quality. Figure 13: FedEx ground facility Current Required  [2]   Gateway 800 sqm 1500 sqm Station 2000 sqm 2500 sqm Number of van 24 26 Number of truck 5 5 Number of motor-bike 20 20 Source: FedEx IE report 2011 Beside ground facility, communication network is very critical for FedEx. The network is not only for communication among FedEx locations, but also for posting and updating of shipment status. The network is considered as back bone of FedEx service. In Vietnam the company has its own lease lines to Hanoi and Ho Chi Minh. The lease lines are upgraded to meet with demand of growing business. The latest upgrade in earlier 2010 increased the lease lines capacity to 256 KBps. A broad band line was also established to be backup network for the lease line. This helps to avoid service impact due to communication problem. Marketing Marketing function in Vietnam is more on the implementation. Marketing planning is done at regional level by marketing management. With this arrangement, there is only 1 marketing specialist in FedEx Vietnam to cover the whole country. She has very limited decision making power on marketing plan. Most of the marketing campaigns in Vietnam are small with very limited budget. There is lack of big campaign in media that attracted mass audience. In Vietnam the new emerging market, FedEx does not have commercial TV advertisement while its major competitor DHL spends heavily on this. In past few years, FedEx involved in numerous of activities for community benefit like building 3 schools in Nam Dinh and Quang Nam, sponsoring transportation of medicine and equipment for Heart to Heart organization, major sponsor for OBIS flying hospital to Vietnam in 2007 and 2010, APEC summit in 2006. These activities were very efficient in bringing benefit to the community, but were not very well promoted by marketing and the number of earned media was not large. In terms of product that FedEx introduced to Vietnam market, the service is more diversify to provide customs more option for their shipment. Currently FedEx provide following services: International Priority (IP): This is fast, customs-cleared, door-to-door pickup and delivery of shipments to all international destinations for package weighted lower than 68 kgs. For those destinations in AsiaOne (all major cities in Asia) net work, document or packages sending under this service will be delivered on the day after ship date. This is FedEx Express core service in Vietnam International Economy (IE): This service is similar to IP service, but the transit time is longer than IP service and shipping rate is lower than IP. International Priority Freight (IPF): This is priority service using for package heavier than 68 kgs. This service is only available in designated cities/countries International Economy Freight (IEF): This is a new service launched in 2010 using for packages over 68kg. Customer use this service does not need a fast transit time. The price rate is lower than IPF and transit time is longer certainly. International priority Distribution (IPD): This is customized service using for customer who send shipment at different consignees at same country. The shipper can send all of them under 1 shipment and FedEx will separate the shpt to delivery to each consignee. This service is only available to some country and normally for global customer Beside the range of services provided, FedEx rate to each customer is different base on the customer volume. However this is not the main competition tools of FedEx. The company is more focus on its differentiation by excellent service. Despite of some weaknesses in marketing in Vietnam, FedEx brand is quite well known in business society thanks to its global image. However, to reach the level on brand awareness that FedEx has in other markets, marketing function in Vietnam should play a more active role. Sales In 2008, FedEx took over all sales activities from GSP. All sales personnel belong to FedEx. This enables the company to recruit and keep talent employee for this important function. The performance of sales team has been improved since then Currently sales team is organized under 3 sub-teams to take care of different groups of customers: Global sales: Take care of global accounts. These global customers are big accounts and very demanding for service quality. As many big international companies are setting up their business in Vietnam, revenue from this group of customer is growing very fast. In 2006, it took only 8% of total revenue, but in 2011 it took up to 27% Telesales: Take care of small accounts. There are low revenue customers but most profitable ones. Revenue from small customer takes 18% of the total FedEx Vietnam revenue. Field sales: Most of customer that taken care of by field sales are local importers/exporters. This area of sales have steady annual growth at 20% in recent year thank to strong growth in international trade in Vietnam With this arrangement, sales team can be more focus on targeted customer, hence the performance is improved. Figure 14: FedEx sales volume from 2006 to 2011 (Unit: 1 package) Source: FedEx country Review 2011 Before 2008, sales only focus on selling outbound, but with global sales network, both outbound and inbound volumes are taken care by sales. This supports strong growth of inbound volume (Figure 14). The exception in 2010 the inbound volume was down turn due to the fisrt year sales under direct management. Operation Air craft operation: With the launch of A310 to Vietnam in September 2009, FedEx increased its aircraft capacity to 5 times bigger than before  [3]  . The aircraft upgrade enables FedEx to introduce more services in and out of Vietnam. The company now can better secure space for its shipment and reduce the risk of dependence on commercial flights. The A310 serves both Hanoi and Ho Chi Minh city. This first time ever FedEx aircraft arrives in Hanoi making big service improvement for the capital city. Transit time reduce by 1 day for both inbound and outbound. This was an excellent preparation for FedEx Asia hub relocation to China in first half of 2009  [4]  . Station operation: Operating under agency contract, FedEx is facing with number of issues for its station operation because of differences in business strategy. Investments in work forces, vehicles, equipments are not adequate. Coverage area of FedEx service in Vietnam is large while number of couriers is limited with 30 in Hanoi and 60 in Ho Chi Minh city making it a big challenge for pick up and delivery, particularly on the surge volume dates. With booming of EPZ and Industrial Park country wide, many provinces become potential markets for air express service. However FedEx direct pick up and delivery service is only available in big cities/provinces. In other provinces, pick up/delivery is provided through a domestic express service. It means any customs in non-direct service want to use FedEx service they have to send the shipment to FedEx by domestic service first. And the same arrangement for delivery, FedEx will have domestic service to deliver package to customer in these areas. This not only makes transit time for the package longer but also impacts to service quality that customer suppose to receive when they use FedEx service. FedEx in Vietnam operates with standard procedure of FedEx global. However the ability of courier team, especially English speaking and reading skill is not good making barrier for them to learn and consult customers on shipping requirement. There is lack of rewarding program to encourage courier team, so productivity and the over all performance is not very good. Gateway operation: FedEx has 2 gateways in Vietnam, one for Hanoi and the other for Ho Chi Minh city. Both gateways are in the same buildings with stations. That makes it convenient for customers in case they have to come to do customs clearance. But it is a disadvantage for the company to maximize the use of air craft arrival time. The main job of gateway is to ensure shipments are clear customs at shortest time, reduce number of shipment pending in customs warehouse. In Vietnam, FedEx is the first company that was selected by Vietnam customs to implement electronic clearance. By applying technology in to clearance process, this area of service has been improved remarkable. The percentage of shipment released for same day delivery in 2010 is 50% higher than the one in 2007. However the constraints of ware houses and clearance facilities and the lack of customs regulations on express clearance make this clearance still not yet reaches its height of potential. Customer service operation: Customer oriented system and excellent internal communication network are very supportive tools to customer service agents to successfully handle transaction with customer. However, the weakness of call centre which under GSP control with lack of necessary equipments makes it difficult for FedEx to measure and control call quality. There is considered number of complaints regarding to customer service in Vietnam. This is contrast with FedEx customer service in other countries where most of customer praise FedEx for professional, helpful and customer oriented service. In addition, shortage of manpower for this group in Hanoi (with only 3 persons) reduces the ability to handle customer calls to FedEx at this city. Service quality management: Service quality is non-compromised issue at FedEx. It makes FedEx different from competitor. The quality driven management concept has been put in FedEx today business. With that strategy, service quality is also one of the top priorities for FedEx in Vietnam. The company is very good in making all KPI (key performance index) in service to be measurable and has strong systems to control it. Service quality is measured by both network system (base on system scan) and data collection from practice. A group of operation excellence is formed up. This group is supported by advisors at regional level. The group is doing root cause analysis for all service issues and coordinates with respective operation teams for corrective action plan. The quality report is made on daily, weekly, bi-weekly, monthly depend on KPI. Bi-weekly there is meeting among all managers to review service quality issue for necessary actions. With this mechanism, quality improvement is continuous process at FedEx. Information Technology (IT) Information plays very important role with express company like FedEx. Provide customer with accurate and updated information is as important as on time delivery of the package. Within FedEx operation teams, information exchange and communication among the teams is also very critical for its success. FedEx in Vietnam has its own lease line to ensure the connection of network. This system is operated and managed by very experience and skilful IT team. Numbers of IT projects have been implemented in past few years to bring benefit to FedEx and its customers: Automation shipping tool: With software installed at customer site, customer does not need to wait for FedEx to bring in shipping forms for manual completion but they can create the form on their own at any time. With this customer can complete shipping document for many shipment just in few minutes. This helps FedEx to save cost while provide more convenience to customers. Transmission of shipping documents images: FedEx Vietnam now can transmit all shipping documents of its export shipments to countries of destination before shipment departs. With this ability, FedEx in destination does not need to wait for shipments arrival to retrieve the documents but having these documents much earlier than the physical shipment arrives. So they can do pre-arrival customs clearance and ensure that the shipment is immediate released for delivery once it arrives. This tremendously improves the service and saves FedEx hundred thousands of UDS a year for fax fee, storage fee. In conclusion, FedEx Vietnams major advantages are: Operating FedExs own flight to both Hanoi and Ho Chi Minh city Best express service from Vietnam to US, North America and Japan the key export markets of Vietnam Management awareness of service quality and use it as differentiator. A good service quality control system is put on place. Innovative service base on information technology Meanwhile, FedEx major weak points are operating under agency and poor quality call centre for customer operation. With above analysis, an IFE matrix is formed up by strategist team. The IFE matrix for FedEx Vietnam includes 12 factors with seven strengths and five weaknesses. Values of weight and rate for each factor are calculated base on average scores of the team members with some minor adjustment after review with the whole team (Appendix H). The final IFE matrix for FedEx is reflected in Figure 15. Figure 15: IFE Matrix of FedEx Vietnam No. Factors Weight Rate Weighted score 1 FedEx has 5 flights a week to both Hanoi and HCMC 0.14 4 0.56 2 Well known brand 0.12 3 0.36 3 Hub Operation Model Global Network 0.09 4 0.36 4 The best express service to US, North America and Japan 0.12 4 0.48 5 Wide range of services 0.04 3 0.12 6 Management awareness of service quality issue and use the quality of service as differentiator. 0.05 4 0.2 7 Innovative service on the base of information technology 0.04 4 0.16 8 FedEx operates under agency contract 0.15 1 0.15 9 Low quality call centre 0.13 1 0.13 10 High over due debt ratio 0.03 1 0.03 11 Poor marketing activities