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Market Entry Strategy
FedEx's market entry strategy is what is described as a 'frontal-assault strategy.' FedEx's strategy is aggressive, high cost and Americanized.
The first thing noted is that their strategy in China is exactly the same as in any location. As the executive vice president of FedEx is quoted as saying "we've got a pretty good formula for attacking any market...whether its China or Japan or Germany, it really doesn't make any difference."
Market entry strategies will normally take into account the environment of the market to be entered and develop a strategy that best suits that market. Considering the high cost of entry into the Chinese market adopting an American approach without considering whether it is the best approach could be concerning.
At the same time having the same approach in all locations is easier and more cost-effective for FedEx with it being known that "standardization can produce significant cost savings" (Ball 447).
We have seen that FedEx effectively used this strategy in America and then Europe, giving them experience in market entry that may justify their decision. At the same time, the Chinese market is very different culturally and so it is questionable whether the same strategy will again be effective.
The high cost involved also means that FedEx is not flexible within the market, UPS's vice president for marketing is quoted saying "because of the investment (FedEx) made, they're almost stuck in that market." We also see the effects of this inflexibility where the Asian market declines and FedEx experiences its first quarterly loss in international operations since 1996, "largely because of the high costs attributable to its extensive air network in Asia."
This initial problem may be offset by long-term gains. We see that FedEx have greater market share than UPS, with FedEx's chief financial officer being quoted as saying "we knew it was risky when we built so much capacity, but we're staying. And that has just got to have a long-term payoff."
When we consider that the Chinese market is large, expected to experience high growth and considered the most important emerging market, FedEx's long-term strategy can be seen as a smart strategy.
We can see that the strategy is based on them gaining the market share now so that they will be well-placed as the market expands. Based on this, their high-cost and aggressive strategy seems like one that will put them in a good position in the long-term. With the potential of the market, the costs that may create a short-term loss can be justified by the long-term payoff possible.
As the market expands FedEx will be well-placed, having the flexibility to grow with the market since they have their own distribution channels and do not rely on others. This flexibility may be a problem as times slow but will be a major benefit as the market quickens.
Overall then, the investment made to break into the market and gain market share is justified by the potential of the market and this strategy is beneficial when we consider that FedEx is dedicated to being successful in the market and has no plans to exit from the market.
UPS's strategy was much less aggressive, lower cost and less Americanized, in complete contrast to FedEx's.
UPS's approach was understated, following the traditional approach of using leased space in planes and piggybacking their transport operations on the ground on a government-owned transportation company.
This approach shows that UPS adjusted their methods to the market, as one of top executives is quoted as saying "we're a quiet company, sometimes we're the student, and sometimes we're the teacher." In this we see how UPS were willing to operate differently in China than in America, taking their place where they followed current operations in China rather than changing them.
By being flexible in this way, UPS are able to select their operations based on what would work best in the Chinese market, which if done effectively, could yield them major benefits.
This understated and less aggressive approach is also less likely to be viewed as an attack by the competition, where an attack may result in a counter-attack. A counter-attack may involve either the competition reducing their prices to beat your low price or increasing their marketing campaigns to drive consumers back to their product (Bradmore, Joy & Kimberley 196).
The strategy of UPS is also low risk financially. This is seen in the way they were able to reduce the space they leased when the market slowed. This gives them flexibility to adjust as the vice president said, "we're looking at the market and moving with it in China."
This flexibility meant they were able to adjust and not lose financially as FedEx did. At the same time though, it is worth questioning whether UPS will be able to adjust as the market increases. While they can stop leasing space in slow times, it may be more difficult to lease more space in times of high demand, as the lease space may be in demand to other companies as well.
Relying on planes operated by others also puts UPS in less control, as they must rely on other carriers. It is questionable whether this approach will yield them long-term benefits.
Overall, the strategy of UPS is low risk. They have entered the market carefully and remained flexible to the slowing market. Their low risk strategy means that they can exit the market with less financial loss. Their strategy however, has resulted in less market share and may not be as financially beneficial in the long-term. At the same time, it could be an effective low-risk steady approach that may grow as the market grows.
1b. MARKETING MIX
Firstly, the product of FedEx is freight services, with reliability its central feature. FedEx describes itself as "a 'global evangelist' for high-tech, just-in-time deliveries."
Secondly, it is worth recognizing that FedEx is not targeting Chinese customers but "focusing first on multinational corporations with Chinese operations that already used FedEx elsewhere" and also "targeting expanding Chinese entrepreneurs."
The advertising campaign mimicked that in the United States, with the focus being on reliability. A print ad is described as showing a FedEx plane in front of the Forbidden City with the tag line "Call FedEx. It's almost forbidden not to."
The effect of this ad and FedEx's approach is shown by the executive of one Chinese company who says he will not do business with FedEx because they do not follow the traditional Chinese face-to-face marketing methods. The executive is quoted as saying "the personal relationship matters most here... They haven't sent anyone here; so we don't do business with them."
This shows how the strategy is not successful with Chinese companies, but we have already seen that this is not FedEx's target market so this is not necessarily a fault of FedEx's.
We have seen that FedEx's product is promoted as being cutting edge, highly controlled and highly efficient which has benefits to many customers as it reduces delivery times.
These are the components of the product that give FedEx a major advantage over competitors.
The marketing strategy that adopts American ways and rejects Chinese advertising ways, actually reinforces that FedEx is different which supports their marketing strategy, especially in relation to their target market of entrepreneurs and multinationals.
FedEx's methods of acquiring their own planes also meant they could provide their service at lower cost than competitors.
UPS's approach is understated and caters more to the Chinese methods of doing business. Marketing adopted traditional Chinese ways with the emphasis on building relationships. It is described how this is effective with one Chinese executive switching to UPS after the company met with her and explained how their services were cheaper and more convenient.
The product qualities that UPS emphasized were its global network and stability. The qualities are especially important to the Chinese and UPS also builds relationships with Chinese outside China, by sponsoring Chinese New Year celebrations for example.
Through these activities we see how UPS marketing strategies are aimed at the Chinese. We are also told that UPS considers multinationals the core of its initial customer base. Based on the marketing strategies we must assume that winning Chinese business is also a core strategy, as the marketing efforts seem directed specifically at the Chinese market.
The marketing campaign also emphasizes UPS as a global company, taking the focus away from them as an American company. One ad shown in China is described as showing trucks, vans and a 747 moving down a freeway. The emphasis here is on showing UPS as a global company with a large network. This can be expected to attract Chinese customers. At the same time, marketing efforts outside of China may effect multinationals with operations in China, so that decisions to use UPS in China may not necessarily come from offices in China, but from the offices in other locations. This strategy spreads the market, where UPS is not likely to…[continue]
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