Cultural Implications of Conducting Operations

¶ … cultural implications of conducting operations in specific areas. Miami, for example has traditionally been an area of highly aspirational purchases. These consumers purchase goods that are highly prestigious and subsequently more expensive. This one cultural difference has two very extreme implications for the Miami operations. For one, as Miami is heavily populated by Americans of Latin decent, it is imperative that FedEx become accustomed to cultural and societal norms. These norms deviate substantially from those of the other two locations in question. By having a population that is aspirational purchasers, large amounts of debt are incurred. These debts arise from the desire for customers to consume goods now instead of foregoing consumption when the customer has the necessary capital to spend on the luxury item. These debts begin to accrue as the customer, usually of modest means, only makes minimal or partial payment. As a result, a larger proportion of future earnings are locked into the repayment of these debts that were used to purchase luxury and aspirational items. In regards to FedEx, the company has two battles in must fight in order to grow earnings and market share in the Miami area. First, the consumers have fewer dollars to spend on routine items such as mail and package delivery. FedEx must now compete more heavily through advertising, marketing, and display adds simply to capture a proportion of the small discretionary funds available in the market. Secondly, FedEx may have to ease or extend credit turns to entice purchases of its more costly items. By easing credit turns, FedEx is allowing customers to pay for their purchases in increments rather than the entire lump sum. This will entice customers who wouldn't ordinary have the funds available at purchase, but would instead prefer in subsequent installments. This action in itself is not a potentially detriment to operations in Miami. What is a detriment is when too many customers are using credit and not enough are purchases goods and services outright. This will in turn, raise account receivable on its balance sheet. This could have adverse consequences for FedEx as consumers are likely to default on their obligations. This fact is further compounded during times of economic hardship. Historically during contraction periods of the economy, south Florida is often times the worst affected. This primarily due to the reasons stated above. The population is heavily Latin or Caribbean, of modest means, and usually has large amounts of debt due to extensive purchasing of luxury goods. As a result, during periods of economic downtown, goods and services are no longer purchases at their pre-recession levels. Due to this slowdown in economic activity, jobs are usually lost as there is not adequate demand to warrant the current amount of salesmen and staff. As these individuals lose their jobs, they still must pay their bills that were incurred during the good periods prior to the downturn. However, these individuals cannot pay and default on their bills. The insuring default puts more stain on existing businesses that are already in the midst of cutting jobs and expenses. As a result of these defaults, even more cuts are initiated. The loop then continues until it hits bottom or the economy stabilizes. This creates extreme deviations in south Florida's unemployment relative to the nations. Currently, as this paper is being written, the nation's unemployment stands at 9.1%, which is very high compared to the nation average of roughly 5%. However, the miami-dade county unemployment rate currently stands at 13.9%! Nearly one out of eight people are unemployed in this region due primarily to the reasons stated above.

With that being said, Miami as it stand now would be a great opportunity for FedEx to begin its operations. I say this, knowing all the above information I proposed earlier leads to a contrary conclusion. I believe Miami to be a great opportunity now due primarily to future oriented approach. The economy, at some point will recover. Historically, since America's inception in 1776, there have been 15 major recessions. All or which we have emerged even stronger than the period of prosperity prior to the economic downturn that preceded it. Why would we believe it to be any different in the future? For this reason, I believe FedEx should make preparations for a large expansion to the Miami market prior to this recovery. I say this for two reasons. For one, property and lease values are so depressed in a market known exclusively for its rather high real estate and leasing prices. If FedEx has the foresight to see economic prosperity in the future, it can position itself in densely populated areas within Miami that are in need of delivery services. As a very heavily utilized port and transit area, in would make intuitive sense to place locations near harbors and ports. In addition, FedEx using its flight cargo business can position itself near airports to help distinguish it as Miami is a heavy tourist destination. Similarly, with housing prices plummeting, customers need a means of moving in and out of foreclosed homes, especially those in Miami. For this reason I believe joint ventures with entities such as Countrywide Financial, Ally Financial and Wells Fargo (the number 1 mortgage servicer in the nation, servicing 1 out of every 5 homes) would be extremely beneficial in the Miami area. Secondly, by moving early, FedEx has the opportunity to build customer and brand loyalty prior to the recovery. The economics of Miami are structured in a way that when the economy is booming, Miami prospers more, while when the economy is depressed, the economy has a corresponding decline. This is due, as mentioned earlier, to extreme leverage on the part of Miami consumers.(As an aside, the power of leverage is what nearly toppled the entire financial system during the crisis of 2008.This is a testament of how its use can have both positive and negative effects on all parties involved.) Due to leverage, during times of prosperity, gains will be amplified. This is a strong reason why FedEx should venture into the Miami market. As companies demand more jobs due to increase demand, more individuals will have more discretionary income. As more jobs are available and more consumers garner income, they are more likely to purchase goods and services. These goods will subsequently, help propel the economy to prosperity. As the saying goes, "A rising tide lifts all boats."

In regards to St. John, Newfoundland, the most recent 2011 census data will not be released until 2012. We can however, extrapolate somewhat reasonably from the 2000 census data to determine the variability of a Newfoundland operation. To begin, a little less than half of St. John 172,000 person population is between the ages of 25-54 (1). With roughly 80,000 working age's individuals with the city within working age, FedEx has an extensive market. This market of only 170,000 people pales in comparison to that of Miami however. For the remainder of the discussion regarding St. Johns, I will use the age range of 25-54 to describe the target market of FedEx. I believe this reasonable considering these are the individuals most likely to use the products and services of FedEx. For one, these individuals are of working age or at the very latest, on the brink of retirement. These individuals, as workers, are moving, faxing, and mailing documents constantly for numerous reasons. For this reason, I believe this segment to be the most profitable in regards to overall usage, brand loyalty and reliance on goods and services. St. Johns is a very educated community as nearly 20,000 people have a bachelors, masters, or doctoral degree (2). This statistic as a percent however, is well below the national standard of Canada which is roughly 20%. The average income of individuals between the ages of 25-54 is approximately $31,000 (3). I believe an interesting statistic from FedEx's standpoint is that a vast majority of the inhabitants of Newfoundland are Canadian born. Very few immigrants actually travel to Canada to live for prolonged periods of time. As such, I believe the aspect of brand loyalty will be oh huge benefit within the Canadian market as the turnover rate is very low. Of the over 300,000 person population, only about 8000 immigrated to Canada prior to 1991 (4). Unlike the United States which is heavily diverse, Newfoundland is a homogenous composition of individuals. As such, it will be easier for FedEx to market and advertise to these individuals as they are like to respond similarly to the same stimuli. Furthermore, like the United States, the economy of Newfoundland is service oriented. Of the 232,000 individuals in the experienced labor force, over 100,000 of them are in service and transport related occupations. This again presents a great opportunity for FedEx as its business is predicated on transport and service activities. With roughly half of all experienced labor participating in these industries, subsequent demand for their goods and services must be high to compensate these individuals. As such I believe FedEx would do well to position itself within this market but not to the extent of its Miami market. I believe the market is simply too small for continued growth to occur.