Competitive Forces

Competitive Forces (Porter’s 5 Forces)

Analysis of the competitive environment can be done utilising Michael Porter’s 5-forces model of UPS and FedEx. Porter’s theoretical framework allows us to determine the overall profitability and sustainability within the industry (Laudon & Laudon 2006, pg.99; Hubbard 2004, pg.211). We reckon that in this case, the competitive forces for both UPS and FedEx are very similar because they are both in the same industry.

• Power of substitutes: Communications technologies such as Email, fax, and PDF pose significant threats as substitutes to FedEx’s and UPS’s overnight letter delivery business. While these technologies will erode the revenues FedEx and UPS’s enjoy, they will not be able to displace the market entirely. The overnight letter delivery business will survive as long as consumers have important documents to send and communications technologies do not offer 100 percent reliability. Further, the complexities and costs of networked technologies will not be able to completely replace the simplicity and inexpensiveness of a packing slip. Besides these, there are no other forms of substitutes that can match the efficiency and effectiveness of FedEx and UPS.

• Customers bargaining power: FedEx and UPS face significant competitive pressure from corporate buyers in the overnight delivery market. This pressure is most evident in FedEx’s and UPS’s relationship with large corporate clients. These buyers have a great deal of bargaining power attributable to the large volume purchases they make. Negligible switching costs also contribute to buyers bargaining ability in the market. Buyers have a great deal of bargaining power because of the large volume of purchases they make from FedEx and UPS. We feel that purchasers of large volumes contribute significantly to the bottom line of businesses. We also feel that a buyer group is powerful if it faces few switching costs. This competitive force definitely constrains FedEx and UPS. Buyers that decide to leave the FedEx or UPS brand could do so knowing that the costs would be negligible. The buyer’s employees would not need retraining to fill in packing slips, and the buyer