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Use Chinese business to move the international traffic

When Fred Smith founded FedEx in 1971, he had just returned from the Vietnam War, where he had served as a Marine platoon leader and then a pilot, and he was casting around for something to do. As legend has it, a paper he had written at Yale -- he doesnt remember the grade but is pretty sure it wasnt a good one -- laid out the idea for a hub-and-spoke system for delivering time-sensitive items like computer parts. He borrowed money from his sisters, leased some jets, and started his service. Today FedEx (No. 70 on the Fortune 500), with headquarters in Memphis, has 255,000 employees, 688 planes, and more than 90,000 vehicles that operate in some 220 countries and regions. Heres the world according to Fred Smith. Edited excerpts:
Q: In 2000 you started morphing from your traditional air express delivery business into ground and into freight. What was the thinking behind that strategy shift?
A: Well, in 2000 we were probably competing in a $50 billion annual [sales] market space. Today were directly competing in about a $350 billion to $400 billion marketplace. Going into ground and freight opened up a market for us with the greatest growth potential over a sustained period of time: the developing world. Middle classes are emerging in various countries, including the BRIC nations [Brazil, Russia, India, and China]. And these middle-class populations are all knit together today for the first time in human history with a low-cost, standardized communication system that can intermediate language differences and show every product on the planet in visual format. And that of course is the Internet. Today if you want a component for an automobile -- Volkswagen or Chrysler or whatever -- you can look worldwide. And so thats the biggest opportunity. The growth of world trade and the growth of those emerging economies dwarfs the growth of GDP in the industrial countries.
Whats one of your fastest-growing markets?
We are now the biggest international transporter of goods by air in and out of China. We also have established a FedEx-branded domestic parcel service there. We use this business to move our international traffic to and from the major gateways.
In China, do they get the FedEx concept?
Oh, yeah. You bet. One time Jiang Zemin [the former President of China] had our board of directors to his office, and he probably knew more about the company than a lot of them did, to tell you the truth.
I was surprised to learn about another new area of growth for you: a new service called FedEx TechConnect, where you will repair electronic items like the iPad and the Nook. It doesnt sound as if its a core business to FedEx.
First of all, were probably one of the biggest repair shops for devices like that in the world for the very simple reason that FedEx (FDX) basically invented the handheld, package-tracking device. Because a lot of that equipment is built into our DNA, we became very good at repairing it. And it was just a natural progression to tell a lot of our big customers that if you want us to also repair these devices, we can do it for you.
How big an opportunity is it?
Its a $15 billion market, and its also a very sticky application. In other words, nobody has the assets that we do. We have the retail network. We have thousands of people that stop in millions of locations every day, so if you want to send your electronic device to us to be repaired, weve got the transportation networks to get it to a centralized repair shop. We dont have to have 500 of these less efficient repair shops. So its a niche market, but its an important niche -- although I dont think were going to be here in five years talking about that business overwhelming the transportation business.