Case Prompt: 

Your client is a major air freight shipper operating in the US and 60 other countries. They have a significant international share, but a much smaller share in the domestic market. Recently, some larger domestic competitors have entered the international market, and your client has had only marginal profits. With the new entrants to the international market, they are concerned that they will not break even this year. What should they do?

Exhibit: 

- Your client is a major air freight shipper operating in the US and 60 other countries

- They have a significant international share, but a much smaller share in the domestic market

- Recently, some larger domestic competitors have entered the international market

- Our client has had only marginal profits

- They are concerned that they will not break even this year

Market Share: 

- Express Air Freight: $1.2B 

- Ship USA: 15%

- ExpressShip: 60%

- Others: 5%

- Our client: 20%

Cost Structure: 

- Our client: $1.20 retail price

- Ship USA: $1.15 retail price

- ExpressShip: $1.30 retail price

- Delivery costs:

  - Our client: $0.40 (trucks)

  - Ship USA: $0.20 (trucks)

  - ExpressShip: $0.10 (significant share in US ground business)

- Other variable costs: $0.10

- Fixed costs:

  - Our client: $0.70

  - Ship USA: $0.60

  - ExpressShip: $0.80

Background:

The air freight industry is becoming increasingly competitive with new entrants entering the international market, posing a threat to your client's profitability. Despite having a significant share in the international market, their smaller share in the domestic market puts them at a disadvantage compared to their competitors. Although they reduced prices to compete with Ship USA, this did not move share significantly. The retail prices provided in the cost structure slide are typical of US rates. ExpressShip has lower delivery costs because it has a significant share in the US ground business, which your client does not compete in. While international growth is expected over the next 10 years, the client has optimized variable costs, and there are no major cost savings available.

Analysis:

Given the competitive landscape, it is unlikely that your client will be profitable in the express air business because they lack domestic scale, which is still key for the shipping business. Even with growth in the international business, they will have significant difficulty competing, especially as new entrants come in. 

Recommendation:

You should recommend a merger or partnership with ExpressShip. Your client could provide international service, and ExpressShip could provide domestic services. This will allow your client to leverage their significant international share and combine it with ExpressShip's domestic scale. However, the risks associated with this plan should be addressed, such as the integration of two different organizational cultures and potential antitrust concerns.