Direct Investment and Collaborative Strategies - Assignment Example

SECTION The airline Industry, Direct Investment and Collaborative Strategies (300 words) An alliance refers to the agreement between 2 or more parties under which they will provide each other corporate assistance, facilities, resource sharing, connectivity and convenience to their customers. In this way, every corporation gains after becoming a part of alliance. Indeed, airline industry is one of the most competitive industries that incur high capital costs for providing travel services. The principle reason for airline industry being dominated by alliances is that the members have extensive resources and customer base. Also, they capitalise the opportunities and resources through joint collaboration. The low cost model has recorded phenomenal growth because many middle class travellers switched from traditional carriers to low cost no-frills service providers. The three major alliances in the global airline industry are Oneworld, SkyTeam and the Star Alliance. Also, over 55% airline traffic was controlled by airlines and over 35% airlines had joined alliances in 2007. The key reasons for joining alliances include - increasing their target market (reach), product portfolio (destination and routes offered) and selling an experience. Alliances are usually beneficial for large airlines that have already established their goodwill, reputation and brand name in the market. Also, they have relatively controlled cost structure and better performing revenue streams because of improved load factor. However, small firms have higher operational costs but lower passengers and product portfolio so they do not really get greater benefits from alliances. The major advantages of making a foreign direct investment by buying a facility versus include established brand name, distribution channels, supply chain network, managerial systems and customer base. The disadvantages may include poor reputation of existing firm in the domestic market, bad governance and internal inefficiencies. The merits of starting up a new facility abroad include building brand recognition, consumer awareness and image and experience, relationships with partners, governments, shareholders and stakeholders from scratch. Long-term growth could be expected if rights decisions are taken. The demerits are lack of relevant market information, cultural, political and economic barriers. Reference: Grossman, David (2007). Airline alliances and the Rule of Three, USA Today [Online] Available at http://www.usatoday.com/travel/columnist/grossman/2007-03-09-grossman-airline-alliances_N.htm SECTION 2: Will the Transatlantic Joint Venture of British Airways and American Airlines Fly? (Case Study). 300 words The proposed joint venture among British Airways, American Airlines, and Iberia should be approved because it will provide these international airlines (in fact the giants) a competitive edge over rivals. Also, American airline could benefit from business expertise and plus points of British airline. Similarly, British company could expand into American region. Customers will be benefited because routes and destinations offered will increase. Southwest is a low cost carrier which has observed tremendous growth because it mainly targets a large pool of lower-middle and middle-middle consumers. Hence, it should continue its business model because its sales are continuously increasing; thus there is immense potential for Southwest in global arena. Awareness about labour and business laws is not the only prerequisite to expand globally for any airline; rather it should also know the scope in potential markets and what consumers expect from the air travel service provider. The U.S. law limiting foreign ownership of U.S. airlines to no more than 25 percent of voting shares is actually a law to protect US airline industry so that foreign buyers and airline businesses could not gain excessive control on this major sector of strategic importance. If this law had not existed, there was greater probability that foreign monopoly would have emerged. If a few large airlines or networks dominate global air service, the first consequence will be creation of a monopoly or oligopoly. Customers would then be manipulated through increase in fares, reduction in facilities, hidden charges or any unfair tactics. Yes, airline industry is of strategic importance because it is the fastest means of transportation (compared to rail, road and sea) and it connects nations to other countries that are land-locked. Hence, governments should intervene to guarantee their survival through subsidies, tax exemption (or fewer taxes), bailout packages etc. The three joint-venture partners use to divide revenue and expenses on the North Atlantic routes by calculating the increase or decrease in passengers who benefited from routes offered individually, after the agreement among three parties. SECTION 6: Burger King Beefs Up Global Operations (Case Study) 300-400 words Burger King was not in any of the following five countries: France, India, Nigeria, Pakistan, and South Africa by mid-2009. Indeed, India and Pakistan are densely populated emerging nations where international food chains such as KFC, McDonalds, and Pizza Hut etc. are already operational and successfully running their operations. South Africa is also a feasible option because of presence of many global chains; however, Nigeria is a riot-hit country (political and economic uncertainty) so it is not a right option for future investment. France is a developed nation where demand of fast food also exists. In short, all other nations excluding Nigeria are appropriate future destinations for Burger King, thus it should expand global operations to reduce dependence on American region for sales and profitability. Even, Starbucks have opened in aforementioned countries because of greater market size and many potential teenage and young adult customers. (CIA Fact Book, 2010). When entering another country, Burger King will be advantaged because its target market and global sales will increase. Also, international chain may have extensive resources and managerial expertise that will give a competitive edge on local sellers. However, any lack of information about societal and religious taboos, tastes and preferences, norms, culture, behaviours, lifestyles and values may lead to failure of Burger King’s new venture in foreign countries. The culture in American region (where food chain operates) is different than culture in Asia, Europe and Africa. A local company will obviously have more in-depth knowledge about ground realities of a firm but may lack exposure to international quality standards and principles. No, the location of Burger King’s headquarters has not influenced its international expansion policy and weakened its global competitive position because a majority of American companies have secretariats in their home nations, yet they are expanding globally. Indeed, it’s marketing research through survey agencies (Neilson etc.) that provide insights about business scope in any nation for any company. Read More