Take Home Exam in Global Strategy - Assignment Example

Zayed University BUS-620 Capstone Course in Global Business Strategy MSIB 4 Take Home Exam Instructor: Prepared By: Sublimation Date: 17th May, 2014 What do you think are the three most significant trends facing companies operating in the UAE today? Specify your answer for a particular company. Explain your reasons for concluding that the trends you mention are significant. How do you think the company should respond to each of these trends? Tourism Development Investment Company (TDIC), a leading tourism companies in Abu Dhabi, has a reputation for being a master developer of major cultural and tourism destinations in Abu Dhabi. Using PEST analysis, trends of tourism sector in Abu Dhabi are explored. Focus is on how TDIC can respond to the trends. Politically, Abu Dhabi Government has had a relatively stable government since its creation. The government has made policy implementations that are friendly to development of the tourism sector. UAE consists of seven Emirates the capital being Abu Dhabi, which is also the largest emirate consisting of 86.7% of the country’s total area. No cases of economically disruptive political conflicts have happened in the emirate. When the ruler of The UAE passed away, the country witnessed smooth transition of power. In the last three years starting in 2010, Arab Spring began, Most of Arab countries affected negatively such as Egypt, Tunisia, Libya, and Bahrain. UAE in general and Abu Dhabi specifically become a shelter for citizens of those countries due to political stability. Economically, Abu Dhabi vision 2030 aims to achieve Economic Diversification to enable the country to depend on non-oil sectors. Currently, most of Abu Dhabi GDP originates from oil. For instance, share of Oil in Abu Dhabi GDP in 2013 was estimated to be 57% of total GDP. Through this vision, Abu Dhabi has since 2008 been seeking to achieve economic diversification and focusing in different sectors such as Tourism. TDIC has responded by striving to make Abu Dhabi a cultural and tourism destination hub. Socially, A sharp decline in the growth of number of visitors and many of the UAE residents limiting their spending after the 2009 Financial Economic Depression, travel and tourism has recorded significant growth since 2012 from inbound and domestic tourism. Domestic consumers spend more on tourism given the increase in their disposable income in Abu Dhabi. At the same time, the emergence of the middle-income group in the Middle East has resulted in more regional tourists visiting the country. According to Business Monitor International, more tourists have preferred Abu Dhabi and Dubai due to their rising hospitality industries and luxurious ambience. The country’s hospitality market is expected to rise by 67 percent to about $7.5 billion by 2006, from the $4.5 billion in 2011. A study by Business Monitor International has indicated that the UAE tourism sector will grow at a rate of 6.5 percent each year, between 2011 and 2021 with tourists from Europe, North America, Asia Pacific and Middle East as the major source markets. Technologically, UAE and Abu Dhabi ranks high as a leading destination for lodging and resorts option in the UAE with highly advanced technology that is attractive to high-end consumers. The growth in advertisements through the Internet has also increased awareness of the country’s thriving tourism sector. However, comparing Dubai to Abu Dhabi, Abu Dhabi needs to advertise more to promote its tourism sector. Its latest tourism projects, which have been lunched few years ago such as Qasr Al Sarab, and others projects, which will be lunched soon such as Louver Museum, are expected to be instrumental in promoting the tourism sector. In response to the favorable political, economic,, social and technological climate, TDIC has implemented many projects such as Qasr Al Sarab, Al Saadiyat Island, Hotels like Shangri-La and Fairmont Bab Al Bahr. Other Projects to be lunched soon include Louver Museum and Zayed National Museum. They will be located in Saadiyat Island. TDIC should take into some considerations GCC tourists, especially middle-income, who tend to travel during their summer to Egypt, Lebanon, and Syria, defiantly changed their destination to somewhere else. Those countries are known of their nice climate in the summer and tourist attractions like Sharm Al Shaik in Egypt, shopping in Lebanon and Syria. As a result of Arab Spring event many tourists will change their destination, which is expected to increase the tourism in the UAE. If we look at TDIC projects, they are targeting high-income people. If TDIC take into consideration of Arab spring events, they should invest in projects, which are targeting middle-income people. For instance, TDIC should focus on developing projects, such as parks and affordable accommodation to take advantage of the emerging middle-income groups. If we compare Dubai to Abu Dhabi, the former has more tourism projects for middle- and high-income people. For instance, Dubai Mall targets everyone from low to high-income people. Some examples of Abu Dhabi Tourism projects are Ferrari World and Theme Park, both of which are targeting high income people. Abu Dhabi is on the right track towards diversification. However, it needs to diversify projects in tourism sector. Rather than just investing in high-end projects such as international museums and high-end resorts, it should also come up with projects intended for middle income tourists as well as culturally diversified projects. For instance, there is no ladies beach in Abu Dhabi. Abu Dhabi, through TDIC, is working on other great projects such as the Expo 2020, which will embrace tourists not only in Dubai but also there will be a big share for Abu Dhabi of Expo tourists. During the Expo 2020, many international tourists are expected to visit Dubai and Abu Dhabi. Muesums and Sheikh Zayed Grand Mosque in Abu Dhabi are also expected to attract a huge number of business tourists. Abu Dhabi, through TDIC, should participate more in global conferences and market for all of Abu Dhabi Tourism Projects. TDIC should not only invest in tourism projects. Rather, it should centre on promoting Abu Dhabi as a tourism destination. Success stories do not stop in doing projects, but by marketing for it in order to attract more tourist regionally and globally. TDIC should intensify its campaigns that promote Abu Dhabi as a safe tourism destination. This will enable it to uphold its reputation as a safe tourism haven. It should also carry out comprehensive promotional activities that associate Abu Dhabi with being a conventions and meeting destination, as well as a venue for organizing trade shows, road shows and workshops. This will promote Abu Dhabi as a business tourism destination. Choose an emerging multinational company from the Middle East and describe the reasons for its success / its sources of competitive advantage. Explain your answer. Etihad Airways Etihad Airways is a leading air carrier in the UAE. Headquartered in Abu Dhabi, the airline operates some 80 airplanes that fly to over 90 destinations across more than 50 countries. The company makes over 1200 flights per week. Annually, it carries more than 11.8 million passengers (Ascend 2013). Etihad Airways has managed to transform into a multinational corporation using strategies that has enabled it to move up the value chain. This means it has engaged in activities that provide value to customers to promote higher profit margins to a business and a market leader in the Middle East. Less than 10 years ago, Etihad was merely recognized as the smallest of the three Middle East airlines, namely Qatar Airways, Emirates and Etihad Airways. However, the company has over the last five years become successful in grabbing passengers for long-haul travel across 55 countries globally. Etihad’s reasons for success are varied. For instance, the company reported 200 percent increase in net profits in 2012, from $4.8 billion to $42 billion. The well-located geographical location at the intersections of Africa, Europe and Asia, as well as prosperous oil-rich economies in the Middle East has provided ready market for air travel. In addition, UAE’s growing reputation as a tourist and business hub has increased the number of flights to UAE, hence providing ready flight market (Aspire Aviation). The available inexpensive workforce helped Etihad to implement its cost-management measures without constraining its exceptional service experience and innovative product. Additionally, in spite of the global oil price rise in 2012, the company was able to minimize costs in labor as well as in fuel expenditure through its fuel hedging policy. Etihad reduced costs by 80 percent in 2012 (Aspire Aviation). UAE government has provided environment that is conducive to the expansion of aviation industry. For instance, the government has restrained from overburdening the company with excessive taxes as well as focused on developing airport infrastructures, both of which have encouraged growth of the company. The airline has also focused on expansion in foreign markets through signing of codeshare partnerships with airlines globally. This enabled the company to boost its revenues in 2012 by $600 million. For instance, full-year strategic partnership with Air Berlin in 2011 resulted to the emergence of new flight services to Abu Dhabi along with a broad range of business synergies. In 2012, it started flights in new destinations (such as, Sao Paolo, Nairobi, Amsterdam, Shanghai, Basra, Tripoli, Washington, Lagos and Ahmedaba) through similar partnerships. Currently, it has signed up to 41 codeshare agreements. The company has also used pricing strategy to maintain a competitive advantage. The company charges low and premium prices, while maintaining quality standards. It also creates value by less for cargo and flights than its competitors while offering similar, and sometimes superior, benefits. This has ensured it becomes a cost leader. Etihad also offers loyalty programs such as the Etihad Guest Miles, which allows members to earn miles each time they fly with the airline. Customers can also earn points when they shop at the company’s non-airline partners such as retail stores or hotels. This has enabled th company to increase and maintain a loyal customer base. Briefly explain the entry modes available to a company when considering entry into foreign markets. If you were a fashion brand not yet present in the Middle East (for example Lululemon, but it may also be another one), which country/countries would you enter first and which entry mode would you recommend. Why? Essentially, foreign market entry modes vary according to the risks level of control, return on investment agreed, commitment to resources required, and the risks they present. An entry mode describes the institutional arrangements that can used to enter a foreign market. Entry modes are classifiable into equity and non-equity. Equity modes (High equity and control levels) include when a foreign company agrees to invest more equity in a specific operation and accepting a great share of the business risks in exchange for higher levels of control and higher shares in returns. They included wholly owned subsidiaries and joint ventures. Equity modes include export and contractual arrangements. In considering introducing a fashion brand that is not yet available in the Middle East, I submit that the selected target market would be United Arab Emirates. This is since UAE is a growing and dynamic market with an emerging middle-income population that would provide a ready market for the fashion brand. Additionally, the country’s metropolitan areas such as Dubai and Abu Dhabi have multicultural population -- hence less conservative -- that would appreciate the foreign brand. However, market attractiveness is not the only factor I will consider. The country’s status as an emerging economy makes it attractive for business. UAE’s currency – dirham – is also generally stable hence provides safety for capital repatriation or profit transfer. The country has low restrictions for doing business in UAE. For instance, importing taxes are as low. In addition, there are no taxes for goods imported to the free zones. The financial risks are relatively low. The government has also put up efforts to reduce paperwork associated with starting a business in UAE. In addition, the UAE market is attractive for foreign investment given the accessible locations in its regional markets due to advanced infrastructure and a stable working environment. Next, I propose that joint venture as a method for entry into the UAE market. Joint ventures are created when companies looking to benefit from complementary competitive advantages, equity, assets and risks. This applies for the case of Lululemon that has enough capital resources for investment and which seeks a vibrant marketing partner in the new territory. The reason why Joint venture I select “joint venture’ entry method is because of the many restrictive policies and Sharia laws that regulate businesses in UAE. Second is the need for companies with marketing expertise in Dubai. Third is the need to use a partnering company’s assets or business premises to conduct businesses. In my experience with UAE, I have gathered that joint ventures do not have to be with large firms. Entry can be achieved by collaborating with small to medium-sized enterprises in the clothing industry. Like many middle income economies, business start-ups in UAE generally lack sufficient funding opportunities. Hence, joint ventures with SMEs would provide a suitable entry point. Lululemon has sufficient financial resources that would fund a startup. Currently, SMEs make up some 85 percent of the businesses in UAE, with more than 50 percent struggling to get capital even as they face high lending rates of about 15 percent. Additionally, Lululemon can consider financing new ventures in a bid to enter the new market. In respect to financing, the current Sharia-compliant financing constitutes up to 60 percent of the UAE Dh64 billion-mortgage market. UAE is currently the most competitive in the Middle East in regards to ease of establishing a business. In my experience with the market, only six documents, six signatures and an average of 18 days take to move imported goods from the ports to the warehouse. Additionally, the SMEs tend to concentrate on foreign and novelty products. Hence Lululemon can easily locate a suitable partner. Read More