Contemporary Development in Business and Management Airasia - Assignment Example

Contemporary development in business and management – AIRASIA Name: University: Course: Tutor: Date: Contemporary development in business and management – AIRASIA Political Environment Question 1 Political system implies the nature and structure of the governance mechanism of a nation. Countries can have democratic or totalitarian regimes, depending on the degree of power vested in the political leaders. AIRASIA operates mainly in Malaysia, which has a Constitutional rather than hereditary Monarchy with a Parliamentary Democracy system at the national and state levels. At the national level, the king is head of State, while the Prime Minister is the head of government. At the state level, the head is the Raja or Sultan while the rulers of the state governments are the chief ministers. The hereditary sultans who are the heads of state elect the constitutional king from their midst. The constitutional monarch rules for a five-year period. The Malaysian Parliament consists of the Senate and House of Representatives. The senators are in office for a term of six years, while the House of Representatives serve for a term of five years. According to the Constitution, Malaysia must hold a new general election five years after the previous polls. In conclusion, Malaysia has a political system in which the Constitution is the basic law, there exist both federal and state governments, and democracy is evident through the election of political leaders. Question 2 China scores highly in terms of democracy and this creates a favorable business environment for AIRASIA. In China, democracy is evident in the fact that the public elects the political leaders to the local and national congresses. The elections serve as incentives for leaders to promote the socio-economic development of the regions that they represent so that they can have a chance at re-election. Consequently, leaders are likely to support the efforts of organizations such as AIRASIA to facilitate the development of China through business activities. This means that, with the support of the political leadership, AIRASIA will find a favorable environment in which to conduct business in China. Similarly, democracy allows local and foreign entrepreneurs to invest in the country’s development. It means that people are at liberty to launch and run business ventures, if they do not violate the country’s laws. This implies companies like AIRASIA that intend to invest in China are free to do so and will have access to equal investment opportunities as other businesses. Equally, the Chinese government will provide AIRASIA with the necessary financial, material and human capital resources to support its business operations. In conclusion, democracy in China will facilitate access to resources and business opportunities for AIRASIA, thereby, supporting rather than constraining the company’s business activities. Question 3 The political system of any nation influences positively or negatively the business environment for companies operating in it. In this case, the political systems of Malaysia and China could enhance or hinder the business operations of AIRASIA. Both Malaysia and China have democratic political systems, which allow the public to elect the leaders they deem capable of addressing their needs. Consequently, the business operations of AIRASIA are likely to thrive owing to the implementation of policies favorable to business firms. The policies are likely to provide incentives to support the business activities of AIRASIA, while reducing the barriers to their operations. At the same time, the democratic nature of both political systems reduces the likelihood of government interfering with the business activities of companies operating in both nations. Government will only interfere with operations of companies that violate the established business regulations. In addition, democracy in both countries creates a politically stable climate in which there is relative peace and order. These elements are crucial to encouraging companies such as AIRASIA to invest and open branches in both nations. In conclusion, the democratic nature of political systems of Malaysia and China creates a favorable business environment for companies such as AIRASIA. Question 4 The ease of doing business encompasses a number of factors. It implies a reduction in the barriers to launching a business, obtaining permits, accessing electricity and loans, registering property, investor protection, taxation, implementing contracts and managing insolvency (World Bank 2012). Out of 185 economies covering Sub Saharan Africa, Latin America, the Caribbean, East Asia and the Pacific, Eastern Europe and Central Asia, Middle East, North Africa, and South Asia, China takes the 91st rank in terms of ease of doing business (World Bank 2012). This represents a rise from the 87th rank that China held in 2011, according to the same data. China’s rank implies that the environment in the country is relatively favorable to doing business. For AIRASIA, the data implies that the company will find it easy to operate in China. The company will not have trouble obtaining permits and registering its business, accessing funding from lending organizations and essential resources such as water and power, and will receive investor protection. In conclusion, since the ease of doing business in China is relatively satisfactory, AIRASIA will find a favorable environment for its operations. This implies high incentives and low barriers to doing business. Such an environment will enhance the profitability and growth of AIRASIA. Question 5 The costs of executing business increase in environments that fail to ensure property rights protection for companies operating within them. Property rights are legal rights regulating the use of a resource or the income that individuals or companies may generate from a given resource. The definition and protection of property rights varies across countries. Violation of property rights may take place through private or public activities. An example is a case where public agents extort resources, income or the property from the proprietor. Violation may also occur through legal mechanisms such as excessive taxation or unlawfully through corruption or blackmailing. AIRASIA operates in the airline industry, which witnesses continuous technological inventions relating to the manufacture of aircrafts, computer and other ICT systems to facilitate air transport operations. Consequently, intellectual property protection is crucial to AIRASIA because it ensures that the company does not lose trade secrets to competitors or fraudsters. In the event this happens, AIRASIA would lose its position and profitability in a highly competitive industry. In addition, AIRASIA needs to register commercial property and obtain legal protection for it. Failure to do so within a short time exposes the company’s property to looting by ill-intentioned directors or external criminals. This would result in extra costs of purchasing additional property to replace the lost items. In conclusion, the ease with which AIRASIA can carry out its business operations depends in part on the enforcement of property rights, including intellectual property protection. Question 6 AIRASIA operates in the airline industry in which oligopolies are common. An oligopoly exists when three to five companies control more than half of the market share. A key characteristic of an oligopoly is interdependence, which means that the activities of each firm affect the market, and will trigger other companies to respond or react. This implies that when AIRSIA is choosing new products/services, prices, promotional and distribution strategies, it has to consider the response of its fellow oligopolies. Another major feature of oligopolies is that the large firms are few, which means that each has a substantial control over the market because each generates half of the market’s total output. In addition, oligopolies give companies an opportunity to merge or collude to strengthen their position and control in the market. AIRASIA could pursue mergers or acquisitions to gain additional marketplace control in the airline industry. Moreover, oligopolies tend to compete on grounds of product/service differentiation rather than price. AIRASIA is likely to broaden its airline services portfolio to promote its brand image and meet a variety of customer needs. Similarly, AIRASIA enjoys less competition because the barriers to entry are high in oligopolies. This means that other companies cannot enter the market easily, which leaves the large firms with considerable market control. In conclusion, the oligopolistic nature of the airline industry in which AIRASIA operates favors the company in terms of the reduced threat of new entrants, merger/acquisition opportunities, and substantial market control. Question 7 Differences between the wealth and income of people living in the richest and poorest countries of the world are evidence of economic inequalities between such populations. Such inequalities at a global level translate into high volatility and profitability risk for companies such as AIRASIA that would like to enter the international market. High economic inequalities between countries contribute to the volatility in interest rates. Investors pursue opportunities in countries where they are likely to get high yields, meaning that the poorer nations benefit less than the richer ones do in terms of foreign direct investments. Similarly, the market share will only consist of the large firms who can withstand the volatile interest rates or purchase the small and weak companies. AIRASIA will seek to invest less in the global market due to the volatile interest rates. This means that it will restrict its expansion activities to nations where its operations are likely to be profitable. In conclusion, income inequalities at a global level lead to increased volatility in interest rates. This poses a risk to the profitability prospects of companies that plan to venture into the global business market. Consequently, AIRASIA may hesitate to expand its operations into foreign territories. Question 8 Economic inequality within countries will have a negative impact on the business operations of AIRASIA. This is because of the decline in aggregate demand and purchasing power of the low-income groups compared to the wealthy populations. Economic inequality will influence the market segmentation and pricing strategies of AIRASIA and affect the company’s profits negatively. This is because it reduces the purchasing power of populations, with a few groups retaining large portions of wealth and income, while the majority remains in poverty. When performing market segmentation and determining the prices of its products/services, AIRASIA has to consider the differences in wealth and incomes of the rich and poor populations it serves. The company has to set low prices for the low-income segments whose purchasing power is low and high prices for the wealthy populations. Since the low-income populations are more than the wealthy segments, this inequality is likely to lead to the loss of profitability for AIRASIA. In conclusion, the differences in wealth and income between rich and poor populations result from inequalities in resource distribution. Economic inequalities reduce the purchasing power of a majority of the population, meaning that their demand for goods/services also reduces. The result is a reduction in the potential of AIRASIA to make substantial profits. Question 9 In business, there is the tendency to categorize countries into eastern and western blocks. This however, is based under the assumption that business culture in these countries is the same. Cultural differences play a major role in international dealings and translational agreements. Each party spends time and energy into making a deal with the other party and may end up negotiating the deal several times before coming to an agreement. Translational deals especially may take time due to different perceptions of the different cultures of doing business. Different countries within each block have different national cultures given that each country has a different geographical location, historical developments and different stages in economic development. Different culture in different nationalities is bound to affect the way business is done in AIRASIA. In conclusion, categorizing countries into Eastern and Western blocks is based under the assumption that business culture is the same. However, this is not always the case because each country has a different history and culture towards the way business is done hence it is essential to study a country’s culture on an individual basis. Question 10 The World trade organization is an organization formed with the intention of enforcing rules of trade among different countries. It was formed after a hundred and seventeen countries made an agreement to establish an organization that would enforce rules of trade on the international level. One of its major roles is to create a forum of trade negotiations between countries especially since these negotiations are sensitive and can cause tension. Furthermore, peace and stability is enhanced in the process by ensuring cooperation between countries hence the smooth running of business. Additionally, membership of world economies to the organization comes with free trade agreement benefits by opening access to other world markets such as Australia, US, Thailand, Chile FTAs. This improves competition since these markets provide access to products of lower costs and domestic manufacturers are encouraged to compete with such products (Amadeo, 2012). In conclusion, WTO significance on international trade is huge since it is the only organization within the international boundaries with the mandate to enforce rules of trade between countries. Similarly, it is a powerful organization in the international trade front. Question 11 The Association of South East Asian Nations (ASEAN) was founded in 1967 with signatories of five countries namely Malaysia, Indonesia, Philippines, Singapore and Thailand. The main aim of the association was to establish regional peace and stability, as well as, enhance the region’s economic social and cultural growth. Members of the association benefit economically through expansion of markets by eliminating tariff and non tariff barriers of trade in member countries. This is made possible by the ASEAN Free Trade Agreement which was signed in 1992. This increases opportunities of trade, and also promotes competition among firms in the region. Additionally, one of the association’s pillars is to promote regional peace and stability in order to ensure smooth running of trade in the region. Members are able to move and trade freely within the region during which they interact culturally and socially creating an understanding of each country’s culture. This in turn promotes peace and stability within the region. In conclusion, the impact of ASEAN in the South East Asian region has been significant in promoting peace, stability, economic growth, cultural integration and social progress. Question 12 Investing in other countries is one of AIRASIA strategic future plans. However, the attractiveness of investing in a country depends on its political and economic stability. China and Indonesia are two countries in the company’s future investment plans. Indonesia is ranked as one of the most stable economies in the world. The country has enjoyed economic stability with its numerous exports from its vast natural resources and the rate of investment has increased in the recent years. Additionally, it is one of the ASEAN members meaning that investing in the country would be economically beneficial for AIRASIA since its trade market is accessible within the region. However, one of the greatest risks of trading in Indonesia is ethnic tensions which although many strides have been taken to contain the situation, victory cannot be declared as yet. The economic status of China has improved by showing tremendous growth over the years. Domestic wealth has increased tremendously and this has in turn improved the lives of many of its citizens. Investing in China is attractive. However there is always the risk of government interruption since most banking firms are owned by the communist government. Similarly, the political instability in China is closely monitored by many potential investors and has made it an unattractive destination for investment. In conclusion, Indonesia would be the most ideal destination for AIRASIA’S business investment ventures. By virtue of being a member of the ASEAN community, investing in the country would be more economical for the company. Legal Environment Question 1 A legal system can be defined as a set of rules and regulations set up within a nation to aid in regulating relationships among individuals and between a nation’s citizens and the government. There are various legal systems practiced around the world although the major ones that are commonly found in many countries include civil, common, customary, religious, mixed and socialist law systems. Malaysian legal system is based on mixed legal system comprising of common, Islamic, and customary laws. The mixed legal system has been inherited from three different periods in the Malaysian history namely the period of Malacca Sultanate, Islamic spread to South East Asia and British colonial rule which introduced the common law and the constitutional government. Since Malaysia is made up of people from different races, ethnic and religious backgrounds, the Malaysian legal system is designed to cater for all its citizens on an equal and fair basis. There are two categories that make up the Malaysian legal system i.e. the written and the unwritten legal systems (lawteacher.net). The written legal system comprises of the common law introduced by the British during the colonial times. It has many features stemming from the English legal system, and it contains laws found in the federal, the thirteen state constitutions and in a statute. The laws in both federal and states are enacted by parliament and state legislature according to the constitution of both federal and states constitutions. The unwritten laws on the other hand, are laws that are not enacted by parliament or state legislature hence can not be found in both federal or states constitutions. These laws are normally instituted from cases that have been decided by courts and from local customs. Many feature of the court systems are similar to those of the English court system which comprise of superior and subordinate courts. In conclusion, the Malaysian legal system is mixed legal system catering for the vast number of its citizens who hail from different racial, ethnic and religious backgrounds. The nature of this country’s legal system enables investors’ confidence when investing in the country’s economy. Question 2 A country’s attractiveness to investing is based on its legal system. Most international traders and investors must keenly study a country’s legal system before making decisions to invest or trade in that particular country. Legal stability and the ability of the foreign government to be transparent about the legal framework of the country directly influence foreign investments. It is important to study a country’s legal system in order to ensure that property rights of foreign investors are not infringed. Legal guarantee of property ownership in the country of investment is vital since the international law does not guarantee this. It is also important for a foreign legal system to guarantee sanctity of contracts. This means that under no circumstances will the contract be changed due to pressure from domestic legislation. In conclusion, many factors influence a firm’s choice of international investment. Legal stability if fundamental in investing in a foreign country since many legislations of doing business are found in different jurisdictions around the world. Question 3 Every country has its own set of rules and policies that govern the conduct of businesses in its own jurisdiction. Malaysia like many other countries has many set of rules governing business across its borders. Some of the most important areas of legislation to be followed by AIRASIA include consumer’s rights protection, health and safety legislations and environmental legislations. Consumers’ protection act in Malaysia came into effect in 1999. This law protects the consumer’s rights concerning various issues such as housing, food, health care, public transport and human rights among others. These rights are enforced by a non governmental organization known as Federation of Malaysian Consumer’s Association. Health and safety legislations are vital in the airline business. The government has set up legislations on health and safety that are mandatory to every employer and are the rights of every employee working in the airline industry. Training programs on ways to maintain employees and passengers health and safety is one of the ways for an employer to ensure that the legislation is adhered to. Environmental legislations are also essential in the industry especially to avoid air pollutions. In conclusion, three main areas of legislations are vital for AIRASIA’s line of business. By following these legislations, the company not only adheres to the rule of law, but also, demonstrates its need to protect the lives of its employees, passengers and the environment. Question 4 AIRASIA is a domestic, as well as, an international airline. It has successfully managed to do business across is national boundaries but to do so it must adhere to some areas of legislations. Environmental laws are important not only in one country but across international borders. The harmful effects of pollution are felt across national boundaries and every airline must adhere to environmental legislations. The international legal system is mandated with the regulation of environmental laws that control pollution across borders. Aircrafts flying in the international skies are also subject to drug trafficking laws. Each country has its own rules regarding drug trafficking. Heavy penalties are administered to drug traffickers where some countries the death penalty is awarded. Airlines flying across international skies must cooperate to fight this menace that has become a booming business across the world. Countries have entered into conventions and agreements in order to regularize the airline industry rules and regulations across the international skies. In conclusion, international aviation legal system is important in controlling laws that must be followed by all aircrafts flying in international skies. It is important for AIRASIA to adhere to these rules for the smooth running of business across its national borders. Question 5 Association of Southeast Asian Nations (ASEAN) was formed in 1967. Originally it had a membership of five countries Malaysia being one of them, but it has since then grown to increase its membership to ten countries including Brunei, Myanmar and Vietnam. The association was formed with the goal of enhancing the regional economic growth, encouraging cultural integration, social growth, regional peace and stability. It was for these reasons that three pillars were later formed namely ASEAN SECURITY, ASEAN Economic Community and ASEAN Socio –cultural community (Albano, 2012). Malaysia being a member country of the ASEAN community, AIRASIA has certain benefits that come with the membership. Firstly, the company enjoys trading in open free markets without any tariff or non tariff barriers. Secondly, trading in free market opens up new markets and business opportunities that are economically beneficial to the company. ASEAN has also managed to enhance cultural and social integrations creating mutual understanding amongst people of different nations and ethnic communities. As such, it played a major role in enhancing peace and stability across the region. In conclusion, ASEAN is a regional association that promotes economic, social and cultural growth to its member countries. Dealing with this association is beneficial to the airline as this creates new business opportunities for the airline. Question 6 The World Trade Organization is an organization that is mandated to enforce rules of trade among its member countries. Its main aim is to ensure that trade around the world runs smoothly fair and in a predictable manner. The rules of WTO apply to all domestic and national companies that seek to do business internationally. Trade without discrimination is one of the major WTO rules of trade (World Trade organization, 2012). The rule encompasses two major components i.e. the most favored nation and the equal treatment of both foreign and local nationals. Under this principle countries are not allowed to give preferential treatment to any of its trading partners. Additionally, both imported and goods produced locally, foreign and imported services, foreign and local trademarks, copyright and patents must all receive equal treatment in a market. The airline industry is covered by the General Agreement on Trade in Services (GATS). Under this treaty, rules of trade for services are outlined that must be covered by each airline company under the WTO membership. Malaysia is a WTO member country under which AIRASIA operates. Consequently, the company is at liberty to trade in any other country without fear of being discriminated or its employees receiving unequal treatment. This makes it easier for the company to make future expansion plans as part of its strategic growth of the company. In conclusion, Malaysia being a member country of the World Trade Organization, gives AIRASIA the advantage of being able to expand its trade routes regionally and internationally without fear of being in breach of any countries national policies. Question7 Competition laws are formulated with the aim of controlling and maintaining competition within a country’s boundaries or within the boundaries of many countries i.e. a region that form a union. These laws ensure that competition within the specified boundaries is regulated hence avoiding unfair competition among companies. European Union competition laws regulate unfair competition amongst firms’ and corporations around European countries. The restrictions against unfair competition are enforced by the European Commission. The main aim of these laws is to provide a fair business environment for all businesses within the European Union member states (Czajkowski, 2012). It does so by eliminating the formation of private cartels that may in one way or another manipulate business operations to their advantage. Cartels can collude to fix prices to their benefit or agree to produce specific number of certain goods in order to force the market prices to go up. The laws also ensure that companies do not monopolize an industry which would place smaller companies in an unfair competitive advantage. Mergers, acquisitions and joint ventures are closely monitored to ensure fair competition within the market. Additionally, the law also ensures that no companies receive preferential state funding. Regulation of state funding is closely monitored to ensure that fair competition is maintained amongst all companies in member states. Trading in the European Union would be in contravention of the European Union competitive laws since AIRASIA has monopolized the Malaysian domestic market by lowering their fare rates barring other smaller companies from competing fairly. In conclusion, competitive laws are important in world of trading since all companies are given a fair chance of doing business. However, venturing into the European Union region may not be strategic for AIRASIA since this would mean that the company would have to comply with the competitive laws within the union which are not economically convenient for the company. Question 8 Health and safety within the workplace is vital for all types of businesses. It is essential for companies to ensure that all its employees are safe when working within its premises by formulating heath and safety policies. Health and Safety is particularly important in the airline business. It is the duty of the employer to ensure that all crew members working within the airline company are provided with adequate health and safety protection appropriate to their working environment. This includes employees on the ground, in-flight and gate crew members. Many injuries can occur while working in the airline business hence special injuries and illness programs must be implemented by the employer to ensure safety of the crew members. Similarly, it is the responsibility of the employer to cater for the safety of passengers while within the aircraft. This includes providing assistance to passengers with special needs and providing the necessary information to passengers in case of an emergency. IATA aids the airline industry by providing guidelines on general medical issues. It is vital for AIRASIA to comply with the health and safety standards, in order to gain the trust of its crew members and its passengers. A safety reputation for the airline is good for business since it attracts more customers. In conclusion, health and safety laws are vital for the success of the business. As a reputable brand, AIRASIA must comply with heath and safety laws in order to maintain its market share and competitive advantage. Question 9 A contract is a legal binding agreement made by two or more people which can either made in writing or can be made orally (Emerson, 2009). A legally binding contract is composed of two requirements. Firstly, it must have an agreement clause where the two parties make offers and counter offers before reaching an agreement. This is in contract law is referred as the meeting of the minds. Secondly, the contract must possess some form of consideration where each party tends to benefit from the contract. For instance, contracts between employees and employers where employees provide working services while employers provide monetary compensation. A contract offers many provisions for it to be legally binding. This includes offers, terms and conditions, performance, breach of contract, payment terms, obligations and liabilities. AIRASIA deals with many entities in its line of work including its employees, suppliers and passengers. The need for contracts is always crucial with all of its entities because they all work to benefit from each other. Most of these contracts are in writing and heavy penalties are incurred for any breach of contract. In conclusion, contract law is vital for AIRASIA since its line of work depends on mutual understanding between its employees, passengers and suppliers. Failure to honor contracts leads to incurring of heavy losses through lawsuits and compensations. Question10 Intellectual or physical property laws are fundamental in any business. While property rights refers to tangible physical properties that are capable of being touched and moved, intellectual property rights on the other hand, refers to property that cannot be touched or moved but a property that exists as an idea (Agusti, Earle Schaffer, 2008). Intellectual property rights occur in different forms including copyrights, patenting, trademarks and industrial design rights. Owners are normally given exclusive rights to certain things as innovations, music, writing, symbols, and designs among others. The main aim of these rights is firstly to provide financial incentives to the owners for their work. Secondly, intellectual property laws enhance the chances of growth by encouraging innovators among others to create and be at liberty to bring to public their success. Intellectual property rights are important to AIRASIA when it comes to protecting their trademark. AIRASIA is not only a brand, but a trademark that solely belongs to the company and that no other airline should use to conduct business. It is this trademark that identifies AIRASIA from the rest of the airlines as a trusted and affordable airline. Physical property rights are important in the protection of private property and also allow registering of the property. In conclusion, intellectual and physical property rights are important for protecting the work of individuals and companies alike. Trademarks rights are important in protecting AIRASIA as a business brand in Malaysia. Question 11 There are four main forms of intellectual property laws. Copyright Copy rights occur automatically when an individual or company creates something that can be referred as work. The law gives creators of such works as music, literary, drama, films, broadcasts, sound recording and artistic works among others the rights to control the manner in which their work is used. This includes broadcasting, copying and renting among others. Additionally, the rights permit the creators to refuse any adjustments to their work. Trademarks Trademarks are normally symbols, names, word, slogans that are used by companies to identify their products and services. Registered trademarks are used by organizations to protect their products and are normally recognized in countries that they have been registered in. Intellectual property rights are important to AIRASIA to protect the organization’s interest and brand that is well recognized in the air industry. Design Rights and Patents Design rights are rights given on any design work created. Patents on the other hand, are rights given mainly in the industrial sector following an innovation of a product. This law gives exclusive rights to an organization to use, sell or reproduce the invention. Similarly, the law offers protection against any one or another organization from using the invention. In conclusion, intellectual property laws are in four main forms. Copyrights, trademarks, design rights and patents. Trademarks rights are important for AIRASIA as a business. Question 12 Employment laws or labor laws are laws that govern the legal rights of workers in the work place and also define certain restrictions for the employers. The law is the main basis of negotiations between employee unions, employers and their employees. Every employer must adhere to the employment laws. They are classified into two classes, one which covers overall employee rights working on contract terms and second class that covers the rights between employer, employee and the union. The rights of employees on contract terms are dependent upon their legal statutory rights and the rights dictated by the contract. Every employee is entitled to certain statutory rights which at times may depend on the length of time the employee has worked for the employers. Such statutory rights include the right to paid leave, the right to paid maternity leave among others. Employment laws are vital to AIRASIA. The organization relies on the expertise of different crew members for the daily and smooth running of the business. Each employee is employed under certain terms and conditions dictated by employment laws. In conclusion, employment laws are vital to any business. While employers set the rules and standards of working, employees too have rights that must not be ignored by any employer. Question 13 Each country has its own way of resolving issues that occur within its national jurisdictions. However, some disputes may occur in foreign jurisdictions which may prove to be difficult to resolve given that the said jurisdiction has its own laws to resolve issues. Private international law also known as conflict of laws is the body mandated to resolve such issues as contractual disputes occurring in different national jurisdictions (Armstrong, Farrell, Lambert, 2012). It is does so in two ways, firstly it seeks to determine which national courts have jurisdiction involving the matter and what conditions are required to be met for the decisions by the courts to be enforced. The second way is to determine the nation’s laws currently in use to govern the legal aspect of the contractual process. When drafting a contract, it is essential for both parties to indicate which system of laws will be applied to resolve any disputes that may arise by including a governing clause. The governing clause only specifies the system of laws that will be used to indicate what either parties’ obligations or rights are regarding the contract. In case, the contract lacks the governing clause the rules of private international law applies. Private international law is based on municipal law where it basically mediates the conduct of both parties involved in the contract dispute. Resolving contractual disputes may be different between one jurisdiction and the other since each country has its own set of private international rules. In conclusion, disputes involving contracts are bound to occur in different national jurisdictions. Private international law applies only when the contract terms do not indicate a governing clause that would otherwise provide guidance into what system of laws would be used to resolve the dispute. Question 14 Bribery and corruption is a global problem that has taken root in many countries. It mainly involves exchange between two parties that may be public or private officials. Bribery may take many forms including unfair allocation of scarce but legal benefits such as public contracts and trade licenses or exemption of individuals from following the required business rules such operating an illegal business. Additionally, bribery can be used to harass a competitor in business (Loughman, Sibery, 2012). Leaders across nations have realized the damaging impact bribery and corruption has on the global economy and governments have resorted to take action against corruption. The US was the first country to implement laws against corruption and other countries have seemingly followed suit. Although there are international laws governing corruption on the international level, different nations have implemented laws that award different penalties depending on the jurisdictions. For instance, death is the penalty for such an offense in China. The successful implementation of anti corruption laws in different nations have led to the signing of treaties and formation of conventions geared towards tackling corruption and bribery. For example, organization for Economic Cooperation and Developments 997 convention which was formed to fight corrupt foreign officials performing international business transactions. In conclusion, bribery and corruption can lead to disastrous effects in an organization such as AIRASIA. Not only does it tarnish the company’s reputation but the company would also lose customer’s loyalty and trust which can take years to rebuild. Question 15 Property safety laws are laws designed to protect the consumer from exploitation by ensuring their safety (Cartwright, 2001). The law covers products such as food, drugs, cosmetics, tobacco products, motor vehicles, air crafts and boats among others. Product safety laws are necessary for any business especially those businesses that affect consumers. AIRASIA’s market is its passengers hence must ensure their safety when whenever they seek their services. Two main aircraft suppliers are found on Malaysia i.e. Boeing and Airbus. The two companies are renowned in the aviation business. They both have a good reputation with many buyers around the world meaning that airlines trust them to provide safe products for their businesses. It is significantly important for AIRASIA to maintain good business relations with its two suppliers because passengers will continue to trust the airline as long as the airline continues to provide better services by purchasing safe products. In conclusion, product safety laws are important in order to protect consumers from exploitation from manufacturers. They protect consumers from harmful products that may endanger their lives. Question 16 Information technology has always been a fundamental requirement in the airline business. Globalization has made it vital for airlines to acquire fast networks and applications that are more advanced in order to guarantee secure internet services. The main goal of an airline is to provide better services for its passengers. This is achieved through streamlined operations, a productive workforce and a strong IT foundation. Having an efficient information security is vital for AIRASIA. It not only enables to secure exchange of information within the airlines network, but it is also the key to securing customers’ information which is vital in achieving customer’s trust and loyalty. Adopting a secure information network is vital for AIRASIA. The internet environment is filled with many cyber attacks that are getting more and more advanced and sophisticated. Unauthorized access through hacking can be costly for the airline. Customers trust the airline for the security of their personal information. It is therefore, vital for AIRASIA to effectively implement information network that is able to adjust to the ever changing internet threats. Furthermore, the information system must be in line with the company’s goals, mission and vision (Doganis, 2006). In conclusion, effective information technology solutions are fundamental in the day to day running of the airline business. As such, it is vital for AIRASIA to constantly review its information network security to ensure the safety of its data and consequently, customer’s trust. Question 17 Contract law A contract is an agreement between two or more parties. People often go into contract whenever they make business deals which can either be done orally or can be in written form. Contract law ensures that these agreements are upheld and if any of the parties are in breach, compensation mostly in terms of money is given to the other party. AIRASIA goes into contract with its employees, suppliers and its buyers. Tort law This law covers most offenses in civil lawsuits except contractual disputes. They are classified into three categories namely negligent, intentional and strict liability torts. Torts can be in form of physical, economic or legal damage that are often resolved by covering the damages through monetary compensation (Miller, Cross, Jentz, 2010). Criminal law Criminal law stands to defend the public against crimes committed against public authority. Every country has criminal laws that protect the public from criminals who go against the public authority of the country. This law can be differentiated from civil law in that civil law involves crimes committed against one person to the other while criminal law concerns crimes committed against the public as a whole. International laws International laws are laws that govern the state of affairs between states, international organizations and non governmental organizations on an international level. Some of the issues covered by international law include treaties, jurisdictions and human rights among others. Since AIRASIA operates within the international borders, knowledge of international law is relevant to the company (Armstrong, Farrell, Lambert, 2012). Competitive Environment Question 1 The terms market and industry are two frequently used terms and often are used interchangeably creating confusion into their meaning. While these terms are used interchangeably and they may have many things in common, they are not synonyms. The distinction between the two terms is relevant in business because of the attractiveness of the two terms which both are different in their definitions and understanding. An industry can be termed as a group of companies that sell the same products or services to a target market of consumers. These companies thrive on competition with each other by carefully interpreting market trends so as to customize their products and services to match the interpretations of the trends. It is vital for an industry to remain relevant to its market since an industry only exists to serve the target market. Lack of careful analysis of the market trends, only leads to failure of an industry. AIRASIA operates in the airline industry which comprises of many airline companies that compete with each other to attract consumers to use their airlines as their preferred mode of air transport. Careful analysis of consumers’ preferences is the key to obtaining a niche in the industry. A market on the other hand, can be defined as a place where sellers and buyers meet to exchange their products and services e.g. supermarkets, malls and online market among others. The market for AIRASIA is consumers who rely on air transport as their mode of transport along its trade routes. Airline companies market their products through various avenues and in return consumers make choices on different products and services based on their preferences and product attractiveness. Individual consumers make up a market and are categorized based on their buying preferences. Many factors influence a market including retail distributors, the social media and advertising. In conclusion, both the terms market and industry are relevant in business. Although used interchangeably, it is vital to make the distinction to avoid confusion. Question 2 Four basic market structures have been identified in the development of economies around the globe. These are perfect competition, monopolistic competition, oligopoly and monopoly (O’ Connor, 2004). AIRASIA exist in an oligopolistic market structure. An oligopoly is a market structure that is characterized by the domination of a small number of big firms in an industry (O’ Connor, 2004). These firms are said to produce products or services that are homogenous or different from each other. An oligopolistic structure can have as few as two firms and as many as ten firms. AIRASIA and Malaysian airlines dominate the Malaysian air transport with several other smaller firms operating within the industry. One of the key features of an oligopolistic structure is market control. These firms operate in a relatively large market of consumers where consumers have fewer alternatives to make their choices. This gives the firms an advantage of assured profits and is able to manipulate prices of their products or services to suit their needs. For instance, AIRASIA has successfully maintained its market share in the domestic market by charging lower fare rates across various destinations within Malaysia. Additionally, these firms also manage to dominate the market through barriers to entry where they make it difficult for other potential competitors to enter the market. Interdependence is also another significant characteristic of an oligopolistic structure where the decisions made in each of these companies depend and influence the decisions of the other. In conclusion, the oligopolistic environment in which AIRASIA operates in has made it successful in dominating the domestic market. Price leadership has been the main strategic move for the firm which has enabled the firm to gain a competitive edge against its competitors. Question 3 The Malaysian airline network is well served by several airline companies. These airlines operate both domestic and international flights serving a well vast number of consumers across the region. Several domestic airlines serve the domestic market. These include AIRASIA, Malaysian airlines, Pelangi air, Berjaya air, SEAGA airlines, Sabah air and Transmile. Among these airlines, only Malaysian airlines and AIRASIA dominate the domestic market in Malaysia. Malaysian airline is the national carrier and the biggest airline in Malaysia serving over thirty two destinations in the domestic market. Additionally, it also serves the international market with over a hundred destinations across the world. AIRASIA is the second largest domestic airline in Malaysia. It has dominated the domestic market because of its strategic low cost fares and its low cost travel in Asia. So far, AIRASIA has been able to enjoy its operations across most cities without so much competition from the other airlines. However, this may change as Lion Air seeks to expand its territory in the Malaysian- Indonesian routes. Lion Air is Indonesia’s biggest airline serving both domestic and international flights. A new airline was recently created which hopes to become AIRASIA’s strongest competitor with the introduction of low fare pricing. AIRASIA is the second largest domestic airline in Malaysia and although its has strategically managed to gain a considerable market share in the domestic market, it continues to face competition for other smaller firms as well as bigger firms on the international market. Question 4 Michael Porter identified five basic factors that can be used in understanding a firm’s competitive position and the strength of a business decision that a firm plans to go through with. Through careful analysis of the five factors, it’s possible for a firm to identify its strengths, as well as, its weaknesses and take the necessary measures to enhance its strengths and improve on its weaknesses. The five forces of analysis for AIRASIA are as follows, 1. Rivalry among existing competitors 2. Threat of new entrants 3. Bargaining of suppliers 4. Bargaining power of buyers 5. Threat of substitute products or service (Hill, Jones, Jones, 2009). In conclusion, porter’s five forces of analysis, allows AIRASIA to carefully analyze its strengths and weakness in order to create the right market strategy. Question 5 Threat of entry Competition is healthy in any business. Although AIRASIA has managed to dominate the Malaysian domestic market, it constantly faces competition threat and must analyze its strengths and improve on its weaknesses. Barrier to entry is relatively high because of the huge cost required to run an airline company such as buying of aircrafts or hiring of staff. Furthermore, a new player in the industry would first have to create a brand and advertise it in the market so as to create awareness to consumers. This may prove to be a difficult task one that would require capital. Moreover, a new brand in the market would take a lot of time for customers to trust let alone use its services. Additionally, there is also the role played by the government in barring new entrants into the market. Some companies are given preferential treatment by the government leaving out other companies. In conclusion, threat of entry is high due to high cost of set up and government barriers. Question 6 Reliability of service Reliability is a very important factor in business. A reliable business is trusted by its customers and it gives the business a competitive edge against its rivals. An airline that has a good reputation in terms of reliability has a competitive edge against its competitors. This include positive reports of keeping time on departures and arrivals, less passenger complaints, less baggage losses, less reports of boarding denials as a result of overbooking and good customer service among others. Airlines with less reports of customer complaints on any of the above issues is able to offer its customers better services compared to airline with a lot of customer’s complaints. Customers are able to trust such an airline since it is reliable in its delivery of services. AIRASIA has attained a good reputation within its domestic market a factor that has also increased its share in the market. In conclusion, reliability of services is also another competitive factor in the airline business. By being reliable, AIRASIA has created a good reputation which has increased its rate of repeat service. Question7 The concentration of organizations in a market is used by organizations to strategically analyze market power. There are several methods used to measure the concentration of firms in a market. Concentration ratios are used to measure the proportion / percentage of the total market share. The minimum number of four organizations is considered in the measurement which gives the results of the proportion of the total market power of the four large organizations in a specific market. If the proportion of the four firms is high it means that the large organizations own a bigger market share and hence their market power is high. Although this method is used in market share concentration measurements, it does however, have a number of weaknesses. First it only takes into consideration the market share of a minimum number of organizations and not all organizations in a market meaning that if the markets share of one of the four organizations changes, there is no significant change in the concentration ratio. Secondly, it does not cater for an organization’s size distribution in the market. Herfindahl- Hirschman Index (HHI) is also another method that unlike the concentration ratio, factors in both market shares of organizations in an industry and the total size distribution of the organizations. Similarly, unlike concentration ratio whose results do not change with changes in market share of one of the firms, HHI results would indicate a change if the market share of one of the organization changes. The maximum value of HHI is ten thousand. If this value is high, it indicates that few organizations own the market share but if the value is close to zero, this would mean that the organization are fairly competing (Young, McAuley, 2010). In conclusion, these measurements are very important for a company when making strategic decision regarding an industry. References Agusti, F, Earle, B & Schaffer, R 2008. International Business Law and its Environment. Stamford, Cengage Learning Albano, W 2012. What is ASEAN? Retrieved on 24th November, 2012 from < http://www.wisegeek.com/what-is-asean.htm> Amadeo. K 2012. Why is WTO membership so important? Retrieved on 24th November, 2012 from < http://useconomy.about.com/od/wtofaq/f/WTO_membership.htm> Armstrong, D, Farrell, T & Lambert, H 2012. International Law and International relations. London: Cambridge University. Cartwright, P 2001. Consumer Protection and the Criminal Law: Law, Theory and Policy in the UK. London: Cambridge University Doganis, R 2006. The Airline Business. 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