International Business in Context - Essay Example

?International Business in Context Introduction: Organizations today operate in highly volatile market conditions which often pose critical challenges in the form of natural disasters, as well as various man-made challenges such as political coups leading to war and other cross border hostilities, regional and / or ethnic clashes; etc., among others. Such challenges have a great impact on the international businesses, with the result that a significant amount of damage is caused to human life as well as property. Furthermore, there is also a huge economic consequence of such disasters which also play a major role in influencing the manner in which organizations conduct and manage their businesses. One of the recent such examples is that of the Eyjafjallajokull volcano which erupted in Iceland on 14th April 2010, leading to a huge loss of lives and property and a heavy strain on the economic forces of the nation. Due to the volcanic ash cloud, the air travel came to a complete halt leading to several passengers being stranded on airports, affecting several businesses in the process. The manner in which the industries affected by it reacted such as the hospitality industry, the airline sector, as well as various other tertiary sectors such as internet cafes etc reacted to such an emergency is discussed in the paper. The accounts of the tragedy as narrated by Dr. Nigel, of the Oxford Brookes University, is used as a part of this study, to discuss, analyze and understand the impact and consequences of natural disasters on the external factors of organizations; their competitive strategies; the types of organizations affected and the manner in which they reacted; and the element of ethics with regard to the whole scenario, is discussed in the following sections. Impact on the external environment: When the volcano erupted, several industries were severely affected of which the airline industry and the hospitality industry were the hardest hit. The airline industry had virtually come to a complete halt, owing to the huge volcanic ash clouds which made air travel not only difficult but almost impossible during the first few weeks. As a result, there were several cancellations and the travellers who were stranded on the airport had to resort to other means of reaching their destinations. Consequently, most of the economic activity moved from one sector to another - such as the road and rail transport industries recorded higher bookings while air travel suffered. Furthermore, several other sectors such as travel and tourism, lodgings and boarding etc suffered huge losses, as travellers were unable to reach their destinations. The hotel and hospitality industry, also, benefitted largely, on account of such a calamity, and raised their prices owing to the huge demand for accommodations. There was a significant level of competition amongst various sectors, such as within the hospitality industry. Various hotels had increased their prices while several others offered accommodations at more or less the same prices. Similarly a fierce competition was observed within the airlines and road travel sector. Each of these sectors within different industries were trying to benefit from the losses or setbacks suffered by the other for a greater share in profit. Several passengers were unable to leave the island, while several others were unable to arrive. Thus, the hospitality industry was likely to suffer huge losses, as a result of mass cancellations. The industry thus tried to set off its losses by increasing its tariffs and capitalize on the current situation, rather than facing huge losses. Competitive environment: Marketers usually face two types of competition, namely: direct and indirect. The direct competition is faced with respect to similar goods and services such as competition amongst two hotels or two airline companies. The second type of competition, i.e. indirect competition occurs when a good or service can be easily substituted or replaced by the consumer, but has more or less the similar values with respect to satisfaction. For instance, when the prices of airlines are increased due to external factors the demand for rail or road transport increases substantially. This is because rail and road transport are a substitute for air travel (Kurtz, MacKenzie, Snow, 2009). Competitive strategy of organizations: The competitive strategies adopted by businesses across various sectors can better be understood through the Porter’s generic strategies model as discussed below: Porter’s generic strategies (Griffin, 2006): According to Michael Porter, organizations pursue various strategies to compete in the global marketplace. These strategies can broadly be categorized into three key parts - differentiation strategy; overall cost leadership strategy; and focus strategy. Organizations use some or the other of these three strategies at various points in time, to improve their profitability. The organizations bank on the differentiation of their products or services as a strategy to attract customers, because they rely on the fact that consumers are more than willing to pay more for a product or service which offers something different than their competitors. The overall cost leadership strategy aims at achieving competitive advantage over its rivals in the industry by reducing costs below those of their competitors so as to gain more customers. This strategy was used by some of the hotels in Ice land, right after the volcano erupted. When the rest of the hotels in the industry increased their prices to bank on the opportunities presented to them due to the disruptions in the external environment, some of the hotels as well as transport systems, offered lower prices to attract more customers. This strategy works because even after lowering their prices, the demand is relatively high, and the companies are able to cover their costs considerably. The third competitive strategy used by firms is the focus strategy or segmentation strategy. According to this strategy the firms competing in an industry vie for a specific group of customers, or a specific market type. Organization types: The eruption of volcano in Iceland posed various critical challenges across all organizational sectors in the industry. The public sector organizations which were affected by the volcanic eruptions include the transport industry including the airlines, rail and road transport while the private sector organizations include – the hospitality industry and the service sector such as hotels, hospitals and the internet cafes. The airline industry saw a sharp decline in the reservations to both in coming as well as out-going flights, since the passengers at both ends of the region were stranded, and there were mass cancellations leading to heavy losses. Furthermore, the industry saw a major shift to the alternative / substitute products i.e. the air travellers shifted from air transport to rail and road transport as an alternative means of travel. Also, the hospitality industry also witnessed similar mass cancellations of bookings, and as a result they increased their prices substantially to accommodate the stranded travellers to make up for their heavy losses. The internet cafe’s gained substantially on account of such a loss, by way of increased number of customers, who were desperately trying to communicate with their loved ones back home. According to Dr. Nigel, the internet cafes’ were almost over booked as they were swamped with young children who were bored and wanted to play games to while away their time. The business thus, gained significantly on account of a change in the external environment. Conclusion: It is quite apparent how businesses tend to benefit due to a change in the external environment. While some hotels increased and almost doubled their tariffs to cash in on the high demand for accommodations several others made no such changes whatsoever. This reflects on the business ethics of such organizations. According to Naylor (1990) “Ethics is the concerned with the code of values and principles that enables a person to choose between right and wrong and therefore select among alternative courses of action”. Some organizations choose to forego an opportunity to gain profits at the expense of their organizational morals and / or ethics, while some others, in the exact same situation, try to benefit and gain more profits. This situation reflects the theory presented by Friedman, which states that “Business corporations, along with businesses in general, have only one social responsibility and that is to increase their profits” (Friedman, 1996, p. 245). References: Griffin, R. W., (2006). Management, Cengage Learning, Pp. 205 - 210 Kurtz, D. L., MacKenzie, H. F., Snow, K., (2009). Contemporary marketing, Cengage Learning, Pp. 88 - 94 Naylor, J (1999) Management London : Financial Times Pitman, 1999 p.176 Read More