Problem at China Airlines - Essay Example

?Problem at China Airlines Table of Contents Introduction 3 A Brief Analysis of the Case Study 3 Question Macro-Level Issues 4 PEST Analysis 4 Question 2) Industry Specific Issues 7 Porter’s Five Forces Model 7 Internal Capabilities and Weaknesses of China Airlines (CAL) 10 Question 3) Recommendations 12 Question 4) 14 Foreignnes 14 Entrepreneurship 17 Conclusion 18 References 19 Introduction China Airlines Limited (CAL) was founded on December 10, 1959 in Taiwan by a few of the ex-officers from Chinese Air Force. In the initial stage, the organisation was funded with NT$ 400,000 and performed its operational functions with only 26 employees along with two PBY-5A Catalina Flying Boats. The airline organisation has been enlisted with the International Air Transport Association (IATA) during the year 1969 and started it independent service across the different regions of the world. However, the organisation has faced different challenges while performing different business activities across the globe (Samanta & Faheem, 2010). The report intends to briefly discuss about the macroeconomic issues of China concerning outsourcing, manufacturing as well as supply chain management system. The discussion of the report will also focus upon analysing China Airlines through reflecting its financial information, global competitiveness, supplying activities as well as various technological aspects. Moreover, the report will further provide relevant and effective recommendation for China Airlines in order to mitigate the issues or difficulties faced within the Chinese market. A Brief Analysis of the Case Study According to the case study, it has been observed that CAL has faced various challenges or difficulties in international airline business. The organisation has achieved continuous development in its various business operations since from its establishment In this similar context, it has been viewed that CAL has continuously faced different challenges within the Chinese market relating to political, social, economic as well as technological aspects that drastically affected in its overall performance. In accordance with the case study, it has been viewed that the organisation successfully performed its various business operations by offering superior services to the customers in its different operating areas. In this regard, the organisation has adopted an effective strategy during the year 1995 in terms of procuring 15 numbers of advanced Boeing 737 medium-haul jets for expanding its businesses (Samanta & Faheem, 2010). Question 1) Macro-Level Issues The different macro level issues that faced by CAL can be understood by conducting a detailed environmental analysis based on PEST framework. PEST Analysis PEST analysis is regarded to be an important analytical model for an organization that assists to identify different circumstances concerning social, political, economic as well as technological factors (Lorat, 2009). Political Factors The political disturbances have been witnessed as one of the major difficulties for CAL while conducting its business operations. The political association between Taiwan and Mainland China has been observed to be quite strained because of the growing disputes concerning political status of Taiwan. The political problems between Taiwan and China have drastically affected the airlines business of CAL because the Chinese tourists are allowed to visit Taiwan in a group but they are not allowed to visit individually. In addition, the cargo transhipment service was also restricted between these two countries that also affected the business operations of CAL at large. Due to political disturbances, CAL and other Taiwanese airlines had changed its international flight route via southern region by connecting Southeast Asia and Middle East countries that ultimately emerged major difficulties for CAL (Samanta & Faheem, 2010). In this regard, it has apparently observed that the association between Taiwan and China remained quite strained because of the disagreement concerning political conditions of Taiwan. This strained political relation between Taiwan and China was can be identified to be one of the major macro-level issues for CAL. In addition, the strained relationship between the two countries caused strict prohibition for CAL to launch its number of flights to China (Samanta & Faheem, 2010). Economic Factor In the context of CAL, the economic factor has also been recognised to be the other crucial macro-level issue that faced by CAL. In this similar context, it has been identified in the case study that CAL has faced significant economic downturn due to the impact of major terrorist attack that took place on September11, 2001 on the US. Due to this impact, the company faced a huge loss of USD 2.3 billion resulting in terms of falling in passenger traffic. However, CAL made certain deliberate efforts in order to mitigate the situation by executing effective strategies. The strategies include enhancing its flight safety and retraining pilots among others (Samanta & Faheem, 2010). Thus, it can be stated that though the company was experiencing vulnerable economic condition, but still the company was performing well by utilising the aforementioned strategies or efforts. Social Factors From the perspective of CAL in Taiwan, it can be observed that the organisation significantly offered airlines services in a highly consumer-centric approach. Furthermore, in terms of trade and commerce related activities, CAL also played crucial role for both Taiwan and Mainland China in transporting goods and services through its deliverance of effectual cargo facilities. However, the organisation has faced certain challenges relating to social aspects in terms of losing its international contract with certain Asia Pacific countries such as Japan, Korea as well as Malaysia. It has been observed that there has been a major impact upon the airlines operations of CAL when the United Nations (UN) officially accepted People’s Republic of China (PRC) as the legal government of Taiwan that caused losing its international contract. Moreover, a large number of accidental records in the airline history of CAL can further considered to be losing its large number of social supports in its airlines operations (Samanta & Faheem, 2010). Technological Factors In the context of technological competences in Taiwan, it has been noted that the country is significantly developed with investing modern technologies within the industrial sectors that facilitates easy process in conducting trade and commerce activities. From the perspective of CAL, the airline company had faced a crucial issue relating to technology due to improper installation and lack of adequate technological assistance for its flights. Moreover, improper or undeveloped technology in the airline services also caused several accidents throughout different regions of the world that eventually raised the possibility of experiencing hard issues for CAL. The technological environment of CAL in its international airline operations has influenced towards radical development in the organisation’s overall performance. According to the technological advancement in the airlines industry, CAL considerably performed various operational changes concerning passenger safety, luxury as well as more convenience operations for its broad customer base. Moreover, in this regard, the organisation also emphasised upon establishing effective reservation and e-ticketing facilities to its customers through the execution of innovative technological advancements (Samanta & Faheem, 2010). Question 2) Industry Specific Issues The industry specific issues that faced by CAL can be comprehensively analysed by concerning the different aspects of Porters Five Forces Model along with assessing its strengths and weaknesses based on VRIO framework. Porter’s Five Forces Model Power of Buyers From the perspective of CAL, it can be observed that the organisation has significantly played a vital part in the airline service across the Asia Pacific region. It has been observed that the organisation operates its businesses to 112 destinations across 28 countries that comprise Europe, America, and Asia. The organisation operates total 72 aircrafts that include 51 passenger jets and 21 freighters that have been designed in order to serve its global customers in a more effective and convenience manner Moreover, a long-term sustainability can also be considered as a major strength for CAL to keep the buyers’ bargaining power low. In addition, the low price strategy of its services as well as adequate number of passenger and cargo aircraft facilities also ensures to retain its global customers by a considerable extent. Therefore, the bargaining power of the buyer is considerably low which can be identified for CAL to achieve competitive position in the global airlines industry (Samanta & Faheem, 2010). Power of Suppliers According to the business performance of CAL in the international airlines industry, the organisation possesses an effective and familiar relationship with its supplier across the different nations or regions. In order to efficiently maintain the business performance in airlines industry, the organisation reconsiders its internal processes in order to properly adjust scheduling of its workforces and reduces adequate inventories which are required in the business processes. Moreover, CAL also enforces external efforts of communication and counselling process with its suppliers and investors in order to reduce possible constraints within its delivered services (Samanta & Faheem, 2010)/ (China Airlines, 2011). Threat of Substitutes The various sorts of airline services that offer by CAL significantly increased the standard of transportation facilities throughout the globe. It has been viewed that the lower switching costs of the customers in the cargo facilities significantly enables it to possess superior competitive position. Furthermore, the alliance with the Sky Team airlines significantly found to be more beneficial for CAL in order to augment its business operations within the global regions. Therefore, it can be identified threats from its substitute brands considerably low due to effective scheduling of flights and cargos to different destinations (China Airlines, 2011). As the airlines services of CAL involves daily passenger flights and cargo services for the global consumers, the threat of substitutes for the company can be considered as quite low (Samanta & Faheem, 2010). Threat of New Entrants CAL operates in the challenging segments within the various countries of the world. Therefore, the threats of new entrants are considerably increasing in the present airline industry. Moreover, the augmenting competition in the global airline industry significantly pressurises CAL on the basis of national as well as international level. However, the organisation is one of the oldest airlines companies in the Asia and it has accomplished the satisfaction level of a large number of its loyal customers both in the domestic and international markets. Therefore, the threats of new entrants can be considered as quite low for CAL in the global airlines industry (Samanta & Faheem, 2010; MarketPublishers, 2012). Competitive Rivalry CLA can also be considered as one of the largest airline service providers for its global customers that offer numerous effective airline facilities to its customers. In relation to competitive rivalry, it has been viewed that the organisation faces immense competition from government owned airlines belonging to China and Taiwan. Moreover, CAL also faces severe competition from Taiwan-based EVA Airways. One of the major strengths of the competitors of CAL is that they provide low-cost services to the customers. This particular factor can be viewed as the chief weakness of CAL (Samanta & Faheem, 2010). Internal Capabilities and Weaknesses of China Airlines (CAL) VRIO Analysis The VRIO (value, rarity, imitability as well as organisation) analysis model is designed to identify the internal capabilities or potentials and weaknesses of an organisation. The model significantly ensures an organisation to recognise its values, rarity, imitability along with the activities performed and determines initiatives to effectively practice appropriate business strategy (Illinois State University, 2009). Value The value of an organisation considerably encompasses the ability to identify the appropriate resources and potentials to develop the external opportunities of the firm. From the perspective of CAL, the resources are considerably the major strengths of the organisation that provides effective services to its valuable customers across the globe. The organisation involves a large number of resources, whether tangible or intangible, in its airline, logistics, cargo terminals, ground level services as well as information networks in order to provide a range of effective and quality based service to its global customers (China Airlines). Therefore, it can be identified that the resources both tangible and intangible of the organisation are the major strengths of the organisation that provides exceptional passenger and cargo delivery services. Rarity In order to identify the rarity of its valuable resources, it can be identified that the operating networks relating to cargo service and various resources of CAL is considerably different than other firms of the airline industry. According to the overall financial appraisal of CAL, it can be observed that the cargo service of CAL is one of the major divisions through which the organisation achieves significant financial returns in every fiscal year (Samanta & Faheem, 2010). Imitability The imitability stage of VRIO refers to determine the organisations about facing cost disadvantages without possessing adequate resources or capabilities (Illinois State University, 2009). From the perspective of CAL, the increasing business expansion, and superior financial performance are the major tangible strengths that supports the organisation to attain its expected business targets (Samanta & Faheem, 2010). Organisation According to the overall observation of CAL, it can be recognised that the business operations of the organisation encompass full potential of both tangible as well as intangible resources. Moreover, the formal reporting arrangement, effective control of the management along with different beneficial compensation policies significantly plays an imperative part for CAL in order to achieve competitive advantage in the global airlines market (China Airlines, 2012). Apart from the aforementioned internal capabilities based on VRIO framework, CAL also possess certain crucial weaknesses. In this regard, the low maintenance standards and huge number of investigations concerning the safety of the customers has been identified to be the vital weaknesses of CAL (Samanta & Faheem, 2010). Question 3) Recommendations CAL extensively provides air transport facilities for carrying both cargos as well as passengers in its different operating nations around the globe. The organisation also offers several important services such as mail, ground, aircraft as well as flight equipment maintenance facilities within the global airlines industry. The organisation further involves communication and data processing services to different airline companies across different regions. Moreover, selling aircraft parts, peripherals as well as aircraft leasing services in the global airline industry are also regarded as the effective services of CAL. In relation to the airlines market in the East Asia, it can be recognised that CAL has considered its unique position which is considerably exceptional as compared to other airline companies (Wen, n.d.). With this concern of providing effective services and attain competitive position in the airlines market, there are three major recommendations can be identified for CAL in its global airlines service. Firstly, CAL needs to devise as well as maintain effective flexibility in implementing the organisation’s business policies Secondly, an effective and well-built market research process will be effective for the organisation while performing different airline service operations Thirdly, the organisation should also focus on the cultural factors that might play an imperative part for the organisation to identify the cultural differences of the new business markets In relation to the first recommendation, an effective flexibility in the business policies of CAL would be more beneficial for its long-term domination in the global airline industry. In this regard, an effective and familiar alliance with the neighbouring countries could also provide beneficial aspect for CAL to change its international airlines routes by considering strained political concerns. The second recommended part of the assessment has been provided concerning the aforementioned issues or challenges which had drastically affected the organisation’s global performances. Therefore, an effective and relevant research considering political, economic, technological as well as environmental issues of its global destination regions is important for CAL to mitigate possible risks in its airlines operations. Moreover, the analysis concerning destination regions can further provide effective support to make successful business strategies for CAL. In the similar context, it is also important for the organisation to conduct technological assessment of its different areas including aircrafts as well as ground level services in order to ensure more safety on travelling for its passengers and deliverable cargos to different global destinations. Accordingly, the third recommendation of the assessment which has been provided for CAL is to build a friendly working environment both in the organisation’s internal and external environments which promotes its workforce and its customers to experience an effective atmosphere within the global airlines operations. The organisation should focus to manage workforce diversity which incorporates people from different backgrounds including race, gender, ethnicity, age as well as skills and abilities to build an amicable working environment (Wen, n.d.). Question 4) Foreignnes According to the increasing pace of the international business process, it can be assumed that the organisations operating in the foreign countries face different types of problems that eventually results huge financial losses. In this similar context, the foreign firms face different challenges relating to political, environmental, social as well as cultural circumstances due to unfamiliar business practices within the foreign business market. Therefore, the multinational organisations must need to pay off the foreign liabilities in order to successfully overcome the foreign related issues. The identification and effective familiarity with the foreign country can be considered as major advantage for the multinational firms which further incorporates brand name, organisational strength, marketing and technological superiority as well as other intangible assets. In order to penetrate into foreign or international market, the multinational firms must need to identify and choose effective entry mode plan that facilitates to achieve specific and competitive advantage and also minimises possible market risks and uncertainties (Chen, 2006). In relation to the entry mode strategy of the multinational companies in to a foreign country, it can be observed that advanced and effective business strategies are practiced by them in terms of conducting business expansion. From the perspective of the entry strategy of foreignness, it can be observed that the liabilities of foreignness significantly emphasise on the costs of trade operations in unfamiliar environment along with needs for acquiring the knowledge specifically of the local market. The entry mode strategies that are practiced by the multinational companies are classified into five major characteristics. These include local responsiveness, multi-country operations, complementary resources, avoiding market leaders as well as short-term alliance strategy (Chen, 2006). Local Responsiveness: This type of entry mode strategy involves building capability concerning local responsiveness in the foreign country Multi-Country Operation: In case of multi-country operation, the strategy of wholly owned subsidiaries is more favourable than joint ventures. However, the wholly owned subsidiaries are not preferable when operating in a single foreign country. Complementary Resources: The complementary resource type of entry strategy involves the process of building alliance with the local providers or investors which enable to acquire adequate resources while performing business activities Avoiding Market Leader: The entry strategy emphasises on building effective alliance process with the second-tiered organisation in the foreign market and competing against the dominant player Short-term Alliances: In this type of entry mode strategy, Foreign Direct Investment (FDI) facilitates multinational investors to prepare short-term alliances together with local subsidiaries Source: (Chen, 2006) Therefore, in relation to identify favourable entry mode strategy for the Taiwanese entrepreneurs, the process of wholly-owned subsidiaries would be more effective for the organisations. This type of entry mode strategy would facilitate to perform multi-country operations in an independent way which further can provide beneficial outcomes for the multinational corporations. In addition, the familiarities with the national cultures and behaviours can also be considered as important aspects for the multinational firms in terms of conducting trade expansion to other country. The business procedures of the organisations should be familiar and accepted by the customers following different culture in the foreign market. The people in the foreign country are usually familiar with their respective national cultures rather than following foreign cultures within the community. Therefore, it is quite important for the multinational firms to recognise the cultural differences and implement similar culture in terms of dealing with product or services in a foreign market (Zaheer, 1995). In addition, the entry strategy for the multinational corporations may also inculcate integration theory which involves practicing business performance through conducting effective alliance with foreign investors and subsidiaries. In this process, the entry mode strategy facilitates the multinational corporation to acquire adequate resources with a minimum number of possible risks. Moreover, the discretion process of business units through performing business operations through the subunits could also provide substantial benefits and it also can facilitate the multinational organization to compete against the existing dominant leaders in the foreign market. Perhaps, practicing business performance through the subunits could also facilitate the multinational corporation through providing adequate support to each other while implementing different business strategies in the foreign market. These types of entry mode strategies can provide ample opportunities for the foreign marketers in terms of targeting a large number of audiences for its products and/or services (Zaheer, 1995). Entrepreneurship From the perspective of the notion of entrepreneurship, a particular entrepreneur can be defined as the individual or group who intends to take risks of establishing new business if there laid any probable chance for attaining profits. In order to grow a business especially in the international business market within the context of a successful entrepreneurship, it is important for the organisations to identify the specific business market for delivering the products and services (GRANT finder Ltd., n.d.). With regard to the rapid growth of industrialization, it has been noted that the multinational organizations are highly focused to develop business strategies through identifying the customer behavioural patterns as well as their cultures. With this concern, the modern multinational organizations considerably encompass cross-cultural business strategies that focus to achieve sustainable advantage in the culturally diversified nation. Moreover, an effective and appropriate entrepreneurship program further facilitates an organisation to recognise the needs and desires of the customers that ensures to attain significant competitive advantage in the international business environment (Zahra & et. al., 2000). Conclusion From the perspective of airline industry, CAL considerably executes different effective strategies in order to maintain its dominant position in the airline industry. With regard to the business strategies of the organisation, it can be observed that the organisation usually delivers effective pricing, appropriate flight scheduling, convenience system in ticketing and reservation process along with adequate and quality based services to its large number of global customers. Moreover, the strategy of targeting low-income group customers of CAL can be considered as one of the major and effective business policies for the company that supports to attain its predetermined business goals. However, the organisation had faced certain crucial challenges concerning macro-level as well as industry specific issues. In this regard, in order to improve the business performance as well as to mitigate the different issues, the company needs to formulate as well as implement effectual business strategies. Moreover, the company should pay utmost attention towards understanding the cultural values for efficiently performing its different operational functions globally. It has been apparently observed that most of the business organisations commence their respective business operations particularly with the notion of international entrepreneurship for the purpose of improving their overall performance and accomplishing significant competitive position over the chief business market competitors. References Chen, T. J., 2006. Liability of Foreignness and Entry Mode Choice: Taiwanese Firms in Europe. Journal of Business Research, Vol. 59, pp. 288-294. China Airlines, 2012. About CAL. CAL at A Glance. [Online] Available at: http://www.china-airlines.com/en/about/about.htm [Accessed December 29, 2012]. China Airlines, 2011. Annual Report. Maintenance and Advancements. [Online] Available at: http://www.china-airlines.com/ch/about/100ap.pdf [Accessed December 29, 2012]. GRANT finder Ltd., No Date. Writing a Successful Business Plan. Business Plan. [Online] Available at: http://www.grantnet.com/HelpfulReports/businessplan.pdf [Accessed December29, 2012]. 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