Global Corporate Strategy - The Merger between Air France and KLM - Essay Example

?Introduction Core competencies and dynamic capabilities of organizations are considered as essential strategic advantages which firms develop over the period of time.( Zahra, & Nielsen, 2002). A core competency of the firm is relatively difficult for competitors to imitate and also results into overall benefit for the consumers besides being reused by the organization.( Gibbons-Wood,& Lange,2000 ) Similarly, dynamic capabilities of the organization allow it to use, integrate and reconfigure its external as well as internal competencies to deal with the external challenges.( Chien,& Tsai,2012) Air France and KLM were two giants in the airline industry however, over the period of time, as the industry dynamics changed, these firms have changed too. The merger which took place in 2004 between two companies created a global leader in the airline industry. Though the merger was opposed by the analysts and others however over the period of time, merger has proved as one of the successful mergers in history of airline industry. This was despite the fact that industry trends clearly suggested for formation of strategic alliances rather than entering into any merger. The merger became successful because both the firms were critically able to utilize their core competencies and dynamic capabilities besides achieving the synergies. There have been many factors which created the overall synergies for the new firm to develop itself into a leading global firm in airline industry. This paper will discuss as to how the new firm Air France-KLM was able to use its core competencies and dynamic capabilities to achieve the success it achieved after 2004 merger. Core Competencies Core Competencies of a firm are specific set of skills which an organization executes in order deliver more value for its customers. (Shaabani, Ahmadi, & Yazdani, 2012). One of the core competencies of the new firm was the creation of a larger network which came into existence after the merger. Both Air France and KLM were operating largest and busiest routes in Europe and as a result of the merger, the new firm had an access to a large network and resultantly achieved an advantage which was relatively difficult to replicate by the competitors in the market. KLM was the oldest airline in the world and it provided it necessary time to perfect its learning curve in an industry which changed over the period of time. Such long history provides a firm time to acquire the knowledge and learning required to operate in airline industry. Same was the case Air France as it was also able to develop its core competencies and learning curve over the period of time. It is also important to understand that the new firm has also one of the best maintenance and engineering department delivering allied services apart from passengers and cargo. The set of skills possessed by the engineering department of the firm created the further advantage for the new firm to actually utilize its strengths and become more dominating into a new market.( Vassolo & Anand,2008) Dynamic capabilities of the firm are determined by the ability of the firm as to how it can integrate its various competencies together to achieve the desired results. (Zheng, Zhang, & Du,, 2011).Dynamic capabilities of the firm are different from its functional competencies and therefore require that a firm become able to integrate wide range of competencies in a cohesive framework to achieve the strategic objectives. (Leonard-Barton, 1992. ). The new firm was able to able to integrate its external capabilities by utilizing its formal as well as informal strategic alliances which actually helped to remain one of the competitive players in the transnational airline market also. (Galunic & Rodan,1998). The firm was clearly able to use its links with the American and other global leaders in order to successfully challenge the new firms which started to follow the same merger strategy after the success of Air France and KLM. It is critical to understand that the firm has been able to develop and protect these core competencies mostly due to its existence in the market and the way it has actually placed itself within the industry. In terms of pricing, it has been able to cater to the varying needs of the customers and offered services which are aimed at different select niches in the market as well as serving the market generally. Further, its product placement i.e. the markets it serves either through its direct operations or through its strategic alliances have allowed the firm to better place itself in the markets where competition is relatively tough. (Cui & Jiao 2011) Prahalad and Hamel argued that the core competencies of the firm actually allow it to develop the core products which can be further used to create more products. (Prahalad & Hamel, 1990). The core competency of Air France- KLM has actually allowed it to focus on three important product segments of passengers, cargo and maintenance. Through intense focus on these core products, firm has been able to continue to innovate and further strengthen its core competencies. It has also been argued that the leadership of the firm should be able to build an independent view of how the future will hold and then develop competencies around it in order to achieve that vision.( Kippenberger, 1997). The leadership of both the firms was able to realize what future holds and despite the opposition from different quarters, leaders of both the firms pressed ahead for the proposed merger. As such the leadership of the new firm can also be considered as one of the core competencies of the firm which helped it to visualize a future to become more successful as a result of the merger.( Nobre, 2011) Conclusion The merger between Air France and KLM has helped the firm to exploit its core competencies and become one of the successful companies in the airline industry. As a result of this merger, the new firm got access to a larger and extended network which allowed it to serve its traditional as well as the new markets. The time both the firms had in the industry also allowed both the firms to perfect their learning curve and become dominating players in the market. Leadership of the firm was also one of its core competencies. References 1. Chien,S & Tsai,S 2012, Dynamic capability, knowledge, learning, and firm performance, Journal of Organizational Change Management, 25(3), pp.434 - 444 2. 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