Qantas - Cases for Transitioning to Emerging Market, China - Case Study Example

Business Plan for the Board of Directors about Expansion to Emerging Market Name Professor Institution Course Date Business Plan for the Board of Directors about Expansion to Emerging Market Introduction A few decades ago, businesses were confined in one country despite the competition. The globalization and trade liberation meant the opportunities became available to businesses to pursue (Randi & Haugland 2008, p. 545). However, market analysts argue that it is difficult for foreign companies to make it advanced markets due to presence of established companies which already enjoy better and favorable markets and that future of contemporary businesses lies in emerging markets (Cavusgil, 2008). Following this argument and market research, Qantas Airline has realized that firms which are currently doing well have since expanded into emerging markets. Qantas Airline is also contemplating moving to an emerging market in China through its Qantas-Emirates alliance. Therefore, drawing from literature, this report will present a business plan or cases for transitioning to emerging market, China. The current outlook for Qantas and the reasons why it needs to expand from Australia into China Even though Qantas has been a stronger airline in terms of profit growth, currently the company is facing recovery in its revenue prompting to expand into the markets so as to fully stabilize. From a company which it’s CEO Alan Joyce had to hire bodyguards as a result of death threat following drops in profit and grounding of some fleets (Freed 2016). In 2016, after five years of financial turmoil and industrial strikes, the company delivered improved dividends and profits that have made it call for an annual meeting to reveal plans for expansion. According to Qantas (2017), in 2011, the airline announced dropped, profits and market share from the previous year, indicating that there was something the company was not doing right. This was followed by layoffs in which nearly 1000 people lost their jobs in Australia (Kristen, 2011). Market analysts believed that Qantas losses were as a result of competition from international markets, which were dominated by Emirates, British and American Airlines (Qantas, 2017). In fact, it has been a very difficult Qantas to effectively stamp its authority in Asian market despite of being a big brand. The company managers also blamed that losses on few routes the company has been pursuing, deregulation of Australian airline industry and fluctuating cost of fuel in the international markets. Due to the losses and not doing well in other routes, Qantas need to expand into the emerging China market. Qantas (2017) claimed that in the recent past, the company has been forced to cease its service in London via Bangkok and Hong Kong leading to a reduction in revenues. Expanding its operation into China means the company will compensate for losses. The company also needs to expand to China due to economic growth and tourism activities in the country and the Southeast Asian region. Australia Government Publicity Commission (2015) projected China to be the leading contributor to the tourism industry of Australia by 2020, making the market a potential market for Qantas to grow. China’s real household and disposable incomes have improved hence influencing the consumption and demand for luxuries, especially trips in foreign countries for leisure and business experiences. The rationale for choosing the new market and an analysis of its prospects The reason for choosing this market is based on its current favorable economic, political, technological and social factors. Therefore, using PESTLE, the report will analyze the market and show the rationale for choosing this market. Political factors The political temperatures for business in China have improved much better than it was in the last decade (Watts, 2012). The government has moderated its regulations to allow international companies to export their products into Chinese market. Vogel (201, p.19) asserted that the competition created has uplifted Chinese industries to make it a business hub in East Asian and beyond. Watts (2012) pointed out that today, the Chinese government has become a business friendly nation as a way of wooing more business partners so as to dislodge the US as the largest economy. Qantas can capitalize on the opportunity to expand into the country. A rationale for choosing this market is that the China experiences high political stability, which creates a positive platform for flight operations. Economic factors Economic situation in China is another rationale for choosing this market. Today, China is ranked as the second largest economy in the world based on nominal GDP after the US (White, 2013). Currently, it is regarded as one of the fastest rising economies globally. The economic growth in China has attracted many investors and tourists in China as they expand to invest in such promising economy. Qantas highly depends on international businesses and tourists to increase their revenue (Mules, 2013, p.3). Therefore, the economy is more favorable for Qantas to invest in. The income level of the individual is an important factor for a business to consider when investing in the foreign country. Vogel (2011) posited that China is a high income country with most of its citizens belonging to middle class level. Most middle class population normally has the extra income to spend on luxuries such vacation. High level of income is why China is one of the leading countries in international tourism. Social factors The rationale for choosing this market is based on social factors such as culture, population growth, income statistics and employment levels that have gone great change in the last two decades. In the past, China was deeply rooted into eastern cultures which are highly restraint and conservative (Meng, 2011). However, growth and globalization have led to western cultural influence, especially on the younger generations. Today, the younger generation is increasingly attracted to advanced technology and tourism. Willis (2008, p.272) postulated that the Chinese have been embracing tourism and travel across the globe for business and leisure activities. China is a high income country and its citizens are high spenders in finer services such as air travels. Today, China is ranked as the most populous national in the world with more than 1.35 billion people (Czinkota et al., 2013, p.73). With this huge population, Qantas should expand its operations to this market to increase its customer base. Technological factors In the recent years, China has technological growth and advancement as more technology companies enter into this market (Jayaraman, 2009, p.57). The situation has led to increase accessibility of the internet, mobile and technological processes. The trend can create more opportunities for Qantas which depends on the attractiveness of technology, especially television and the internet to market and sell itself to the target market. In the age of technology people rely on internet, computers and Smartphone to find information and book their tickets (Starkie, 2009, p. 9). Legal factors Vogel (2011, p.39) contended that Chinese government regulation policies on business are anchored on belief that airport depends heavily on the market rules and regulations. The legal rules in China entails paying tax, conforming to environmental rules and fair play. Qantas is a tax compliant company which also adheres to practice of fair play and environmental rules (Qantas 2017). China has a low tax, which enables the foreign firms to increase their revenues. The company have improved its tax reporting and bought environmental friendly aircraft to enhance CSR practices. These legal practices make can make Qantas to prosper in China. A clear entry strategy and a justification for the choice of entry strategy The best entry strategy for Qantas is strategic alliance due to its potential benefit. A strategic alliance is an accord between two or many parties to seek an agreed upon goals while staying as independent companies. Strategic alliances have several advantages and enable the companies to take advantage of new opportunities in foreign markets (Teng & Das, 2008, p.728). Some Justification for using this entry strategy is based on its benefits including increased capabilities, access to various target markets, acquiring new customers, sharing the economic risks and getting a competitive edge (Kale & Singh 2009). China is a moderately regulated market with local firms being protected by the government. As such, partnering with Eastern China Airlines enables ease of access to the market and acquisition of new customers. The reality is that local customers trust local companies, hence using the local firm make them try a new service of product. Similarly, strategic alliance with Eastern China Airlines allows the Qantas to benefit from technology sharing (Fickling & Wang 2012). China has weak laws on patent, hence Qantas technology could be duplicated. Sharing technology with local company makes it not to build its own technology hence safety. Economic fluctuations make foreign companies prone to economic losses. Randi and Haugland (2008, p.548) argued that with the strategic alliance, the company share such loss hence reduced magnitude of economic loss. Launching a product into the new market is usually a very costly and complicated task. It might expose a firm to several hurdles such as established competition, extra operating complexities and unfriendly government regulations. Veilleux, Haskell & Pons (2012, p.25) argue that deciding on the strategic alliance as an entry mode helps overcome some of the problems and assist cut the cost of entry. Based on this perspective, Qantas will need to agree with eastern China Eastern Airlines to facilitate its entry into the Chinese market, particularly Shanghai, Beijing, Guangzhou and Hong Kong. The risks and competitive challenges Qantas will face in China and how these might be managed Even though China looks as market with potential for Qantas to maximize its profits, there are several risks and challenges associated with this market. The risk about this market is the stiff competition posed by several companies investing in China. Jayaraman (2009, p.56) stated that in the last ten years, almost 300,000 foreign-based companies have made an entry into China, attempting to capitalize on the nation’s manufacturing strength and get to its customers. Similarly, China is ranked as the biggest counterfeit producer in the world (Jayaraman, 2009, p.57). This means majority of products are present in this market. This situation is bad for foreign companies which are likely to find a copy of their product being sold at a cheaper price. Qantas thrives in branding and price differentiation. Chinese airlines particularly its alliance partner can copy Qantas product development to outdo it in the market. Conway et al. (2010) argued that in the past, every policy was controlled by the state under the planned economy. Reforms have been enforced, but little has changed because still remains as one of the socialist countries openly supporting communism (Conway et al. 2010). In this aspect, most state-owned companies are allowed to dominate an industry. This can easily create a monopoly while looking foreign companies from competition. Cavusgil (2008, p.86) contended that foreign companies can influence the government to reduce regulation by observing fair play rules. Cultural differences may affect Qantas operation in China. Jayaraman (2009, p.58) affirmed that the Chinese have always been rooted to their culture called guanxiwang which has lasted for decades. Derived from the word Guanxiwang, Guanxi means creating a strong relationship with other entities or rather businesses and customers in the form of a network (Huang, Davison & Gu 2010, p.559). The result of such network is a mutual relationship. With this system, the company must be able to create a high level of satisfaction in order to make the customers loyal. The problem with this form of relationship is that foreign may find it hard to attract customers who are already loyal to local airlines (Jayaraman, 2009, p.58). A great marketing campaign can be used to convince consumers about the value of new services. Summary recommendations for the Board of Directors The report has identified several factors which can enable Qantas to thrive in China. Some of the factors for success in China are friendly political environment, economic growth, increase in tourism activities, low tax and high population. However, the market also has several risks which could hinder the Qantas operations leading to strategic failure. Some of the risk includes cultural differences, competition, terrorism activities and economic fluctuations. Therefore, this report recommends the following to the board as a way of overcoming such risks. Training and Polycentric Staffing Training has the capacity to inspire cultural intelligence on workers to drop their differences and become global citizens (Barak, 2005, p.138). Another best option is to hire nationals from host-country for lower positions to the high top level managers with only a few slots for foreign employees. Since the firm operates in another country, it will have reduced the effects of cultural diversity. Quality branding and differentiation Competition is very stiff in China due to the presence of other established airlines like Emirates, American Airlines, Singapore and British among others. (Jayaraman (2009, p.57) argued that Chinese culture promotes duplication which renders original product less competitive. As such, Qantas will need continuous branding and rebranding, and differentiation to remain customers’ choice. Increasing low-cost airline operation Economic fluctuation is a consider risk factor which can make the Qantas incur high losses. Ford (2004, p.142) held that to overcome this challenge, the management can sometimes reduces reduce the number of long distance trips and increase its trips in short distance low-cost trips in Southeast Asia region; that is across countries which borders China. 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