This analytical report focuses on a company’s business expansion into a selected foreign country. The company selected for the study is SonAir, which is a business unit of SonAngol Oil Company. The transnational operation strategy adopted by the company to gain entry and become profitable in the foreign country is discussed in this case study. The opportunities and issues associated with the targeted industry are also discussed in this case study in order to provide recommendations for overcoming the issues and getting competency in the industry.
The company selected for the study is SonAir, which is a prominent firm in the Angola Airline industry. Passenger transportation and cargo freight are their key areas. With unique operating policies and strategies SonAir attained tremendous growth in the industry. “Over time, SonAir plans to branch out into yet other new markets. And to successfully venture into those new areas when time comes, we are already setting up flexible management structures so that we can respond rapidly to changing conditions and maximize our efficiency. This strategy will enable SonAir to survive and prosper, and to be ready for the time when we have to compete with local and foreign companies.” (Strategy: Son Air is a Client Oriented Business We put the Safety and Comfort of Our Clients First). SonAir adopted transnational business strategies to overcome the threat from environmental factors in the home country and ensuring survival growth in the industry. The company’s strategy is to expand its services in national as well as international level in order to increase the market share. It ensures safe air transportation to offshore facilities. Rapid change is followed by SonAir as its business policy in order to keep up the market share in the Angola market. In order to expand the business in the international market to survive and prosper in the industry, flexible management structure is adopted by the company. The company is capable of responding rapidly to changing conditions and maximize its efficiency. It is capable of competing with local and foreign companies. (Strategy: Son Air is a Client Oriented Business We put the Safety and Comfort of Our Clients First). “Most of our services are rendered in Angola, but SonAir is prepared to meet demands for more international destinations in Africa and in Europe and to face the challenges proposed by the aviation industry.” (About Son Air: What we Do).
Why did the company expand its business in the foreign country? Issues and opportunities?
The region selected for the expansion program of SonAir is Asia, because there exists potential opportunity for civil aviation industry. The company adopted its expansion strategy for increasing its market share on a global basis. In the home market the growth opportunity for the company is only limited due to various factors such as economic uncertainty, demographic factors and political uncertainty. In order to reduce the operating costs large scale business operations are essential as they will provide economies of scale in operation. Differential operating strategy is essential for existing in the industry.
Opportunities in the Asian Market
In the Asian civil aviation industry, the players are highly benefited from supportive environmental features such as growing economy and population factors. The company selected Asia as the target continent for exploiting the tremendous opportunities existing in the Asian airline industry. Most of the famous Asian countries are in a growing stage and there are numerous opportunities for foreign investment. In Asian countries interest rate is comparatively lower than other continents. This is a favorable sign for the company for expanding its business to Asian countries. In Asian region, air travel is a large and growing industry resulted from economic growth, world trade, international investment, and tourism. Globalization provides incredible growth and development in the region and as a result business and tourism travel are highly increasing in the region. “Business travel has also grown as companies become increasingly international in terms of their investments, their supply and production chains and their customers. The rapid growth of world trade in goods and services and international direct investment has also contributed to growth in business travel.” (The Airline Industry: Industry Overview). The International Air Transport Association, IATA, predicts that international air travel is developing by an average rate of 6.6% a year to the end of the decade and it will be over 5% a year from 2000 to 2010. Due to the highly developed state of air travel market in Europe and North American continent, there should be comparatively slower growth of 4%-6% than the Asian region. It is expected that most vibrant growth is centered on the Asia/Pacific region. The economic environment of the region is characterized by fast-growing trade and investment coupled with rising domestic prosperity. It is expected that the air travel rate for the region should continue to grow rapidly and the current rate of growth of the business in the region is up to 9% a year. In terms of total passenger trips it is estimated that the chief air travel markets of the future will continue to be in and between Europe, North America and Asia. (The Airline Industry: Industry Overview).
Political environment in the region is supportive for profitable operation of the airline business. The formation of SAARC in the region provides opportunity for cross border operations in an easy way. The co-operation and trade agreement between the member states eliminated most of the trade barriers between the member nations. In Asia, except in some countries, the political system is very stable and it is supportive of foreign investment. Most of the Asian countries have a liberalized export and import policies.
Legal system: Top Asian countries like China, Japan and India have a globally challenging and powerful legal system which protects the interest of the foreign investors and exporters. They have got separate norms and laws for the international trade. The decision of a company regarding international expansion largely depends on the legal system prevailing in the target country. When considering the aviation industry, there exists supportive legal environment suitable for international players for entering and starting business operations.
Issues in the Asian Market affecting the SonAir Operations
The major issue faced by SonAir in the Asian market is the cross cultural differences between Asia and Africa. Cultural factors affect the foreign firms’ successful business operations. In the air travel industry, customer satisfaction is an important factor that determines the profitability and survival of the players. Thus, in order to ensure maximum customer satisfaction the needs and preferences of the customers related to the focused industry have to be identified and analyzed. For making appropriate business policies, environment analysis is very important. The business environment in Asian countries is entirely different from African countries like Angola. Return on investment in the industry is greatly related to factors such as general business trend in the country, position of particular industry, infrastructure facilities, availability of suitable financial resources and the buyer behavior. If any business affects the environment, the people will raise objection against that business.
Operational Challenges faced by the Company
For any business organization, to step in to or to make an entry to the international market it requires a deep knowledge and awareness of the global economy. In fact, it is a very tough task to expand the business internationally. All the business organizations will be having some specific objective or goals which should be achieved. During the course of achieving the goal, they will not be much concerned about the traps. There are many obstacles when a company decides to expand its business to a foreign country. These include export/import, licensing, franchising, turnkey operations, whether it be a joint venture or a wholly owned subsidiary. Once the decision is made, find out trade leads, approach the commerce department, foreign trade commissions and once the company is approved for this, then the company has to face the Law. In order to start up a business in a foreign country license have to be obtained. A good international business should have a good advertisement or sales promotion system in order to introduce the company globally. The company was successful in attracting the international customers by way of sales promotion and advertisement.
How did the effort solve the issues or opportunities facing this country?
Before entering in the industry the company should adopt detailed study of the business environment in the Asian airline industry. Since the global market is highly competitive, a global competitive business strategy has to be adopted by the company.
Planning: Systematic planning plays an important role in the success of any market expansion. Planning helps the company to be ready for facing any challenges in the future. When a company opts for expanding its business into foreign countries it must realize that it is a tough task to be successful and it my not be profitable in short run. The plan includes clear-cut targets or goals which are to be achieved within a fixed or stipulated time period.
Competitive operating strategy: Global business is filled with tight competition. The international business is filled with full of competition and to survive in this competitive world any business organization requires a competitive operational strategy. Those who are aiming international expansion of their business require a global competitive business and marketing strategy, without which the survival will be a question. To survive in the industry, attractive operating strategy should be adopted by the company. The Asian aviation market is highly competitive. There exist large number of competitors in the industry. The company should analyze in deep about the competitors (mostly domestic companies of that particular country) including their strengths, weakness, strategy, pricing policies, compensation policies, attitude towards the society…etc. Service differentiation strategy has to be framed by the company for differentiating itself from the competitors. This will help to attract and retain the consumers as they will feel that the SonAir’s service is different from others and it is unique.
Human resource: The company is required to employ a dedicated team of staff especially top level managers for implementing expansion plan and taking controlled action for achieving the set objectives of the company. The management team should be well equipped in such a way that they carry on the business like they do in domestic market. “Managers can obviously spend all of their available time and resources becoming ever-more educated about the global business environment without knowing all that they think they should know in order to be effective decision-makers. As in all aspects of life, priorities must be established- in this case, to focus on what is arguably most important to know in order to compete successfully in the global business environment.” (Globerman, 5).
The employees, who are going to relocate to Asia as part of the expansion plan of the company, should be ready to adjust with the language, food, culture…etc. of Asia. They have to regularly assess the progress of the plan and if any change is required that has to be done. To fulfill these requirements in the employees, the company should hire human resource from the local market. This would be helpful for them to understand the environment of the targeted business location.
The profitability of airline companies largely depends on the economic growth and trade in the focused region. To ensure survival and prosperity, essential changes in operations have to be followed. To attract the customers and retain them SonAir has to adopt better quality operation packages. The quality of service is to be ensured through identifying the customers’ needs and preferences in advance through market and customer analysis. A new interactive entertainment system has to be adopted by the company along with more comfortable seating arrangements in order to attract and retain customers.
Entry mode selection: It is better to follow joint venture strategy by SonAir for entering in the new market in the Asian Region. Joint Venture is the partnership between two or more individuals or businesses to share the profits and risks. There are some basic points to be noted when a joint venture is formed. First of all, find out suitable partners whom the company thinks that they will be with the company for a long period. If there are more partners then list them according to the priority based on their contribution in the business. Check whether they are qualified and will they be trustworthy. But it is very important to know that there are lots of chances for the venture becoming a failure in the first three years (the valley of death). So utmost care should be taken while doing a joint venture business. Strategic alliances with existing firms will facilitate sharing of competitive strategies in the industry. Alliances concerning code-sharing will have the potential to generate new service, advancing existing service with reducing operating costs and increasing the overall efficiency. (Klein).
Franchise: The company must have a clear idea about the business situation and market which it is going to enter into. Franchising is not the process of spending money and waiting for the profit to come. It needs much efforts to be put in. The function of a franchise is to extend a beginner in the field of business an easy access to a brand. And they will guide on the systems and methods how the business is practiced. A good franchise brings up the business as a perfect operating system and a branded company.
Turnkey operation: Defining the term “turnkey” is very important as it contains everything for a business to start operation. InvestorWords.com defines a turnkey operation as “A product or service which can be implemented or utilized with no additional work required by the buyer (just by ‘turning the key’).” (Ward).
Export/Import: There are lots of advantages and disadvantages for international business. The market has opened its doors and is looking for new goods and investors of various categories. SonAir selected Asia as the target where it is planned to expand its business. If the company has an idea about the trends in the market then it is easy to succeed in the international business. SonAir is required to deeply analyze the market conditions in Asia. And also the company has to develop a good relationship with the local bank handling the international business. The company is required to have a deep knowledge about the variations of the share market, current updates on the law regarding the international business and host government’s import/export policies. Successful airlines will be those that continue to tackle their costs and improve their products, thereby securing a strong presence in the world aviation markets.
Implementation of the recommended solutions
In order to purchase suitable aircrafts capable of providing advanced services to its customers, huge financial investment is required by the company. The company should secure adequate financial resources for better implementation of its expansion strategies. Human capital should be suitable for the aviation industry. It will require long time for getting the targeted market share in the aviation industry. The company should modify its services according to the tastes and preferences of the customers in the targeted industry. The companies planning to extend their boundaries must be well aware of the language barriers, ideals and customs of the nation they are moving towards. Attractive marketing policies have to be framed by SonAir as it will help the company to be successful in the global competitive market.
Finance: This includes taking various decisions regarding the capital structure, working capital…etc. Obtaining business finance is the fundamental tool for the success of the international business. Whether the organization is big or small, finance plays a great role. Finance can be obtained by approaching strategic investors. In taking various financial decisions relating to its international expansion, SonAir has to adopt the services of professionals.
Research and Development: Research brings about more improvement on the existing strategies and developing the areas where they can compete in the global market. Researches add to the development of a business and also without performing the research analysis there cannot be any development in a firm. The result of research and development should be apt to meet the requirements of tomorrow’s customers. SonAir should conduct deep market research to find out the possibilities in the market.
Cost/benefit analysis: Before taking a decision of expansion a cost/benefit analysis should be conducted. Cost/benefit analysis refers to the analysis of cost in all the sense if a project is implemented and the advantages from that particular project or proposal. According to the analysis conducted by SonAir, the benefit was more than the cost of the expansion. So the company carried on with its decision.
The international business is filled with full of competition and to survive in this competitive world, all the business organizations have to adopt a competitive strategy. The expansion strategy of SonAir in the Asian market will be beneficial for increasing the market share of its business. The geographical spreading of operation will help to exploit the opportunities in the selected market. Business combination with the existing firms in the selected market will help to overcome the operational deficiency at the initial stage of the business. Systematic planning should be adopted for the entire operations. The challenges in the environment have to be identified and analyzed properly. Otherwise it will restrict the successful implementation of the project. Competitive operating strategy is essential for surviving in the industry by competing with the rival firms in the industry. Procurement of efficient human resource is another factor that influences the operations of SonAir in the selected Asian region. The operational policy of SonAir related to the employees and other organizational personnel have to be framed by considering the human resource policies adopted by rival firms. Otherwise it will badly affect its operational efficiency and result in loss of competency of the firm in the industry. SonAir shall have to implement all of the above discussed solutions for carrying out the expansion program in profitable manner.
About Son Air: What we Do. SON Air: Wings of Tranquility. 2009. Web.
Globerman, Steven. What Should Managers Know About the Global Business Environment. Western Washington University. 2009. Web.
Klein, Joel I. Competition in the Airline Industry. US Department of Justice. 1999. Web.
Strategy: Son Air is a Client Oriented Business We put the Safety and Comfort of Our Clients First. SON Air: Wings of Tranquility. 2009. Web.
The Airline Industry: Industry Overview. 2009. Web.
Ward, Susan. Turnkey Business: Definition. About.com: Small Business Canada. 2009. Web.