Globalistaion

As a response to increased international competitiveness and globalisation initiatives in a number of industries, the Australian Government deregulated the airline industry in the 1990’s. Until then there was a duopoly with Ansett Airlines and Qantas being the only providers. This deregulation opened the gate for other providers such as Virgin to enter the Australian market. Virgin initially concentrated its efforts on being a low cost carrier. It gained an increased share of the domestic leisure travel market from Qantas. Virgin however, not satisfied with the limited domestic market, pursued entry into the international market and has made moves to enhance its global status. John Borghetti CEO of Virgin was recently quoted as saying “we want more of the international market” (www.flightglobal.com , 7.6.11). The need to be part of global airline industry is important so that Virgin can continue to be a viable air service provider. Virgin as a Global Business The Virgin brand is one of the most recognised brands in the marketing world. Virgin Australia is one of the highest competitors in the national/international airline industry offering flights to New Zealand, The Pacific Islands, Papua New Guinea, Asia, America and the Middle East. Virgin Australia is made up of the subsidiaries Pacific Blue, Polynesian Blue, V Australia, as well as Virgin Blue and they are quickly becoming one of the largest competitors of air travel. Virgin Australia needs to continue expanding as a global business to increase their market, increase the services they provide for their customers and spread the Virgin brand name around the world. Drivers of Globalisation The airline industry has always been played out on a both national and international stage. Since the deregulation of airline companies in 1990, Virgin has had to stretch out its borders to service all of the world’s major markets to remain competitive to other domestic airlines such as Qantas and Tiger Airlines. Other drivers for globalisation include: Deregulation of Airline industry; Due to the deregulation of Australia’s airline industry, the domestic market has become a lot more competitive. As the Australian domestic market is limited, due to the small population, Virgin Australia must expand its travel range to long-haul operations to keep up with its main competitor Qantas. Impact of technology; is one of the main drivers for globalisation. Modern technology has allowed airlines like Virgin to make greater long haul operations. An example of this is Virgin’s planes. Virgins brand new Boeing 737-800 allows economy class passengers to experience more comfort and travel more safely then previous models. Global Consumers; The airline industry is one of the fastest growing industries in the world. This is because of the increase in economic flight benefits that allow people on a tighter budget to fly. Many industries are now global entities, there is therefore an increased reliance on flight to transport produce and services between countries. Government - The regulation of laws, government spending, and monitoring systems limit an airline’s ability to globalise. The deregulation of the airline industry in Australia allowed Virgin access to the Australian market, Labour laws have impacted on their ability to manage a flexible and efficient workforce, government grants assist Virgin to obtain finance and reduce costs. The control on foreign ownership (49%) has ensured that Virgin Australia remains under Australian control. Government influence allows Airlines to set up alliances to achieve larger trade routes and more access potential consumers from different countries. In 2010, The Australian Competition and Consumer Commission approved the global network of Virgin Australia, Etihad airlines and Air New Zealand. This allowed the Virgin Airline company to set up a global network which complemented its domestic business. Transnational Corporations -Virgin Australia is a Transnational corporation that extends to different countries through flights and lounge services. Some of Virgin’s codesharing partners include Air China, Air Jamaica, Air New Zealand and Singapore Airlines. This allows customers to earn and redeem flying club points on alliance services. Virgin Australia’s alliance allows them to operate on many markets that would not have been economical for them to enter themselves. By being able to partner with other airlines they are able to build a virtual network. Virgin’s alliance with Singapore Airlines gives them access to the fast growing markets in China and India. The entry to China was particularly important considering the growth of the mining industry and the investment from China. Many Asian industries also have their offices in Singapore, so this was a good strategic move. (www.flightglobal.com) Virgin UK is a transnational cooperation that Virgin Australia is part of. Virgin Australia therefore enjoys the benefits of branding such as product recognition and goodwill. There are however limitations that also occur with being part of a transnational cooperation. This is evident in the recent dispute between Virgin UK and Virgin Australia about using the Virgin name when flying within the Pacific Region. Methods of International Expansion Foreign Direct Investment As an airline company Virgin Australia relies on foreign direct investment to survive. Virgin’s ability to connect with customers overseas is crucial for it to maintain a successful business. Virgin uses methods such as alliances and the establishment of new airline to expand into international markets. Alliances- The most promising alliances that Virgin have set-up include the Ethiad partnership that allows Virgin to set up an international hub in Duhbai, allowing the company to offer travellers an attractive pit-stop on the way to fourteen destinations across Europe, the Middle East and Africa. Another Alliance that has been set up is the Trans-Tasman Alliance that allows consumers to have three more options to travel across the Tasman. This alliance provided Virgin with access to many more destinations, therefore increasing its revenue. Establishing New Airlines- The establishment of new airlines is crucial for international expansion as they allow potential consumers from other countries to connect to the company on different sectors. Examples of these new airlines include Polynesian Blue and Pacific Blue. References- -Virgin Blue Media Releases (2010) VIRGIN BLUE LAUNCHES ‘PREMIUM ECONOMY’, RED-HOT NEW SEATING OPTION FOR TRAVELLERS -Virgin Blue Media Releases (2006) Virgin Blue Launches Another Innovation For Travellers Online, Realtime Currency Conversion - Virgin Media Releases (2011) Virgin Australia’s frequent flyer program first in Asia Pacific for seat availability - Virgin Media Releases (2011) Virgin Blue crew to fly the Aussie flag in US skies, Cabin crew exchange program to showcase Australia to American travellers -Virgin Media Releases (2007) Pacific Blue Goes Green: Pacific Blue Launches New Zealand Carbon Offset Program Reasons for Expansion With the high level of competition that exists in the airline industry, businesses such as Virgin need to constantly look for opportunities to expand. The main sector that is open for expansion is the global market due to the small domestic market that exists in Australia. In doing so Virgin would have access to increased sales in new markets, acquire resources and have access to technology, diversify their product, gain economies of scale, and cushion against economic cycles. Increase in sales/new markets- The constant need for a business to generate profit relies heavily on a business to expand. In an industry where the product has global appeal it is important to extend to new markets to reach the mature stage of the business lifecycle. The Asia Pacific is the most rapidly growing industrialised and technologically driven parts of the world. By having access to these markets Virgin will ensure a continued customer base for their service. Acquire resources – By forming alliances with other airlines Virgin is able to access their resources and technology without the increased cost. Diversification- In order to expand their production range, decrease the risk of competition and reliance on the domestic market it is important for Virgin Australia to develop businesses in different societies. This can be seen as Virgin Australia is part of the umbrella corporation Virgin Airlines that envelops a large range of airlines such as Pacific Blue, Polynesian Blue, Virgin America and Virgin Atlantic. These Airlines allow a more diverse market as people from many countries can fly under the Virgin brand. Minimise Competition risk- As the population of Australia is relatively small the competition over the domestic market is intense. In order to receive a competitive edge over other airlines such as Qantas and Tiger Airways, Virgin airlines needs to branch into the international market to minimise the competitive risk. Cushioning of the economic cycle- As a company can be affected by economic upswing and downswings of the country it may be in the interest of the company to expand to other countries to avoid over reliance on one economic cycle. Through increased expansion in the international market Virgin has been able to cut its service to …. And expand its service to … Economies of Scale – By diversifying its services to include international flights Virgin Australia is able to take advantage of the economies of scale that already exist within the domestic market. They are able to access finance easier, and coordinate functions such as recruitment, branding and marketing at lower per unit costs. Specific Influences on Global Business There are many influences that affect a Global Business and how it conducts its operations. These influences are classed into categories such as financial influences, Legal Influences, Social/Cultural Influences and Political Influences. Financial Influences- As an airline much of Virgin’s profit is influenced by the world’s economies. Currency fluctuations impact on Virgin’s international trade as the revenue from overseas is paid in foreign currencies. Much of Virgin’s profits is also dependent on the expenditure ability of its customers. If the Australian dollar is strong more Australians are likely to travel overseas and if the dollar is weak more tourists are likely to travel to Australia. Therefore by having both a domestic and international carrier Virgin can take advantage of globalisation by servicing tourists entering as well as leaving Australia. Another financial influence that greatly effects Virgin is the rising fuel/and commodity prices. Virgin Airlines has no control over the price of fuel/commodities and therefore suffers greatly if these costs rise. A further influence is the interest charged on foreign loans. Finally the shares in a company are also dependent on the value of the currency. Social Influences/cultural influences- Virgin Australia operates in many different countries under different franchises such as Virgin America, Virgin Atlantic, Polynesian Blue and Pacific Blue. Therefore they have to take into account many social/cultural influences such as language barriers, tastes, religion and the various ethics when running a global business. Strategies that Virgin has implemented to deal with these influences include training staff to converse in many different languages, ensuring entertainment and announcements are bilingual, allowing international conferences to be held in their terminals for business fliers and providing multicultural meals on flights. Political Influences- As an airline Virgin’s consumer markets are normally travelling over national borders and into other countries airspaces. It is for this reason that political influences such as trade agreements, international organisations/treaties, war and civil unrest influence the international expansion of a business such as Virgin. Trade agreements are made between airlines to transport passengers as well as goods. Virgin Airlines have set up trade routes with Singapore Airlines to allow code sharing each other with international and national consumers. International organisations and treaties are developed to allow planes to cross international airspaces. Virgin Australia belongs to the International Civil Aviation Organization that governs the rules and regulation that allow an airline to grow safely and effectively. War and Civil Unrest also has an influence on Virgin Australia. Since the September 11 attacks there has been a large focus on security and a major decrease in airline tourism. Also since the Bali Bombings Virgin has pulled out of many of its Indonesian alliances due to the major decrease in tourism to those countries. Government Assistance - Virgin has to compete with other airlines in the region that receive substantial government assistance. This makes it harder for Virgin to compete with many airlines especially in the Asia Pacific region. Legal influences- Legal influences may affect some businesses. This is because the contracts made