Protecting their market share
This is one of the main reasons behind why many businesses want to expand internationally and it could have had an influence of British Airways also because it is in relation to protecting the business itself which is an extremely important factor for any business to consider not matter whatever market they are involved in. The thinking behind this aim is to protect your overall market share by adding different countries to it so the possible damage caused by one does not affect the whole thing. As British Airways have a global market share, an example of this could be that if business was not going well in Europe, than because British Airways have a stake in the market in other global locations such as Asia, Africa, North & South America and Australia, the success gained from these areas could be enough to overturn the failures of Europe and still produce an impressive global market share and that is why British Airways have these objectives.
Seeing a gap in the market
At this moment, British Airways covers nearly all of the global destinations in the world in terms of their market, however before doing so and before expanding from place to place, they would have had to spot the available gaps in the market that they would have thought would have been useful to them. For example, Asia contains two of the largest populations in the world in China (1.3billion) and India (1.3billion) so together they share over a third of the world’s population. So because of this, there is a fairly reasonable chance that there is a shortage of flights compared to the demand and from this, British Airways may have seen this as a massive opportunity to gain extra business and that is what seeing a gap in the market is all about and that is why I think British Airways uses this strategic objective.
Responding to overseas competition
Today, many of the world’s leading airlines are expanding globally and simply so they make sure they don’t fall behind many others decide to follow and this is what I think British Airways may have done when deciding to expand globally. Before British Airways expanded all across the globe, they were just a European airline and because their main European competitors would at one time decided to go global, to not fall behind British Airways would have had to do the same is this is why I believe they have they could have had this strategic objective.
The Theory of Comparative Advantage
For this part of the task, I will be focussing on the theory of comparative advantage and explaining how this may relate to British Airway’s decision to trade internationally. Before I beginning explaining this I will firstly identify and explain the law of comparative data which is that ‘‘a country should concentrate on those lines which it has the greatest advantage over other countries’’. Even though this may sound difficult to understand, it’s meaning is extremely simple. It simply means that a country should focus on and improve the things in which that has already helped them to gain an advantage over other countries rather than catch up on the factors that they are falling behind on. An example of this could be that if Russia were 30% more effective at producing steel than China however China were 30% more effective at producing computers over Russia, than by the law of comparative advantage Russia should try to continue and improve the statistic they obtain regarding steel rather than try to get equal on the one regarding computers.
The reason behind the theory of comparative advantage relating to British Airway’s decision to expand internationally is that giant global companies often tend to expand where they have the greatest comparative advantage so because British Airways may have better sales revenue or profits in foreign locations, the theory of comparative advantage would encourage them to continue to improve there. The disadvantage of this is if it were to be true is that British Airways would be widely criticised across the UK for making great efforts to improve elsewhere in foreign locations instead of trying to obtain more customers were they first began. A reason being for this situation is that the United Kingdom is a developed country in which the labour force expects to have a good standard of living and hence relatively high rates of pay and for may businesses, labour costs are a major part of the overall production costs including BA and therefore they may be able to cut costs considerably by offering their service (flights) in other countries. Considering all of this - the success of British Airways for them must be the most important thing so if that means neglecting their duties in the UK to improve and expand elsewhere - then that in terms of BA would be the correct thing to do. Everybody knows that British Airways operate in some of the most established nations in the world, e.g. - UK, USA, Australia, Italy, Spain, Portugal, etc. an important aspect of comparative advantage is being able to produce high quality products/output at a low costs. It is because of this that explains why many companies are now moving to economies where labour is high but wages are low such as India and China because this is the best method of producing the best possible result whilst paying the least possible amount. There is no getting away that it is always going to cost a lot to operate in countries such as USA & UK, however it is the economies of scale (cost per unit) that attract worldwide companies such as British Airways to counties like India and China and that is why it is important to them that they carry on working in places such as these to continue to improve their comparative advantage there.
Impact and Reaction on/of Host countries of inviting Foreign businesses to Set up Trade
For this part of the task, I will be analysing the impact it has on host countries of inviting a business in a foreign location to set up trade there. I will be looking at the positives, negatives and ultimately whether or not it is a good idea. When a host country’s government takes on the decision to allow a business from another country to work there, from their perspective they must consider ultimately whether or not it will benefit the country and their economy. On the other hand it is the success and expansion of the business that is the main focus of the business owners and that is where opinions clash because priorities are different. All the work completed in this section of the task will of course be applied to one of my chosen businesses - British Airways. Even though British Airways started off in the UK, they have since gone on to expand to basically every single continent on the globe including all of the world’s power nations and for this, all of the countries that accepted them must have thought they would have in some way benefited them. I will now be explaining factor by factor some of the elements that would have been affected in host nations by the arrival of British Airways, both positive and negative.
Competition
Whether it comes from inside or outside the country, more often than not businesses will always have competition as one of their main threats and the addition of British Airways to most of the world will only make competition more rife. British Airways operate in many countries where they already have world class flight providers such as USA, Spain, Japan, South Korea, etc. and British Airways not only moved there to be able to expand, they moved there with the belief and intention of overtaking these giant airlines in their own countries. Ultimately, in terms of whether or not it is beneficial or not to the countries and their economies, I would say it most definitely has to be. Rife competition in a nation of airlines would not only give the locals a wide choice to choose from which is a massive advantage, it may also improve the efficiency of other airlines. This is because in everyday business, if there is no competition, business owners and workers may become complacent and arrogant because people will always use them simply because there is no one else and this may lead to the quality of service eventually lowering with no costs. However, the more competition that presents itself, the more focused and efficient workers would want to be and they would also want and need to provide a higher quality of service as so to avoid losing customers to their rivals. Taking all of this into consideration, allowing British Airways to work in their nations must have been a good decision because not only does it give people a wider selection to choose from, it also provides firms working in the same field a good reason to improve their quality and efficiency and not take consumers for granted which in the end, must be beneficial to the nation. The only negative I would point out that comes from allowing a business such as British Airways into a nation is the problem of pollution. Pollution is quickly becoming a world spread problem and it arises from things such as cars and planes. Allowing British Airways to operate in turn means more planes entering the country which would definitely add to the problem, fuelling criticism from environmentalists as to why they were ever allowed in in the first place.
Employment and Development of New skills and Knowledge
No matter how established the nation may be, there is not one country in the world where employment is 100% and thee is where the allowance of foreign businesses relate. The more companies that operate in a country, the more jobs available there will be and that is without a doubt one of the main attractions for host countries when allowing businesses from other countries to operate there. As I mentioned earlier, ultimately it is a decision the government must take to decide whether the introduction of a foreign business would benefit the country’s economical state and whether it be the Prime Minister of the UK or President of USA etc. one of the main priorities of country leaders is to tackle unemployment issues and that is why it is so tempting for governments to allow businesses from outside the country to invest in operating and advertising themselves there as it is a brilliant and effective way of opening up new jobs and this would apply to British Airways. The major attraction for host countries with a business such as British Airways is that because it is an airline, it offers a whole host of jobs along with it’s operations such as pilots, security, air hostess, cabin crew, etc. and the reaction of that would be extremely positive from host countries.
Above is a table regarding data obtained from the BBC website regarding unemployment levels throughout Europe. As you can see, it is Spain that have the highest levels of unemployment with 12.8% and a factor that all these countries share is that they have all incorporated British Airways into their nations and maybe that is to help with this problem. Due to these worrying numbers, the EU have promised to create 20 million new jobs by 2010 and the introduction of foreign businesses across EU countries would be a quicker and effective way of doing so.
I have just described how the introduction of British Airways could help and affect employment levels in nations in which they work in and this will also lead me onto my next point as well which is the development of new skills and knowledge. More often than not, when somebody begins a new job they will be required to complete some form of training in order to prepare for some of the tasks they are probably going to face in the workplace. This would apply to British Airways so as mentioned on the previous page, if the work of British Airways in foreign countries was to create new jobs in foreign countries than that also means training for those being offered jobs and the more this spreads across the country, the more developed people will become career wise because they will learn new skills and knowledge especially with a business such as British Airways who would have to offer a host of safety training and how to deal with emergencies because of their lineage of work - that may not just help them in their every day lives, but also if they were to move onto jobs outside of British Airways to companies that began in that host country so this would be another advantage of letting a business such as British Airways operate in your country.
Customers - Locals
So far I have explained the impact British Airways operating would have on host countries in regards to competition and employment, however I will now be explaining the impact it would have and the reaction it would bring from the customers, i.e. - the locals living in these host countries. Regardless of the business being brought in from other nations to operate - it will always be good news for the customers because as I mentioned earlier, it spoils them for choice and there is no exception with British Airways. An example of this could be Spanair. Spanair is one of the largest most well known and most used airlines in Spain - however for those who don’t use it because it may not suit them for whatever reason, having the option of using British Airways will do much to satisfy them because it most definitely matches if not beats the quality and efficiency provided by Spanair and this is the point I am trying to get across. Not just in business terms, but in everyday life the more choice somebody has, the more options available to them which always provides them with a higher probability of choosing something that they like or suits them and the same goes for British Airways. The only criticism I can think of that would come with British Airways moving into a host nation from the locals would be from environmentalists. Many nations today have something or a label that makes them unique - for example for many years Milan (Italy) has been classed as the fashion capital of the world for the vast amount of design clothes on sale there, the amount of designers that work there and celebrities seen shopping there. The same goes for other topics and different countries will have different people who care more about different things than others such as the environment. It may be difficult for British Airways to shrug off criticism when entering a country where the majority of the population care strongly for the enviroment simply because of the pollution planes create. However, there are not many countries where I would say the majority of locals are concerned with the condition of the environment so this will most likely never become a major problem for British Airways. However, there will always be those (environmentalists) opposed to a large amount of airlines because they feel that they are damaging what is most important, especially if they are coming from overseas so this is a problem British Airways must be prepared for.
Suppliers
With any business expanding overseas, the more suppliers will be required simply because more people will be buying the product/service and again British Airways is no exception. When people think of suppliers, they generally think of the suppliers of basic products that are bought in everyday life and that is why it is difficult to apply this to an airline. For example, Tesco are the largest supermarket in the United Kingdom with the biggest customer base - however without their suppliers of their most very basic products such as milk and eggs which come from the work of normal farmers then they would not be able to operate. The same theory would apply to British Airways but because they are such a different kind of business and offer such a different type of service/product - it would apply in a different way. For example, Tesco plc distribute their products through the thousands of stores they have built around the UK but the same cannot be said about airlines. No airline in the world would be able to operate without the existence of airports because airports are the way in which they allow customers to use their flights. So even though Heathrow are not British Airways’ suppliers, they give British Airways the opportunity to sell their service to UK flight users. Once British Airways began to expand overseas, it is then that they would have had to come up with agreements with airports around the globe to begin to sell worldwide. Through the very early stages of their expansion, it is very likely British Airways used BAA. BAA is the world’s leading airport company which has airports operating in England, Scotland and France so once British Airways dominated these three nations, in order to follow up their success and move onto some of the other nations that they operate in now such as USA, Spain, Brazil, etc. then there is no doubt they would have had to use other airport companies or finalise agreements with individual airports across the globe. It is very simple - when Tesco began to expand overseas, their suppliers from farmers to clothes suppliers would have increased worldwide because their customer base increased worldwide. So when British Airways were growing from country to country, their need for more airports increased because their need for flights increased. Despite British Airways’ costs increasing because of these agreements, the profits gained from their expansion will easily cover them.
Effectiveness of British Airways Presence Internationally
For the final part of this task, I will be looking at what exactly it says in the title - the effectiveness of British Airways’ presence internationally. When looking at the effectiveness of the international presence of any business, you must look at the success or failure achieved for that business in foreign markets compared to the success being achieved (success would have had to have been achieved in order to work internationally) in the business’s parent country. So in the case of British Airways, I would be looking at the success or failure British Airways have achieved in North & South America, Asia, Australia and the rest of Europe compared to how they are fairing where it all began for them - the UK. Of course, it is extremely likely that British Airways are enjoying more success overseas as opposed to in the UK simply because of the massive number of markets they are involved in worldwide compared to the one they are involved in in England. For example, one of the factors that affect the effectiveness of British Airways’ international presence is the number of passengers obtained in the UK compared to the number of passengers obtained worldwide so it is near impossible that the UK will have more people using British Airways then in countries which are about triple or quadruple their population such as USA, India, China and Russia. Along with the number of passengers obtained, other factors that would affect the effectiveness of British Airways’ presence internationally are extra sales made overseas compared to the UK, extra profit made overseas compared to the UK and the difference in profit margins made in the UK and the profit margin created overseas. Whilst explaining these factors, the word ‘compare’ came up a lot and this is because in order to realise the effectiveness of an international presence, then comparing between the success in the parent country and host countries must always be completed and the difference calculated will always be the answer to the effectives of a business’s (British Airways) international presence.
The first factor I will be reviewing is extra customers/sales made in the UK compared to foreign countries. As I mentioned earlier, it would be very difficult for British Airways to have a higher number of UK customers and sales compared to all the other countries BA operate in because of population differences and the fact that it is one country against about 70-80 others, however I will now try and prove this using data I gathered from internet sources.
On the previous page is a small table consisting of the number of passengers British Airways have flown for the past 6 years including 2008. From each year only a set percentage of that number is from the UK and these can be seen in the ‘number of passengers’ rows. As you can see, the number of UK citizens flown compared to the total always vary precisely from 29% to 36% and although these are a considerable amount for the UK, as expected the foreign markets dominate the amount of customers and sales obtained by British Airways. An example of this table could be for the present year of 2008, overall British Airways successfully flew just over 33 million passengers and 32% of this were British. 32% of 33 million equals to around 10½ million passengers (around a third) so I think that alone proves the significance and importance of British Airways’ overseas values to their overall success. Below is a table showing how many of British Airways overall passengers over the last 6 years have been British and how many have been foreign with the difference:
Information/Data obtained through internet sources - Wikipedia
As can clearly be seen, the difference has been around 10 - 14 million for the past 6 years which proves how important British Airways’ foreign market is to them. I mentioned earlier in this task that after comparing the number of UK customers to overseas customers, the difference calculated is what will determine the effectiveness of British Airways’ international presence and so in terms of customers and sales obtained, British Airways’ international presence is very important and effective. If British Airways remained solely a UK brand, according to this table, they would be getting around 10 million - 13½ million passengers every year - about a third of their overall customer base today which just proves the significance of their operations abroad. To conclude in terms of the number of customers/sales, this table alone proves how effective British Airways’ international presence is - without the extra customers their overseas operations provide, the less profit and sales the business achieves and the likelihood by statistics is that if British Airways never expanded, they would not be half as successful as they are today.
Along with the amount of customers and sales obtained, another factor that affects the effectiveness of British Airways’ international presence is the difference between how much profit is made at home (UK) and how much profit is made in international markets. In a way, this is connected to how many customers/sales are obtained because the more sales and customers gained, the higher the profits will be for British Airways however this is more financially related. Again, I believe the profit levels for British Airways will be much higher in foreign markets than their British one simply because of the same reasons as before - massive differences in population and the fact that it is one nation against so many others. Just like I previously done, I will now produce a table to try and back up this theory will the help of Wikipedia.
As can be seen on this table, here is the data regarding the profit made by British Airways from the years of 2003 to 2008. The success of British Airways between this time period is clear to see as their profits continually rise which is strange considering their number of passengers flown consistently declined from 2003 - 2007. Even though, the percentage of UK based passengers flown each year is identical to the percentage of profits British Airways gained from UK operations each year. So for example in the year of 2008, British Airways gained £883 million profit before tax and 32% of this amount came from UK flights which would come to just over £282½
million and despite this being a substantial amount, yet again most over the profits came from overseas operations and this would amount to roughly £600½ million. Just like I did so previously, I will now show a table consisting of BA’s profits from UK operations, from overseas operations and the difference between the two which will determine the effectiveness of British Airway’s international presence from the years of 2003 to 2008 in terms of profit.
PTO for table
As you can see by this table, the effectiveness of British Airways’ international presence over the last 6 years has been extraordinary. As expected, most of British Airways overall profits come from their overseas operations.
