Global Business Case Study: Emirates Air Line

by angieton1806 (student)

University Degree Business and Administrative studies

Introduction

In today’s competitive global market the success of multinational enterprises (MNEs) rely heavily on their differentiated geographically dispersed subsidiaries being fully or partially owned subsidiaries, regional offices, representative offices etc...

Given the increasing globalisation of the competitive environment, the dual imperatives of global integration and local responsiveness are becoming more critical than ever before for the survival and growth of MNEs (Access My Library, 2001).

A fast growing multinational enterprise in the world is Emirates Airlines which forms part of Emirates Group. Emirates Group is based in Dubai and is primarily composed of Emirates Airlines, Emirates Holidays and Emirates SkyCargo. Emirates Group was founded in 1985 and today they operate globally in over 100 destinations in 62 countries with a new location added on average every two months. Emirates Airlines is a fast-growing global airline with one of the youngest fleets in the sky and with more than 300 awards for excellence worldwide. Emirates Airlines operates a fleet of aircraft to various destinations in Europe, the Middle East, the Far East, Africa, Asia, Australasia, and North America; literally in all continents of the world.

Global integration concerns the coordination of activities across countries in an attempt to build efficient operations networks and to take maximum advantage of similarities across locations. A multinational solution that combines both global integration and local responsiveness is essential for economic growth and this can be achieved through the orchestration of operations on a global level i.e. striking a balance between global integration and local responsiveness of operations. Local responsiveness concerns the attempt to respond to specific needs within a variety of host countries while foreign subsidiaries must be differentiated enough to successfully confront cultures, markets, and business practices that contrast distinctly with those of the home country. This flexibility must be accommodated within a structure that will provide maximum contribution to corporate performance, thus, an asymmetrical treatment of various subsidiaries is necessary for coordinating worldwide businesses within an intra-organisational network (University of Alabama, 2005).

"The forces of globalisation create tension just as they create opportunities. These tensions must be managed." - Nemir A. Kirdar Founder, President and Chief Executive Officer, Investcorp.

Local Responsiveness

Local responsiveness is all about attempting to understand and to respond to specific needs and to adapt to host country conditions. Local decisions and policies pertaining to foreign subsidiaries should be geared to the unique parameters of the local environments such as business culture, consumer demands, competition, government regulations etc... In other words MNEs need to employ strategies that align properly with the structural attributes of the host industry.

Local responsiveness in a dynamic environment can be classified into three categories:

National environmental factors within a host country
Industrial structural factors which determine the conduct, behaviour, and strategy of firms in that industry
Organisational factors

High local responsiveness is required if an MNE attempts to maintain a strong and sustainable competitive position in a host country. In this scenario foreign subsidiaries depend heavily upon their global strategic resources to compete against local rivals which may be well established enjoying traditionally a loyal customer base.

High local responsiveness: Taking the example of Emirates Airlines in Malta, Emirates Airlines is competing aggressively with renowned airlines such as British Airways, Lufthansa and other low cost carriers such as Ryan Air which operate common routes. Emirates Airlines’ success in this field is attributed to its unique strategy of excellence in service provided with a superior value to customers which is second to none.

“Continuing our explosive growth while continually striving to provide the best service in the industry is the secret of Emirates’ success” (Emirates.com, Undated).

Pressure for Local Responsiveness

MNEs are confronted with environmental pressures, namely the pressures of local responsiveness. The local responsiveness pressures are driven by several factors, such as subsidiary government regulations, local competition, the need to satisfy the unique tastes and references of local customers, the size and importance of local subsidiary markets, and infrastructure differences between different countries. In a way these pressures are the driving force to enhance, align and implement the global strategy in different countries and to improve the overall services and global operations.

We may divide pressures for local responsiveness into two major categories being ‘Customer

Divergence’ and ‘Governmental Policies’.

Customer divergence consists of:

differences in culture
national attitudes
economic conditions etc...

Host government policies include:

economic freedom
work-place policies
service/product regulations
local legislation etc...

(International Business, 2001) & (University of New South Wales – Sydney, 1999)

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We may divide pressures for local responsiveness into two major categories being ‘Customer

Divergence’ and ‘Governmental Policies’.

Customer divergence consists of:

differences in culture
national attitudes
economic conditions etc...

Host government policies include:

economic freedom
work-place policies
service/product regulations
local legislation etc...

(International Business, 2001) & (University of New South Wales – Sydney, 1999)

Emirates Airlines’ subsidiaries: One of the global strategies of Emirates Airlines is to work with well established agents or subsidiaries in different countries. In Malta, Emirates Airlines works hand in hand with ROCKS Group in an effort to penetrate the market while minimising the burden and concerns regarding customer divergence since these are catered for by the local agents. By doing so Emirate’s Management can concentrate its efforts in negotiating and resolving host government policies with the respective local authorities since most of the local groundwork would have been already carried out by the local agents or subsidiaries.

Global Integration

The major two driving factors for organisation to go global are the economic and technological factors.

Global integration encompasses the integration of foreign business efforts into the domestic business, and the integration of the global businesses with each other and the existing domestic business.

The company’s Global integration comprise of both the ‘Business Strategy Integration’ and the ‘Operational Integration’ between the domestic and its foreign subsidiaries.

Business Strategy Integration

The following areas of the business strategies must be integrated:

Business Model: How you realise profits and incur costs must be integrated and coordinated, respecting universal and local elements.
Business Objectives and Goals: The metrics for revenue achievement, realisation of profits and market penetration must be accepted and believed achievable.

Emirates Airlines Global Business Goals and Objectives are:

To position Emirates Airlines as a global airline and the carrier of choice to the Gulf and the Middle East and points beyond.
To promote Dubai as one of the most modern, progressive, safe and technologically advanced commercial centres in the Middle East
Showcase the airline’s outstanding and award-winning service levels, in-flight experiences, profitability, fleet, safety record and global reputation
Focus on the airline’s highly professional and seasoned senior management to create a leadership position in the aviation industry

(M Silver Associates Inc. PR, Marketing & Communications , Undated)

Operational Integration

The company’s operational processes, procedures and reporting functions must accommodate all the international business and must be coordinated, i.e. the domestic requirements with the foreign requirements and vice versa, and the resulting activities and impact of information must be integrated.

International Business will increase the areas where processes, procedures and reporting functions are essential. This will add additional layers to the company’s compliance activities such as:

Product/services development

International marketing programs
Sales and distribution channels
Manufacturing requirements
Management and organisation
Accounting and reporting
Due diligence and compliance

(Local Tech Wire, 2008)

Global Operational Integration: Global Operational Integration also requires an international skilled workforce and a major challenge is to overcome language barriers. At the end of March 2008, Emirates employed about 35,300 people and hired more than 7,000 staff, including 2,000 cabin crew and 400 new flight deck crew representing 145 nationalities which is a show case of strong globalisation (GulfNews.com, 2008).

A driving force in globalisation is Technology: Innovation and technology have always been an important quality for Emirates. As an example, the airline was the first to offer seatback entertainment to all passengers, regardless of class.

Emirates Airlines’ investment in advanced technology is part of a global strategy for ensuring long-term growth. As an example Emirates are using Danware’s NetOp advanced technology remote control solution which helps the global organisation reduce the time and cost of providing world-class IT support (NetOp, Undated).

The Virtual Office – The Internet: Due to Emirates Airlines’ increasing international presence, Emirates needed to develop more than 30 multilingual sites including Arabic & Japanese to help operations. Emirates needed its regional offices worldwide to be capable of updating their own content while simultaneously maintaining a level of centralised control over the content and publishing process.

Tridion Content Management Solution was implemented globally by Emirates Airlines to manage the content for its global Internet presence. This has enabled Emirates Airlines to reach a wider audience, and replicate common information across all its domains in different languages (SDL Tridion, 2005).

In-Flight mobile & Internet Access: Technology makes globalisation a reality and Emirates strive to introduce innovative technological solutions bringing superior value to its client’s worldwide. Emirates is the first airline in the world to commercially launch an in-flight mobile telephone service. The innovative airline will be investing some US$27 million to fit its fleet with the AeroMobile system which ensures that passenger mobile phones operate at their absolute minimum power, thereby allowing their safe use on the aircraft (Travel Daily News, 2008).

Emirates and AeroMobile also plan to add Internet access in all its flights. The service will support the use of BlackBerry and Palm Treo devices, in addition to mobile data-enabled PDAs and notebooks (CIO – Business Technology Leadership, 2006).

Network Infrastructure: Due to Emirates explosive growth, Emirates are working together with the IT giant Sun Microsystems to scale their IT infrastructure in order to sustain this rapid growth while simultaneously reducing the operational costs. With the dual objectives of increasing IT capacity while driving down operating costs, a decision has been reached by Emirates’ Management to migrate business applications which were running on Sun EnterpriseTM 10000 servers to the next generation technology from Sun Microsytems - the Sun FireTM (Sun Microsystems, Undated).

Keeping abreast with technology is of vital importance since technology is today the main player in global organisations.

Pressure for Global Integration

The pressure of global integration is reflected by factors such as:

global competition
global coordination of value-chain activities
technological changes and complexity
the need to reduce cost by exploiting global scale
scope economies i.e. efficiencies primarily associated with demand-side changes

The major pressures for Global Integration can be categorised into 2 categories, being ‘Globalisation of Markets’ and ‘Globalisation of Production/ Services’.

Globalisation of markets:

the convergence of customer preferences for similar products
minimal costs
maximum value

Globalisation of production/services:

efficiency gains via standardisation
the maximisation of location economies

It is worth mentioning that a commodity serves a universal need across countries and cultures and is traded strictly on the basis of price which adds even more pressure to the global strategy.

(International Business, 2001) & (University of New South Wales – Sydney, 1999)

Enrolment of Global Workforce: Due to global competition one of the major challenges for Emirates Airlines is to find enough skilled staff around the globe for employment. "We are preparing for the future, which will see the airline becoming one of the biggest international carriers," Shaikh Ahmad said. "As we plan for the next decade, our biggest challenges will be to find more pilots, engineers, cabin crew and skilled staff across our various business units," he added. (Gulf News, 2008)

Determining the balance of Global Integration vs. Local Responsiveness

Managing the tension between global integration and local responsiveness in order to convert a unique strategy into superior value is all about determining the right balance between global integration and local responsiveness. Global integration helps in managing risks and driving down enterprise costs while local responsiveness facilitates an efficient integration with local economic conditions and partners.

Pressures for Global Integration vs. Local Responsiveness can be categorised into 4 categories:

Centralised Business

Provide global integration but have less need for local responsiveness.
Provide consistent product and customer experiences globally, and seek to maximise synergies by centralising assets and capabilities.

Federated Business

Provide both global integration and local responsiveness.
Achieve global efficiency and flexibility and to adapt products and services locally.

· Parent-led Business

Medium to low pressures for both integration and local responsiveness.
Adapt parent business policies and practices across the local businesses.

· Multi-local Business

Strongly pressured to provide local responsiveness.
Build strong local bases and emphasise self-sufficiency.

Global consistent customer service: Since global airlines such as the Emirates Airlines must present the same face and procedures to its customers everywhere they operate in order to provide a consistent service and customer experiences globally, their strategy revolves around a Centralised Business strategy (Information Week, Undated).

Emirates strive to provide consistent product and customer experiences globally. An example is in its global e-Ticket system. Emirates continues to lead the way in e-ticketing, recently concluding its 100th interline e-ticketing agreement. This means the airline’s e-ticketing product is now even more widely available, enabling more travellers to enjoy the benefits of e-tickets when flying with Emirates.

“Electronic ticketing benefits both the customer and the airline by providing greater convenience, reduced processing time, simplified operations and faster check-in”

(Scoop Business, 2008).

Global Strategy

A Global Strategy views the world as a single market taking business expansion into foreign operations that champions worldwide consistency, standardisation, and cost competitiveness. Global firms strive to convert global efficiency into price competitiveness via production, services and location economies. Value is created by designing, developing and marketing products and services for a world market as effectively and efficiently as possible.

The core global strategic principles being:

attracting customers
market positioning
conducting operations
competing effectively
creating value
achieving goals

(Business Administration, Undated)

When it comes to global strategy, most organisations make two assumptions:

the central challenge is to strike the right balance between economies of scale and responsiveness to local conditions,
the more emphasis companies place on scale economies in their worldwide operations, the more global their strategies will be.

Because MNEs differ in pursuing different strategies ranging from multi-domestic to global strategies, each subsidiary plays a specific role that fits into the overall corporate strategy. Therefore, it is likely that subsidiaries with a higher degree of strategic interdependence will share organisational knowledge more actively with peer subsidiaries.

(Harvard Business Review, 2007) & (University of Alabama, 2005)

Global Routes: Nearly 800 Emirates flights depart Dubai each week on their way to destinations on six continents. In fact, Emirates' flights account for nearly 40 per cent of all flight movements in and out of Dubai International Airport, and Emirates’ aim is to increase their market-share to 70 per cent by 2010 without compromising their reputation for quality.

Creating value and achieving goals are important strategic principles in globalisation: Emirates Airlines are continually working to improve their services globally. Emirates recently achieved a new milestone as it touched down to the vibrant beats of the African drums at Cape Town – its 100th global destination in South Africa and also launched a new service to Brazil; a daily non-stop Dubai-Sao Paulo operation effective 1st July 2008 (Travel Daily News, 2008).

Attracting customers is the major strategic global principle: Emirates are always in search of new ways for innovation. Emirates Airlines just opened its new futuristic lounge at Brisbane International Airport, unveiling the facility that offers a stunning 360 degree view and is the first airline lounge in Australia capable of boarding passengers directly to the aircraft, including the upper deck of the Airbus A380 (Travel Daily New, 2008). This is convenient to customers and is a big jump in quality offering superior value when compared with other airlines.

Global Aviation Strategy: Thanks to the success of Emirates Airlines, over the past 15 years Dubai International Airport has developed into one of the largest hubs in world aviation. Emirates bases its strategy on the fact that its planes can reach any point on the globe nonstop from Dubai and can connect any two city pairs with just one stop in the Middle East (International Herald Tribune, 2007).

"They have a geographic advantage that no one else has," Diogenis Papiomytis, a commercial-aviation consultant with Frost & Sullivan, told MarketWatch.com. "Within 8,000 miles, they can reach something like 80% of the world." A new airport, said to be the world's largest, is now under construction near Jebel Ali, a large complex consisting of a port, airport, residential areas, hotels and a free-trade zone about 19 kilometers, or 12 miles, from the city center (GulfNews.com, 2008) bringing new challenges and opportunities to Emirates Airlines.

Emirates aim to redraw the world aviation map: Emirates have made various announcements regarding the future of its already state-of-the-art fleet which forms an integral part of its global strategy. With a huge pot of money to spend of about $82 billion, the airline has ordered 55 super-jumbo A380s to create the biggest fleet of these double-decker planes in the world thus adding more value to its customers. Its first-class seats feature flat beds with in-seat massage and personal mini-bars, while its in-flight entertainment includes 600 channels, e-mail connections and seat-to-seat telephones for in-flight chats etc… state of the art innovative technology.

"What we are witnessing today is the rewriting of the world's aviation history and the beginning of a new era of global aviation." … "We've never seen anything like it before," said Robert Cullemore, a consultant at Aviation Economics, an aerospace advisory firm in London. "We've never seen growth at this rate” (International Herald Tribune, 2007).

Considerations

Today, global business is considered as the most important business-and-economic trend in the world.

"The Middle East is taking over the aerospace industry and Dubai is at the heart of it," Doug McVitie, an aerospace consultant with Arran Aerospace, told MarketWatch.com recently.

Emirates Airlines is reaping the benefits and in a huge way. Last year profits increased by 54% reaching $1.45 billion and sales jumped 32% as the airline carried more than 21 million passengers which is an increase of 21% from the year before (Money Morning, 2008). These results are encouraging for Emirates Airlines and are proof that they found the right balance between global integration and local responsiveness and have the right global ingredients to convert a unique strategy into superior value.

Bibliography

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[20th July 2008]

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Global Business Case Study: Emirates Air Line

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