Chapter 2: Review on Literature
2.0 Overview on VAA
In
1980s, Richard Branson who is well-known for the Virgin Records decided to put
a pot of big money in the airline industry. After three or more months, the
Virgin Atlantic Airways was born (Rifkin, 2004). It began operating with the
support of the celebrities and continuously shaking the entire hospitality
industry as the first airline that offers different services to their
passengers such as the built-in TV for the business class passengers and
variety of food for the passengers. Today, the Virgin Atlantic is one of the
world’s most recognized brands and being recognized and trusted through their
winning awards for their products and innovative marketing (Lothian, 2008).
Business
organization is considered to be the organization of people having the varied
skills that are also using the properties or talents and produce the goods or
services. This is considered as an internal strength in which can applied as a
system through which economic activity is organized and directed by those who
seek to make a profit. In the fundamental characteristic of the business like
VAA, it can distinguish the various activities from other economic activities
in order to perform in the market (Doganis, 2006). In distinguishing the characteristics of the
characteristics of the business can be possible only if the climate in the
country – the Constitution, the laws, the customs and traditions of the people
– will allow those who engage in the business reasonable expectations of profit
possibilities.
It
is stated that there is an increase in the competition in the airline industry
and this tackles the idea on how the business organizations performs well in
the competition. In observing the social status of the business, VAA’s social
standing can influence the market and had a marked degree towards the
satisfaction of their markets (Morrison & Winston, 1995). The competitive
situation of industry, in addition, is also always been investigated. The
competiveness of the industry situation may be so keen that the margin of
profit is narrow or at times non-existent. Since the market is already
overcrowded, the VAA should engulf the difficulties that may arise through
setting a new corner of strategies to set a motion which in return can create a
big difference and gain the competitive edge.
2.2 SWOT Analysis
|
Strengths
|
Weaknesses
|
|
Opportunities
·
The brand values serves as competitive
advantage
·
Partnership Alliance.
·
Expansion like being the second largest
long-haul carrier on the route of London to New York (Rifkin, 2004).
|
Threats
|
Source:
Virgin Atlantic Airways <http://www.scribd.com/doc/33628396/Virgin-Atlantic-Airways-swot-and-strategies-on-case-study>
VAA’s
part of internal strength is the influence and legacy of Mr. Branson, and
another significant factor is the fact that the firm is privately owned
(Rifkin, 2004). In general, these internal strengths set a good image and
marketing strategy. Through the continuous practices and placing emphasis on
these strengths, the firm is recognized to be a potential leader in the
competition. However, this idea is only possible if the firm manages to
formulate the appropriate solutions on the weaknesses. In assessing the list of
weakness of VAA, it appears that these factors might lead to the low return of
cash flow, particularly in terms of “no clear customer target” and at the same
time, lacking of planes which tends to increase the maintenance of aircrafts.
There are few opportunities available for the VAA. However, there are more open
cities for the services of the airline industry which can add to their success.
Meanwhile, the threats are still lurking in the firm, particularly the rapid
growth and change in the world economy such as the airline restrictions caused
by airline dominance (Bilotkatch, 2007).
2.3 Key to Success Factors
VAA
became Britain’s second largest long-haul in 1984 (Rifkin, 2004) and since
then, the firm is expected to promote the continuous growth. In changing time,
the firm managed to offer the all the classes of travellers with a quality in
traveling for a lower cost (Virgin Atlantic Airways). However, it received many
criticisms because it is not cost efficient (Lothian, 2008). Therefore, they
introduced the three classes of travellers (upper class, middle class, and
economy class). From here, the firm seek the different partnership and
alliances from the same industry such as in Sydney, Malaysian, New Zealand,
Scandinavian, Hawaiian, US, and other airlines. All of these partnership and
strategic alliances results in a market entry of the firm. However, the success
in their market entry remains a question since there is no such evidence to
describe if among these strategic alliances, the firm gain a market position.
Basically, the reason behind this idea is that the firm is considered as
co-operating airlines wherein their operations are only visible when needed.
Therefore, the method that VAA chose is external marketing and interactive
marketing within the foreign market but without the knowledge in the market
where the firm is performing, their key to success is also uncertain.
2.4 The Concept of Local Market
Knowledge
Basically,
in identifying the appropriate distribution channels and activities, there
involvement and participation of the market is vital because the information
that can be gained through the market that serves as knowledge for the
organization. In the case of VAA, the customer service and their ability to
provide the excellent approach delivers another factor to achieve the customer values.
Because of the positive relationship in between the firm and its environment
(including the market, competitor, and suppliers) the greatest knowledge can be
achieved which will lead to the greatest commitment of the firm. The local
market knowledge is assumed to be constrained in the organization’s performance
in the foreign market that can be the firm’s direct approach of the
organizations. Once an organization is involved in the international business
activities, it is anticipated that there will be broader opportunities and yet
broader risks. As an advantage in using the local market knowledge, this can
promote the successful business and market relationships which are a core in
acquiring a competitive position. As a vice versa, the correlation in between
the involvement of the business and the market lends further support the need
for the local market knowledge for success towards the international business
(Beamish & Munro, 1987).
The
increasing demand is another factor that that affects the creation of the
business strategy. Through this demand in travelling industry, the local market
knowledge can be gained through the careful and scientific market study and
analysis. There is always a possibility of the potential demand in excess of
the current demand, and through the process in gaining the knowledge; the firm
can determine the relative factors that can add their competency. This means
that the local market knowledge is an important aspect that the organization
should practice and can be used in order to achieve the success in their
operations (Delfmann, 2005). Gaining the local market knowledge can be easy
because it is considered as the primary requirement in the formulation of the
firm’s strategic approach in the foreign market. Therefore, it makes up as the
most essential knowledge in determining the levels of the local and
international competitions, current events and political stability, consumer
base, and the determination of the targeted traveller and season of travelling
for VAA. Without the knowledge, the firm cannot compete with the competitors or
even satisfy the consumer demands. Because of the uniqueness of each market, it
is essential to produce such local market and if the firm failed to acquire the
knowledge, there is a related consequence is failure to possess the ideal
operation knowledge in the area and end it up in a complete loss.
Since
the VAA is focused in travelling and delivering the quality in the performance
even across the cultures, there they are also targeting the potential customers
which can be found in the local market. In general, the local market knowledge
serves an all-in-one strategy for the reason that it doesn’t only assist but
also as a source to create sound decisions and market strategies. Once the VAA
gain the knowledge in the market, they can also gain its needs, tastes,
preferences, and expectations. It can also have an idea about the culture,
climate, various locations, and economies of scale (Doganis, 2006).
2.5 Theories of Local Market
Knowledge
The
local market knowledge is considered to be applicable in any organizations such
as VAA which can facilitate the effective approach of the organization in their
expansion strategies. The results that can be gained in the local market
knowledge can broaden the awareness of the firm as well as their capability in
delivering the right services for the right clients. Hence, there are theories
in which can describe the local market knowledge.
Market
Entry Mode Theory
This
is considered as the general theory and serves as a motivation in exercising
the activities involved in local market knowledge. Through this theory, the firm
can choice its entry mode. In the study of Dutta and Beamish (2009), they chose
the sample of Japanese multinational enterprises (MNEs). Their study suggested
that Japanese firms should be guided with their market research especially when
they adopt the approach for internationalization and enabled them to make an
entry in their country of choice and undergone in sequential stages. This theory
describes the described that environmental determinants in the managerial
aspect of the organization and their decision in mode of entry. Dutta and
Beamish (2009) also indicated that high levels of environmental factors that
are resulted in market analysis like Porter’s Five Force and Hofstede can
deliberately affect the market entry decisions. And at the same time, the
relationship of the firm with the market environment is intensified.
In
the market entry mode theory, the integrated approach needs to be taken as part
of management’s conceptualization. Accordingly, the mode of market entry should
be measured to determine the impact of the market entry in the host country.
The strategies are basically obtaining the recent market information in order
for the firm to accommodate not only with the market’s needs but also to make
them advanced in the competition. Eventually, the development of the market
entry mode theory can answer the issues and problems rooted from the market
entry mode and their success (Julian, 2009).
Efficient
Market Hypothesis Theory
The
efficiency market hypothesis (EMH) pertains to the equity of the traders and
investor. The EMH theory gives the idea that every stocks available in the
market that are always in the state of equilibrium and the impossibility for
the investors to beat the market (Brigham and Gapenski, 1997). In this
strategic approach, there is a close connection between capital structure and
investment decisions in which the managers (e.g. financial managers) should investigate
more in order to undertake the large investment. For an instance, the in-depth
market research should be established among those strong markets or with
uncertainties (Dimson and Mussavian, 2000). The information drawn from the EMH
can be reflected in the capacity of the organization to deliver the
expectations of the market. Therefore it is important for the firm to assess
the validity of the information and utilize it well (Clarke, Jandik, &
Mandelker, 2002).
In
addition, Clarke and the associates (2002), the financial managers/analysts
should be strict in computation because of the changes in the stock market. The
result may represent a strong return to the firm and allowed the firm to diversify
its portfolios due to their price-to-earnings ratio (Aga and Kocaman, 2008). This
factor arises in having the knowledge in the market is determining the
investment opportunities such as those firms with expansionary plans even in
those smaller markets (Dunlea, 2000) and if the firm practices this approach,
they can find solutions whenever the uncertainties (Lo, 2007). The result is
somehow related in the ability of the firm to create a good impression in the
investors, inviting them to invest in the firm because of the strategy.
RBV
Perspective
When
it comes in a complimenting the firm with the market needs, the resource-based
view (RBV) perspective is considered as a theory in which can be adopted by any
firm under any industry. The RBV model has a purpose in analysing the firm’s
internal strengths and weaknesses of which the assumptions arises from two
factors. First is that resource and/or capability of the firm are diversified
that possesses the bundles of different resources and capabilities. Second is
that the resources and capabilities are immobile that makes those resources and
capabilities be inelastic in terms of supply or could be expensive for other
firms if they attempt to mimic it because of its uniqueness (Jacquier, 2010).
Moreover, Jacquier (2010) added that RBV is a theory that creates the resources
and capabilities arrives in delivering the value in their products and
services. And through the continuous practice, the organization can even
outperform the industry norm and creates more advantage as compared to those
values created by their competitors.
Through
looking and searching of what the market needs, the firm acknowledges the
certain performances and operation in which they can meet the market’s
preferences. Also, RBV is a good approach in describing the concept of
strategic management because the firm explores their internal strengths which allow
them to formulate strategies and determining their limitations as well which
can deal with the competitive environment and targets the satisfaction of the
customers. This is due to the attribute of the perspective of the theory which
emphasizes the “inside-out” concept. As to the study of Hooley, et al., (1997),
the RBV perspective analyses the internal capabilities of the firm towards
performance especially in operating within the international markets because
the firm can measure the dimension in which the organization can use to gain
the position in the market.
2.6 Principles of Local Market
Knowledge
Every
firm has a role in discovering the opportunities that will support them in
formulating the business frameworks (Shane, 2003). In general, the foreign
market entry modes of the firm also means in being exposed in unfamiliar
environment and market behaviour. The idea of local market knowledge welcomes
the business to be aware on the different conditions from the home country to
the host country like the barriers and the sociocultural distance that are
often difficult to deal with (Lindh, 2007). Shane (2003), described a general
theory of entrepreneurship in which it addresses the link of local market
knowledge to recognize the various opportunities for the firm. Accordingly,
there are two principles that can be apply in determining the importance of
local market knowledge.
The
first principle is to access the information in the market which is the root in
discovering the opportunities in the market. In order to access the information
in the host country, the firm can look for the life experience wherein certain
activities can help the firm to access the necessary information towards
knowledge. There are two evidences of life experiences that can increase the
business opportunity of the firm which is (1) job function and (2) variation in
experiences. However, it is important that the firm understands their motives
in seeking information to help them recognize the opportunities. For an
instance in a food industry, the business should focus on the eating habits,
diets, and foods that the target market avoids or wants to help them be
effective in the market. Another is determining the social ties or networks of
the target market. This idea arises in the social mobility and how the
individuals interact with others. In a country where the social structure is
diversified, the firm should seek the most accurate information to make their
decisions and operations valid (Casson, 1982 cited in Shane, 2003).
Second
is the opportunity recognition in which Shane (2003) stated that the effects of
accessing the information. The firm can discover the various opportunities
through a given amount of valid and accurate information that they gathered.
Accordingly, there are two different factors that influence the ability of the
firm to produce the opportunities and this is through absorptive capacity and
cognitive process. The absorptive capacity is related to recognize the
opportunities through utilization the prior information. The prior knowledge
provides an absorptive capacity in which facilitates the ability the
acquisition of additional information about the markets, the appropriate
technologies and as well as applicable processes to be responsive in the
market. On the other hand, the cognitive processes which also influences the
opportunity allows the firm to formulate the new means, solutions, and
frameworks that will the firm be committed and responsive. Kirzner (1997, cited
in Shane 2003) called the cognitive processing as an “alertness to opportunity”
that influences the firm’s ability to recognize the opportunities. Part of this
process is seeing the risk that may involve because of the patterns in market perceptions
and their motivations in using a product or services.
2.7 Summary of Literature
In
this chapter, the literature is related on the overview VAA operations such as
the strengths and weaknesses. In addition, the opportunities and threats are also
identified. In the overview of the organization, the key to theirs success were
uncertain particularly in their approach in expansion and operations in foreign
countries. However, it is believed that through the local market knowledge, the
firm can have the potential to satisfy their goals and gain the competitive
advantage. In the concept of local market knowledge, it demonstrated the
different processes and benefits in which the firm can receive in adopting the
local market knowledge. In addition, there are theories (market entry modes,
EMH, RBV perspective) and principles (accessing the information and opportunity
recognition) that drives the local market knowledge to be a holistic approach
for the firms to understand the foreign market that they are serving and can be
their source of strength to be competitive in the market.
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