BUSI3020 International Strategic Management

Introduction

Commonwealth Bank of Australia (CBA) is a multinational corporation based in Australia. The company operates in diverse countries across Europe and Asia. The company was founded in 1911 (Commonwealth Bank of Australia, 2021). Currently, Commonwealth Bank of Australia offers a variety of products and services in the market including broking, investment, superannuation, funds management, retail as well as institutional and business banking (Commonwealth Bank of Australia, 2021). Over the past three decades, the Commonwealth Bank of Australia has experienced rapid growth expanding to diverse regions across the world. The growth and expansion strategies employed by the company has effectively supported the Commonwealth Bank of Australia to achieve its business goals and objectives. Thus, the report analyses the growth and expansion strategies pursued by the Commonwealth Bank of Australia as well as the Suitability, Feasibility and Acceptability of the strategies.

Growth and/or expansion strategy pursued by Commonwealth Bank of Australia

The growth and expansion strategies are strategies that help an organization to increase its size, launch new products and successfully supports it to penetrate the new markets. Commonwealth Bank of Australia has utilized various growth and expansion strategies to effectively gain a competitive advantage in diverse markets. The major growth and expansion strategies pursued by the company include cost leadership, differentiation, merging and acquisitions, diversification as well as market penetration and development.

Cost leadership strategy

Commonwealth Bank of Australia has used a cost leadership strategy to achieve its growth objectives. According to Kurt & Zehir (2016), a cost leadership strategy is one of porter’s generic strategy that involves an organization lowering its costs in the market to gain a competitive advantage. Commonwealth Bank of Australia primarily uses a cost leadership strategy to maintain its leadership position in the Australian and New Zealand markets. The strategy allows Commonwealth Bank of Australia to expand its customer base to medium and low-class people which forms a large proportion of the consumer marketing mix in the countries where it operates. Low and medium class people are price sensitive and thus by offering products and services allow the company to meet the demands and wants of this customer segment. Besides, the low prices have also been able to attract and retain existing customers which have significantly increased the company's cash flow.

Differentiation Strategy

Commonwealth Bank of Australia also uses differentiated growth strategies to grow its business. The company has effectively launched new products in the market with unique features to meet the new demands of customers. Besides, the company has also modified its existing products to align with the changing macro and microenvironment. The differential strategy has created a defensible position in the Commonwealth Bank of Australia for dealing with competitive forces in the industry such as threats of market entry, competition rivalry and availability of substitutes. For example, Commonwealth Bank of Australia has implemented CommSee and CommBiz products in its portfolio to effectively serve business banking customers and provide a more responsive approach to credit approval.

Market penetration and product development strategies

Market penetration is primarily used intensive growth strategy by the Commonwealth Bank of Australia. According to Alkasim et al., (218 p.190), market penetration involves an organization encouraging the growth of sales within the current customer base.  The market penetration strategy has enabled the company to increase its market share by focusing on the existing markets and production. The strategy has forced the Commonwealth Bank of Australia to lower its prices and use various promotional and marketing strategies for pushing existing customers into the market. For example, the bank has shifted most of its advertisement to digital networks to reach out to potential customers. Besides, the Commonwealth Bank of Australia also offers its products in new attractive packages, price discounts as well as deals to attain its growth target while at the same time maintaining sustainability in the same market (Commonwealth Bank of Australia, 2021). The adoption of the market penetration strategy by the Commonwealth Bank of Australia is linked with the bank’s ability to attain its cost-leadership strategy as well as differentiation of its offerings.  The company secondarily uses a product development strategy to achieve its objectives. According to Vazirzanjani and Hooshmand (2016 p.66), a product development strategy involves an organization developing new products or modifying its current product lines to meet the new demands of the customer base. The intensified competition that exists in the banking and finance industry has prompted the Commonwealth Bank of Australia to develop new products and services to the targeted segments. The costs leadership has significantly supported the product development strategy used by the Commonwealth Bank of Australia as it has allowed the company to minimize the costs while using the existing infrastructure to launch new products.

Suitability, Feasibility and Acceptability of the strategy or strategies.

Suitability

Suitability is one of the essential factors of the SAFe strategy model which involves identification in which a proposed strategy effectively fits an organization situation identified in strategic analysis as well as how the strategy can improve and sustain competitive advantage in the market (Gordian, B., 2014 p.1). The strategies by the Commonwealth Bank of Australia are suitable as they have explored the organizational strengths. For example, the bank enjoys economies of scale in its operational markets and thus utilizes its cost-leadership strategy to help in offering products at low prices.

The growth and expansion strategies also enable the Commonwealth Bank of Australia to explore the skills and knowledge of its workforce. This has led to the identification of opportunities in the market that has significantly helped the Commonwealth Bank of Australia to penetrate the new markets, identify new demands and wants for customers as well as strategies for launching the products.

The strategies have created a strong cash flow to the Commonwealth Bank of Australia assisting the company to overcome organizational difficulties, weakness and threats such as high overhead costs and level of competition. For example, with an increased level of competition in the market, the expansion and growth strategies have ensured the company gains a competitive advantage by offering affordable and a wide range of products to its customers.

The growth and expansion strategies are suitable as they fall in line with the goals and business goals for Commonwealth Bank of Australia such as penetrating the new markets, increasing market share, retaining its position in the market as well as launching innovative products.

Feasibility

Feasibility is also an essential SAFe strategy. The strategy emphasizes accessing the financial position of an organization to implement its strategy by analyzing cashflows, forecasting, as well as performing break-even analysis (Yuksel and Culha, 2018 p.166). Commonwealth Bank of Australia has feasible financial resources that enable the company to expand and grow its business. The company is also equipped with human and financial resources, culture as well as a structure that makes the strategies work effectively.  The human resource has essential marketing skills for promoting the product in the market and assisting the company to achieve the necessary positioning. Besides, the growth and expansion strategies can be funded without the company inquiring about a huge loss with consideration of its current position in the market.

The commonwealth bank of Australia is also capable of performing to the required service and quality level by using growth and expansion strategies. The growth and expansion strategies can also enable the company to effectively deal with competitive reactions in the market such as rivals differentiating their products. Besides, the Commonwealth Bank of Australia also has technology that can enable the company to compete effectively in the banking and finance industry.

Acceptability

Acceptability is an essential SAFe strategic model which involves measuring stakeholders' reactions and risks associated with a particular strategy. The returns are measured through the benefits expected from stakeholders in terms of financial and non-financial. The growth and expansion strategies are acceptable to the stakeholders as it has a low gearing effect on the capital structure making it less vulnerable to bankruptcy and default risks. Besides, the growth and expansion strategies do not interfere with the relationships of diverse stakeholders such as customers, suppliers, unions and government. Besides, the strategies also meet the expectations of local communities thus enabling the company to create customer loyalty with the bank.

Conclusion

Commonwealth Bank of Australia (CBA) has experienced rapid growth as a result of the Suitability, Feasibility and Acceptability of its strategies to diverse stakeholders. The major growth and expansion strategies pursued by the company include cost leadership, differentiation, merging and acquisitions, diversification as well as market penetration and development. The growth and expansion strategies are feasible, acceptable and suitable for the company to achieve its business and corporate level objectives.

Part 2 Exam Compulsory question

The structure of the Airline Industry

The structure of the Airline Industry is an oligopoly. According to Geras’kin and Chkhartishvili, (2017 p.2024) Oligopoly market structure forms imperfect competition in the market with a limited number of firms dominating an industry. The dominance of the market has facilitated the company's operating in the industry having a market power and thus setting their product's prices through the establishment of diverse output levels. The oligopoly Airline industry structure has a highly concentrated market. With market concentration, airlines have been forced to form a strong partnership to drive high traffics to airports.  The companies operating in the Airline Industry are interdependent with each recognizing that the market power can be vulnerable to the new entrants or erosion by the competitors. The market power is characterized by airlines economies of scale, product differentiation and price determination.

Although the Airline market is an oligopoly, small firms that are referred to as low-cost lines that are privately owned still compete in the market. Small airlines are mandated to fly into small distances thus charging low prices.  For example, major airlines such as Air France, Kenya Airways as well as British Airways operates in their routs that has a few close competitors. However, there are also small airlines such as Small is Beautiful, Druk Air, FlyBaboo, New England Airlines, OpenSkies, Porter Airlines as well as Skywest Airlines, Australia that caters for short routers, offers specialists services and are also holidaymakers.

According to five forces porter’s analysis of the Airline Industry, barriers of market entry in the oligopoly market structure is very high with companies operating in the industry frequently maintaining their positions. For example, the airline industry is very costly for the new airlines to penetrate as it requires high capital investment for building capacity which most of the times results in a high fixed cost.  The switching costs of suppliers is also very high becoming it is difficult for new entrants to create a strong relationship with Boeing and Airbus. Besides, the government restrictions are also very high making it harder for new airlines to get an operating license. Besides, the large airline carriers have also merged to form the top carriers that dominate market share. The anti-trust laws sometimes provide unfair competition in the Oligopoly market structure as they sometimes prevent some mergers in the company. The merging to create few airlines in the industry has decreased the level of competition in the industry-leading to the airlines having an increased market power and thus dictating prices by keeping high fares for the customers.

How Kenya Airways can position itself in the context of evolving dynamics in its operating micro and macro business environment.

Kenya Airways has significantly impacted by the macro and microenvironment in which the company operates and thus the company has to review its positioning strategy in the airline industry. The PESTEL and Resource-Based view strategic management theories will analyze the external and internal environment in which the company operates respectively to ascertain how its position itself in the market. Over the past decades, the airline industry has experienced a series of uneconomic and economic downtowns impacting how Kenya Airways conducts its business. The technological advancements by competitors and environmental regulations from the government have impacted the company.

Currently, the Airline Industry of Kenya where most of the operations carried by Kenya Airways is experiencing economic downturns. The rate of inflation is very high creating low disposable income among the potential customers. With low disposable income, many of the potential customers have opted for alternatives such as using private airlines which are a bit cheap. Besides, the economic growth is also growing slowly limited the possibility of the company to expand its business. The rise in variable costs for the fuel accompanies by inflexible and high fixed costs has facilitated the company reducing its ability to compete on a price's basis. Besides, unprecedented terrorist attacks such as the Westgate attack mall in 2013 as well as the recent Dusit attack in 2019 in Nairobi Kenya has resulted in added time for security checks and created fear among the consumers (Lusiolo, 2012). Thus, for the company to effectively remain sustainable in the airline industry it must position itself as a low-cost carrier offering excellent services. Besides, the company should also position itself as a pollution-free airline that has installed effective pollution control measures in its operation to regulate environmental pollution.

Resource-Based view and value chain analysis which provides an internal analysis of the Kenya Airways Airline’s internal environment indicates that the company has a strong weakness when it comes to the management of funds and human resource. Over the last decades, the company has been mismanaged resulting in huge losses. For example, the operational results for fiscal years 2015 and 2016 indicated that the company experienced a substantial loss. The company cited the expansion of routes and fleet as the main cause of rapid expansion. However, the management the company’s strategic management did not take corrective measures to improve its operational and financial positioning of the airline.

Kenya Airways should position itself as a safe airline in the market with consideration of a series of accidents that have been associated with the company. The accidents have left stakeholders questioning the qualification of its staff and research on the environmental change. Since 2000, Kenya Airways has been associated with two fatal accidents. In 2000, Flight 431 plunged into the Atlantic Ocean killing all 179 people on the board while in May 2007 Flight 507, operated by a Boeing 737-800 crashed into a mangrove swamp killing all 114 people on board. The accidents have significantly spoiled the reputation of the company scaring away potential customers. Besides, the spread of the severe acute respiratory syndrome (SARS) virus has also had a significant impact on the percentage of the seat occupied. Thus, the company can position itself as a safe airline that has undergone management transformation to ensure the safeness of passengers are prioritized

Kenya Airways is one of the top Airlines in the African continents. What is its competitive advantage?

A competitive advantage is defined as an attribute that makes an organization forms its competitors in the market (Sigalas & Economou, 2013). The competitive advantage of Kenya Airways is economies of scale, support from the government, customer loyalty, wide destination network as well as well equipped with physical and human resources. Besides, the oligopoly market structure has enabled the company to gain a competitive advantage as it has facilitated the government regulating the number of airlines to penetrate the market.

The parentship between private ownership and the government has significantly helped Kenya Airways to enjoy economic scale in Kenya's Airline industry.  Currently, the government owns a large share of the company's shareholders (48.9%) and KQ Lenders Company Ltd (38.1%), KLM (7.8%) (Kasiti, 2018). The partnership of different companies injects finances into the business making it sustainable to tough microenvironments such as the COVID19 crisis and microeconomies like inflations. Besides, regardless of the situation, the fund’s injections also prevent the company from being placed under liquidation despite its outputs overrunning inputs.

A large network, Customer loyalty and established brand in the market also gives Kenya Airways a competitive advantage over its competitors. Currently, Kenya Airways has a large network with the company serving 53 destinations over 41 countries (Ochieng, 2015). The ability of Kenya Airways to operate in many destinations as compared to competitors in the market has created a strong customer base and grow its market share. Besides, Kenya Airways has operated in the Airline industry for many years since the company was founded in 1977 after the dissolution of East Africa Airways (Ochieng, 2015). The years of operations have enabled the company to gain customer loyalty and maintain effective relationships with diverse stakeholders such as Boeing.

Alliances and subsidiaries have also given Kenya airways an added advantage in the market over its competitors. The African Cargo Handling Limited and Low-cost carrier Jambojet are subsidiary of Kenya Airways. Besides, the company has also partnered with KLM which sponsored the Kenya Airways' SkyTeam candidacy process in mid-2005 (Rueben, 2015). The subsidiary and alliances have given Kenya Airways a competitive advantage as it has provided Kenya Airways' passengers with access to the member airlines' worldwide network and passenger facilities which plays a significant role in customer attraction.

Differentiated services and products over its competitors also gives Kenya Airways a competitive advantage over its rivals. For example, the company offers Frequent flyer programs and inflight entertainment which has significantly helped to increase customer loyalty. In-flight entertainment offered by Kenya Airways has significantly assisted in customer petitions. Kenya Airways offer different inflight-entertainment depending on the aircraft and the class travelled. The company distributes Msafiri (The airline's in-flight magazine) to all the passengers keeping them busy, occupied and engaged with the business environment.

Discuss what a leading rival might do to threaten Kenya Airway’s position in the industry?

There are various things that a leading rival can do to significant threatened Kenya Airway’s position in the market. The most threatening things that a leading rival can is differentiating and diversifying its products in the industry to match the changing demands of customers enabling them to gain market share. Differentiation involves an organization offering unique products and services in the market to attract customers while diversification entails a rival offering diverse products in the market (Spitzeck & Chapman, 2012 p.1). Researchers have revealed that both diversification and differentiation can misplace an organizational market position as it increases the level of competition.

Differentiation of products by a rival is a great threat to Kanya Airways Company. The differentiation provides consumers in the market with perceived value or the reason why they should invest with them over Kenya Airways. The differentiation may occur in diverse types such as price and non-price differentiation, vertical as well as non-vertical differentiation (Spitzeck & Chapman, 2012 p.1). Price differentiation is one of the most threatening factors with consideration that the high population of Kenyan are middle- and low-income classes making the airline industry price sensitive. For example, a rival can bomb in the market with unique technologies which increase efficiencies in the supply chain leading to the company offering its products at low prices while at the same maintaining high profitability. As a part of pricing strategy, a rival can also launch differentiated techniques of rewarding customers with coupons, discounts and loyalty programs which might be more appealing than those offered by Kenya Airways.  The reduction of prices and offering of more appealing prices can attract loyal customers associated with Kenya Airways such as tourists and business person. Besides, the perceived value due to the rival offering unique products helps it to create a market share. With consideration of the level of competition in the airline industry, the switching power of customers is very high especially if competitors differentiate their pricing.

The non-differentiation can also lead to rivals differentiating their product’s features, shape, services, quality as well as colour and function. The non-differentiated strategy can to rivals offering convenient and reliable services as compared to the Kenya Airways making. This can enable the rivals to position themselves in the market as a high-quality product hence assisting the rivals to establish themselves in the market. Besides, differentiation on design and quality can also create a perception in the market that rivals have no substitute in the market-leading to the creation of a monopoly in the future if the industry is not well regulated by competition acts and thrust laws.

Diversification of products is also a threatening factor to Kenya Airways from a rival. The diversification enables the rivals to offers varieties and options of services and products. This helps the rivals to boost their brand profitability and image. Besides, diversification also the rivals to use their surplus cash flow and launch a variety of products that meets the preferences, values and demands of various customers. Besides, as the world is evolving, the spending behaviours of customers is also changing. Thus, diversification is a threat to Kenya Airways as differentiating product line can create a balanced entity at the time of changes in the macro-environment such as Covid19.

References

Alkasim, S.B., Abdullah, H.H., Bohari, A.M., Abdullah, S.S. and Sallehddin, M.R., 2018. The mediating effect of cost leadership on the relationship between market penetration, market development, and firm performance. Journal of Business & Retail Management Research, 12(03), pp.190-200.

Commonwealth Bank of Australia. (2021). CommBank - bank accounts, credit cards, home loans and insurance. Commbank.com.au. Retrieved 30 April 2021, from

Geras’kin, M.I. and Chkhartishvili, A.G., 2017. Analysis of game-theoretic models of an oligopoly market under constrains on the capacity and competitiveness of agents. Automation and Remote Control, 78(11), pp.2025-2038.

Gordian, B., 2014. Kaizen as a strategy for improving SMEs’ performance: Assessing its acceptability and feasibility in Tanzania.

Kasiti, L.M., 2018. Challenges of The Implementation of Strategic Alliance Between Kenya Airways and The Royal Dutch Airlines in Kenya (Doctoral dissertation, University of Nairobi).

Kurt, A., & Zehir, C. 2016. The relationship between cost leadership strategy, total quality management applications and financial performance.

Lusiola, M.A., 2021. Multi-Agency Response to International Terrorism in Kenya: A Comparison of Dusit D2 and Westgate Terror Attacks. African Journal of Empirical Research, 2(2), pp.68-84.

Ochieng, P.A., 2015. External environmental factors influencing financial performance of Kenya airways (Doctoral dissertation, University of Nairobi).

Rueben, m., 2015. the impact of globalization and competitiveness in the airline industry case study of RwandAir (doctoral dissertation, Mount Kenya university).

Sigalas, C., & Economou, V. P. (2013). Revisiting the concept of competitive advantage. Journal of Strategy and Management.

Spitzeck, H., & Chapman, S. 2012. Creating shared value as a differentiation strategy–the example of BASF in Brazil. Corporate Governance: The international journal of business in society.

Vazirzanjani, H.R. and Hooshmand, A., 2016. Competitive Advantage Based on New Product Development. International Academic Journal of Business Management, 3(6), pp.66-71.

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