BMAN73561 International Business Strategy

Introduction

Strategic alliances have been one of the common aspects of international business domains, across industries. Some of the most common forms of strategic alliances, in this context, include mergers, acquisitions, and joint ventures. From the perspective of the airline industry, strategic alliances are considered one of the effective tools to achieve multiple objectives.  Some of the most common objectives, in this context, include an expansive base of the market base across continents. Moreover, global airlines seek to ensure a transition towards unified platforms for passengers that promise enhanced convenience, in terms of booking and access to connecting flights. Mergers and joint ventures, from this perspective, seek to create shared value, based on mutual benefits. International airlines tend to continually broaden the global consortium by accommodating prominent players from different continents. However, the overall market expansion to foreign countries is often necessitated by the contingencies offered by the external business environment. Economic and political restrictions often limit the scope of sustainable passenger traffic and revenues in the domestic market. Based on the overall context, the patterns reflected through the types of alliances developed by the global airlines have been assessed through the report. The broad literature has been referred to, based on evidence from the global aviation sector.

Strategic Alliances In The Airlines Industry

From the theoretical point of view, a strategic alliance can be defined as a partnership, based on the objective of achieving objectives that are considered mutually beneficial (Russo and Cesarani 2017).  In the context of the international business environment, strategic alliances are often considered one of the key tools to enhance operational efficiency. However, the motivation behind strategic alliance can get modified based on the nature of a particular business and the industry-wide practices. From the perspective of the aviation industry, strategic alliances may include a range of factors. One of the most common factors, in this context, has been an expansion in the foreign market (Kyrylenko, Riazanovska, and Novak 2019). An established airline that is seeking to foray into the international market often opts to ally with one or more of its established and potential competitors. The alliance, in this case, is based on mutual benefits. Route sharing is considered among one of the strategic choices for implementing alliances (Law and Breznik 2018). The partners involved in an alliance seek to expand the number of respective air routes that they cater to, through explicit understanding placed by the alliance. In this context, the strategic alliance formed between British Airways and China Southern can be referred to. The strategic alliance has been one of the priorities, from the perspective of British Airways, in terms of its foray into the lucrative Chinese market region (Lordan and Klophaus 2017). The strategic alliance has offered both the partners scope of accessing the expanding frequent flyer profile between the two continents. Moreover, the alliance has enabled the partners to access the range of direct routes available between the two continents.

 Socio-cultural context

 The shift in the socio-cultural pattern of the external business environment often acts as a motivator behind the formation of strategic alliances (Chan et al. 2021). This is especially applicable in the case of the aviation industry. The changing preferences of the consumers have been one of the defining criteria in this context.  The consumers of the services offered by the airlines' industry prefer an integrated platform and a range of benefits in terms of fare, accessibility, and connectivity (Payán-Sánchez, Pérez-Valls and Plaza-Úbeda 2019). This preference has been one of the defining factors, in terms of the international frequent flyers of the established airlines. With the rapid emergence of integrated service delivery across different sectors and industries, the social need for a unified platform, from the perspective of the consumers, has been among the defining motivators. The perception related to the changing demands and preferences of the global base of consumers, lead to the formation of the Oneworld Alliance. The Oneworld alliance, formed by some of the leading names in the aviation industry can be considered among the prime examples of strategic alliances in the sector (Seo 2020). British Airways, a leading name in the U.K. aviation sector, has been one of the founder members of the alliance (Seo 2020). Overall, the consortium accommodates 14 global airlines, across more than 160 countries (alliances n.d.). The strategic alliance, in this case, can be explored, based on a resource-based view. The resource-based view prioritizes collaboration of the respective attributes of the participating partners to ensure the creation of mutually beneficial values (Russo and Cesarani 2017).  In this case, the access to respective regional markets of the players from different continents can be considered the prime resources.  From a strategic point of view, the culture of code-sharing has provided the partner's access to the routes in the foreign markets. However, from the service quality point of view, the alliance has enabled the players to provide better access to the consolidated frequent flyer programs, global fleet, efficient transfers during long-haul journeys among others. Therefore, in alignment with the attributes of the resource-based view, the alliance, in this case, helped to create shared value for the global consumers.

Political context

The shifts in the political environment often play a poignant role in terms of ensuring the necessity of a strategic alliance. From the perspective of the aviation industry, major decisions related to the policies and protocols of the government can curtail or expand the overall routes catered to by the established airlines. In this context, the relevant political developments in the U.K. can be considered. The confirmation of Brexit has created a sense of uncertainty among the overall industrial and commercial landscape of the U.K., irrespective of the nature and scale of business operations (KPMG 2016). From the perspective of the airline industry, the overall impact has been significant. However, in the pre-Brexit stage, the need for the strategic alliance was being created by the dominance of the Middle-Eastern groups of airlines (KPMG 2016). These airlines had significant resources in terms of long-haul movements. Moreover, the established legacy brand names in the airline industry were being challenged by the emerging smaller players with low-cost value propositions (KPMG 2016).

  

Partner selection

The traditional modes of partner selection, in terms of the strategic alliance, include a range of dimensions such as code-sharing, collaborative benefits, joint competitive advantages, among other aspects. However, recent studies argue that airport connectivity is often a significant yet underrated criterion that shapes up the overall perception of the attractiveness of a strategic alliance (Baxter 2019). One of the common characteristics observed among the major airline alliances is that the participants tend to choose partners from continents that have a wide network of domestic airports (Baxter 2019). Moreover, proximity plays a poignant role in the overall partner selection dimension. The established airlines often tend to choose partners from countries that are located in isolate geographical areas. However, such areas should ideally have a hub of the domestic airport. These criteria offer the airlines to ensure long-haul travel destinations, in terms of foreign expansion.

Market entry mode

As a mode of market entry, strategic alliances have often been considered a trusted roadmap from the perspective of the global airline players. Alliances, in this context, have covered a range of forms. Joint ventures have often been recognized as one of the most common forms of strategic alliances adopted by global airlines. As pointed out, joint ventures are dependent on the mutual economic interests as perceived by the participant countries. This implies that the core objective of joint ventures is to ensure a robust source of revenue through consumer portfolio expansion. Apart from the objective of revenue generation, joint venture, as a form of alliance, is also focused on the aspect of risk-sharing among the participants (Yu, Xu, and Dong 2019). Risk sharing, in this context, involves the distribution of cost, operational expenses, and logistic expenses, among others. Another major argument in favor of the market strategic alliance as a market entry mode is that it helps the participants to bypass the obligations and limitations offered by the bilateral agreements, negotiated through countries (Li et al. 2017).  The alliance between representing countries that are located on different continents leads to easier access to international air travel regions.  The alliance created between Air France-KLM, Virgin Atlantic, and Delta Airways has been primarily finalized based on their respective access to strategic routes (Baxter 2019).  Each of the participants, in this case, has been estimated to gain convenient access to the range of global markets, via new routes. From the perspective of Virgin Atlantic, the joint venture guarantees more than 50 routes throughout the Atlantic region (Air France KLM, n.d.). Air France-KLM and Delta Airways, the two other partners are also estimated to gain access to several new routes through the strategic alliance. As opposed to an international market entry through acquisition, the strategic alliance, in this case, will ensure that each of the participants retains their respective business operations and share of routes, while adding significant international markets. The alliance with Delta will potentially provide Virgin Atlantic with access to key air travel markets across North America (Air France KLM, n.d.). The alliance with Air France-KLM will be particularly significant in terms of access to key air travel markets in Europe, in the context of the uncertainty created through Brexit. The access to the fleet operated by the alliance partners will ideally ensure that a robust platform is laid in terms of future market expansion.

Analysis and Discussion

The rationale of strategic alliance

From a global perspective, the nature and types of alliance between firms may vary based on the strategic objectives. A global player may seek an alliance that is feasible and justifies its overall range of internal resources. The types of alliances are generally differentiated based on several critical criteria. One of the chief criteria in this context is the degree of involvement exercised by the participating partners within an alliance (Nippa and Reuer 2019). Especially, in terms of the global airline industry, the degree of involvement and freedom of operations are among the prime differentiating factors. The strategic alliance between Virgin Atlantic, Delta Airlines, and Air France-KLM can be assessed from this perspective. The alliance has been termed as a joint venture that gives wide access to inter-continental routes to each of the participating partners (Baxter 2019). It has been argued that joint ventures demand a significantly higher degree of involvement, as compared to the other forms of alliances. The decision-making authorities, in this case, are evenly distributed, as compared to a merger or an acquisition (Parameswar, Dhir and Ongsakul 2018). One of the key rationales behind opting for a joint-venture alliance, in this case, has been equal rights in the decision-making and execution rights of the governance. The joint-venture is estimated to be approximately $ 13 billion in terms of valuation (Airfrance n.d.). It has been strategized that the governance structure will be comprised of the C.E.O.s of all the representing parties including Virgin Atlantic, Delta Airlines, and Air France-KLM.  From the perspective of Virgin Atlantics, the shared governance and decision-making authority will entail that the firm retains its overall human resources, expertise, and management infrastructure in the long run. Moreover, the joint venture, in this case, will give access to Virgin Atlantics to the range of expertise and connectivity offered by the other partners (Moss 2019).  The recent trends in the airline industry highlight a pattern of mergers and acquisitions. This can be substantiated by the recent acquisition of Flybe, one of the prominent European airlines, by Connect Airways (ITV News 2019). The acquisition has been completed based on the rationale that the resources required to sustain efficient operations at Flybe were inadequate. Moreover, it has been reported that Virgin Atlantic has plans to acquire the fleet owned by Thomas Cook shortly (Bailey 2019). In both these cases, the alliance has been shaped by the significant mismatch in the resources and capabilities of the firms. The strategic objective of the acquiring firm has been to improve and sustain the operations of the acquired airlines. However, the alliance between Virgin Atlantic, Air France-KLM, and Delta Airlines has been shaped by the comparatively similar strengths and capabilities of the partners. Therefore, in this case, the joint venture has opted as the strategic choice. In accordance with the underlying philosophy of joint ventures, the objective, in this case, has been to ensure mutual benefits through the improvement of access, resources, and connectivity.

Evaluation of the choice of alliance

  A joint venture, as a form of strategic alliance, generally accommodates the dynamics and relative influences of the participating partners (Nippa and Reuer 2019). In terms of international alliances, certain terms and conditions of the joint venture are established based on the global stature of the partners. From the perspective of the airline industry, the relative statures are shaped up by a range of dimensions including several fleets, overall cross-continental connectivity, and passenger traffic, among other dimensions (Orhan and Tasci 2019). Moreover, the recent financial results in terms of revenue and profitability are also considered part of the dimensions that shape up the relative influences of the partners within an alliance. The initial alliance between Virgin Atlantic and the other partners was incepted during fiscal 2017-18 (Bailey 2019). The political and economic aspects played an important role in terms of determining the terms and conditions of the joint venture. The negative impact of Brexit on the valuation of pounds has been one of the determining factors of the loss suffered by the global airlines in 2017-18. The overall losses suffered by the organization during the fiscal were approximately £ 26 million in 2017-18 (Spero 2019). Moreover, Virgin Atlantic was suffering from certain operational complications and an overall rising fuel cost during the period. Overall, from the perspective of the alliance, Air France-KLM and Delta Airlines had relatively more bargaining power. As part of the overall deal, Virgin Atlantic consented to a sell-out of 31% of its stake to Air France, as one of the initial terms and conditions of the alliance (BBC News 2021). One of the rationales behind the strategy was to ensure that Virgin Atlantics gained access to an expanded route across the Atlantics that connected the U.K. and key regions of North America. However, the relatively low influence of the global airlines, in this case, could have resulted in a diminished authority and influence within the alliance. As part of the joint venture, each of the partners would have equal representation. However, in practice, there were scopes that Virgin Atlantic would have lost its independence in terms of management decisions, compared to the other partners.

Evaluation of alternatives

One of the choices of alliances, in this case, would have been acquisitions and mergers. Acquisition, in this context, would have included ownership of a range of smaller regional fleets in the North American air travel market. One of the key rationales of this strategy would have been to ensure that Virgin Atlantic retained its overall stature and influence. Certain evidence can be referred to in this context. The acquisition of Flybe by Connect Airways helped the organization gain access to some of the most lucrative regional markets within Europe (ITV News 2019). The acquiring firm gained control of the human resources of the smaller firm. A similar strategy could have been adopted by Virgin Atlantic to ensure access to the expanded Trans-Atlantic market regions. The global airline could have avoided and minimized certain risk factors associated with joint ventures. One of the potential risk factors, in this case, is related to the conflicts that may arise from the distinct cultures of the partners (Marciszewska and Hoszman 2018). In this case, each of the partners has a global reputation. Therefore, the strong corporate culture associated with each of the organizations can lead to disagreements or conflicts. Moreover, compared to the other forms of strategic alliances, the joint venture would offer significant challenges in terms of dissolution in the long run. In case of acquisition of a range of smaller regional airlines, Virgin Atlantic would have gained access to the hubs of airports at strategic market areas across North America and the U.K. that offer significant passenger traffic. The risk factor associated with protocols related to dissolution could have been avoided in this case.

Impact on organizational culture

The joint venture between the three prominent global airlines will collectively create employability of 180000 team members (Virginatlantic n.d.). Therefore, the alliance will accommodate a diverse workforce across continents. As part of the global team of airlines, there are certain overlaps in terms of the organizational cultures of the allies. From the perspective of multinational organizations, diversity, in terms of the cultural and ethnic origins of the team members is considered one of the prime criteria of the overall work environment (Kwon 2019). Therefore, each of the global players, in this case, will be well-equipped to accommodate multicultural teams. However, the degree of democracy provided to the team members by the respective organizations can prove to be a determining factor in terms of any cultural changes (Shu, Jin, and Zhou 2017). A collaborated management and HRM team should create a certain shared vision regarding the best practices to be incorporated within the culture. The need for any significant changes within the collaborated culture should be determined and the best practices should be filtered. In case of any significant changes, a three-step process of change management may be applied (Hussain et al. 2018). The process including departure from the traditional culture with clear rationale, implementation, and reinforcement of changes will help employees to get acclimatized with the transformed culture.

Conclusion

Overall, it can be concluded that a range of dimensions shapes up the dynamics of strategic alliances, in the context of global airlines. The socio-political, economic environment of a global airline organization often creates the necessity for alliances. Certain gaps perceived in the overall socio-economic, political environment necessitates an organization to seek overseas partners to compensate for the stagnancy in revenues. Moreover, strategic alliances are leveraged to enhance mutual operational excellence. In terms of partner selection mechanism, criteria including proximity, availability of regional airport hubs, are among the key factors that shape up alliances. The analysis of the alliance formed between Virgin Atlantic, Delta Airlines, and Air France-KLM has revealed certain insights related to the political, socio-economic context. From the context of Virgin Atlantic, Brexit, stagnancy in profitability, rising operational costs, have been among the key factors behind the joint venture. Moreover, the terms and conditions of the joint venture have been shaped up by the relative influences of the participating partners. However, the priority has been on the mutual benefits gained by the partners, in terms of access to the key routes across North America and the U.K. The expanded route has been particularly beneficial for Virgin Atlantic as it helped to overcome the constraints in the domestic market.

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