The concept of competitiveness permeates every aspect of all businesses. It is an issue that concerns large corporations and small enterprises alike. However, while established companies with vast resources and connections can use them to expand and develop further dominance over the market, small and medium enterprises (SMEs) do not have the same tools (Żmuda, 2017). Thus, the conversation about factors influencing SMEs’ competitiveness and ability to survive on the market is one of the major topics in business research. The question of what makes firms competitive is not unique to one industry or region. Moreover, it is not limited to viewing companies’ success as limited to their city or country. The idea of global or international competitiveness can be considered for SMEs as well. At present, business relations between nations and increasing connectedness of the world allow small companies to operate overseas (Wu and Parkvithee, 2017). Therefore, current research studies consider what impacts the success of SMEs from various countries on the global market.
Purpose of the Study
The purpose of this quantitative research is to explore the factors that positively and negatively impact the international competitiveness of SMEs, focusing on the information and case studies from China and Zhejiang province, in particular. Thus, various factors identified in the literature review are used as control variables, and the measures developed by Zoe and Stan (1998) are employed to measure SMEs’ international competitiveness. The target population under investigation is SMEs operating in Zhejiang province. The study will focus on factors outlined in secondary sources due to the current restrictions of personal meetings or communication (Huiyao, 2020). As many businesses do not operate in their usual ways because of the COVID-19 related changes, secondary data is preferable for exploration.
Significance
The research surrounding the competitiveness of firms often does not consider SMEs in particular. Studies by Nasiri, Sultan and Alleyne (2018) and Peña-Vinces et al. (2017) show the gap in knowledge about factors that are particular to small businesses. However, these investigations focus on other regions, using European firms as the main source of information. While these studies can provide Chinese entrepreneurs with some valuable data, they do not cover the unique aspects of Chinese markets and business principles. This is the first area of the significance of the present research. Second, the exploration of Chinese SMEs’ competitiveness is valuable because of the role such small firms play in the national economy. According to UHY (2013), SMEs are responsible for almost 80% of all jobs in the country, and their industrial input is about 60%. These numbers demonstrate the significant contribution of SMEs’ to China and raise the question of how these companies can be made even more competitive to rival international or foreign businesses.
Research Question
The role of SMEs discussed above, and their unique position in China as major providers of capital and jobs allows one to formulate the question for the present research. The global nature of the current market forces both large and small companies to think about their international potential while assessing threats from foreign rivals (Gu and Yan, 2017). SMEs have to compete with each other, major local corporations, and global companies operating in China. Apart from that, they have to consider what factors could help them expand and take a share in the foreign market. The study examines several levels of factors, including global, national, industrial and enterprise, to capture all possible factors influencing performance. Therefore, the primary research question is: What factors increase the global competitiveness of small and medium-sized enterprises (SMEs) in Zhejiang, China?
Research Objectives
The following objectives are outlined based on the research question:
To conduct a literature review on the topic of global competitiveness to develop the theoretical foundation for the study.
To present the theoretical framework that describes the data collection and analysis of the competitiveness of small and medium enterprises (SMEs) in Zhejiang, China.
To adopt a suitable research design that adequately realises the research objective.
To collect data about factors influencing global competitiveness for SMEs in Zhejiang, China, from secondary sources.
To perform the analysis of collected data using a quantitative methodology and the selected partial least squares path modelling.
Using analysis’ results, to identify the factors that increase the global competitiveness of SMEs in Zhejiang, China, and make recommendations to SMEs for future actions to increase competitiveness.
To identify limitations, future research questions and the paper’s theoretical and practical value for SMEs in China.
Summary and Structure
The position of SMEs in the Chinese economy makes their success potential a valuable topic for investigation. The gap in knowledge is the factors that impact Chinese SMEs, in particular, is identified, as the background research is focused on either large corporations or SMEs operating in Western countries. Thus, the research question proposes to investigate factors of international competitiveness using case studies from Zhejiang province.
The investigation is conducted in several steps – in Chapter 2, the literature review on the topic of international competitiveness is undertaken to develop a theoretical basis for the study. Next, Chapter 3 describes the methodology chosen for this project, discussing the research design, variables, sample, instruments, sources of data and the procedure for data collection and analysis. Chapter 4 presents the results of the data analysis process. Finally, in Chapter 5, the results of the study are discussed, and recommendations, implications and limitations of the research are considered.
Reference List
Gu, W. and Yan, B. (2017) ‘Productivity growth and international competitiveness’, Review of Income and Wealth, 63, pp. S113-S133.
Huiyao, W. (2020) ‘Protecting SMEs should be the second COVID-19 battlefield’, CGTN, Web.
Nasiri, A., Sultan, B. and Alleyne, A. (2018) ‘Analysis of French SMEs’ international competitiveness’, Journal of Economics and Management Sciences, 1(1), pp. 1-12.
Peña-Vinces, J. C., et al. (2017) ‘International competitiveness of small and medium-sized enterprises: Peru, a Latin-American emerging market’, Emerging Markets Finance and Trade, 53(1), pp. 150-169.
UHY (2013) China’s declared backing for SMEs may open doors to foreign investors. Web.
Wu, W. and Parkvithee, N. (2017) ‘Promoting international competitiveness for small and medium-sized enterprises (SMEs): a case study of Chinese SMEs in Thailand’, International Review of Management and Marketing, 7(3), pp. 320-330.
Żmuda, M. (2017) ‘Towards a taxonomy of international competitiveness’, Journal of Management and Business Administration. Central Europe, 25(3), pp. 97-116.
Zou, S. and Stan, S. (1998) ‘The determinants of export performance: a review of the empirical literature between 1987 and 1997’, International Marketing Review,15(5), pp. 333–56.
A multinational company should take specific measures to achieve successful results in an international location. This statement denotes that its chief executive officer (CEO) should create a strategy and competitiveness plan to operate in this environment. That is why the CEO needs appropriate regulations and advice to succeed with the task. Scientific evidence and various visuals demonstrate that a suitable plan includes licensing, innovation, training, cost leadership, and differentiation.
A CEO is responsible for introducing effective practices to gain a competitive advantage. A study by Akinbola et al. (2022) relies on 234 administrative staff members from PZ ltd and Nestle to determine what strategies are beneficial for multinational corporations. Figure 1 by Akinbola et al. (2022) represents the findings that the scholars have managed to achieve. In particular, the authors asked the respondents to assess the importance of specific phenomena regarding competitiveness (Akinbola et al., 2022). The mean values demonstrate that the staff members highlighted the significance of licensing because its value was in the middle between the minimum and maximum, while the other mean values were below the middle (Akinbola et al., 2022). This information demonstrates that the CEO can allow other parties to use its brand for certain fees to achieve a higher market share.
Figure 1: Study Findings
Additional efforts are also needed to generate a competitive advantage for a multinational company. According to Adiguzel (2019), a CEO should organize regular training for all employees. The rationale behind this statement is when individual workers have the required skills and competencies to perform their duties, the business’s overall performance is higher. Furthermore, the CEO should utilize an appropriate management approach to create an organizational culture that would promote productivity and efficiency. A suitable option is to implement innovation and appropriate technological solutions to ensure that the corporation can have an edge over its competitors (Adiguzel, 2019). These interventions should be a part of a management plan to lead a multinational company.
Furthermore, it is possible to use one of the strategies that have already been created. For example, it is reasonable to focus on the suggestions of Michael Porter, a Harvard Business School professor. According to Figure 2, he offered three strategies to achieve a competitive advantage, and they include cost leadership, differentiation, and focus (consists of cost focus and differentiation focus) (Peterdy, 2022). Firstly, cost leadership implies that the corporation should deliver decent-quality goods or services at the lowest possible price. Secondly, differentiation means that the business should rely on providing unique goods or services. Finally, a focus strategy denotes that the CEO should deal with cost leadership or differentiation in a narrow market segment (Peterdy, 2022). These findings demonstrate that the CEO can rely on various strategies to gain a competitive advantage in the market.
Figure 2: Competitive Advantage Strategies
In conclusion, the findings have demonstrated that the chief executive officer can use different strategies to prove that the multinational company has a competitive advantage. It is challenging to state which option is the best because they rely on various aspects of doing business. This information denotes that if one company has benefited from cost leadership, it does not guarantee that all the organizations can utilize this strategy and expect the same improvements. One should highlight that the fictitious scenario does not provide a description of the business under consideration. That is why the chief executive officer should analyze the abilities and resources of the multinational company to identify the most suitable intervention.
References
Adiguzel, Z. (2019). Competitiveness of international business: Management, economics, technology, environment, and social study of cultural perspective. In H. Dinçer & S. Yüksel (Eds.), Handbook of research on decision-making techniques in financial marketing (pp. 68-91). IGI Global.
Akinbola, O. A., Olabiyi, J. O., & Akinbola, O. S. (2022). Global strategy and competitiveness of multinational corporations. Journal of Economics and Management, 1-20.
It is important to note that gaining a competitive advantage is a complex and multifaceted endeavor, which requires a consideration of a multitude of factors. The latter can be primarily divided into two main domains, which include internal and external business aspects. The given assessment will primarily analyze SunTrust Banks’s competitiveness in the current market conditions by focusing on its internal capabilities solely. The bank has changed its name in recent years from SunTrust Banks to Truist, which will be used to refer to the organization as well.
Important Company Background
In order to properly analyze SunTrust Banks, it is useful to quickly summarize the current state of the organization. In 2019, SunTrust Banks merged with BB&T to form Truist Financial Corporation or Truist, which meant that, today, SunTrust Banks is a subsidiary and not a standalone organization (Truist Financial Corporation, 2019). Both banks operate as separate banks, but their operations are merged. Since SunTrust Banks’s latest annual report from 2018, Truist’s 2021 annual report would be more recent and useful for the given analysis. The bank provides a wide range of financial services, such as wealth management, mortgage, capital market services, investment banking, corporate banking, credit cards, lending, and deposits.
Competitive Advantage
The core and underlying competitive advantage of SunTrust Banks comes from differentiation. The main reason is the fact that the merger allowed it to focus on a certain market segment with a higher degree of intensity. The consumers it appeals to are drawn to the bank because it offers highly convenient, fast, and reliable financial services. The merger allowed the subsidiary to focus on customer satisfaction and experience as its core strengths. There are four major generic building blocks of competitive advantage, which include customer responsiveness, innovation, quality, and superior efficiency (David et al., 2019). Becoming a part of Truist provides the necessary conditions for SunTrust Banks to excel in all four domains by integrating high-end technology into its processes, making it more efficient, responsive, and reliable. The latter functional strategy defines the quality of the bank’s offerings since financial products and services are most valued for their reliability.
Competitive Position
The competitive position of SunTrust Banks is held firmly and strongly primarily due to the merger because it is a part of a larger enterprise. BB&T and SunTrust Banks are no longer competitors but rather mutually beneficial allies capable of targeting larger market segments. For example, it is reported that “BB&T and SunTrust invested in different yet complementary technology and business ecosystems, and therefore this was the right decision for our clients” (Truist, 2021, p. 7). In other words, Truist uses the ‘best-of-both approach,’ which means that each bank focuses on its core strength.
SunTrust Banks no longer loses profits from a high degree of specialization and excessive focus on certain market segments because BB&T covers other critical sectors. Thus, Truist, as a whole, is able to cover a wider range of financial services consumers. For instance, the report states that “our diverse business mix (which was significantly enhanced by the merger) proved advantageous in 2021, with fee income, excluding securities gains, up a very strong 10%” (Truist, 2021, p. 7). In other words, the competitive position held by Truist and its subsidiary SunTrust Banks is merger-related diverse business mix and subsequent resilience to market dynamics. Merger and internal operational cohesiveness of the bank are essential resources helpful in sustaining Suntrust’s competitive advantage.
Core Competencies, Resources, and Capabilities
The core competencies of SunTrust Banks and Truist as a whole include specialization, technological ecosystem, the best-of-both approach, operational efficiency, and the sheer scale of resources available. Firstly, for the technology, it is stated that “we are now positioned leaning forward with regard to our technology ecosystem, yielding long-term benefits for our clients, teammates, and shareholders” (Truist, 2021, p. 7). Thus, SunTrust Banks uses highly enhanced technology to improve customer satisfaction and operational efficiency due to the precision, accuracy, and automation brought by the tech ecosystem. Secondly, the best-of-both approach enables specialization competency, which allows being even more operationally efficient. SunTrust Banks targets and focuses on specific market segments different from BB&T to avoid cannibalization of clients (Wang & Wang, 2021). The result is a diverse business mix comprised of high fee income, superior investment and insurance banking, and greater securities gains.
The Durability of the Competitive Advantage
The information above identifies efficiency, innovation, reliability, and customer satisfaction through high responsiveness as core competitive advantage components of SunTrust Banks. However, these strengths would be questioned for their durability if the bank were a standalone organization since it would rely on a specific market segment, the merger allowed for its competitiveness to be more durable. One should note that SunTrust Banks is a subsidiary of Truist, which is a large enterprise with several other subsidiaries. The latter means that any financial failure can be easily mitigated by high levels of performance in other subsidiaries because Truist has a sufficient amount of resources to be resilient to market stressors and challenges.
Financial Performance Analysis
Since the latest annual reports for SunTrust Banks are from 2018, the most recent one comes from Truist itself. Therefore, considering the merger, it is critical to analyze the financial performance of Truist because SunTrust Banks is its subsidiary. The return on invested capital, or ROIC, is calculated by dividing net operating profit after taxes by average invested capital (David et al., 2019). The net operating profit after taxes for 2021 was $6.437 billion, whereas the invested capital is equal to the sum of net working capital (NWC) and fixed assets. The fixed assets for 2021 were equal to $541.241 billion, and net working capital was $318.636 billion (current assets) – $471.97 billion (current liabilities) = $153.334 billion. The invested capital was $387.907 billion for 2021, which means:
ROIC = $6.437 billion/$387.907 = 0.017 = 1.7%
In other words, the ROIC is below 2%, which means that the growth can become stalled and might be problematic. Truist net profit and profit margins as listed in Table 1 below, and they imply that the company’s strategy in recent years is successfully recovering from the pandemic and continuing its growth. As with ROIC, the return on total assets in the last three years implies that the investments’ returns were not ideal since they are lower than 2%. The current ratios are all less than 1.5, which means that the liquidity of the organization is low, whereas the debt-to-equity ratios are high. The latter indicates a higher risk of the financial state of Truist, but it is considered normal for large banking institutions. The financial strength of the company is the growth of its profitability after the pandemic, but the weakness is the poor return on invested capital.
Table 1. Financial Analysis
Year
Net Profit
Net Profit Margins
Return on Total Assets
Current Ratio
Debt-To-Equity Ratio
2021
$6.033B
26.16%
1.2%
0.76
6.64
2020
$4.184B
17.13%
0.9%
0.84
6.18
2019
$3.028B
20.65%
0.7%
0.94
6.11
SWOT Analysis
On the basis of the information provided, Table 2 below shows the SWOT analysis focused on internal strengths and weaknesses only since OT comes from the external analysis.
Table 2. SWOT Analysis: Internal Analysis
Strengths:
Technology
Innovation
Efficiency
High customer satisfaction
Image
Resources
Growth
Market resilience
Weaknesses:
Risky financial position
Merger costs
Pandemic-related losses
Low return of assets and invested capital
References
David, F. R., David, F. R., & David, M. E. (2019). Strategic management: A competitive advantage approach, concepts (17th ed.). Pearson.
The purpose of this report was to analyze and discus the competitiveness of Flydubai. The analysis indicated that the market in which Flydubai operates is an oligopoly. Although the market has a few airlines, competition is high because customers are price sensitive. In addition, they require high quality services.
Air Arabia is the main competitor of Flydubai at the national level. In Asia and the Middle East, the main competitors include Qatar Airways, Oman Air, and Saudia Airline. The demand for flights is price elastic at the regional level. Demand is expected to increase in the medium-term as economic growth improves.
Introduction
Flydubai is one of the leading low cost carriers (LCC) in the Middle East. The airline launched its operations in 2009 and is owned by the government of Dubai (CAPA, 2013). Despite being in the market for only five years, Flydubai has grown very fast by expanding its seat capacity and route network in the Middle East and Asia.
This paper will analyze the competitiveness of the airline. The analysis will cover the market and demand for low cost flights. It will also include the competitors, demand elasticity, and profitability of Flydubai. Moreover, the strategies that the airline can use to improve its profitability in a sustainable manner will be discussed.
Market
The market in which Flydubai operates (Asia and the Middle East) is an oligopoly. This perspective is supported by the fact that a few large firms dominate the market. Over 50% of the market in various routes in the region is controlled by only four airlines (CAPA, 2013).
For example, in the UAE-Saudi Arabia route Flydubai, Air Arabia, Saudia Airline, and Emirates Airline have a combined market share of nearly 83%. In the UAE-Qatar market, Emirates Airline, Qatar Airways, and Flydubai together control 84% of the market (CAPA, 2013).
Similarly, Oman Air, Flydubai, and Emirates Airline together control nearly 62% of the UAE-Oman market (CAPA, 2013).
Airlines are providing differentiated products to increase their competitiveness. Differentiation is promoted mainly by increased competition from international airlines that operate in the region. Low cost airlines such as Flydubai and Air Arabia differentiate their products in terms of price and service quality (Buller, 2014a).
They charge very low prices to overcome competition from full service airlines. However, Flydubai has adopted a hybrid model to offer unique services. This includes offering both business and economy class services.
Another important characteristic of the market is price interdependence among airlines. Price and output decisions of each airline are contingent on the actions taken by its main competitors.
This means that if one airline decides to increase its output and prices, its competitors will always react by changing their prices and capacity to overcome competition. For instance, the capacity of Flydubai, Qatar Airways, and Emirates Airline in the Dubai-Doha route is 12,210, 11,840, and 11,470 seats per week respectively (CAPA, 2013).
The seat capacities of the three airlines are almost identical because each of them has to take into account the output decisions of its competitors.
Several factors prevent firms from joining or quitting the market. These include high sunk costs, intensive regulation, and the market strength of the incumbents.
New entrants find it difficult to join the market due to the high cost of acquiring new aircrafts in order to compete effectively with companies such as Flydubai, which use only brand-new jets (Flydubai, 2014).
Price Elasticity
Price elasticity of demand “is a measure used to capture the sensitivity of consumer demand for a good or service in response to a change in the price of that particular good or service”.
The price elasticity of demand (PED) for air travel in intra-Asia routes, which are the main markets for Flydubai are summarized in table 1. At the regional level, the PED for short-haul flights is 1.5, whereas that for long-haul flights is 1.3. This means that the demand for air travel is price elastic.
Therefore, an increase in price will result into a more than proportionate decrease in demand. At the national level (intra-country routes), demand is inelastic as indicated in table 1. Thus, an increase in price will not cause a significant decrease in demand.
One of the main factors that explain the high PED at the regional level is availability of substitutes. Most countries in Asia have national airlines, which compete with each other in various inter-country routes.
For instance, over 150 airlines operate from Dubai International Airport to various destinations in the Middle East and Asia. Thus, customers can easily switch from one airline to another in the event of a price increase.
At the national level, PED is expected to be low or inelastic because of limited availability of substitutes that can enable customers to avoid a price increase (CAPA, 2014). For instance, Flydubai, Emirates, Air Arabia, and Etihad Airways are the only airlines that provide regular flights within the UAE.
If these airlines increase their prices due to a rise in fuel cost or a tax imposed by the government of the UAE, passengers will have limited options to avoid the increase. For instance, they can avoid the price increase by using cars, which might not be appropriate for long distance journeys.
Figure 2 and 3 show the variation in price elasticity of demand in regional and national markets respectively. They show that long-haul flights have a higher PED than short-haul flights. This could be attributed to the fact that virtually all full service airlines provide long-haul flights, thereby increasing competition.
Most full service airlines operate wide body aircrafts, which allow them to achieve economies of scale. Thus, they can charge low prices to compete with LCCs. In sum, the high PED is explained by the large number of airlines that provide long-haul flights and their ability to reduce prices.
Income Elasticity
Income elasticity of demand (IED) “is a measure of the sensitivity of demand for a good or service to changes in individual or aggregate income levels”. Table 2 shows that the IED in developing countries where Flydubai operates is greater than 1 in both national and regional markets.
Thus, demand for air travel increases more than proportionate to a rise in disposable income. This means that customers consider air travel a luxury service.
The high IED can be attributed in part to customers’ low income. Air travel in developing countries is a luxury that can only be consumed in the event of an increase in income. Customers will always explore alternative modes of transportation in order to save on travelling costs.
In countries such as the UAE, Qatar, Oman, and Kuwait, the uptake of air travel services is less than the level in developed countries such as the US where household income is very high.
The implication of the high IED is that travelers are likely to use full service airlines that offer luxury services during periods of economic boom. However, they are likely to use low cost airlines that focus on reducing travelling expenses rather than providing luxury flights during economic downturn.
Therefore, low cost airlines must provide service packages that allow travelers to enjoy high quality flights at affordable prices. This will enable them to avoid losing customers to full service airlines such as Emirates Airline, which are able to provide luxury flights at low prices.
Figure 4 and 5 show the variation in IED in regional and national markets respectively. Clearly, IED is higher in developing than developed economies. This means that a change in income is more likely to cause a significant increase in demand in developing than developed countries.
In this respect, LCCs should focus on serving developing economies that are experiencing rapid economic growth to increase revenue and profits. The low IED in developed countries is a sign of high competition and slow market growth.
In developed countries, airlines must focus on aggressive marketing techniques to attract existing customers. LCCs with limited capital can hardly survive intense competition.
Competitors
Flydubai competes with several airlines within the UAE and other destinations in Asia, the Middle East, and Europe. In the UAE, Air Arabia is the main competitor of Flydubai (CAPA, 2014). The main strength of Air Arabia is that “it has a larger and more diversified route network than Flydubai” (CAPA, 2014, p. 3).
It operates from three different hubs, which enable it to connect to various destinations in the Middle East at a low cost. By contrast, Flydubai operates from only one hub in Dubai. As a result, Air Arabia is able to serve 91 routes, whereas Flydubai serves only 66 (CAPA, 2014).
Air Arabia also has a strong brand image and adequate knowledge of the market because it has been in operation since 2003. This helps it to develop products that allow it to retain customers.
Despite its strengths, Flydubai has already overtaken Air Arabia in terms of passenger traffic. For instance, in 2013 Flydubai transported 6.82 million passengers, whereas Air Arabia handled only 6.1 million travelers (CAPA, 2014). Flydubai also has a larger market share than Air Arabia in most routes in the Middle East.
For instance, in the UAE-Qatar route Flydubai has a market share 23%, whereas Air Arabia has only 5% (CAPA, 2013). In the UAE-Saudi Arabia route, Flydubai has a market share of 22%, whereas Air Arabia has only 12%. The success of Flydubai is explained in part by its hybrid business model.
The airline combines the features of a LCC with those of full service airlines, thereby delivering superior value to customers.
In the GCC, Asia, and Europe, Flydubai competes with large airlines such as Qatar Airways, Etihad Airways, Saudia Airline, and Oman Air. Flydubai counters competition from these airlines by cooperating with Emirates Airline (CAPA, 2013).
The cooperation “allows Flydubai to serve Emirates Airline’s passengers in routes that are not served by the latter” (CAPA, 2013, p. 4). Flydubai also cooperates with international airlines in Dubai to attract passengers in underserved markets.
These strategies have helped the airline to increase its market share at the expense of its competitors.
Substitutes and Complements
The main substitute for air travel is road transportation using cars or trains. In markets such as the UAE, passengers can substitute flights with road transportation to avoid high costs or inconvenience. However, cars can only be used for short distance journeys. Using cars to travel for long distances is very expensive and time consuming.
Moreover, travelling across the border in the Middle East and Asian countries by road is not easy due to lack of infrastructure and insecurity. Therefore, there are no close substitutes for medium and long haul flights. Lack of close substitutes is an advantage to airlines since they face little or no competition from other industries.
Nonetheless, brand substitution is a major challenge in the industry due to high competition and sensitivity to prices. Customers often substitute one airline for another to enjoy favorable prices and excellent services.
The main complementary good in the airline industry is jet fuel. Every airline needs adequate supply of cheap fuel to operate its aircrafts profitably. Since fuel accounts for nearly 40% of airlines’ operating costs, an increase in its price causes a reduction in profits, especially, if the increase cannot be passed to customers (Flydubai, 2014).
Ground handling services are also very important in the industry. LCCs need efficient ground handling services to transfer passengers and luggage from other airlines to their terminus. Lack of high quality ground handling services can result into customer dissatisfaction and lose of market share.
Demand
The demand for low cost flights is growing rapidly in the Middle East and Asia. Demand is expected to grow at an annual rate of 6.6% in the next 10 years. The factors that account for the expected growth include the following. First, emerging markets in Asia and the Middle East are characterized by rapid economic growth.
Specifically, economies in Asia and the Middle East are expected to grow at an annual average rate of 6% and 4% respectively in the next three years. The growth will be characterized by increased business activities that will necessitate cross-border transactions.
For instance, the UAE and Saudi Arabia are expected to become major commercial hubs in the Middle East due to increased foreign direct investment (FDI) from developed countries. The resulting increase in travelling among business executives will increase demand for flights in the region.
High economic growth will also increase disposable income. Thus, more people will be able to afford flights.
Second, emerging markets in Asia are experiencing rapid population growth, which will increase demand for cheap flights in future. For instance, Flydubai serves a market with nearly 3 billion people (CAPA, 2013). The market is underserved due to lack of airlines that focus on serving short distance routes.
Finally, the penetration of low cost airlines in the Middle East and Asia is still less than 20%. This means that the market is still at its growth stage and will take several years to mature. Thus, the demand for flights is expected to increase as the popularity of LCCs increases in Asia and the Middle East.
Training Labor Force
The employees of Flydubai can be trained further to increase productivity and reduce costs in several ways. To begin with, the company is in the process of acquiring 75 new aircrafts (Flydubai, 2013). Several pilots with advanced skills and knowledge in flying commercial aircrafts will be required after the acquisition.
Given the short supply of qualified pilots in the UAE, Flydubai can reduce staff costs by training its own pilots. Currently, the company incurs high labor costs since it hires pilots from developed countries in Europe and North America where wage rates are very high (Flydubai, 2014).
Flydubai can also train its cabin crew to increase productivity. Undoubtedly, every airline needs employees with excellent customer care skills to provide excellent services to passengers. Excellent services lead to customer loyalty. It also enables a company to attract customers from its competitors.
The resulting increase in market share leads to an increase in profits. Therefore, Flydubai should continuously provide customer service training programs to employees to improve its competitiveness.
Managers can also contribute to profit maximization and cost reduction if they are trained on leadership. Managers with effective leadership skills are likely to stimulate innovation among employees. An innovative workforce will help Flydubai to develop superior products that will increase sales and profits.
In addition, employees will be able to develop a more efficient business model to reduce operating costs without compromising service quality.
Profitability
Flydubai has maintained a consistent growth in profits since 2012 (CAPA, 2013). The growth in profits and revenue is illustrated in table 3. Net profits increased from AED 151.9 million to AED 222.8 million in 2013 (Buller, 2014b). It further increased to AED 250 million in 2014 (Flydubai, 2015).
Overall, these statistics show that the airline realized a 64.58% growth in net profits in the last three years.
The increase in profitability can be attributed to the fact that Flydubai has the largest market share among low cost carriers in most routes in the Middle East as shown in figure 1. This allows the firm to earn high revenue, which translates into huge profits.
The airline will be able to sustain high profitability because of its ability to reduce operating costs through strategies such as fuel hedging (Flydubai 2014). Cooperation with other airlines and using online distribution channels will also help Flydubai to reduce costs. Low operating costs will allow the airline to increase its profit margins.
Rapid expansion of route network and fleet size will also support growth in profitability (Flydubai, 2015). Flydubai will double the number of its aircrafts and triple the number of routes that it serves in the next five years. The expansion will be accompanied by an increase in passenger traffic, which in turn will increase revenue and profits.
Increasing Profits
Flydubai can increase profits by considering the following strategies. First, the “airline should explore new markets in Africa and Asia”. Currently, the penetration of LCCs in Africa is only 9.9%. This means that the market has great growth opportunities that have not been exploited.
In addition, most short-haul routes are not served by full service airlines because they cannot support their business model. This reduces competition in short-haul routes. Serving new routes that lack competition will increase revenue and profits.
Second, the airline must focus on innovation to increase its profits. As a hybrid airline, Flydubai has embarked on introducing the services of full service airlines such as meals, long haul flights, and business class (Jones, 2014). These services will increase operating costs significantly.
Therefore, innovative ways of reducing costs such as retiring aircrafts after five years to improve fuel efficiency must be adopted to ensure growth in profitability.
Finally, Flydubai should launch operations in new hubs in Asia and Africa to allow it to serve more routes at a low cost. For instance, operating from Morocco will enable the airline to serve parts of Europe and Africa by providing flights that take less than four hours. This will reduce operating costs, thereby increasing profitability.
Conclusion
Flydubai operates in an oligopoly market where competition is high among the leading firms. Air Arabia is the main competitor of Flydubai in the UAE. However, Flydubai has already outperformed it in terms of passenger traffic. Other competitors in Asia and the Middle East include Qatar Airways, Oman Air, and Saudia Airline.
The demand for air travel in the market is price elastic at the regional level. In addition, the income elasticity of demand indicates that customers consider air travel a luxury service. Despite the high competition, the demand for air travel is expected to increase in future due to robust economic growth.
Flydubai should focus on training its employees and reducing operating costs to improve its long-term competitiveness.
Appendix
Figure 1: Flydubai’s market share in various markets. Source: CAPA (2013).Table 1: Price elasticity of demand. Source: Smyth & Brian (2014)/ IATA.Figure 2: Variation in price elasticity of demand. Regional level.Figure 3: Variation in price elasticity of demand. National level.Table 2: Income elasticity of demand.Figure 4: Variation in income elasticity of demand.Figure 5: Variation in income elasticity of demand.
Table 3: Flydubai’s profits and revenue.
Year
Revenue (AED million)
Net Profit (AED million)
2014
4,400
250
2013
3,700
222.8
2012
2,778
151.9
References
Airbus. (2012). Global market forecast. Herndon, VA: Airbus.
Buller, A. (2014a). Exclusive: Flydubai CEO on the low cost airline’s meteoric rise. Gulf Business. Web.
Buller, A. (2014b). The low-cost airline announced full-year 2014 net profit of Dhs 222.8 million. Gulf Business. Web.
This paper presents research on the reasons companies have low competitiveness in marketing and possible solutions to their problem. It suggests that good product design can improve a firm’s performance. The paper explains the significance of the problem, provides the findings of current studies on the topic, and identifies possible ways for improving an organizations’ position in the market. This paper concludes that it is crucial to consider product design as a factor that contributes to a company’s competitiveness.
Statement of the Problem
Globalization has “created new frontiers for competition” in marketing, which means that the success of an organization is determined by its ability to meet the current requirements of the market (Brondoni, 2015, p. 13). A firm’s competitiveness is determined by its ability to mobilize its resources to produce products that are superior to the ones offered by other manufacturers (Ghosh, Kumuthadevi, & Jublee, 2016).
The low level of competitiveness of some companies may be caused by various internal and external factors. They include the firms’ inability to concentrate on long-term goals, a lack of cooperation between their teams, poor disposition of funds, and bad working environment. However, the most significant reason for a lack of competitiveness is associated with products and their design, which may include the materials used for construction, colors, aesthetic form, and packaging. Poor design can make products unsuitable for customers’ needs and the organization’s manufacturing capabilities, as well as result in a low level of quality, which can lead to decreased competitiveness.
The recent interest in the top marketing companies’ product design proves the significance of the issue for firms’ competitiveness. Many of them have started to perceive design as the primary corporate competence that has increased their competitive advantage.
The product development process has become a complex operation that involves the integration of innovation and technologies, work with many different materials, research, avoidance of obsolescence, and prevention of defects. It should be mentioned that by working on sustainable design, firms may decrease their expenses in the future, which can improve both their competitiveness and performance. This shows that addressing the problem and finding solutions to it is crucial for the enhancement of an organization’s position in the market.
Possible Solutions
To enhance an organization’s competitiveness, it is crucial to develop a strategy for improving product design. The first step the companies can take is to perform a study of their customer’s demands and choices. D’Ippolito (2014) suggests that different appearances of an item may be more attractive for different groups of people based on their types of needs. To make the product valuable to the customers, it is also crucial to consider their emotional responses and the factors that may trigger them.
A high level of demand may be achieved through research or interviews followed by generating symbolic value or visual appearance that are meaningful for the customers. It is necessary to point out that the organization should consider its past marketing experiences and outcomes when implementing changes in the product to ensure its benefits for competitiveness. Another crucial step for improvement is the analysis of competitors’ projects and design choices to incorporate their advantages into the final product.
One of the other possible ways to improve companies’ competitiveness through product design is the development of product prototypes. For example, a firm can use prototypes to collect feedback during exhibitions. Prototyping can reveal the disadvantages of a selected design and allow for changes that will improve customers’ satisfaction with the product. Moreover, such an approach to the problem may shape and influence future customer choices, which will create opportunities for organizational growth.
Proposed Solution: Personal Argument
Description
Zawadzki and Żywicki (2016) argue that appropriate and attractive product design is one of the determining factors of a company’s competitiveness. I agree with this perspective and think that concentration on design can increase a firm’s performance in marketing. To suggest a solution to the problem of companies’ low competitiveness, I would recommend the approach suggested by Scherer, Kloeckner, Ribeiro, Pezzotta, and Pirola (2016).
The researchers point out that good product design should correspond to the customers’ and the company’s values, include innovation, meet customers’ needs, and be based on a study of public data and competitors’ ideas. The development process should collect insights based on customers’ demands, synthesize the available information on the state of the market, and use prototypes to select the most effective approach. In my opinion, this approach to product design is essential for increasing organizational competitiveness.
Justification
There are several reasons for the effectiveness of the suggested solution. First, considering customers’ needs and desires is necessary for a company’s market performance. The success of a firm is determined by the demand for its products, which in its turn is directly related to customers’ satisfaction. Performing research on needs and competitors’ products is necessary as it allows for responsive service and helps the organization to develop items that will be in demand.
The use of prototypes and the study of feedback on them from customers can ensure that a company’s decisions meet the current requirements of the market and contribute to long-term customer satisfaction. These factors indicate that good product design may improve the competitiveness of a firm and increase its productivity.
Conclusion
Good product design is crucial for a company’s competitiveness and performance in the market. It is necessary to implement processes for its improvement to ensure the satisfaction of the company’s customers. An effective approach to improving competitiveness through design requires consideration of customers’ needs, development of prototypes, and an analysis of the market and other companies products. An organization may benefit from such an approach in several ways, as it not only improves its performance but can also reduce the costs of manufacturing.
References
Brondoni, S. M. (2015). Product design management and global competition. Symphonya. Emerging Issues in Management, 2, 13-24.
D’Ippolito, B. (2014). The importance of design for firms’ competitiveness: A review of the literature. Technovation, 34(2014), 716-730.
Ghosh, B., Kumuthadevi, K., & Jublee, D. (2016). Linkage among competitiveness, competitive advantage and competitive priority of apparel export firms at Tirupur. International Journal of Management Research and Reviews, 6(8), 1012-1029.
Scherer, J. O., Kloeckner, A. P., Ribeiro, J. L. D., Pezzotta, G., & Pirola, F. (2016). Product-service system (PSS) design: Using design thinking and business analytics to improve PSS design. Procedia CIRP, 47(2016), 341-346.
Zawadzki, P., & Żywicki, K. (2016). Smart product design and production control for effective mass customization in the Industry 4.0 concept. Management and Production Engineering Review, 7(3), 105-112.
Strategic management and competitiveness are two crucial concepts for the company’s success. In this regard, Johnson & Johnson is an example of a corporation whose effective use of innovation and technological advances has contributed to its leading position in the healthcare industry. This paper aims to discuss the influence of globalization, technology, strategic models, stakeholders, as well as mission and vision statements on the success of Johnson & Johnson company.
Globalization
Johnson & Johnson is one of the leading companies in terms of global business expansion. According to Day Translations, this corporation runs 250 subsidiaries, operates in 60 countries, involves approximately 134,000 employees in its operations, and provides its products to over 175 countries (1). The positive effects of such globalization processes on Johnson & Johnson include its access to various markets, diversified workforce, and improved flow of capital, trade, and information. In this regard, expanded operations provide the company with revenue from non-American consumers (2).
Furthermore, Johnson & Johnson’s research and innovation centers are located throughout the world, allowing the corporation to collect valuable data to enhance its products and services. Diversified teams in different countries contribute to the corporation’s ability to improve its cultural awareness and meet various customer needs. At the same time, globalization has increased competition from other companies, stimulating Johnson & Johnson to maintain and enhance its competitive advantage.
Technology
Technology is another essential characteristic of the success of Johnson & Johnson. The use of digitalization and artificial intelligence in the company’s products enhances their quality, reliability, and value for clients, which results in increased demand and sales (1).
For instance, Shapiro reports that the Advance Case Management platform reduces surgery costs and focuses on patient care rather than logistics (3). Another disruptive digital technology of Johnson & Johnson has enhanced customer experience by utilizing the intelligence-based system for contact lens consumers (3). As noted by Shapiro, this innovation has made Johnson & Johnson the top second company in terms of customer satisfaction in 2020 (3). Furthermore, the company’s DePuy Synthes factory implements innovative technologies that protect the environment, broaden supply chain capabilities, and increase efficiency and business performance (3). As can be seen, technology is central to enhancing Johnson & Johnson’s customer experience and optimizing processes.
Industrial Organization Model
The industrial organization (I/O) model is based on the idea that the external environment impacts the company’s operations more than internal factors. According to Hitt, the implementation of this framework can help companies establish ways to achieve above-average revenue (4). In this regard, a highly promising industry for Johnson & Johnson is MedTech, while the proposed strategy for increased revenue is exponential innovation of products and services and digital DNA (4). This approach can help reduce operating costs and increase the competitive advantage of the corporation, resulting in above-average returns. The strategic actions should include creating a future-focused development plan, utilizing analytics to measure and interpret customer and product data, and providing leadership training.
Resource-Based Model
Johnson & Johnson is characterized by such core resources as technology, employees, manufacturing facilities, research centers, supply chains, partnerships, and distribution channels. The firm’s capabilities are mergers and acquisitions, leadership performance, and innovation. As noted by Hitt, the resource-based model highlights the importance of the company’s unique resources and capabilities for its profits (4). In this regard, the corporation can create superior value for its clients by combining its technology, research findings, and manufacturing facilities with innovation capabilities and collaborations. The pharmaceutical sector would be an attractive industry for Johnson & Johnson to exploit its resources effectively. Strategic actions for above-average returns include implementing evidence-based technological advancements to all operations and manufacturing processes, as well as ensuring appropriate training to promote valuable resources and competencies.
Vision
The selected corporation’s vision and mission statements determine its core aspirations and objectives. According to Johnson & Johnson, its vision is to “help people see better, connect better, live better” (2). This statement is fundamental to the firm’s success as it defines connectivity, accessibility, and enhancement as the core values that define the overall strategy for the corporation. The vision statement of Johnson & Johnson promotes improved quality of life for everyone, contributing to the healthcare industry.
Mission
The corporation values the role of continuous improvement and evidence-based approaches, which is reflected in its main statement. Johnson & Johnson’s mission is “bringing science and sense of sight to life through world-class innovation and customer experience” (2). In this regard, the firm emphasizes improved health, technology development, customer satisfaction, and inclusivity as the core principles of all operations. As a result, the overall impact of the company on the healthcare industry is significant.
Stakeholders
The main categories of stakeholders for Johnson & Johnson include capital market stakeholders (shareholders), product marker stakeholders (patients, pharmaceutical firms, communities, and the government), and organizational stakeholders (employees and managers). In this regard, the first category impacts the overall success of the company by providing investments required to maintain and improve operations. The second category has a direct impact on Johnson & Johnson products by defining customer needs, implementing legal regulations, and influencing the price-making process (5). Finally, the third category of stakeholders plays a pivotal role in stimulating the firm to optimize its operations and policies to achieve positive outcomes.
