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Introduction
The article chosen for analysis is about a business partnership between two of the most respected airlines in the world; Emirates and Qantas Airlines. It was an interesting article to analyze because it can act as a blueprint for other multinationals that want to participate in international alliances.
This case study will provide an example of the motivations, processes, obstacles, models and strategies that constitute global alliances
Case study
Qantas is an Australian-based Airline that is renowned for its excellent quality and great travel experiences; Emirates is famous for its extensive network as well as its quality standards.
These two organizations partnered through a joint services agreement that was designed to coordinate their prices, integrate their flying networks, arrange similar schedules and participate in a benefit sharing model. The agreement will last for ten years and will create benefits for customers as well as the two business partners.
Deresky and Christopher (2011) explain that organizations often go global because of reactive reasons or proactive ones. It is likely that Qantas was motivated by both types of incentives to participate in this global alliance.
First, global competition, as a reactive measure, has prompted Qantas to consider the move. Many Airlines are consolidating their services on a global scale and if Qantas maintained the status quo, then it would be more difficult to compete with these firms in the future.
Additionally, the issue of government restrictions in the Middle Eastern region may have prompted Qantas to rely on an insider in order to access that large market; Emirates was the ultimate solution. Another reactive reason was demand from customers for certain services.
Qantas consumers needed direct access to Europe and Asia, but the Airline could not provide it with its prevailing infrastructure. Consequently, the organization chose to liaise with another Airline that already has those networks in order to meet its customers’ demands (Qantas 2012).
Alternatively, the motives to enter into a partnership may be proactive and strategic. Firms do it to take advantage of the economies of scale that come with greater capital (Todeva and Knoke 2005).
In this case, Qantas was in the middle of a reengineering program that would see it expand its operations and turn around its performance.
The alliance with Emirates was the major route to achieving this objective as Qantas would use the firm’s terminals and routes without committing the financial resources needed to have its own.
Alternatively, the need to grow may also prompt firms to engage in expansion (Deresky and Christopher 2011). This was true for Qantas, which had already exploited most of the avenues for growth in Australia. It needed to overcome this plateau phase by adopting a new strategy for enlargement.
The company could also experience some cost savings through the operation because it was working on a sustainability program that would undercut some of the firm’s financial problems.
Through direct routes to key markets, the company would cut down on unnecessary coordination and resource usage in these locations, and this will save money (Qantas 2012). The partnership was also created for other smaller reasons, but the above-mentioned ones were the key drivers.
The model of alliance chosen between these two airlines is also worth noting in the analysis. They selected a joint services venture in which both organizations would not make an equity investment in the partnership.
Kang and Sakai (2000) explain that organizations may commit heavily to an alliance or may choose a short-term avenue for cooperation. In this case, Qantas’ level of commitment in this alliance was moderate; ten years is a relatively long period of time, but not long enough to constitute a permanent arrangement.
Furthermore, the chosen approach was a non equity alliance. It is likely that Emirates and Qantas were not willing to participate in an equity alliance because of the legal, operational, ownership and financial risks involved.
Equity alliances are often done in order to ensure that the two entities create a new and separate business entity, which may unite the two partners or allow them to exist independently. Qantas and Emirates wanted to maintain their individual identities, so this was not a viable option (Qantas 2012).
The companies went for a non equity alliance because they wanted to enjoy the flexibility that emanates from such a strategy. They did not need to make a strong commitment to each other since they could not predict how successful their alliance could be.
Non equity alliances have no limitations and imposition on initial conditions, and this was an attractive quality for Qantas. Kang and Sakai (2000) affirm that non equity alliances are appropriate for those organizations that are uniting core activities. In this case, Qantas and Emirates were bringing together key areas of operation.
It was essential to select an approach that would not subject them to unnecessary risk. If non core activities were involved, then chances are that the organization would have selected a joint venture for the alliance.
Instead, it selected a joint services agreement that would permit both organizations to maintain their distinct style but still amalgamate their services.
When carrying out a global alliance, Deresky and Christopher (2011) explain that most organizations must go through several phases. They need to develop a strategy, assess potential partners, negotiate a contract, commence operation and plan termination.
The first phase of developing a strategy for a global alliance entails analyzing the objectives of engaging in the partnership, predicting possible issues that may emerge and determining the resources needed to execute the plan.
Although Qantas does not outline this phase critically in the article, it is evident that the company thought about how it will redefine its Asian operations. It probably prepared for the reengineering of its network as well as its connections.
The firm also planned how it will withdraw some of it services from non performing hubs like the one in Frankfurt (Qantas 2012). The organization also thought about the alterations it would need to make with regard to its customer quality.
In order to synchronize activities with Emirates, it would be necessary to forfeit some of its service priorities in favor of Emirates Airlines’ more efficient strategies.
Partner assessment is one of the most crucial aspects of forging a global alliance. Isoralte (2009) explains that one must look at the weaknesses and strengths of the partner, their management style as well as their resource capabilities in order to make the partnership viable.
Qantas did their partner assessment very carefully because it took them a long time to come to this decision. Additionally, Qantas considered the resource capabilities of Emirates and found that they were exactly what they needed.
The target organization had a large fleet of airplanes and a vast international network (Qantas 2012). Qantas also considered the management style and the standards of quality in Emirates Airlines. The organization’s CEO had an eye for detail and was known for effective management skills.
Additionally, the company had a strong reputation for quality (Qantas 2012). This meant that it would be easy to synchronize the two organizations’ operations. The partnership would not hurt but promote Qantas’ business outlook.
Some of the other phases of global strategic alliance formation are yet to be known as the company unveiled this alliance in late 2012. However, contract negotiation must have been done well. Qantas will be making some sacrifices if differences emerge between the two partners’ service offerings.
Nonetheless, it will also be maintaining its distinct style and enjoying a series of benefits. All these issues were negotiated in the contract.
The concerned alliance is still in its infancy. It is not possible to determine whether it will succeed or fail. However, Qantas and Emirates can do a number of things to ensure that they thrive.
First, they need to have clarity of direction; both organizations ought to understand why they are engaging in the alliance.
This clarity should trickle down to all aspects of management (Cebuc 2008). Additionally, the two partners must ensure that each group enjoys the benefits of the alliance. If benefits are lopsided, then frustrations will develop and failure may follow.
Finally, the companies need to break silos or compartments that may arise during operation. Both companies need to communicate regularly and transparently, internal divisions are one of the biggest barriers to successful international partnerships.
Conclusion
The article under analysis is a typical depiction of how to manage across borders, especially during the first stages of a global relationship. Qantas got into the alliance for the right reasons. It also selected a form of partnership that would work well for it.
Furthermore, the company went through a comprehensive alliance selection process before choosing Emirates. Thereafter, it also negotiated the partnership contract effectively. The future will reveal whether the partnership will succeed. However, given its rigorous strategic decisions, it is likely that it will do well.
References
Cebuc, G 2008, ‘The role of strategic alliances in international business’, Romanian Economic and Business Review, vol. 2 no. 4, pp. 27-33.
Deresky, H and Christopher, E 2011, International Management: Managing across Borders and Cultures, Pearson Education Australia, Frenchs Forest.
Isoralte, M 2009, ‘Importance of strategic alliances in a company’s activity’, Intellectual Economics, vol. 5 no. 1, pp. 39-46.
Kang, N & Sakai, K 2000, ‘International strategic alliance: Their role in industrial globalization’, OECD Science, Technology and Industry Working papers, no. 5, 1-42.
Todeva, E & Knoke, D 2005, ‘Strategic alliances and models of collaboration’, Management Decision, vol. 43 no. 1, pp. 1-21.
Qantas 2012, The world’s leading airline partnership Alan Joyce, Qantas Group CEO, http://www.qantas.com/travel/airlines/media-releases/sep-2012/5442/global/en#.ULr4SRps4rw.email
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