Deck 15: Direct Investment and Collaborative Strategies

Question 1

After reading the chapter, explain the advantages for Meliá to own its hotels versus managing them for other organizations.

Answer 1

ME Groups:
ME international group of hotels has strong brand building across the globe. Recently, the group expects more international growth by entering additional countries and adding hotels in those locations from where it operates currently. The organization also has an idea of linking its own brand with other brands such as HR Café, and FT.
The following are the advantages for ME to own its hotel:
•ME groups can have a direct control over the hotels by owning them
•ME group managers can take decision on their own without considering any one
•ME can run their hotel on their own name, this will help them to sustain their brand recognition
•ME will have tax planning advantages when it is own business
The following are the advantages for ME to manage their business for other organizations:
•Decision making will be combined. More ideas and suggestions will be obtained from this kind of business situation
•ME group can obtain high growth rate and financial support will be improved
•ME group of companies can get expanded in a global market

Question 2

After reading the chapter, discuss the advantages and risks for Meliá in its non-equity joint venture with Jin Jiang.

Answer 2

ME Groups:
ME international group of hotels has strong brand building across the globe. Recently, the group expects more international growth by entering additional countries and adding more hotels in those locations from where it operates currently. The organization also has an idea of linking its own brand with other brands such as HR Café, and FT.
The following are the advantages for ME Companies in its non-equity joint venture with JJ:
•ME Company will have an greater opportunity to develop its business in other countries
•The decision making abilities will be more accurate and effective
•ME company might get financial support from JJ
•Business planning and strategies will get improved during the joint venture
The following are the risks for ME Companies in its non-equity joint venture with JJ:
•ME's control over the business might be lost
•Freedom of decision making and setting rules will be lost
•The operating environment of the company should get settled with the non-equity joint venture

Question 3

Companies within the oneworld, Star, and Sky Team alliances have also engaged in major mergers and acquisitions (M A): Frontier and US Air (Star), Delta and Northwest (Sky Team), and Continental and United (Star). What are the advantages and disadvantages of M A versus nonequity alliances in this industry?

Answer 3

Merger and acquisition :
It is a general terminology used to mention consolidation of firms. A merger takes place when two businesses join together to form a new organization. Acquisition is the buying of one firm by another company.
The following are the benefits of merger and acquisition in the airlines industry:
•Executes economies of scale
•Helps to obtain coordination effect
•Competitors restriction
•Improved resources allocation
The following are the drawbacks of merger and acquisition in the airlines industry:
•Cultural mismatch among the companies during merger
•Antitrust risk
•Placing risk of acquired workers
Non-equity alliances:
It is an agreement between two or more parties to follow an agreed set of goals required by being independent companies.
The following are the benefits of non-equity alliances in the airways industry:
•Lack of policy constraint of government
•Flexibility
•The initial investment and transportation cost is lower
The following are the disadvantages of non-equity alliances in the airways business:
•Incongruent objectives
•Standards keep varying

Question 4

Some airlines, such as Southwest, have survived as niche players without extensive international connections. Can they continue this strategy?

Question 5

Why should an airline not be able to establish service anywhere in the world simply by demonstrating that it can and will comply with the local labor and business laws of the host country?

Question 6

The U.S. law limiting foreign ownership of U.S. airlines to no more than 25 percent of voting shares was enacted in 1938. Is this law an anachronism, or are there valid reasons for having it today?

Question 7

What will be the consequences if a few large airlines or networks dominate global air service?

Question 8

Many airlines have recently been no more than marginally profitable. Is this such a vital industry that governments should intervene to guarantee their survival? If so, how?

Question 9

What methods could JAL and AA use to divide revenue and expenses on code-shared routes?