Assignment 3A Strategic Management Group Report PDF

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RMIT International University Vietnam Bachelor of Business Program ASSIGNMENT COVER PAGE

Subject Name:

Strategic Management for Tourism & Hospitality

Subject Course:

BUSM4572

Location where you study:

Vietnam - Saigon South

Title of Assignment:

Assignment 3A - Strategic Management Group Report

Student Name:

Vu Hai Phong - s3748012 Do Linh Chi - s3751492 Nguyen Quang Hong Phuc- s3752084 Le Quang Kim Ngan - s3751591 Nguyen Nhu Phuong Anh - s3741039

Teacher’s Name:

Nuno Ribeiro

Group Number:

5

Assignment due date:

21 May 2021

Date of Submission:

21 May 2021

Wordcount:

4476

EXECUTIVE SUMMARY The increasingly intensive and competitive tourism and hospitality industry in Vietnam created challenges for tourism/ travel corporations to define their brand positioning. In order to be sustained within such a market, corporations are required to identify, analyze and develop the appropriate strategies from the internal and external environment of the industry if they want to be the market leader. For the reason of examination on how a real-life business executes their strategic plans, Vietjet Air - a budgeted airline ranked 2nd in market share acquired in the Vietnamese aviation industry, will be chosen as the case study. This report will demonstrate the factors of market analysis in both macro and micro environment surrounding the operation of Vietjet Air, using theoretical tools of STEEP (Social, Technological, Economical, Environmental and Political) and Porter’s Five Forces analysis model. Moreover, the current strategies implemented will be described, analysed and evaluated for the case of Vietjet Air in all 3 levels of corporation, business and functional, using Boston Consulting Group’s Growth-share matrix (BCG) and Porter’s Generic Strategies. Then, new initiatives with detailed analysis on the beneficial contributions to Vietjet Air (in terms of corporate strategies and functional improvements) will also be presented. Finally, the strategies recommended will be evaluated using Rumelt’s four criterias (Consistency, Consonance, Feasibility and Advantage). The report is utilizing strategic management journal articles, books, strategic management theories and business reports to strengthen the arguments stated.

Table of Contents I.

INTRODUCTION........................................................................................................................................1

II.

MARKET ANALYSIS..................................................................................................................................1 1.

MACRO ENVIRONMENT - STEEP ANALYSIS...........................................................................................1 1.1 Social........................................................................................................................................................1

1.2 Technological............................................................................................................................................2 1.3 Economic..................................................................................................................................................2 1.4 Ecological.................................................................................................................................................2 1.5 Political.....................................................................................................................................................3 2.

MICRO ENVIRONMENT - PORTER’S FIVE FORCES.................................................................................3 2.1 Threat of new entrants.............................................................................................................................3 2.2 Bargaining power of suppliers.................................................................................................................3 2.3 Bargaining power of buyers.....................................................................................................................4 2.4 Threat of substitute products...................................................................................................................4 2.5 Rivalry among existing competitors........................................................................................................4

III. INTERNAL ANALYSIS.................................................................................................................................4 1.

RESOURCES AND CAPABILITIES...............................................................................................................4

2.

COMPETENCIES.........................................................................................................................................5

IV. STRATEGY ANALYSIS.................................................................................................................................5 1.

CURRENT BUSINESS STRATEGIES............................................................................................................5 1.1 Corporate Level........................................................................................................................................5 1.2 Business Level..........................................................................................................................................6 1.3 Functional Level......................................................................................................................................7

2.

NEW INITIATIVES AND IMPLEMENTATIONS.............................................................................................8 2.1 Corporate Level........................................................................................................................................8 2.2 Business Level..........................................................................................................................................8 2.3 Functional Level......................................................................................................................................9

V. STRATEGY EVALUATION AND CONTROL...........................................................................................10 1.

CONSISTENCY..........................................................................................................................................10

2.

CONSONANCE..........................................................................................................................................10

3.

FEASIBILITY.............................................................................................................................................11

4.

ADVANTAGE.............................................................................................................................................11

VI. CONCLUSIONS............................................................................................................................................11 VI. REFERENCES...............................................................................................................................................12 VII. APPENDICES...............................................................................................................................................17

I.

INTRODUCTION Being top aviation businesses in Vietnam, VietJet Aviation Joint Stock Company was the first-privately owned airline brand and started to serve diverse domestic offerings since December 2011. In response to fierce competition among various airline corporations such as strong rivals of Vietnam Airlines or new entrants of Bamboo Airways, its strategic business model ‘low-cost carrier’ (LLC) with the focus on middleincome class and first-time experience flying customers effectively creates competitive advantage for business growth. Moreover, special features such as young, dynamic and expert at applying advanced technology in aviation service are also prescribed on the first day of establishment. As a result, since a new generation aviation business like Vietjet who pioneers for developing new routes ranging from modern infrastructure, talent acquisition, service quality to head forwards green value for the community (Vietjet 2019), the title of ‘Asia Pacific Low Cost Airline of the Year’ by CAPA was given to Vietjet. However, in the journey of ‘conquering the sky and bringing innovation to Vietnam’s aviation industry’, the impact of COVID-19 crisis poses threats to the sustainability of Vietjet, even worse on the edge of operation closure, and hindrance for further development. It is fundamental for Vietjet, or any aviation corporations, to determine their comprehensive strategy to not only leverage competitive advantage, but also bear various sources of risks in the volatile aviation market. This paper investigates macro- and micro-environment by STEEP, Porter’s five forces analysis, and brand portfolio by VRIN Framework which exhibits a comprehensive picture and position of Vietjet’s resources and competences in the domestic aviation sector. Following, current strategies under three levels namely corporate, business and functional level will be respectively presented with the support of Boston Consulting Group’s Growth-share Matrix (BCG) as a tool to signal which markets Vietjet decided to focus on, but from there, some underlying strategy issues are also under justification. Hence, new initiatives and implementations will be appropriately proposed for Vietjet to reinforce brand development and sustainable competitive advantage in the future. Finally, all the proposed strategies implementation will be evaluated based on four criteria of Rumelt evaluation approach to ensure the alignment with Vietjet’s initial missions.

II.

MARKET ANALYSIS 1. Macro Environment - STEEP Analysis 1.1 Social Addepalli et al. (2016) argued the social dimensions of demography and behavioral factors strongly influence customers' willingness to purchase flights for their travels. Vietnam’s population is projected to 1

reach 120 million people by 2050 (World Bank 2021), along with the fact that millennials and generation Z are shaping the consumption behaviours and beliefs for airlines products of Vietjet (Garikapati et al. 2016). Despite the potential offered by the market, customers’ diverse behaviors and preferences still creates major challenges for the airline industry generally and Vietjet particularly (Teichert, Shehu & Wartburg 2008). 1.2 Technological With challenging requirements for the highest level of safety insurance, as no minor errors regarding human injuries, technical problems or natural disastrous consequences are allowed, Lee & Mo (2011) believed technology advancements can help the aviation industry to diagnose and prevent potential issues to bring security to flights. Technology also contributes to the convenience enhancement for passengers through the establishment of electronic tickets. Functioning similarly to the regular paper ticket (Chen 2007), e-tickets bring additional values - a reduction in potential lost or ticket damage for customers and cost-saving benefit for airlines (Galang 2012). Technology implementation also changes the way passengers conduct their check-in process at airports. At Changi Airport, customers can do the baggage drop by themselves, using the automated system and facial recognition technology provided (Rajapaksha & Jayasuriya 2020). This technology implementation allows customers to avoid long waiting lines at airports to check-in. Conclusively, technology implementation, which provides a blend of a consistent passenger experience, becomes a fundamental strategy for airline businesses to manage, including Vietjet (Mclvor et al. 2003). 1.3 Economic The aviation industry is strongly influenced by the economic status, caused mainly by the Gross Domestic Product (GDP) growth rate (that impacts on the consumers’ spending willingness). Despite the positive Vietnamese GDP statistics in 2019 (261.92 billion dollars) (Trading Economics 2019), COVID-19 struck the global economy entirely, where most industries were heavily impacted (Dezan 2020), especially tourism and travel industry. Although it may seem pessimistic for airlines, Nordea Trade (2021) predicted Vietnamese economy will bounce back post-COVID, thanks to the appropriate governmental strategies to monitor the national GDP growth. As soon as travel activities resume, low-cost carriers (LCCs) like Vietjet are projected to obtain the most opportunities from the market. Filled with price-sensitive passengers, the market under COVID-19 impacts are likely to witness more of these customers that both leisure and business travelers were choosing LCCs to save money (Teichert, Shehu & Wartburg 2008; Mason 2005). Hence, a brighter future is yet to come and LCCs like Vietjet should be prepared to capture upcoming chances.

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1.4 Ecological The most significant environment-related problem caused by the airlines is greenhouse gases released by aircraft engines that trap terrestrial radiation and chemically active gases and eventually increase global temperature (Lister et al. 1999) or leave heavy casualties on the climate and ozone level (Capoccitti, Khare & Mildenberger 2010). On the other hand, typhoons, floods and storms are common negative impacts of natural factors (Qui 2020), which create risk on flight safety and economical damage for airlines as it delays flights. As climate change is created by aviation activities (airline engines release), many airlines including Vietjet established action plans to optimize aircraft carrying capacity and fuel consumption to reduce exhaust emissions (Vietjet 2019). 1.5 Political Despite having a favorable political condition in Vietnam, with special attention to boost the aviation industry development by 2030 (Das 2018), limitations in investment policies, for example 30% of low contribution of foreign capital and slow issuing of licenses, created barriers for foreign investments to flow into Vietnam (VOV 2019). Besides, since COVID-19 pandemic is well-controlled by implementing appropriate social distancing measures, the government is encouraging domestic travel demand to stimulate and accelerate the needs of domestic travels, including flights to help the industry to rebound (Constantin, Francois & Le 2021; Vietnam News 2020).

2. Micro Environment - Porter’s Five Forces 2.1 Threat of new entrants Massive operating cost and initial capital investment are some hindrances for new aviation entrants. Examining the case of VietStar as a new domestic airline, VND700 billion and complex endorsement procedures are required by Vietnamese government (Shira 2018). Moreover, when investigating the business license of Vietjet (Vietjet 2018), it stated their authorized capital was more than VND5000 billion. The financial barrier to entry is, therefore, incredibly high that eventually leads to low level of new entrants threats. 2.2 Bargaining power of suppliers As being operated in a unique industry, Vietjet only has two options to purchase their aircrafts from two major producers and suppliers - Boeing and Airbus (Vietjet Air n.d.). With limited sources of aircraft producers in the market, Vietjet needs to build and maintain a close relationship with these manufacturers on long-term, billions USD worth contracts, as they planned to update their fleet with 200 jets to adapt with increasing customer demands and ensure flight safety. Eventually, long-term agreements with these

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manufacturers ties their relationship with each other and Vietjet has to rely on Boeing and Airbus for their aircraft manufacturers. Therefore, the suppliers’ bargaining power is remarkably high. 2.3 Bargaining power of buyers Despite the rising number of passengers, customers only have limited choice, as each airline defines their brand names and development strategies differently. If customers are highly price sensitive, they are likely to choose brands that follow the cost leadership practice to lower the flight ticket price. Compared to other airlines, Vietjet and Jetstar Pacific are the only two LCCs operating in the market that budget travellers can choose from. Moreover, despite the factors of price, flight delays and safety, switching costs in the Vietnamese aviation industry are low, meaning that customers can constantly switch from one airline to another depending on their demands. The buyers’ bargaining power is therefore considered as low. 2.4 Threat of substitute products Many substitutes threatening air travelling are road transportations (cars and public buses), trains and cruise ships. Customers will choose the appropriate means of transport based on their budget, travel distance and travel time that leads to convenience during the trip. However, for long-distance and timesaving travel, the choice of Vietjet is over other alternatives. Positioned in the market as LCC, Vietjet can easily gain market share and acquire customers from other means of transportation. Hence, the convenience and reasonable price offerings helps Vietjet to sustain and compete within the travel industry and lower the threat of substitutes. 2.5 Rivalry among existing competitors Positioned at the second place regarding market share in the Vietnamese aviation industry, after the pioneer corporation Vietnam Airlines, Vietjet is currently facing an emerging intensitivity in competition since the new entrant of Bamboo Airway. Unfulfilled aspects of Vietjet such as superior serving standards and flights’ punctuality can be competitive advantages of other brands. The market share of Vietjet is potentially threatened by Bamboo Airway or Vietnam Airlines as these competitors pursue full-service strategies to directly compete with low-cost carriers like Vietjet. Hence, the competitive rivalry between airlines is classified as high.

III. INTERNAL ANALYSIS 1. Resources and Capabilities A set of tangible resources to assist Vietjet in gaining low-cost position in Vietnam’s aviation market. Apart from effective aircraft financing schemes, or comprehensive cash-flow management as Vietjet’s financial strengths, other physical and technological resources respectively, such as huge investments in building 4

hangers within a fleet of 75 aircrafts and application of advanced technology into customer service, and flight schedule optimization, also contribute to the airline’s development. Besides, having 5,092 total number of talented, qualified and enthusiastic human resources and strong brand value are also fundamental factors to the sustainable development of Vietjet. Generally, there are three core resources of Vietjet including training and talent development; brand value; and technology and innovation that provides potential for competitive advantage. Regarding capabilities, the use of VRIN framework will examine whether Vietjet’s core resources will meet the requirements (valuable, rare, inimitable and non-substitutable) to attain sustainable competitive advantage or not.

2. Competencies

Based on the above evaluation of Vietjet’s three key internal competencies, it is evident that proficient Human Resource and Technology advancement have created two significant competitive advantages that will help Vietjet sustain in the competitive and dynamic airline industry. Whereas, strong brand value is only considered as a short-term competitive parity as it is easy to be followed and would constantly need consistent effective marketing strategies to maintain.

IV. STRATEGY ANALYSIS 1. Current Bu...