Overview of Virgin Australia
Virgin Australia is the second largest airline company in Australia after Qantas airlines. The company is based in Bowen Hills Brisbane and is co-founded by British Businessman Richard Branson. The company was established in the year 1999 as Virgin Blue and only two airlines operated for the company on a single route. The airline company however has grown over the years to serve 29 cities in Australia from hubs in Melbourne, Sydney and Brisbane. In the initial years the positioning of the company was quite different from what it is now, it operated as a “low cost carrier” but with time the company improved the services and repositioned itself as “New World Carrier”. The company came up with the new business model thus promising the customers with all the services that are absent in low cost airlines. Hence this approach to transform from a “low cost airline” to “No Frills” approach has helped the company to grow manifolds and has also allowed its expansion in the international market.
The countries that would be selected for the expansion are Mainland China from the Asian continent and Estonia from the European continent. These two countries have been selected as these are emerging markets and hence would be a profitable avenue for the company to plan their expansion in these regions
Estonia has been ranked consistently as having a business friendly environment which would help in the expansion of the airline company in this region. The governmental policies for business in this region are business friendly this region is also marked by low levels of red- tapeism which would be beneficial for the company for its expansion. Since Virgin Australia is not present in this country Estonia would be an excellent choice for its expansion in the European Region.
On the other hand Main Land China is another attractive destination in the Asian Region for the market expansion of Virgin Australia. This region’s business environment is marked by a few characteristics like tax efficiency, free economy etc. which makes the region an attractive place for foreign direct investment.
The political condition of the country is attractive for foreign investment which could be seen in the political priorities for mobility development in their 2014-20 budget plans. The budget plan ensures economic growth, greater competitiveness; enhance travel connections to boost tourism in the region etc. The 2014-20 budget plans show that there have been investments and subsides for public transport to develop the infrastructure of the country. The development of the Rail Baltic railway development project suggests that the region is developing its connectivity with other European nations and other parts of the world and hence it could be said that this is the right time for Virgin Australia to expand its operations in the region.
The country has received 3.59 billion Euros in total cohesion policy funding for the development of its infrastructure and remove certain bottlenecks in its infrastructure. Funds have been allocated for the development of industries and thus the economic climate of the country could be said to be good for considering it as an important market for international expansion. More over the rate of unemployment is also low which ensures higher disposable income of the population. Huge investments are being done for the development of road and railways which suggests that the airline industry would not be at loss in this particular region. It is also considered as a high income economy by the World Bank and is also the 4th freest economy of Europe which makes it an attractive destination for investment. The average monthly gross salary of Estonia is 1156 Euro. And the country has a ranking of 16 when it comes to the ease of doing business in this region.
Market selection process for expansion
The country has ethnic strife but then again there is good potential for growth owing to its geographic location and affluent Russian minorities. The business environment is characterized by trust and hence there is good business opportunity in this region.
The laws related to the business environment are dynamic as international standards are followed with the replication of some of the international rules and regulations. National and local bodies exercise control over environmental elements to safeguard the environment and hence companies entering in this region need to abide by the environmental laws enforced by these bodies.
The legal environment is also liberal in Estonia mainly the taxation policy which has led to the rapid growth and development of the country. Foreign investors have equal rights at par with local entrepreneurs which make business easy for foreign investors in Estonia. The country also has treaties for protecting investments with countries like Germany, France, Finland Switzerland, Norway etc.
During the period 2001-2002 Estonia Re-oriented itself by massive transition from a soviet socialist republic to a neo Liberal democracy with an aspiration to join NATO and EU. However the Geo-political location could be said to be a security concern for the nation from the Russian military buildup in the region and fears that Russia can attempt to annex Estonia. However Estonia being a NATO member, any kind of security concern would be taken care by all the member nations of NATO under the mutual defense clause. During 2017 1000 British and French NATO troops were deployed in Estonia which is the biggest deployment in Europe after the cold war.
China being one of the most powerful economies in the world also is an attractive market for foreign investment. China has a stable political environment which makes it more attractive for foreign investors and off late the country has repositioned itself as a great destination for foreign direct investment.
China is the second largest economy in the world and the world’s largest economy based on its purchase power which suggests that expansion into the Chinese market would be profitable for the company. The availability of cheap labor also makes it an attractive destination for foreign investors.
China is the most populous country in the world and hence is a massive market for products and services. With the average wage going up in the recent period the purchase power of the population has also increased manifolds thus making it an attractive market for foreign investors. With high education rate and poverty reduction strategies adopted by the government the Chinese economy is attractive enough for investment. The need for luxury goods and services also makes it an attractive destination for companies.
This country has the world’s largest online population which suggests that China is a tech savvy nation and hence for operating and succeeding in a country like this a company needs to have the latest technical knowhow.
The Chinese business environment like other countries is also governed by business rules and regulations. The PRC labor law 1995 and the PRC labor contract law 2007 regulate labor standards and employee benefits and remuneration in the country and hence these should be abided by all working in the Chinese Business environment.
Analysis of Estonia as an attractive market for expansion
The road initiative being undertaken by China would be helpful for improving their trade connections with European countries and I the last 15 years the country has become an important player in Latin America and Caribbean countries. This growth of Chinese economy has undoubtedly harmed the national security of the U.S. which has led to the attention of the U.S on Chinese economy.
The business environment of this region is supported by a stable and flat rate tax system which will ensure long term value creation. The company would not have to pay tax on retained profits and the existence of several double taxation treaties would help in long term planning and efficient flow of financial resources. The country has a well developed communications and transport framework which makes the country and important tourist destination and hence profitable for the company to expand its operations in this region. The country is also connected to the international flight network through its international airport in Tallinn which has direct flights to different destinations in Europe.
As far as the business climate is regarded the country is in a leading position when it comes to attracting foreign direct investments in Central and Eastern European region. The country has a free business trade environment which is aligned to the EU business practices. The country also has a high credit rating in the region as compared to other countries in the region. The fiscal policies of the government are aimed achieving long term economic growth in the region with a welcoming attitude for foreign investments in the region. The competition policies in the region are also competitive which makes expansion in this region safe. The labor market is also competitive in this region where at least one third of the population has a higher education which indicates that the company would be able to hire local employees. Hence it can be said that the overall business environment in the region is attractive enough for the said expansion.
The trade policies of China are effective enough for foreign direct investments like the ease of restrictions in free trade zones for foreign investors. The country has also declared withholding tax deferral for foreign investors who would operate in China. In 2017 a new circular was issued regarding FDI policy in the country to facilitate foreign direct trades in the country. Although at first glance the policy might seem to be a reaction to the Chinese economy slowdown but in reality this policy has positive implication in the long run and would help open up Chinese economy to foreign direct investment.
An assessment of the potential dangers, risks and opportunities in the current or short-term policies of each country
Although Estonian economy is growing at a steady pace but at the same time there is risk to its competitive edge. The growth however is likely to be driven by domestic demands and private consumption. The tightening labor market and tax cuts and cut in inflation rate is likely to boost household spending in the country which highlights the attractiveness of the market for future investors like Virgin Australia. The country would have enough public investment till the year 2020 which is good for the market and the investors.
Analysis of Mainland China as an attractive market for expansion
But at the same time there is growing pressure on labor cost owing to labor shortage in the country and there is also threat of negative demographics which might threaten the competitiveness of companies in the country. Although the country’s economy is growing steadily but at the same time the country is looking forward to constant flow of foreign investments for further enhancing the economy of the country. The country has a pro- business legislative framework which is attractive for foreign investors from all around the world. The country also has a business friendly environment which is another reason for attracting foreign investors in the country. However Estonia is highly dependent on Russia for energy and imports from Finland and Sweden. The main draw back and a major threat could be the lower purchasing power of the population which is much lower than neighboring countries. However the policies regarding investment, trade and government intervention it could be said that Estonia has some of the most liberal policies in the region which is good for business and at the same time could be negative for international business at times as international companies should be governed with stricter laws and regulations. The taxation rate being low in the region is also helpful for the growth and sustenance of companies in the region.
When it comes to investment in China opportunities are immense but at the same time there are real risks involved with expansion in China. Unlike Estonia the government control in China is stricter. Although all the competitors are subject to same rules and regulations but in China Local competitors have advantage which makes it difficult for international players. Local competitors are also promoted in China which is another threat for international companies. Last but not the least opaque practices make it difficult for international players to grow and sustain.
Conclusion
The report highlights the importance of international expansion and studies two new markets for the expansion of Virgin Australia both in the European and the Asian market. The risks and opportunities of development in these two markets have been discussed in the report which will help the company to improve their strategies wherever needed to cope with the external market conditions in these two sectors.
Bazile, D., Salcedo, S. and Santivañez, T., 2015. Conclusions: Challenges, opportunities and threats to quinoa in the face of global change.
Dunlop, E., 2016. 21. Globalization and sovereignty: global threats and international security. Research Handbook on Global Administrative Law, p.458.
Hitt, M.A., Li, D. and Xu, K., 2016. International strategy: From local to global and beyond. Journal of World Business, 51(1), pp.58-73.
Liesch, P.W., Welch, L.S. and Buckley, P.J., 2014. Risk and uncertainty in internationalisation and international entrepreneurship studies. In The Multinational Enterprise and the Emergence of the Global Factory (pp. 52-77). Palgrave Macmillan, London.
Bogdanova, S.V., Kozel, I.V., Ermolina, L.V. and Litvinova, T.N., 2016. Management of small innovational enterprise under the conditions of global competition: possibilities and threats. Eur. Res. Stud. J, 19(2), pp.268-275.
Hutzschenreuter, T., Kleindienst, I. and Lange, S., 2014. Added psychic distance stimuli and MNE performance: Performance effects of added cultural, governance, geographic, and economic distance in MNEs’ international expansion. Journal of International Management, 20(1), pp.38-54.
Reuber, A.R. ed., 2018. International Entrepreneurship: The Pursuit of Opportunities Across National Borders. Springer.
Picciotto, S., 2017. Rights, responsibilities and regulation of international business. In Globalization and International Investment (pp. 177-198). Routledge.
Vahlne, J.E. and Johanson, J., 2017. The Internationalization Process of the Firm—A Model of Knowledge Development and Increasing Foreign Market Commitments. In International Business (pp. 145-154). Routledge.
Luthans, F. and Doh, J.P., 2018. International management: Culture, strategy, and behavior. McGraw-Hill.
Chabowski, B.R., Samiee, S. and Hult, G.T.M., 2017. Cross-national research and international business: An interdisciplinary path. International Business Review, 26(1), pp.89-101.
Buckley, P., 2017. International business. Routledge.
Bowie, N.E., 2018. International business as a possible civilizing force in a cosmopolitan world. Journal of Business Ethics, pp.1-10.
Parboteeah, K.P. and Cullen, J.B., 2017. International Business: Perspectives from developed and emerging markets. Routledge.
Zhao, H., Zhang, F. and Kwon, J., 2018. Corporate social responsibility research in international business journals: An author co-citation analysis. International Business Review, 27(2), pp.389-400.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
