University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
The Simulation Project
Multinational corporations face many challenges in their domestic and global environments. According to Ajami, Cool, Goddard, and Khambata “a multinational firm is one in which a certain percentage of the earnings, assets, sales, or personnell of a firm come from or are deployed in foreign locations” (Ajami, Cool, Goddard, & Khambata, 2006, p. 6). According to this definition US Airways Group would be classified as a mulitnational firm. On Fortune 500’s Worst List, US Airways Group is identified as a least admired company on all eight attributes identified by the research and surveys performed by Hay Group (Best & worst in…, 2006). As the name implies US Airways Group operates in the Airline industry. This paper will discuss how government regulations, hard and soft technologies, some political-legal barriers, sociocultural factors and two economic theories that are faced by US Airways Group are affected by their domestic and global environments. It will also offer a strategy for US Airways Group to countinue its growth and success as an industry leader. As indicated from its name the domestic environment of this company is the United States and the global environment that will be used is Costa Rica. In the US the airline industry has two main agencies that write regulations that it has to obey.
The Federal Aviation Administration (FAA) and the United States Department of Transportation (DOT) (Electronic Code of Federal Regulations, 2012). Although the airline industry was de-regulated in 1978 the DOT “retains the authority to alter or amend any airline’s certificate or to revoke such certificate for intentional failure to comply with the terms and conditions of the certificate” (10-K, 2012). The FAA is responsible for writing the regulations that relate to aircraft maintenance and operations, certification of pilots and flight crewmembers and air traffic and general
operating rules (Electronic Code of Federal Regulations, 2012). Another other agency that establishes guidelines that the airline industry has to abide by is the Environmental Protection Agency (EPA).
The EPA is responsible for “regulating operations, including air carrier operations, which affect the quality of air in the United States” (10-K, 2012). US Airways Group has to follow all the established regulations created by the FAA, DOT and EPA if it wants to remain in business in the United States. They have to keep up-to-date with the maintenance requirements and keep accurate records as established by the FAA and continue to have their aircraft inspected at regular intervals as prescribed by the FAA (Electronic Code of Federal Regulations, 2012). They must ensure they follow EPA guidelines regarding air quality, while continuing to meet the DOT requirements for operating at efficiency or risk having their certificates revoked to do business as well. In Costa Rica, the government is based on Roman law, which is very different from the US legal system (Doing Business in Costa Rica: 2012 Country Commercial Guide for U.S. Companies, 2012). The ways the laws are written is how they are applied and there is little to no room left for interpretation by anyone regarding the laws. Therefore the way that the government regulations that US Airways Group must follow are written are the way that they must be followed.
The government has established travel guidelines that must be followed there, the most important being that: currently you are not permitted to enter Costa Rica unless you have a roundtrip ticket (Costa Rica, 2012). The easiest way for US Airways to avoid an issue regarding this regulation is to ensure that all travelers going to Costa Rica have a roundtrip ticket when they board the plane in their departure city, along with valid identification. “Hard technology includes the physical hardware, capital goods, blueprints and specifications, and knowledge necessary to use the hardware, while soft technology encompasses the management, marketing, financial organization, and administrative techniques that can be combined with the hard technology to serve the needs of the use” (Ajami, Cool, Goddard, & Khambata, 2006, p. 358). Based on this definition some of US Airways hard technologies would be their aircraft (planes), hubs (airport locations) and even their flight crews.
The planes that are currently in the fleet are manufactured by Boeing, Airbus and Embraer (US Airways Fleet, 2013) and some are equipped with the “ACSS’s XS-950™ Mode S Transponder” which allows for the transmission of information regarding the planes “position, speed and intent” (Press Releases, 2012). They have hubs in the four US cities and have established a partnership with Star Alliance (US Airways A Star Alliance Member, 2013), which gives them access to a hub at London’s Heathrow Airport as well. The flight crew has the knowledge to operate the aircraft as well operate the terminals efficiently within the hubs. It is the flight crew’s responsibility to ensure that the passengers are on board the plane on time and that the plane departs the gate on time.
The soft technologies currently employed by US Airways includes their Nuance interactive voice response (IVR) system, which was one of their new marketing tools to help reduce customer frustrations (Interactive Case Study: US Airways, 2013), audits of customers’ airport experiences (Sunnucks, 2010), and training on the other new systems that have been implemented to help with customer satisfaction. Just as flight crews can be classified as hard technology the management staff of US Airways can be classified as soft technology because it is their responsibility to make sure that the customers are kept happy and that they use their administrative talents to keep the employees satisfied as well. If US Airways continues to educate, value and respect it employees, while using new technology to keep up-to-date with the rest of the industry and survey its customers for satisfaction their success will continue to improve. One of the political-legal barriers that US Airways Group will face in the US and Costa Rica the differences in the legal system as identified earlier. In the US the laws are interpreted and judges look at past cases to help decide how to rule on a current case, in Costa Rica judges look at the law the way it is written and make their rulings based on the way the law is written.
If US Airways is not careful and does not fully understand the laws and how they are written in Costa Rica this could be detrimental to their operations there. In the US they not only have to comply with federal laws but state laws as well that have been established. Although both governments are classified as republics, the US has what the Central Intelligence Agency (CIA) refers to as a federal republic and Costa Rica has a democratic republic (The World Fact Book, 2012). In Costa Rica they promote a political environment based on inclusion. One of their political parties is Partido
Accesibilidad Sin Exclusión (PASE) which translated into English is Accessibility without Exclusion Party (Obando, 2013); however the US is not necessarily an inclusion-based society. The US does have laws regarding accessibility for individuals with disabilities and they are taken very seriously, Costa Rica is not as readily as accessible as one would think they would be based on their inclusion-based political system. For US Airways to continue to be successful in the US and Costa Rica concerning the political-legal environments within those countries they should remember the “history of close and friendly relations based on respect for democratic government, human freedoms, free trade, and other shared values” (World-Country Profiles; US Department of State Background Note, 2007), this falls in line with the concept of the classical theory of trade (Ajami, Cool, Goddard, & Khambata, 2006, p. 48). Geert Hofstede developed his theory of the five dimensions of culture, based on information provided to him by IBM regarding employee values in their survey of more than 70 countries between 1967 and 1973 (National cultural dimensions, 2013).
“The five dimensions of culture as theorized by Hofstede are: social orientation, power orientation, uncertainty orientation, goal orientation and time orientation” (Ajami, Cool, Goddard, & Khambata, 2006, p. 213). The five dimensions are broken down into simple terms as: social orientation – reflects a person’s beliefs about the importance of the individual over the group for which they belong; power orientation – deals with how one views authority and power differences in a hierarchy; uncertantiy oreintation – refers to how one feels regarding change; goal orientation – deals with how one is motivated towards achieving goals and the fifth and final dimension time oreintation – refers to the how individuals in a culture adopt an outlook of long or short term regarding life, work and other issues (Ajami, Cool, Goddard, & Khambata, 2006, p. 213-214). In regards to the sociocultural aspects related to these dimensions of culture as identified by Hofstede there are many that are different as well as some that are similar for these two countries. One of the biggest differences between the two countries is their attidudes towards time. People in the US are all about time and money whereas people in Costa Rica want to take their time and really understand what is happening.
The attitudes towards work and lesiure follow suit with the attitudes towards time. Many in the US do not take vacation time off because things need to get done, whereas Costa Ricans are more concerend with spending time with their families and socializing with friends (Provasi, 2012). The attitudes regarding change, material things, and jobs are also at opposite ends of the spectrum. These things are important to most Americans and they look at these things as a way to build themselves up. Costa Rican’s on the other hand look at these things and will be just as comfortable with keeping things just they way they are. Aspects that are similar in the two countries are literacy rate and education mix. Both coutries hold these items in high regard and try to come up with ways to encourage the young people to stay in school and continue with their education and pursue higher education as well. Another item that is similar is their “open door” policy in the work place, managers are accessible at all levels and this makes it very familiar. The two economic theories that will be compared and contrasted are Walt Whitman Rostow’s Stages of Economic Growth and John Kenneth Galbraith Equilibrium of Poverty for the domestic and gloabal economic environments identified above for US Airways Group.
The US has a mixed economic environment and is classified as a first world country. The reason the US does not fit into one specific economic environment is it has characteristics of capitalism in which the relationship of supply and demand dictates price and it also has elements of a free-market economy in which the government establishes laws and policies to ensure public safety and welfare (Ajami, Cool, Goddard, & Khambata, 2006, p. 59). Costa Rica has a social market economy (Rojas, 2006) and is classified as a thrid world country (Rosenberger, 2012). A social market economy is similar to a free-maket economy in that “it upholds free market components such as private property and ownership of businesses and industry, free price formation, market competition and free trade, while also utilizing government regulation to create fair market competition by preventing market monopolies, ensuring ongoing economic development and poverty alleviation” (Social Market Economy, 2013). Based on the definitions provided it can be said the both economies are similar in regards to government regulations being involved in creating a fair and safe market environment. Walt Whitman Rostow identified five economic stages of growth in which a country could fall: traditional society, transitional stage, takeoff, drive to maturity and the age of mass consumption (Ford, 2004).
Each stage represents a stepping stone to for the next stage. According to Rostow the US surpassed the age of mass consumption in the late 1950’s (Ferraro, 1960), Costa Rica however is still in the takeoff stage. This stage is “marked by major transformations that stimulate the economy” (Ajami, Cool, Goddard, & Khambata, 2006, p. 55). For US Airways Group, in Costa Rica this is identified by their growth in the technological area (more flights operated) as well as more jobs being created due to the increase in flights. Although in the US this stage has been surpassed, US Airways contiunes to “grow” in this aspect because they are increasing flight schedules. Galbraith’s view of economics is similar to that of Rostow, in that economic growth is as much a change in social, intellectual and policatical as well as physical (material) change (Watson, 2011). According to both of their economist views the US operates as a capitalistic economy. This is true of US Airways in the way that they have been able to turn-around their business since 2005. They actually took into consideration things that would make the consumers happy, not necessarily increasing their capacity (i.e. putting more seats on a plane), in doing so they were able to keep up with the consumer’s wants and still provide the service that was needed (Smith, 2012). This falls into Galbraith’s view that “the major affirmative purpose of the firm is corporate growth” (John Kenneth Galbraith’s Contributions to Economics, 2013). This view is similar to Rostow’s age of mass consumption in that both concentrate on the high standards of living (i.e. comfort in travel on the plane) that have been established as a result of the efforts set forth is their respective stages.
Where the two differ dramatically is that Galbraith believes that the companies direct the consumers wants by advertising that makes the consumers desire certain products or services, and that therefore the economy is more driven by the seller and not the consumer (John Kenneth Galbraith’s Contributions to Economics, 2013). In this instance though, that concept contradicts his idea of ‘the major affaimative purpose of the firm is corporate growth’ in the example provided regarding US Airways above. In successfully industrializing a poor economy such as Costa Rica’s, Galbraith’s Equilibrium of Poverty offers the idea of the reliable infrastructure system (Ajami, Cool, Goddard, & Khambata, 2006, p. 57). This idea simply means that the country would need to have a “relieable system of roads, ports, electrical power supplies and communications” (Ajami, Cool, Goddard, & Khambata, 2006, p. 57). In this case US Airways already has access to these items at the airport and therefore is well on its way to helping the economy grow and prosper. While both Rostow and Galbraith believe that governement need to be invovled in the initial stages to help third world countries establish themselves and help to protect their citizens they also understand that there will be a time when the government will need to step back and let the companies in the different industries takeover and control their own destinies so to speak.
Rostow does not mention how or when he thinks this should be done, however Galbraith says that he feels that governments should impose “taxes on consumer goods and services, using the proceeds to increase the availability of public sector goods and services” (John Kenneth Galbraith’s Contributions to Economics, 2013). In doing this, he is trying to show that eventually there has to be a point where control is given to the companies and they only need to answer to the governments when required or necessary. US Airways Group has made significant improvements in seven of the eight-attribute areas identified On Fortune 500’s Worst List 2006. On the 2011 list they still have a ranking on the worst product quality attribute of number 11, which is down from 10. US Airways Group needs to figure out ways to improve the quality of their service as well as their products. Although they may not have much control over the service aspect because the flight schedule cab be delayed because of an airline from another company they can control they products.
They can invest in newer planes, upgrade/update their current planes and even update their hubs in the airports that they currently operate in. Other ways for the company to continue to grow and succeed in the domestic and global environments are they must continue to improve their offerings. They are off to a great start by taking surveys and asking customers what is important to them. They need to go a step further and ask the employees what is important to them, what will keep them loyal to US Airways Group. Take what they learn from the employees and the implement changes that are suggested. Continue to ask the customers what they like, do not like, what other features they would like to see in the airports, on the planes and in the air. I think one thing that the company should do is take a lesson from Southwest and stop charging baggage fees for the first checked bag. They should eliminate change fees, and if someone needs to cancel their trip completely, implement a cancellation fee, but refund the difference between the ticket price and the cancellation fee. By eliminating their fees they will draw more passengers to the airline and increase sales, because people will not feel as if they are being taken advantage of. In today’s economy this will go far with consumers and could lead to even bigger profits in the end, because they will feel that US Airways Group is a company that is not just looking out for themselves but for their customers as well.
As demonstrated there are several different environments that a multinational corporation must take into consideration when exploring new opportunities. The government regulations, hard and soft technologies, political-legal barriers, sociocultural factors and economic theories that a company faces and how they handle each of those environments will determine if they will succeed or fail. Walt Whitman Rostow and John Kenneth Galbraith’s economic theories can be used by companies to help determine if the global environment that is being considered will be a good fit with the domestic environment of the parent company. Once the location has been setup and establishe the company must realize that the work does not stop there, they must always analyze and remember they want to continue to grow so they need to ask the question what do we do to contiune to prosper or what do we do to make it so we do prosper.
10-K, A. H. (2012, May 19, Retreived December 16, 2012). Government Regulations and Airline Industry Taxation. Retrieved from Wikinvest: http://www.wikinvest.com/stock/AirTran_Holdings_(AAI)/Government_Regulations_Airline_Industry_Taxation Ajami, R. A., Cool, K., Goddard, G. J., & Khambata, D. (2006). International Business: Theory and Practice. Armonk, NY: M.E. Sharpe, Inc. Best & worst in… (2006). Retrieved from CNN Money: http://money.cnn.com/magazines/fortune/mostadmired/2006/best_worst/ Costa Rica. (2012, December 30). Retrieved from cr2net.com: http://www.cr2net.com/costarica/coming_and_going.htm Doing Business in Costa Rica: 2012 Country Commercial Guide for U.S. Companies. (2012, December 30). Retrieved from The Department of Commerce: http://www.buyusainfo.net/docs/x_1853591.pdf Electronic Code of Federal Regulations. (2012, December 13, Retreived December 16, 2012). Retrieved