Ryanair's Globalisation Process - Case Study Example

RYANAIR CASE STUDY BY Globalization is the process of integration of the world both socially and economically aided by information technology and improved transport system (Powell, Ghauri 2008, p.18). The globalization process is one that any firm desiring to succeed in the global market needs to embrace. Liberalization has led to a faster rate of globalization through opening up of markets and deregulation of countries to allow countries trade freely with each other. The more open markets are the greater the chances firms have to expand their operations and increase their profitability. However, new markets come with more challenges in some cases leading to losses to the firm (GOLDMAN & NIEUWENHUIZEN 2006, p.9). Therefore, proper evaluation of the market has to be undertaken to ensure higher chances of success in the new market. Opening up of markets also means a new challenge to the existing market leaders as they are faced with new competition thus the need to change strategy. Changes in regulation also affect the operation of firms in the market thus the need to regularly check regulations to ensure compliance (LOWENDAHL 2005, p.163). At times, the firm may be forced to get back to the drawing board to formulate new way forward so as to be profitable in the global market. Any business desiring to compete in the global market has to make the bold decision of taking on a risky investment (SHETH, PARVATIYAR & SHAINESH, 2001, p.34). In the process of globalization, signing of agreement between Ire and London to open up air traffic between them was the beginning of globalization process in the two countries presenting Ryanair an opportunity to explore new market. In anticipation of increased air traffic between Irish and London, Ryanair made the bold decision of applying for the newly available license to be given to a second firm after the signing of the new air service agreement. Without any past records on the success of the rout in air traffic, applying for the license to operate the route was risky as returns were not assured. Other firms not applying for the license is an indication that there was general fear of investing in new markets. The opportunity came with additional cost requiring additional resources. This is the cost of globalization that the firm had to incur so as to earn revenue from the new investment. The firm incurred cost of purchasing two more planes to satisfy the increasing operations. Increased competition in the market place is also forcing big firms to change their operations to maintain their market standing (Rajagopal 2013, p.133). as the new small firms are trying to grow in the market, the market leaders also struggle to maintain their position and be ahead of their competitors. One such move is the price competition through reducing prices to attract customers. Aer Lingus slashed its prices blocking the way for Ryanair expansion into Dublin to Manchester route. Further, mergers and acquisitions are also made in order to enable firms access more global markets where licensing is a problem (Wong, Ungson 2008, p.71). In the case of Ryanair, it acquired 85% of the London European airways to enable it expand operations to other parts of London. The acquisition gave the firm an opportunity to expand its operations and increase income. Further, with globalization comes the opportunity for firms to access new and more experienced management (Heng 2006, p.19; WALSH 2006, p.247). The managers face threat of being overtaken if they do not perform thus the need to put their best at work. In the case study, despite the expansion of the operations of Ryanair, the firm had never earned any profit. Conflicting interests between the management and shareholders can lead to major losses to the firm as the managers can serve personal interest at the expense of the firm. Ryanair cited differences with the management before the removal of the O’Neil who had been the CEO since formation of the airline. In his place came in McGoldrick was brought in from similar position from heavy lift cargo Airlines. Globalization enabled the firm to access the more experienced CEO from its competitor within a very short duration. Firms apply various strategies in a bid to reduce losses incurred in a given market (Goyal and Goyal 2008, 139). One of the strategies that was applied was changing the management and having a new chief executive officer with the hope of new better ideas in the firm. The firm was able to make its first profit ever since its formation in the year 1991 after change in management with the new CEO coming from its major competitor in the market Aer Lingus. The assumption that can be made is that the new CEO came in with the ideas that the competitor was using in the market thus enabling Ryanair to be profitable. Another strategy that was utilized by Ryanair was the cutting off of the two new routes that were a major source of losses to the firm. Cutting off the routes has to effects; reducing the current loss associated with the routes and eliminating any potential income from the rout. The two effects are to be clearly analyzed before any major decision is made. In this case, the losses were so high that the firm could not make any profit thus it was justifiable to cut off the routes. With globalization, firms are faced with global challenges that are out of their control but affecting their operations (Synnot 2014, p.7). One such challenge is war in the region that the firm operates in. even after the Irish government eliminated cut throat competition between its two major airlines Ryanair and Aer Lingus in the two airline policy; Ryanair was still not able to break even. The firm expanded its operations and had distinct routes eliminating competition but was affected by the Gulf War which took place between 1990 and 1991. The deregulation of the European Union airline business was another opportunity for the firm to exploit. With every move towards globalization a new business opportunity comes up for firms to exploit Hart Prakash & Family 2002, p.7). Further, adoption of the use of technology in business enables the firm to increase efficiency and cut cost in the global market (Acocella and Jones 2005, p.150). With the global changes, cost minimizing is the way forward which has been aided greatly through the new technology. Information technology is one major area that has aided the process of globalization. Through developing an online forum where clients could book their flights, the firm was able to increase efficiency in booking and save on time for both the customers and the firm. Information technology is increasing communication between people who are physically far apart. The online booking accounted for more than 75% of the bookings by the firm thus reducing the cost of staff for physical booking. The internet has also enabled firms to market far and wide worldwide its various products and services to the potential clients. Moreover, the process of globalization has not only opened up markets to firms but also increased suppliers that firms can access (DOOLE & LOWE 2005, p.146). Global competition is forcing suppliers to give attractive discounts that are meant to attract customers. Increased competition in the market between suppliers is working to the advantage of firms who are now able to contract reliable and cost effective suppliers to serve them. For example, Ryanair was able to secure a contract with Boeing for the supply of aircrafts at considerably lower prices than normal prices. Further, moving with the latest trend in the market will help the firm keep up with the pace in the global market. New practices and ideas are coming up every day thus the need to adopt them to keep up with the market. External financing is part of the current trends that firms adopt (Rajagopal 2013, p.133). One such trend is the listing of the firm’s stock in the NASDAQ exchange. The initial public offer by the firm enabled Ryanair to raise funds for buying 45 new planes. Selling of the stock in the market enables the firm access more funds for its major projects while increasing public confidence in the firm due to the listing. Further, the listing enables the firm to spread risk thus reducing losses as all shareholders bear the risk of loss thus spreading to a larger number of people. Standardization is another practice in the global market that enables firms succeeds. Different markets have different consumers and needs that require resources to satisfy (Davies 2012, p.62). With standardization, the needs of all consumers are taken into consideration and a standard is arrived at that will satisfy the needs of the majority of the consumers. In this case, the firm will only use the same standards in all markets reducing the cost of operation and asset acquisition. Ryanair has adopted a standard of airplanes it uses and prefers using Boeing planes only. By so doing, the firm is able to access supplies from one supplier thus receiving trade discounts for bulk purchase and due to continuous trade relationship. Further, the firm incurs lower training cost for its pilots as they are all trained for the same plane since the firm only runs Boeing planes. Therefore the pilots are easily interchanged without any difficulty as they can operate any plane in the firm. Creativity and innovation is another key characteristic of successful firms in the global market (KEILLOR 2012, p.82; Hosie 2006, p.13). The use of customized services enabled Ryanair to reduce costs of its air tickets and use the expected cost as a source of income. Unlike other firms who majorly offered all services desired by passengers leading to higher operational cost which is in turn reflected in the tickets, Ryanair opted to offer only the basic service of air transport. Therefore the clients would pay a ticket for the air transport only excluding other subsidiary services like food and drinks. Since not all customers want food and drinks, then only those in needs will incur the extra cost for them. Thus making the ticket cost friendly and effective for clients. Further, the firm charged a fee for luggage inspection depending with the size of luggage the client had. This was a fair practice as clients only pay for what they have; the lesser the laggage the lesser the cost incurred. This gave clients freedom of choice on their preferred extra service depending with the extra costs they are willing to incur depending with their purchasing parity (Brakman 2006, p.18). Further, with globalization decentralization is becoming more important to ensure equal development of nations (CZINKOTA & RONKAINEN 2007, p.227; GHAURI & POWELL 2008, p.48). Most businesses are located in urban areas thus incurring high operational cost than firms located in the remote areas. Due to improved transport and communication system, firms can now locate in the rural areas and still operate as efficiently as those in the urban areas but at lower cost. The internet enables firms to market its products and make sales online despite their physical location. Through improved transport and communication, more clients are able to access firms in all areas (Brady 2010, p.174). Ryanair has taken advantage the improved transport and communication by avoiding locating in city centers. The firm used secondary airports that were formally military airfields thus incurring lower landing charges and faster turnaround due to lesser traffic. In conclusion, globalization has changed the operation of firms in the global market. Several strategies have been applied by firms to ensure fair play in the market at the lowest possible cost while maintaining high profitability without charging extra. Ryanair is one firm that followed the globalization process facing many challenges and incurring losses until eventually it come out profitable. Among the strategies applied by firms include standardization of services, adoption of decentralization, frequent change in management, creativity and innovation, adopting latest trends in the market and the use of technology. Among the major opportunities available to firms in the globalization process include more markets to be served, increased number of suppliers and deregulation enabling them compete effectively in the market. However, globalization is not without challenges to firms, the major challenges to firms include increased competition in the market due to liberalization enabling more competitors to enter the market and political instability which causes major economic turmoil in the affected area affecting the firms operating in that area. Therefore globalization is one process that needs to be adopted with care to balance the pros and cons for a firm to be highly competitive. Bibliography Acocella N. and Jones B, 2005, Economic Policy in the Age of Globalisation. 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