Strategic management: British Airway - Essay Example

However, merely shifting strategies is not enough for a company as global in scope as British Airways. British Airway must also contend with global issues such as foreign exchange and factor in such issues into its strategies. Foreign exchange figures importantly in strategic setting of companies because of its importance in identifying, developing and maintaining competitive advantage. Such important is best illustrated by George and Schroth's widget example: "Let's say you run a U.S. corporation that sells widgets to Germans.

The deutsche mark drops against the U.S. dollar. What happens You can sell the same number of widgets, but when the marks are converted into dollars, you get fewer of them in your pocket. And, if your widgets are produced in the United States, your production costs are higher than for your German competitor" (1991, p. 105) Imagine the strategic complication of the above scenario multiplied by more than a hundred folds - that is the relative impact of foreign exchange to British Airways. The above scenario will impact all its business activities since almost all of them are subject to foreign exchange risk exposures.

Fortunately, as George and Schroth said, British Airways can do something about foreign exchange risks. Soenen said in the International Review said that "[a] critical concern to firms operating in foreign markets is the exposure to foreign exchange risk" (1988, p. 34). The risk factors that a company faces as a result of its foreign exchange exposure depends on several factors such as the actual currencies the company is exposed to. Several of the risk factors faced by British Airways as a result of its foreign exchange exposure are presented in the risk matrix below.

Risk Matrix1Legend (Threat Level):Bright Red - CriticalDark Red - HighYellow - MediumGreen - Low The above risks factors are explained briefly below:(Low Impact, Low Likelihood) Very high devaluation relative to the pound of the local currencies of ALL countries British Airways flies to. Although this event has a very, very low chance of happening, its impact on first glance is actually very high. However, I put the above risk factor under the low impact because it is doubtless that the British Airways' management has foreign exchange hedging practices in place.

Hence, if local currencies in the countries they fly to devaluate relative to the home currency, then the impact is minimal as a result of the company's hedging activities.(Low Impact, Medium Likelihood) Increase in the prices of new airplanes. Prices of airplanes are also affected by foreign exchange volatile as aircraft manufacturers such as Boeing are also exposed to foreign exchange risks. Although the increase in prices of aircraft as a direct result of foreign exchange can likely happen, its impact is relatively low.

Prices for aircrafts are usually fixed several years before the aircrafts are actually delivered - carriers usually pre-order years before delivery and prices are set in advance.(Low Impact, High Likelihood) Delisting in foreign stock exchange markets. British Airways, aside from being publicly listed in the London Stock Exchange is also listed in other exchanges around the world such as the New York Stock Exchange (Segain 2007, p. 1). Delisting is common, but its impact is very low since this type of listing is not