Situational Analysis And Strategy Formulation For Oman Air ✓ Solved

Situational analysis and strategy formulation for Oman Air s entry into China

Situational analysis and strategy formulation for Oman Air's entry into China

In describing the major theories of international business and relating them to doing business in a foreign country, select one local company in Oman (Oman Air). Imagine that you are the manager of the company who is on a mission to invest in China. Your task as a manager is to work with a consulting company in designing an investment strategy to identify which method is suitable to reduce the risk involved in terms of exchange rate, modes of international market entry, and international staffing. Consider the following areas in your investment strategy:

1. An introduction about the background of the Omani company.

2. Currencies you should use for trade.

3. The exchange rate value of that currency today.

4. To insure against risks and losses from changes in exchange rates, which strategy is more suitable? Indicate between spot, forward, and currency swap.

5. Which mode of market entry is more suitable for your company?

6. Explain which of the three types of staffing policies is more suitable for managing international staff.

7. Propose an international investment strategy.

Base your assignment on your DRL materials, recent news, academic literature, media, and other credible sources.

Sample Paper For Above instruction

Introduction: Background of Oman Air and the International Business Context

Oman Air, the national carrier of Oman, has established itself as a key player in the Middle Eastern aviation industry since its inception in 1993. Known for its high-quality service, strategic location, and expanding fleet, Oman Air has positioned itself as a significant contributor to Oman's economic diversification goals. As a government-owned enterprise, it has shown resilience and adaptability in a competitive global market, with a focus on expanding routes, especially in Asia and Europe.

In the context of international business theories, Oman Air's expansion into China exemplifies several key aspects of global trade and market entry strategies. The company’s goal to establish a foothold in the Chinese market involves navigating exchange rate risks, selecting the most appropriate mode of market entry, and managing international staffing effectively. These elements align with established theories such as Dunning’s Eclectic Paradigm (OLI Framework), Transaction Cost Theory, and Uppsala Internationalization Model, which emphasize resource-based advantages, transaction complexities, and gradual internationalization.

Currency for Trade and Current Exchange Rate

The primary currency for Oman Air's international transactions is the Omani Rial (OMR), linked to the US dollar via a fixed peg at 1 OMR = 2.60 USD. As of today, the exchange rate of the Omani Rial to the Chinese Yuan (CNY) is approximately 1 OMR = 17.35 CNY, based on recent market data (XE.com, 2024). This stable peg reduces exchange rate volatility but necessitates strategies to manage residual risks effectively.

Risk Management through Exchange Rate Strategies

To mitigate potential losses from fluctuations in currency values, especially in the volatile international environment, Oman Air must select an appropriate hedging method. The options include spot transactions, forward contracts, and currency swaps.

A forward contract appears most suitable for Oman Air, given its capacity for customization and locking in exchange rates for future payments. Forward contracts allow the airline to stabilize costs and revenues, ensuring financial predictability. Currency swaps, while useful for longer-term financing, may involve more complex arrangements that are less necessary for straightforward operational hedging related to route expansion.

Mode of Market Entry

Given Oman Air's strategic goals and resource capacity, a joint venture or a strategic alliance with local Chinese airlines (e.g., Air China or China Eastern) would be the most appropriate mode of market entry. This approach aligns with the Uppsala Internationalization Model, emphasizing gradual commitment and risk reduction through partnership.

Alternatively, establishing a wholly owned subsidiary offers full control but entails higher risks and investment costs, which may not align with the company's current risk appetite. Therefore, joint ventures provide a balance of resource sharing, knowledge transfer, and market access.

International Staffing Policy

The optimal staffing policy for Oman Air’s China operations would be a polycentric approach, employing local Chinese staff to manage day-to-day operations, facilitated by expatriate managers from Oman for strategic oversight. This policy helps adapt to local cultural and regulatory environments and reduces cultural clashes, as discussed by Bartlett and Ghoshal (2002).

Moreover, investing in cross-cultural training for expatriates and developing integrated communication channels will enhance coordination between Oman headquarters and Chinese operations, supporting effective international staffing management.

Proposed International Investment Strategy

Based on the theoretical frameworks and market conditions, Oman Air's investment strategy should focus on a phased approach—initially establishing a joint venture with a local Chinese airline, leveraging shared resources to minimize risks. The airline should employ forward contracts for currency hedging, employ a polycentric staffing policy, and gradually increase resource commitment as market familiarity grows.

The strategy includes detailed market research, stakeholder engagement, regulatory compliance, and investment in culturally competent staff development. Continuous monitoring of exchange rates and adjusting hedging techniques accordingly will be essential to mitigating financial risks.

Furthermore, Oman Air should look to diversify route offerings to include lucrative Chinese cities, capitalize on tourism growth, and foster partnerships with Chinese travel agencies to maximize revenue streams. Technology-driven customer service innovations and alignment with local consumer preferences will reinforce market positioning.

Conclusion

Oman Air’s expansion into China encapsulates the core principles of international business theories and strategic management. By carefully selecting risk management strategies, entry modes, and staffing policies, the airline can mitigate challenges and capitalize on opportunities in the Chinese aviation market. An adaptive, well-informed investment strategy grounded in theory and market realities will enable Oman Air to sustain growth and competitive advantage globally.

References

  • Barlett, C. A., & Ghoshal, S. (2002). Transnational Management: Text, Cases, and Readings in Cross-Bultural Management. McGraw-Hill.
  • Dunning, J. H. (1988). The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions. Journal of International Business Studies, 19(1), 1-31.
  • Hill, C. W. L. (2014). International Business: Competing in the Global Marketplace. McGraw-Hill Education.
  • Johanson, J., & Vahlne, J.-E. (1977). The Internationalization Process of the Firm: A Model of Knowledge Development and Increasing Foreign Market Commitments. Journal of International Business Studies, 8(1), 23-32.
  • Larsen, H. T., & Vahlne, J.-E. (2017). Recent research on internationalization processes: Updates and new directions. Journal of World Business, 52(5), 447-459.
  • Oman Air Official Website. (2024). Our Business. Retrieved from https://www.omanair.com
  • XE.com. (2024). Currency Exchange Rates. Retrieved from https://www.xe.com
  • Rugman, A. M., & Verbeke, A. (2001). Location, Competitiveness, and the Multinational Enterprise. Oxford University Press.
  • Vernon, R. (1966). International Investment and International Trade in the Product Cycle. The Quarterly Journal of Economics, 80(2), 190-207.
  • Yip, G. S. (1989). Global Strategy: Paradox or Panacea? Sloan Management Review, 31(1), 43-56.

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