Jet Star Expansion into Chinese Market - Case Study Example

INTERNATIONAL BUSINESS Insert name Insert course title Insert instructor’s name Insert date Table of Contents Table of Contents 2 Introduction 3 Jet star expansion into Chinese market 3 Economic opportunities in Brazil 5 Globalization 7 International trade 7 Financial flows 8 Migration 9 Conclusion 10 Articles URLS 11 References 11 Introduction Economic advancements of Australia are taking a global perspective as major companies form mergers internationally. This is aimed at exploitation of the global market after exhaustion of local market coupled with the fact that there is high competition within a localized market. In a bid to open economies, governments have resorted to mutually reduce barriers of international trade and even agree on suitable customs measurers that support trade. This analysis uses recent articles as evidence of globalization of the Australian economy. It focuses on the different aspects of globalization and the factors that favor and those that hinder globalization. Jet star expansion into Chinese market The Australian carrier Jet Star has recently expanded its services to Hong Kong that is according to The Herald Sun on March 27. This is in a bid to capitalize on the immense Chinese market. This news rose up the shares in parent company, Qantas, as the shareholders became more optimistic of the new strategy of market expansion. The move will create a co-ownership structure between Qantas and Eastern China Airlines in which both companies will contribute significantly to the startup capital. This is viewed by analysts as very potent step for Jet Star to venture into the booming Chinese market and is noted to be a historic opportunity for continual expansion. China eastern airlines will also benefit from the development of cheaper flights which supplement its economic strategy of increasing exports. Development of expanded market by local Australian airlines is a constructive move for the government in opening up Australia as a destination for businesses and tourism. This move will amount to increased Gross Domestic Product (G.D.P.) for the government as indicated by analysis of the connectivity that is derived from air transport network. In the European Union nations, it is estimated that the air connectivity increased by 10% and consequential increase of 1.1% was noticed in the GDP. This is evidence of the relationship of the increased interconnectivity to increases in GDP. Local businesses stand to gain by the significant value attached to the convenience of interconnected air transport network. In a study of the successes and failures of businesses by Cowen and Crampton (2003), nearly 80% of firms indicated that access to major national air travel hubs is vital to business success while 14% say it is important for market expansion. The interconnection of China and Australia with a low cost carrier enables businesses to save money on air travel. Otherwise, it takes up to 23 % higher fare to make a non-networked journey, transferring between airports. Local businesses will have easy out sourcing for raw materials and other inputs from the most cost effective suppliers. The delivery of supplies by Chinese suppliers will become more efficient and timely, reducing the need to hold expensive inventories. They will also be able to exploit economies of scale by serving a bigger potential market. The move will also facilitate the spread of new production techniques and attraction of high quality employees from broader pool of talent (Stokey, 1991). Air transport plays significant role in creating sales by broadening markets for locally manufactured goods. Freight services link directly the movement of goods to new markets in China but more important is the passenger services which will allow the management to gain greater understanding of market conditions across the two countries. International companies will improve efficiency of production and reduce costs. Averagely 80% of firms report that air services significantly aid in improvement of efficiency in production. 70% of firms report that the larger markets created by interconnectivity of air transport enables exploitation of economies of scale and reduction of costs by international suppliers (Gary, 1994). The future prospects of air travels are only brighter making the move a more futuristic advancement in international trade. Half of the businesses surveyed in China indicated that they had expectations of substantial dependence on air transport services over the next 10 years. This contrasts with only 12% of corporations which projected diminishing reliance (Gary, 1994). Economic opportunities in Brazil The second article “High-flying Brazil splices fairness and opportunity “, is about the broadening Brazilian economy which is potent for Australian companies which would like to diversify their market. Brazil has an ever enlarging economy and currently has seen a significant rise in living standards with a large number of the population joining the middle class. This means that its population has more purchasing power in addition to the natural consumer nature of Brazilians. The improvement of Brazil’s economy has resulted from the exploitation of the Chinese economic wave as well as the emphasis on education by the country’s leadership. Education endeavors have driven Brazilians into the Australian institutions resulting into the current high number of Brazilian students in Australia, with universities that were already strong in Asia turning their focus to the South American country. The country will host the 2014 FIFA World Cup, an opportunity to climax international businesses in operation in Brazil, a sector in which Australia has a significant share. In preparation for the tourney, Brazil will need improvement of infrastructure; airports needing upgrade, and stadiums to be built. The government is optimistic that the relations will continue as Australia gains massively from the development of Brazil. The major areas of corporation are the mining and agribusiness and service sector. The Australian Consul General and trade commissioner Mr. Greg Wallis nominated Australia for provision of clean energy and infrastructural development. Brazil is Australia’s largest trading partner with imports to Brazil amounting to A$630 million while exports amount to A$900 million (Department of Foreign Affairs and Trade (DFAT), 2008). Further ventures of bilateral trade for the two countries exist in modernized areas of information technology, biotechnology and transport. As a government Australia benefits from the cheaper biofuel of which Brazil is the largest producer (Shaohua & Ravallion (1997). Local firms are not left out in the benefits from Brazil; they enjoy lower prices of agricultural products since Brazil has absolute advantage in production of agricultural products. Local institutions will have a cumulative number of students from Brazil as the education opportunities in Australia maintain their attractiveness. The major investment opportunities that are created in Brazil are in the mining industry, agribusiness and renewable energy. Relative advancement of technology in Australia will allow these companies to exploit the large Brazilian market of agriculture, in production of fertilizer, feedstock production and for biofuels generation. However the stringent measures taken by Brazil in restricting import of agricultural products still hinders the Australian products to be sold in Brazil. Nevertheless Australia significantly exports agricultural genetics to Brazil which has recently become a promising sector of exports. Mining companies are among the beneficiaries of the correlation between the two countries abetted by the Austrade mining exhibition “Exposibram” in Brazil. Companies such as vale recently announced a massive investment plan of over US $ 1 billion, offering a range of opportunities to Australian firms. Globalization Globalization is defined as the broadening of worldwide interconnection in features of modern life and is not merely an economic phenomenon (Geoffrey, 2001). The concept of globalization is the establishment of economic and social links among countries. It reduces or completely eliminates barriers between countries and the exchange of goods and services stimulated. It creates an interdependence of nations and businesses involved and as well promote reciprocated trust between countries. New markets, wider choice of suppliers and lower prices of supplies are some of the benefits of globalization. The downside of globalization is overdependence on foreign supplies and markets which make businesses vulnerable to economies and markets outside their control (Geoffrey, 2001). The two articles are evidence of the expanding nature of globalization. They satisfy the three indicators of globalization which are; international trade in goods and services, global money transfer and movement of people across borders (Aitken, Hanson & Harrison, 2005). International trade The import and export of goods and services between Brazil and Australia is an instance of international trade, which means that there is interconnection created by exchange between the two countries. Australian airline Jet Star will offer its low cost air travel services to the Chinese market, consequently trade will be enhanced by this move as international business men will now have reduced expenditure on air travel. The expansive opportunities created by the low development of Brazilian infrastructure are another venture of economic activity between the two countries, potent with reliance for advance technology and agricultural products produced at an opportunity cost. According to World Trade Organizations data, exports and imports are a significant proportion of China’s GDP and now Australia could proudly contribute or benefit from this statistic. Financial flows The second indication of aspects of globalization is the financial flows between countries. This can take form of foreign indirect investment which occurs when a country purchases assets in another country such a stocks, bonds etc. The global trend of financial flow is increasing gradually at a rate of 20% per annum which has aided the integration of financial markets. The daily turnover for foreign exchange market is enormous; in 2001 it was US $ 1.4 trillion (Donald, 1996). The other form which financial flows take is the foreign direct investment which occurs when a firm establishes its production in a foreign country. The investment made by Australian companies in the mining sector in Brazil is evidence of the direct investments between the two countries. Direct investments are distinguished from indirect investment by the managerial control that the foreign companies have over their assets. The exploitation of mineral resources of Brazil is in accordance to researches that show that many multinational companies from rich countries invest in poor countries for the resources, or to take advantage of cheap labor. Migration The expansion of Jet Star into the Chinese air space shows the need for movement of people across borders. The migration of labor across borders cannot however be compared to the movement of goods and services as many countries still impose restrictions on migration. The migration is instigated by various reasons such as economic, social or political, but mostly they result from the widening inequality in job opportunities. In the recent past the export of travel services by Australia had a downward trend due to the low tourism which averaged only 2.7 % in the period between 2006 and 2007, compared to 10% in the 1990s. That however is turning around as there is notable movement from Brazil to Australia albeit temporary, for educational opportunities. Brazil migrants are an example of mobility of labor between skill categories that allow unskilled workers to seek technological know-how and skills applicable to their sectors (Feenstra & Hanson, 1993, P 10) With the magnitude of migration at an all-time high, the needs to heighten security measures have also been increasing especially in light of the increased terrorism activities. This consequentially demands incorporation of good security measures along with the development of infrastructure in countries hosting these global functions (Bruce, 1990). The endeavor to create a globally united environment suitable for business is promoted by several factors such as Governmental establishments of free trade areas, customs unions and common markets which also are ways in which barriers to international trades have been reduced to achieve globalization (Stokey, 1991). This is further abetted by the changes in technology like the telecommunications services which make communication and management of international businesses easier. Because of the magnitude of investment needed for research and development in major industries such as marketing, it is found that a single market is insufficient in maintenance of sustainable and profitable production (Milgrom, & Roberts 1990, p 435). Globalization therefore enables firms to exploit the economies of scale that is synonymous with expansive nature of operation. Firms may also globalize because of exhaustion or saturation of the local market or to exploit the modest rate of growth in developed countries. Comparative advantage that Australian firms have over Brazilian firms in respect to technological advancements is in the quality of its institutions and its ability to access industrially applicable knowledge (North, 1993). Conclusion The concept of globalization is not merely about economic activities between countries, but also encompasses the ethnic and societal dimensions which to some extent determine the consumer trends. Globalization is not yet global but with advancements such as international mergers it is significantly expanding to global extent. It is apparent that globalization is taking effect with the kinds of international trade between Australia and other countries. The easing of international travel by Jet Star by introduction of its low cost carrier flight to china will promote movement of goods and services, and to some extent labor, between the two countries. Comparative technological advancement of Australian companies has favored their provision of services in Brazil, thereby creating economies of scale and increasing profit margins by expansion of markets, and cheaper supplies of raw materials. Barriers are continuously being reduced as the global economy moves toward globalization; free trade area, and unions of customs are some ways in which the barriers are reduced. Despite its perceived positive attributes globalization has a negative side of instability and complex business environment, over reliance may also occur where a country depends on an economy that it cannot control and therefore suffers avoidably. Articles URLS Article 1: “Sky’s the limit for Jet star in Hong Kong by Neil Wilson in The Herald Sun March 27th 2012” http://www.news.com.au/business/skys-the-limit-for-jetstar-in-hong-kong/story-e6frfm1i-1226310921715 Article 2: “High-flying Brazil splices fairness and opportunity by Tim Harcourt in The Herald Sun March 30th 2012” http://www.heraldsun.com.au/business/high-flying-brazil-splices-fairness-and-opportunity/story-fn7j19iv-1226313990482 References Aitken B, Hanson G, H, & Harrison A, E, 2005, Forthcoming spillovers foreign investment, and export behavior, Journal of International Economics, 16(4)82 Bruce B, 1990. The Enterprise of Law. San Francisco: Pacific Research Institute for Public Policy. Cowen T, & Crampton E, 2003, Market Failure or Success: The New Debate, Edward Elgar, Cheltenham, UK; viewed April 15, 2012, http://www.econlib.org/library/Enc/PublicGoodsandExternalities.html. Department of Foreign Affairs and Trade (DFAT), 2008, Trade and Investment, Australian Government, viewed April 15, 2012, http://www.dfat.gov.au/aib/trade_investment.html Donald R, 1996. “Trade Liberalization and Income Distribution.” NBER Working Paper No. 5693, National Bureau of Economic Research, Cambridge, MA. Feenstra R, C, & Hanson G, H, 2006, Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras, Journal of International Economics, 42(3), 10. Gary F, 1994, Changing labor market conditions and economic development in Hong Kong, the Republic of Korea, Singapore, and Taiwan, China. The World Bank Economic Review 8(3), 24. Geoffrey G. (2001). The Distributive Consequences of Globalization. Mimeo, Yale University. Milgrom, P., and J. Roberts, 1990, The Economics of Modern Manufacturing: Technology, Strategy, and Organization, American Economic Review, 80(6), 200. North D,C , 1993, Economic Performance through Time, Prize Lecture in the Memory of Alfred Nobel, , viewed April 15, 2012 http://nobelprize.org/nobel_prizes/economics/laureates/1993/north-lecture.html on Stokey, N.L. 1991. Human capital, product quality and growth. Quarterly Journal of Economics 106(2), 65 Shaohua C. and Ravallion M. 1997, What can new survey data tell us about recent changes in distribution and poverty? The World Bank Economic Review, 11(2), 26 Read More