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1.
2. How this has created competitive advantages partially shaped by the location where a firm is
born?
3. How a firm can enhance its original competitive advantage by carefully choosing new
locations?
Ans 1-Economies of scale it is the decrease in average per unit cost of goods
produced as number of goods produced increases.When Emirates used a plane like A380 on routes where traffic volume was
increasing , according to cube square law increase in surface area leads to more
than proportional increase in volume. So instead of plying two smaller boeing
planes it used one big A380 to get people to the hub ie dubai and then transfer
them to their various flights. What a bigger plane like A380 allowed emirates to
do was lower flight specific fixed costs , fuel costs and increase its load factor
thereby lowering its cost per revenue passenger miles . A 300 seat aircraft flying
a given distance would be less than twice as costly as 150 seat aircraft for the
same load factor , thus conferring economies of scale.
Economies of scope exist when when firm achieves savings as it increases the
variety of goods and services it produces.
When the smaller planes( boeing 767 , boeing 737) were replaced By a380 on
various routes , the smaller planes were freed up for use on other routes thereby
emirates was able to increase the number of routes thereby allowing it to further
decrease fixed costs associated with operations by increasing frequency of flights
or opening up new routes .
Code sharing agreements with Jetblue in the US with a hub at New York jfk
airport helped it build a feeder network and get passengers from states it would
not have been able to serve and therby triple daily DUBAI-JFK services.
Cargo services being offered can help dubai become hub for goods and people
alike using existing resources.
Economies of scale and scope in case of emirates arise due to various other
factorsa) Extent of market-Since emirates is based on the hub and spoke model with
Dubai being the hub. Dubais proximity to population centres with one
third of world population living within four hour range of the city and two
thirds of the world population living within eight hour range of the city.
This kind of location allows it to have significant cost savings arising due
to greater geographic density of customers.
b) Economics of density-Economics of density occur because of spreading of
flight specific fixed costs or it is economies of scale along a given route
.The cube square rule states that if volume of vessel increases by a given
proportion the surface area increases by less than this proportion. In the
case of emirates use of planes with large load factors like A380 allowed it
to achieve lower cost per revenue passenger mile because capacity was
Ans 2- The economies of scale and scope coupled with location where firm is
born i.e Dubai confers certain comparative advantages to emirates-
Ans 3Its original strategy of expanding routes by testing for demand had worked
out well and should be done by keeping in mind the routes
complementarity to the hub and spoke network which had conferred it a
competitive advantage .The new locations need to be such that it provides
the company with a first mover advantage and identify new network
potential to feed into the hub system , thereby allowing it to operate in
environments where there are fixed demand for international travel and
thereby capture steady growth. The company should also not hesitate in
making larger investments(A380) in areas which can confer it economies
of scale and scope as it will in the long run help in penetrating markets.