1070165 Question 1 Actual and Potential Impacts of Globalisation

1. Introduction This report is about how MNE effected by globalisation and what are the impacts of globalisation. Basically this report will be discussing on what are the actual and potential impacts of globalisation also the strategies they will use to respond the impacts. So the report will be more likely look at on how the globalisation effect and how it effect the MNE also how they come up with strategy to respond the impacts. For that reason, Malaysia Airlines would be use throughout the discussion. Malaysia Airlines (MAS) began its operations in 1947 with the name of Malayan Airways. In 1987, it will be renamed to its current name, Malaysia Airlines. Today, Malaysia Airlines (MAS) are recognized as award-winning airlines with a fleet of more than 100 aircraft and servicing 110 destinations across six continents.

The main businesses of Malaysian Airline System Berhad are providing the aircraft services for passengers and cargo services which is the aircraft service for cargo and mail service. Why the Malaysia Airlines (MAS) are chosen to answer this question most likely because of many reasons such as: i. ii. iii. Malaysias national carrier more than sixty years. They have won more than 100 awards. They have also remain as one of the only six carriers globally to be accredited as a five-star airline. iv. v. vi. One of Asias largest carriers. They have been through the ups and down profits. They have been through a radical programme of business transformation.

1070165 Question 1 Actual and Potential Impacts of Globalisation 2. Globalisation Globalisation is the process of enabling financial and investment markets to operate internationally, largely as a result of deregulation and improves communications (Collins). But in Laymens terms globalisation is the expansion of worldwide trade and markets, mainly developed through importing, exporting, Foreign Direct Investment (FDI) and the breakthrough in technological advancement. Globalisation is also about widening, deepening and speeding up of interconnectedness in all aspects of contemporary social life from the cultural to the criminal, the financial to the spiritual (Held et al, 1999) The globalisation is also the process if transforming the local phenomena into global ones. In the other word, it can be described as a process where the people in the world are unified into a single society and they play their role together. This process is the combinations of economic, technological, socio-cultural and political factors (Croucher 2003:10)

2.1 Characteristic of Globalisation

2.1.1 Shrinking space Shrinking space is where the lives of all individual are interconnected with one another. Such as their jobs, incomes and health are all affected by events that happen on the other side of the world. They mostly do not know the things that happen on the other part of the world but it is effecting on them. The 9/11 attack is one of the example, the attack towards the World Trade Centre has cause thousands of people lost their job and many company are closing down because

1070165 Question 1 Actual and Potential Impacts of Globalisation of bankruptcy. It is affecting the Muslim country and the people itself, they have lost many business and are being called as a terrorist.

2.1.2 Shrinking time The technologies nowadays make the time travel faster enough to the worldwide and spreading through time in no time. The impact can be felt on other peoples lives far away. The 1997 Asian Financial Crisis that affected mostly on to Thailand, South-Korea and Indonesia. The effect not only to the Asian country but also to the foreign country that made investment to the country effected.

2.1.3 Disappearance of boarders The boarders of countries are breaking down. This means that the boarders that separate the countries before are more likely to have no barrier. The boarders are disappearing because of the trade, but not only for that the capital, information, ideas, culture and etc.

3. Actual and potential Impacts of Globalisation 3.1 Profit Malaysia Airlines (MAS) has been through their first unprofitability in year 1997 due to Asian Financial Crisis 1997. They have suffered a lost at about RM 260 million just right after they earn a massive record of profit RM 319 million during the financial year 1996/1997. The Asian Financial Crisis that has affected the South East Asian country has caused Malaysia Airlines to suffer a loss for five following losses. The Government had to impose stricter and tighter policies for Malaysian to travel abroad to avoid currency outflow, which indirectly caused low rates of travellers for Malaysia Airlines (MAS). It got worse when the high interest on the foreign trade due to the Ringgit Malaysia (Malaysias currency) was devaluated. It affecting the Malaysia Airlines (MAS) because they have made investment to expand their business by purchasing aircrafts, they have to pay high for the purchases hence, suffer from increasing debt.

1070165 Question 1 Actual and Potential Impacts of Globalisation Not only that, the crisis also led to less spending power by the people since the devaluation of Ringgit Malaysia. They have to cut down the spending on travelling by air. The Asian Financial Crisis 1997 has effected not only to the finance and economics of the country but mostly to the tourism industry in many ASEAN countries. Since MAS is the national flight carrier of Malaysia. They also feel the impact where the number of passengers from inside and outside of the country has dropped. Before the financial crisis Malaysia Airlines (MAS) receive a large number of passengers and have a great value profit from it because most of the investor from foreign country comes to Malaysia and invest in the country. But when the crisis started, they seem to have lost most of their passengers because they have no longer interest on investing on the country. Not only to the investor but also tourist that come from the Asian country. The number of tourist from other country in Asia has dropped its number because they also impacted by the crisis.

The second unprofitability year is in 2005, where the Malaysia Airlines (MAS) reported a loss of RM 1.3 billion. One of the reason for this loss is due to 11/9 attacks of World Trade Center Building in New York City. The demand for the air transportation has been decreasing because of the fear of flight among travellers. Based on the New Study on Effects of 9/11 Attacks Charts Impacts and Effective Coping Mechanisms by Cynthia Peters; according to Suzanne Thompson, she stated that most of the people who is not involve or a victim in the attack distress and concern about flying so the demand of using the air transportation decrease and Malaysia Airlines are not preposition with this either. They have a huge fear of getting in the air transportation. The other effect of the tragedy is to the air traffic control. The tragedy has affecting many companies because most of the company serve a loss and the rest have to accept the fact that they have to gone through bankruptcy. The air transportation has to face a large amount of loss from this situation. The demand of visitor and tourist has decrease due to this tragedy. Not only have causing fears among traveller but this event has also caused to major losses for many airlines company all around the world where the number of

1070165 Question 1 Actual and Potential Impacts of Globalisation passengers has dropped drastically. Therefore, some of these companies decide to merge in order to overcome unprofitability and become competitive. With the

merging of these companies, the routes and markets for their airlines also boost up which directly give a serious impact to Malaysia Airlines (MAS) passenger load. The costs has increased with the total of RM 10.3 billion that is 28.8% or RM 2.3 billion more than the previous year. The escalating price of fuel is the major cause for this increasing number of total cost. 3.2 Innovation In order to sustain in the market, Malaysia Airlines (MAS) has gone through for innovation throughout all. With the appointed CEO Dato Idris Jala, they have come out with a new solution that is Business Turnaround Plan. He rejects Going Beyond Expectation and creating a new branding strategy slogan MH is Malaysian Hospitality, to highlight the hospitality cabin crew instead of the airlines network and cabin class. Malaysia Airlines also come out with a new plan to gain their profit under Business Turnaround Plan (BTP) which promised to cut losses from RM1.7 billion (full year) to RM620 million in 2006, achieve a profit of RM50 million in 2007 and a record profit of RM500 million in 2008. Malaysia Airlines (MAS) realise that with the advance technology nowadays, the world seems to be borderless. So they have made an agreement with SITA for a new Passenger Services System (PSS) which would offer the passengers a more convenient, efficient and hassle free travelling experience in a cost effecting manner. With the help of SITA, Malaysia Airlines (MAS) reduces its costs by over US$ 270 million in 2007. Under that transformation, SITA has come with a few solutions by implementing several Horizontal Solution components including: 1. Reservations to create more efficient and advance reservation system that meets the standard of global technology.

1070165 Question 1 Actual and Potential Impacts of Globalisation 2. Malaysia Airlines (MAS) would move to e-ticketing system 100%. That means there will be no more paper ticketing and it can save RM19 per ticket sold with the elimination of material use. 3. The Departure Control that complements the ticketing system by offering a number of new options to passengers. Such as e-check-in and Kiosk-check-in for those passengers who do not want to wait and queue for long at the airport check-in counters. 4. Revenue Integrity, the reason behind this is to make sure that every booking are made by the actual individual and not by fictitious name to ensure that every booking are made by actual person upon departure. That means every single booking that has been made will undergo for a series of cycling check to make sure its originality. 5. Fares Management - enhancement of Fares Management system will allow Malaysia Airlines (MAS) to put price for flight fares more efficiently around the world and improve pricing decisions so they could compete with another airlines company. Malaysia Airlines (MAS) offers to its passengers a series of convenience that allows them to travel easily, faster and more efficient through e-booking, e-ticketing and echeck-in. To improve fuel efficiencies and increasing capacity of the plane which in turn lead to a better services and performances, Malaysia Airlines (MAS) has purchased 35 Boeing 737-800 to replace the older Boeing 737-400 fleet. Not only that, the Malaysia Airlines (MAS) booking also focus on serving the agency bookings and supplementary services such as insurance, transportation, hotel and etc. With this transformation, Malaysia Airlines (MAS) has successfully getting the benefits such as: 1. Reduced costs With the use of e-commerce (e-ticketing, e-booking and e-check-in) the cost has been reduced. Paper ticketing has been eliminated 100%

1070165 Question 1 Actual and Potential Impacts of Globalisation Closer integration between PSS (Passenger Self Service) applications and industry. Rather than the IT costs, the network spend had been cut down, with the added advantage of network services that has becoming part of the passengers business costs.

2. Increase revenue Faster revenue recognition Improved revenue management Better control of pricing and fare management functions More competitive fares through dynamic pricing, resulting in higher load factors Increase the revenue protection, with minimized cancellations

3. Increase customers satisfaction Major improvements in the business process and customers services. Ease the movement of passengers at the airports and reduce overcrowding. Increase the travel experience for the passengers since it is more convenience and efficient from the booking step to the boarding of flight. 3.3 Markets Airlines are not able to conduct their businesses in the same way as other global trans-national industries. Since Malaysia Airlines is the government-owned flag carrier of Malaysia, the government has been giving them a lot of incentives to make sure they can sustain in the competition especially among their close competitors Airasia Berhad. AirAsia Berhad is a well known air flight company that offers a low-rate price to the customers. In order to compete for the low-cost flight, Malaysia Airlines has been growing subsidiaries such as Firefly and MASwings. They are the low-cost flight that is 100% fully own by Malaysia Airlines (MAS).

1070165 Question 1 Actual and Potential Impacts of Globalisation Due to the increase price of fuel, the Malaysia Airlines (MAS) will launch a premium carrier by the second and half year of 2012 using Boeing 737-800 aircraft, they have and will cut off some of unprofitable routes that estimated about 12% of its routes including the destination such as Johannesburg, Dubai, Cape Town, Buenos Aires and several European destinations and spin off supplementary businesses. To increase and attract more passengers to fly with Malaysia Airlines, MAS launched out frequent flyer programs. Malaysia Airlines has two frequent flyer programs: Grads for Students by Malaysia Airlines (Grads) and Enrich by Malaysia Airlines (Enrich). Grads are a frequent flyer program with benefits designed for students. Enrich by Malaysia Airlines is a frequent flyer program for frequent travellers that comprises a variety of airlines, banks, credit-card issuers, hotels and lifestyle retailers around the world. Passengers can earn and collect points by using their Grads and Enrich card! To increase and attract more passengers to fly with them, Malaysia Airlines (MAS) has launched two frequent flyer programmes that are Enrich and Grads. Grads is a frequent flyer programme that benefits to the student above 12 years old and the Enrich is benefits for frequent traveller that encompasses with variety of airlines, banks, creditcard issuers, hotels and retailers around the world. 3.4 Human resource The airlines industry is one of the large areas that provide several of job opportunity to the people. Some of the highest investments of human capital are employed by the airline industry (Card, 1996). Rising price of fuel may leads to the inequality amount of wages given to the workers. They have to manage the cost of the business so that they can earn profit and reduce the cost as well as avoiding loss. The competition among rivalry has cause the price war between them to attract more passengers that want to have a low price flight fares. In order to win the price war the dominate carriers has to cut off the other cost in the other areas including the human resource department to maximize its profit.

1070165 Question 1 Actual and Potential Impacts of Globalisation Despite the global economy impact and the rising of costs, the Malaysia Airlines (MAS) have to cut some of the cost and achieve more profit. Dato Idris Jala stated that whatever they have learnt on the airline community on reducing the cost, they would apply it on Malaysia Airlines (MAS). The first thing that they have done is by reducing the number of workers through a mutual separation scheme, retirement and expiry of contracts to enhance productivity. They have successfully reduced their manpower by 15 per cent by over 3,000 employees. They have save cost total RM 310 million due to cutting measures for the financial year 2006. Besides that, the number of pilots of leaving Malaysia Airlines (MAS) also has been decreasing estimating 174 people due to the low wages and other factor as well since November 2004 until March 2006. It has been reported that the pilot has been offered with RM 95, 000 ($42,500) per month by the Korean Airlines that is triple amount compare to what the Malaysia Airlines (MAS) had offer them before that is RM 25, 000 per month. The shortage amount of pilots also has severely effecting Malaysia Airlines (MAS)s operations. Therefore, Malaysia Airlines (MAS) has come with a new initiative where they will send in between 100 and 200 cadets a year at schools in Langkawi, Kelantan and Malacca to learn about aviation navigation and aircraft. By sending them to these schools, Malaysia Airlines (MAS) will not have worry of any more such situation, as they can be replaced by these new cadets.

4. Summary Malaysia Airlines has a very strong and positive brand reputation among the airline service providers. It primarily uses its flight attendants to promote the airlines. Malaysia Airlines (MAS) is heavily emphasizing the hospitality of its cabin crew instead of the airlines network and its cabin products to deliver best services and brand experiences and it can be shown by its new brand slogan MH is Malaysian Hospitality. Malaysia Airlines (MAS) major achievement is due to the enormous and remarkable investment in technology. Since 2009, the new reservation system,

1070165 Question 1 Actual and Potential Impacts of Globalisation Passenger Services System (RSS) has replaced the old system. The replacement of new systems resulted in the ability to provide customers a more competent and handy travelling experiences. Malaysia Airlines (MAS) believed talented workforces are its important assets. Thus, it is concentrated in investing on training and development. Malaysia Airlines (MAS) has also invested in aircraft engineering facilities to check and repair its aircraft engines. During the bad time of economy slowdown and crisis, it is difficult to the operations of Malaysia Airlines (MAS). The Malaysia Airlines (MAS) should learn from the experiences and strategies of other airlines in facing the downturn. By understanding the plans pursued by other airlines, it can design a suitable plan to counter the crisis and differentiate its service quality.

Other than that, Malaysia Airlines (MAS) should continue reduce its operational costs since its high operational costs have brought huge burdens to its revenue and profitability. All the important operational costs such as fuel, airport and traffic

handling charges should be identified and reviewed rigorously. Other than that, by the carrying out of computerised systems in the management processes can further trim down the costs. Despite the strict competition in aviation industry, the commitment of Malaysia Airlines (MAS) to pursuit for excellent services has brought the airline stands at the top of industry. It should fully make use of its competitive advantages and constantly improve itself. (2956 words)

1070165 Question 1 Actual and Potential Impacts of Globalisation

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1070165 Question 1 Actual and Potential Impacts of Globalisation

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