Internationalizing Flight Center Limited into China: A cultural review

Author: Iloka Benneth Chiemelie

Published: 20th February 2014

       Products and services offered by Flight Center Limited

Flight center limited continued its evolution in the 2012/23 with new strategic blueprints that have been developed and implemented by the company as a guide towards its move to next phase of business growth (Flight Center Limited, 2013). Although the main seven strategic focus point of the company are still in place, there have been developments of new blueprint that the company believes will resonate with its staffs and customers. Basically, the focus is on making use of the staffs for increased productivity with the aim of serving the customers much better.

Basically, the services offered by flight center are leisure packages such as flight booking, hotel booking and reservations. As a world class retailer, the implication is that flight center is the business brand that people always find easy to identify with and go to for related services (Flight Center Limited, 2013). The functions performed by flight center limited is much different from that performed by middlemen, agents, dealers or someone who sales products of other people. The brand offers numerous services are described below.

Brands and specialization

The process of evaluating the brand is based on ideology that is evaluations for specific areas of travel and having clear customers value propositions (CVPs). Such level of specialization and service offerings as provided by flight center is based on the three concepts as:

Inbuilt brand planning system – the company has a regimented structure that is used for the purpose of implementing its brand process in order to ensure that the key questions are addressed by the company as necessary for the purpose of maintaining its established brand values (Flight Center Limited, 2013).

Global brand taskforce – the company also has a senor leadership team that is designed for the purpose of undertaking FLT’s global brand value management. These teams are responsible for the task of designing, deploying, and disciplining brand structure (Flight Center Limited, 2013).

Flight center 7 – for the purpose of remaining very competitive in the market where competition is high such as the travel and hospitality industry, the brand adopts a very unique seven key CVPs which has been identified and articulated for the company’s flagship leisure brands (Flight Center Limited, 2013).

2.      A description of the organisational context

The success of flight center limited is based on a number of factors and strategies adopted by the company for the purpose of increasing its overall market value, performance and profitability in the market in which it operates. The company made known that in order to ensure sustainability for the next 100 years and beyond, it must have a clearly defined and achievable corporate vision, purpose and philosophies (Flight Center Limited, 2013). The company also vows to protect its future by developing its own corporate strategy and philosophies, which must be robust, independent, and with the ability to outline its current and future leaders (Flight Center Limited, 2013).

Corporate visions

The visions which serve as the company’s desire to growth is “to the most exciting travel company in the world, delivering an amazing experience to its staffs, customers and business partners.”

Corporate philosophies

There are different philosophies developed by the company to serve as the bases of their business performance. The first of such is high focus on the training and development of employees’ skills as the company understand and visualize the employees to be the source of their continued growth, which means that staffs must always be trained on new and needed skills in the course of meeting their corporate objectives.

Customers also serve as the ground of the company’s philosophies, as it seek to ensure that customers are always given needed services in the level of quality they desire to have them. For instance, the company develops all of its business offerings based on researches conducted with customers to understand their needs and develop their services based on such needs. The purpose of such is to ensure sustainability in the business process as such will increase chances of customers ordering their services and the overall profitability with an increase in the ordering process. All these features are aligned with a strategic management approach that is based on adopting reliable leadership network that will increases chances for success in both national and international level.

The overall performance of the company can be reflected on the chairman’s message in its 2013 operations release, where the chairman made known that it is pleasing to report that the company has been able to render its growth record during the course of 2013 as ended in June 30, 2013.

Following the success of its business, the company has been able to record growth in different areas with the Total Transaction Value (TTV) rounding up in the excess of $14 billion, and the chairman also made known that Flight Center Limited will be able to reach the $15 billion landmark is the brand is able to achieve its set objectives within the course of the year. Profit prior to tax (PBT) accounted for $300 million, and this is significant following the recorded $200 million in the past two years and also finishing just behind the target of $350 million (Flight Center Limited, 2013).

Although these results server as highlight of the company’s strength, it is important to understand that there are other factors which are integral for the success of Flight center limited – and this factors are its people’s appetite for increased and sustainable growth throughout the year, and the desire to develop robust businesses that are capable of ensuring sustainable earnings (Flight Center Limited, 2013). Following the documented success, the company has now been able to deliver year-on-year increase for its PBT for its 18 years operation as a publicly listed company (Flight Center Limited, 2013). In fact, a review of the shared price growth shows that the company is actually the fifth-best performing top 200 stock during the course of the 2012/13 year in review.

The company is also deploying new customer features wherever possible, and it plans to open a new UK-style of hypertores in major cities and regions across the world. Basically, the success of the brand is based mainly on adopting a number of expansion and internationalization strategies designed to enter new markets and serve new customers. Thus, the growth strategy by the company can be described as sustainable in the sense that it has been integrated into the core elements of the company’s daily business process as to what they expect to obtain by the end of the year and how they will go about meeting such expectations.

3.      Cultural Comparison of Russia (host country) and England (home country)

The need to understand the market that any given business is designed to perform in is very significant because it will help to expand the understanding on what the company needs to do, how it will go about doing that, as well as challenges that the company might face and how it can be solved. The apology for such analysis based on this paper will be that created by Hofstede (1980) will be adopted for this comparison. This framework comprises of 5 components for measuring national culture as power distance, individualism, masculinity/femininity, uncertainty avoidance and long-term orientation.

Figure (1): comparison of the English and Russian cultures

Source as adopted from: Geert-hofstede.com (2012)

3.1. Power distance: power distance as noted in the degree to which people accept that they are not equal with others and are willing to accept as well as respect the commands of those they feel inferior to. In terms of the management aspect, the implication in countries with high power distance such as China is that managers and supervisors have the final say in the organization and their subordinates are only left with the idea of having to deal with whatever their seniors have said and however such commands have been laid down. On the other hand, UK has a different culture in which employees work together with the management in the course of any decision making process. As such, the management are not view with high fear as is applicable in from their Chinese counterparts, instead the management work together with the employees for the course of developing the business and aligning their overall corporate performance together (Geert-hofstede.com, 2012).

3.2. Individualism-vs-communism: individualism is viewed as the degree to which to which people wish to be left alone or are willing to work together with other people. In a country with high level of individualism such as the UK, the citizens are normally independent of other people in the course of their decision or livelihood. They want to free and do whatever they want whenever they do desires, thus decision making is very fast and risky in the business process as these individuals are willing to be held responsible for mistakes and also be appreciated for any positive impact made in the business process (Geert-hofstede.com, 2012). This is different in China where communism is very high and people do prefer to work as a group. Thus, establishing business in China will mean that the company will adopt more of team working than individual effort in order to ensure that it meets the cultural settings and expectations in China.

3.3. Masculinity / femininity: in the business context, masculine culture is characterized with competition and the need for continued growth, which means that companies must always seek their own individual gain (prudence), even if it means putting that of their competitors at risk (Geert-hofstede.com, 2012). This is different in a feminine country because the focus is on creating ground for mutual benefit of all parties as this culture emphasized on nurturing and creating harmony among people (Geert-hofstede.com, 2012). Both China and the UK have the same level of masculinity, which means that they both value continued business growth at all cost and it is unique in the sense that it doesn’t call for any change in this area.

3.4. Uncertainty avoidance – this is the degree to which people from a given culture are willing to take business related risk, with he understand that the higher the business risk, the higher the expected returns. Thus, a country with high level of uncertainty avoidance doesn’t want to take much risk but instead prefer to always have all possible issues identified and solutions provided before going into any business decision (Geert-hofstede.com, 2012). Both the UK and China are low in uncertainty avoidance and this implies that they both take high business risk for the purpose of meeting their set corporate goals and this is reflected in the understanding that they are highly masculine countries.

3.5. Long-term orientation – this is normally used as a reflection and definition for the Chinese guanxi or Confucian system, in which people view business process as being more of a partnership and relationship than just the course of going through transaction based features. In this system of business, the focus is on developing long-term friendship with the believe that it will increase trust and make the business transaction more sustainable (Geert-hofstede.com, 2012). China is high on long-term orientation, thus unlike UK which is low on such features, the Chinese business can transact on credit, creating the need for the companies involved to develop higher trust. Additionally, government issue contracts more to the people that are more closely related to the government and those who have delivered in the past even when government couldn’t afford one-time payment. Thus, this high level of difference as to business being viewed as transactional or relationship based is something that Flight Center UK needs to understand in order to ensure success in the Chinese business segment.

4. An analysis of how the product/service fits with the environment of the host country

Tourism and hospitality services are commonly sourced for both in the Chinese setting and across the world because tourism agencies eliminate all the pressures that customers are normally forced to handle in the course of obtaining such services. Additionally, agencies are in the right position to provided needed guidance as to the destination that is best for the customers and the cheapest services that customers can obtain. Additionally, China as a country has huge population and numerous destinations that are interesting to customers. Thus, offering an agency service in China is expected to have a subsequent high rate of success because the huge population provides needed market base, while numerous destinations available in China increases chances of the market to order services provided by the company. Thus, investing in China is a very viable option.

5. Entry strategy: critical risks involved and plan to mitigate risks

The entry strategy adopted in this case is franchising and the understanding is that flight center should franchise its brand to China. Franchising has been found to play significant role in terms of the modern business. Franchising as a form of business entrepreneurship is currently increasing in adoption in different sectors, especially with reference to the retailing system where McDonald’s has been able to establish itself across the world by adopting franchising as its business setting. In accordance with the Deontological European Code of Honour (2004), franchising is a system used for the purpose of selling commodities, services and/or other technological applications. The process is based on close and continuous cooperation two different companies that are judiciary independent and financially autonomous, which comprises of the franchisee and franchisor. In this form of business, it is the franchisor grants franchisee necessary right that puts the franchisee under the obligation that will allow then to exploit a business in accordance with the business concepts already established by the franchisor. As a reward in return to such an opportunity, the franchisee pays a certain and agreed franchising fee to the franchisor on royalties throughout the course of the business partnership. Additionally, the franchisor in return to these payments grants the franchisee the right to make use of or adopt their brand name, trademarks, expertise, commercial and technical methods, operational procedures and other intellectual properties that will allow the franchisee to run the business as it is run by the franchisor.

The main reason for choosing this form of entry strategy is because UK and China have numerous differences in terms of their cultural value and overall approaches to business. For instance, while the UK tend to be more transactional based, China is more relationship based and it can influence their overall approach in designing corporate goals, evaluating performance and defining what is to be done and how it should be done. Thus, entering into China via a company that is already established in the country and familiar with the settings in terms of cultural values and business principles of the country can be considered a viable option. Additionally, it eliminates the need to indulge in huge financial expenses that might end up not returning expected value and lead to huge financial losses in the end. Thus, this approach is chosen based on the understanding that it will eliminate a number of business risks that can influence the overall performance of flight center UK in the Chinese business environment.

While the above strategy is expected to return high values in terms of overall perception and penetration of the brand into China through an already established brand in the country, a number of literatures (see Bradach, 1997; Srinivasan, 2006; Shane, 1996a, b). Some of these issues are:

5.1. Damage to brand image as a result of franchisee’s mistake – since the franchisor is issued the license to operate the new business under it’s own settings and definitions, it is important tat this increases the chances of direct attacks on the brand as a result of the settings defined by the franchisor’s own business. For instance, the company might adopts strategies viewed by the market to be discriminating or sensitive, then the market might start to perceive the brand as racial or immoral, and it will negatively influence the perception of flight center in the process.

5.2. Earnings are much lower – while this entry strategy is very easy to adopt, it is important to understand that the expected and actual earnings from the process are very much lower than when adopting FDI as an entry strategy. Thus, the company might need to look into the long-term performance and earnings when compared with what is obtainable from other entry strategies and determine whether or not it is the right business approach to adopt in the end of such comparative analysis.

5.3. Poor management and secrecy – since the performance of the brand generally influences the actual outcome of how much they need to incur in royalties, it is important to understand that poor performance of managements will effectively lead to under-performance of the brand in China because the franchisee will not be able to pay the franchisor higher royalties as hoped for. Additionally, some of the franchisee might be very secretive and unwilling to disclose their market studies with the franchisor. Even when forced to do such, they might be doing it selectively and this reduces the chances for the franchisor to understand the market they operate in, and expand their overall experience and knowledge about the market.

From the above analysis, a number of issues have been defined as to the factors that will negatively influence the franchise business, making it important for the franchisor to define new ways and approaches that will be used to eliminate these issues for the sole purpose of ensuring sustainability in the positive performance of the business. Thus, the right approach is to adopt a contract based franchising system that ignores the need for Confucianism as is obtainable in China and forces the franchisee to agree to specific terms on how the business will be run in China. This will ensure that the franchisor includes numerous clauses that will eliminate issues of brand asset management as well as payment of royalties, thus providing them with much needed control and direct management of the business in China even if it is just a franchise network.

6. Conclusion

From the above analysis, the highlight has ben on understanding how cultural differences influences the business process within a given area as compared with another area and this paper has been successful in laying down such view. This is because differences in culture imply differences in the way that businesses are conducted in a given area as opposed to the process it is also conducted in another area. This is why transaction to get more profits now is the order of the day in the UK where long-term orientation is on the high, while friendship and credit sales for a sustainable business tomorrow is the order to the day in China where long-term orientation is on the high. The implication of adopting franchising as the entry strategy has also been defined in the process and necessary solutions have been provided to support such a strategy in order to ensure that it works out very successful for the brands involved.

7. References

Deontologische Europese Erecode versie 2004 (2008). http://www.fbfbff.be/files/code/CODEDEDEONTOLOGIENL.pdf

Flight Center UK (2013), “Annual report.” Available at: http://admin.flightcentrelimited.com/sites/flightcentrelimited.com/files/1.%20FLT%202013%20Annual%20Report_0.pdf

Gert-hofstede.com (20130, “Comparison of China and the UK.” Available at: http://geert-hofstede.com/united-kingdom.html

Shane, S. A., 1996a, Hybrid Organizational Arrangements and Their Implications for Firm Growth and Survival, Academy of Management Journal 39, 216 – 234.

Shane, S. A., 1996b, Why Franchise Companies Expand Overseas, Journal of Business Venturing 11, 73 – 88.

Srinivasan, R., 2006, Dual Distribution and Intangible Firm Value: Franchising in  Restaurant Chains, Journal of Marketing 70, 120 – 135.