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Porter's 5 Forces Model & Value Chain - Malaysia Airlines

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Porter's 5 Forces Model & Value Chain - Malaysia Airlines

  1. 1. PORTER'S 5 FORCES MODEL & VALUE CHAIN CASE STUDY: BY: NORIDAH YAHYA (GP 02434)
  2. 2. WHAT IS PORTER’S 5 FORCES MODEL?  is a framework to analyse level of competition within an industry and business strategy development (Wikipedia).  It captures key elements of industry competition Threats of new entrants Rivalry among the existing competitors Bargaining power of buyers Threat of substitute products or services Bargaining power of suppliers
  3. 3. OBJECTIVES OF PORTER’S 5 FORCE MODEL To identify the behavior factors of the competition To manage the long-term business attractiveness in the industry To analyse and access industry attractiveness structured To explain the relationship between the 5 dynamic forces and the business performance
  4. 4. PORTER’S 5 FORCES MODEL : AIRLINES INDUSTRY (MALAYSIA AIRLINES) Threats of new entrances Competitive Rivalry: • AirAsia • Malindo Bargaining power of buyers Threat of substitute products or services Bargaining power of suppliers • National airlines • Foreign airlines • Budget Travelers • Pleasure Travelers • Business Travelers • Travelling alternative: Bus, car, train • Technology alternative : Video Conferencing • Fuel Companies • Catering supplies • Aircraft companies
  5. 5. MALAYSIA AIRLINES BACKGROUND Founded 1 May 1946; 68 years ago (as Malayan Airways) Commenced operations 1 October 1972; 42 years ago Hubs Kuala Lumpur International Airport Kota Kinabalu International Airport Secondary Hubs Kuching International Airport Frequent-flyer program Enrich Subsidiaries Firefly MASwings MASkargo Destination 60 exl. codeshare and subsidiaries` Parent Company Penerbangan Malaysia Berhad (Government Holding Company) Headquaters Sultan Abdul Aziz Shah Airport Subang, Selangor, Malaysia Company Slogan More than just an airline code. MH is Malaysian Hospitality Website www.malaysiaairlines.com
  6. 6. COMPETITIVE RIVALRY Threats of new entrances Competitive Rivalry: • AirAsia • Malindo Bargaining power of buyers Threat of substitute products or services Bargaining power of suppliers Competitive Rivalry: • The main driver is the number and capability of competitors in the market. Many competitors, offering undifferentiated products and services, will reduce market attractiveness. • The airline industry is extremely competitive because of a number of reasons which include entry of low cost carriers, the tight regulation of the industry wherein safety become paramount leading to high operating expenses. • It seems to be in the mature stage of the business cycle. The number of competitors stays the same in the long run and it doesn’t seem to be under or over capacitated. The fixed costs are extremely high in this industry. This makes it hard to leave the industry because they are probably in long term loan agreements in order to stay in business. The products involved or the planes are highly complex which also heightens the competition. • The competition is lessened by the brand identities of different firms. As for example; Malaysia Airlines is worldwide known giving the best hospitality to the passenger, while Air Asia formerly known for its low price.
  7. 7. COMPETITIVE RIVALRY Threat of new entrances: • Profitable markets attract new entrants, which erodes profitability. Unless incumbents have strong and durable barriers to entry, for example, patents, economies of scale, capital requirements or government policies, then profitability will decline to a competitive rate. • Airline industry has a high barrier to entry and exit as once an airline is operative then exist from the industry would amount to huge amount of loss. • Since the needs to start an airlines company are hard, consequently, the threat of new entrants has reduced. Furthermore, brand name is important to the consumers these days. Adding to that, to go into this business not also need high capital but also need an establish brand name. Thus, rather than start an establish brand name, the new threat entrants will focus more on the loyal customer. • Malaysia Airlines has a good history as the safest airlines and an excellent hospitability service. Unfortunately, after the sad tragedy of MH17 & MH 370 it affected the company's reputation and an establish MAS brand name • Now, the new threat entrants Malaysia Airlines need to focus on the international (foreign) airlines. • National airlines • Foreign airlines Threat of new entrances Bargaining power of buyers Threat of substitute products or services Bargaining power of suppliers Competitive Rivalry: • AirAsia • Malindo
  8. 8. COMPETITIVE RIVALRY Bargaining power of buyers • An assessment of how easy it is for buyers to drive prices down. This is driven by the: number of buyers in the market; importance of each individual buyer to the organisation; and cost to the buyer of switching from one supplier to another. If a business has just a few powerful buyers, they are often able to dictate terms. • As for Malaysia Airlines buyers can be categorized by type of travelers : i. Budget Travelers ii. Pleasure Travelers iii. Business Travelers • It a big challenges for Malaysia Airlines to have business attractiveness for budget travelers compare to pleasure travelers and business travelers. • Frequent flyer programme and online duty free purchase services can create customer loyalty and reduce the threat of customer switching over to other airlines to some extent. Bargaining power of buyers Threat of new entrances Threat of substitute products or services Bargaining power of suppliers Competitive Rivalry: • AirAsia • Malindo • Budget Travelers • Pleasure Travelers • Business Travelers
  9. 9. COMPETITIVE RIVALRY Threats of substitute products or services • Porter’s threat of substitutes definition is the availability of a product/services that the consumer can purchase instead of the industry’s product/services. It also as an alternative way for consumer to go to other option with different approach. According to Porter’s 5 forces, threat of substitutes shapes the competitive structure of an industry. • Consumers can choose other form of transportation such as a car, bus, train, or boat to get to their destination. • There is however a cost to switch because plan ticket can be more expensive. For Malaysia Airlines to win domestic traveler is quite challenge because of this alternative and pricey cost to the consumer. • But, the main cost is time. Planes are by far the fastest form of transportation available and also convenience way for oversea destination. • With the development of technology today, consumer also have a choice for not travelling. Video conferencing can save time & money especially for business traveler. Threat of new entrances Threat of substitute products or services Bargaining power of suppliers Competitive Rivalry: • AirAsia • Malindo Bargaining power of buyers • Travelling alternative: Bus, car, train • Technology alternative : Video Conferencing
  10. 10. COMPETITIVE RIVALRY Bargaining power of suppliers • An assessment of how easy it is for suppliers to drive up prices. This is driven by the: number of suppliers of each essential input; uniqueness of their product or service; relative size and strength of the supplier; and cost of switching from one supplier to another. • For fuel, the bargaining power of suppliers is not really high since in Malaysia there is only little petrol organization and the price is set by the government. • The 25 years catering contract with Brahim’s Holdings Bhd is a bailout for Malaysia Airlines. Brahim’s Holdings Bhd paid 170 million upfront and took over the accumulated losses. So, this 25 years contract can be long term threat to Malaysia Airlines. • There are 2 companies that are competing against each other in the aircraft manufacturing industry which are Boeing and Airbus. Since Malaysia Airlines are choosing Boeing as their main aircraft, therefore, Boeing has no option to increase their aircraft prices. But it a big risk for Malaysia Airlines, to change to another aircraft manufacturer since their maintenance staff are experienced with Boeing’s aircraft. By changing the aircraft manufacturer, Malaysia Airlines need to spend a lot of money to train their maintenance staff which and switching cost is high. Therefore, the power of suppliers cannot be a negative factor since Malaysia Airlines only rely on one aircraft manufacturer. Bargaining power of suppliers Threat of new entrances Competitive Rivalry: • AirAsia • Malindo Bargaining power of buyers Threat of substitute products or services • Fuel Companies • Catering supplies • Aircraft companies
  11. 11. WHAT IS PORTER’S VALUE CHAIN?  is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or services for the market. (Wikipedia).  Value chain analysis is a powerful tool for managers to identify the key activities within the firm which form the value chain for that organization, and have the potential of a sustainable competitive advantage for a company.  For efficient value chain analysis, it can be focus in 2 major activities: 1. Primary Activities : Related with production 2. Support Activities : Background need for the effectiveness & efficiency of the company
  12. 12. • includes planning and control systems, such as finance,accounting, and corporate strategy • E.g: Financial Department, Legal Department Value Chain Activities Inbound logistics - Involved material management. From the upon of receive the material from supplier, stored and handling it for production - E.g: Supplier scheduler (fuel, airlines food catering) Operation - Related to the production of products and service. This operation can be split into more department in certain companies. - E.g: Aircraft Maintenance work Outbound logistics - Involved activities that can be delay & intrude final product or service to the customer - E.g: Purchasing airplane ticket Marketing & Sales - To analyses the needs & demand of customer and responsible for creating awareness among the target customer - E.g: Market research Firm Infrastructure • Involved recruiting,training, motivating and rewarding the workforce of the company. Human Resource Management • an area that is concerned with technological innovation, training and knowledge that is crucial for most companies today in order to survive • E.g: Marketing Testing, R&D Product & Technology Development • responsible for purchasing the materials that are necessary for the company’s operations. An efficient procurement department should be able to obtain the highest quality goods at the lowest prices. • E.g: Machinery, Subcontracting, Supplier management Procurement S U P P O R T P R I M A R Y Services - Related to the production of products and service. This operation can be split into more department in certain companies. - E.g: Complaint Handling
  13. 13. VALUE CHAIN OF MALAYSIA AIRLINES • From this value chain analyses we can conclude Malaysia Airlines income is based from good services (Primary Activity-Services) • On the other hand to reduce expenses, Malaysia Airlines need to focus more on product & technology development (Support Activity); such as research of reducing spending on material services, but at the same time maintain the premium quality services. Beside that, operation (primary activities) such as aircraft maintenance need to more efficient. • As such, MAS needs to be cognizant with the business cycle so that it can to take full advantage of such effects especially when there are changes in discretionary income and consumer spending patterns. • By coordinate these value chain analysis activities, Malaysia Airlines can have a lower cost structure and increase the value of outcome product. By increasing the value of outcome product, Malaysia Airlines can compete better in the industry by understanding the connection between each of the value-chain activity. • Additionally, a proper coordination with their union, customers and suppliers can reduce cost and adds up the bonding between customers and company itself. As its outcome, improvement of the performance in Malaysia Airlines primary and secondary activities can be achieved and higher profit can be gained in the process. • Last but not least, the impact of tragedy of MH370 & MH17, was able to hit the Malaysia Airlines business badly and as such they continue to pose serious threat to the business
  14. 14. REFERENCES:  http://en.wikipedia.org/  https://sites.google.com/site/admn703ai/the-team  http://managementstudyguide.com/porters-five-forces-analysis-of-airlines-industry-in-united-states.htm  http://strategiccfo.com/wikicfo/threat-of-substitutes-one-of-porters-five-forces/  Malaysia Airlines Annual Report 2012 (http://ir.chartnexus.com/mas/doc/ar/ar2012.pdf )  Malaysia Airlines Annual Report 2013 (http://ir.chartnexus.com/mas/doc/ar/ar2013.pdf)  http://www.slideshare.net/harrisonaimiyekagbon/malaysian-airlines-power-point  Shahren, “Brahim’s Willing To Sell AC stake; New Straits Times Online, 21 August 2014 (http://www.nst.com.my/node/25010 )  http://www.academia.edu/7519765/MALAYSIA_AIRLINES_UNDER_STRATEGIC_MANAGEMENT  http://www.mbaskool.com/business-concepts/marketing-and-strategy-terms/2516-porter-value-chain.html  http://www.monografias.com/trabajos89/strategy-michael-porter/strategy-michael-porter2.shtml  http://www.slideshare.net/busterblitzstrikeaegisduel/strategic-management-20393538  http://www.ukessays.com/essays/management/value-chain-analysis-at-air-asia-management-essay.php

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