Flight Centre's Offshore Strategy: Analysing External And Internal Factors

You are a strategic analyst for a large consulting firm and specialise in the analysis of Australian companies. You have been asked by your manager to write a report analysing an Australian company’s underlying strategy that has resulted in it moving some of its activities offshore with the loss of a number of local jobs as well as expanding into other international markets.  

Evaluate the external issues that are affecting the company and have driven it to employ a strategy that has resulted in moving jobs offshore.
• Analyse the internal issues that are making the company consider moving jobs offshore as part of its strategy.
• Identify the stakeholders in this company and discuss how the shift of offshore activities will affect these stakeholders.
• explain what is the competitive advantage for the company in moving in either expanding offshore and/or moving some jobs offshore
• list and assess the issues of this strategy, including risks, cost savings and/or revenue increase.Evaluate any other issues that you see are relevant to its success or otherwise. What are the strategic implications.

Evaluating the external issues affecting Flight Centre's offshore strategy

This report provides an analysis of strategic approaches of Flight Centre which is an Australian listed public firm provides a large variety of services including flight, holiday and vacations, hotels, car rental, cruise, rail and insurance. The purpose of this report is to analyse Flight Centre’ strategy which has resulted in moving some of its organizational activities offshore with the lay-off of some domestic. It also aims to analyses how this strategy led to expansion of business into other international market. The report provides a detailed evaluation of external issues affecting the business and driving it to employ a strategy resulting in moving job offshore. In addition, the report also provides an in-depth analysis of company’s internal issues that make it considers the offshore of jobs as the part of the strategy.

1. Evaluating the external issues that are affecting Flight Centre and driving the business to employ strategy resulting in moving jobs offshore 

It is certain that external business environment has been dynamic in nature both domestic Australia market as well as in global market as well. Particularly, changing political environment in Australia often leads to changes in trade regulation which compels travel agency service providers to shift their focus on other market where labour price is under the line.

MacGregor, Doyle and McEachern (2015) commented that constant fluctuation in the economy have pushed the firm to cut out operational expense by offshoring the activities and other services. However, Kanemoto et al. (2014) mentioned that even though there is steady fluctuation in the economy Australia is world’s second largest economy with the nominal GDP estimated to be around AUS$1.1 trillion in 2017 and this had led to highest range of per capita GDP in the world.

 Nevertheless, this has created another challenge for Australian travel and tourism organizers like Flight Centre. Due to increasing per capita income, demands of regional labour is rapidly increasing; so the organization is left with no option but to invest more in the Human Resource. On the other side, number of suppliers such as aviation companies, hospitality organizations in the sector are also increasing because the country has an enormous natural resource with the base of agriculture and minerals (Boniface, Cooper and Cooper 2016).

Thus, existing suppliers’ relationship with the organization is fragile. Consequently, Flight Centre’s market share is shrinking because small and medium size suppler agencies including café, small size hotels have cheaper options to satisfy their end customers in such resourceful market. Therefore, Flight Centre had to cut its operational cost by offshoring operational activities which has enabled the business to charge suppliers the industry average price and high receive high quantity of end-products.

2. Analysing the internal issues that make the organization consider jobs offshore as a part of its strategy 

 As discussed above due to high per capita income in the nation labours demand is increasing; so the major challenge that Flight Centre faces is that growing demands of its developed human resources. Regional workforce is way more expensive that it was a decade back. It has been identified that Flight Centre observed a loss of AU$10 million as its suppliers’ earning dropped by 42.6% and same store sell dropped by 8.5% in spite of the store refurbishment, changes in the menu as well as marketing campaign (Sharifpour, Walters and Ritchie 2014).

Analysing the internal issues that make the organization consider offshore strategy

Consequently, Flight Centre observed a financial instability. On the other side, Tarrant et al. (2014) mentioned that organization’s culture is a significant issue as Flight Centre continued with its autocratic culture despite being a large travel agency but the internal culture consist of values, attitudes as well as priorities that employee live by. So, it is worth mentioning that a cut throat culture where every individual tends to compete with one another often creates a different environment. So, organization did not pay needed attention to its workforce.  

On the other side, Henderson, Cheney and Weaver (2015) mentioned Flight Centre needs to change its business design because the market is highly competitive with the increasing number competitors and Flight Centre is still going with its existing design. In today’s retail landscape customers have polarized into those who seek comfort as well as those who seek constant newness. However, all customers tend to share the expectation and they expect speed, quality and value for the money.

3. Identifying the stakeholders in this company 

The major stakeholders of Flight Centre is that are its customers, employees and the investors who enable the business to operate in a domestic and global environment. The major customers and suppliers of Flight Centre are hotel and aviation organizations of UK, US, Asian nations while the top investors of the company includes HSBC, JP Morgan, Citicorp Nominee, etc (Mason 2015).

Discussing how the shift of offshore activities will affect stakeholders

Offshore of operational activities might significantly affect its employees as the job role of the existing employees will change. For example, if the organization offshores its manufacturing items to create the end product, existing workers who used to perform their duties in the technology based activities lose their job positions.

The business might apply a further lay-off as parts of its activities are offshored, while the investors and shareholders will remain profitable as the margin of investment remains but the profit may increase as the cost of operation is low (Brooker ans Joppe 2014). Consequently, the investors will gain more profits as the business adopts offshore trend. On the other hand, customers may find its product more easily as availability of the high would he comparatively. This happens because there is no barrier in producing the end products to the market.

4. Competitive advantages for Flight Centre in moving in either expanding offshore or moving some job offshore 

According to Porter’s cost leadership strategy, the organization can increase and gain more profits by minimizing the cost but this approach enables the company to charge the industry average price (Mihalic and Buhalis 2013). This helps the company to gain competitive advantages because here the business is able to maximize the market share by charging low price but it is still able to make a reasonable profit one each margin as it has reduced cost.

Thus, Flight Centre is able to reduce the cost of its operation as it can offshore its labour force. For example, it operates in an Asian nation, it hires the regional labour as the tourist guide to help its customers. Hence, hiring of regional labours charges low price. So, the cost of human resources can be minimized. On the other side, the organization also gains competitive advantages by outsourcing its technology based activities (Leonidou et al. 2013). Flight Centre provides a wide variety of services and promotion and organization of those activities are done through the digital platforms. Nonetheless, the firm minimises the cost of promotional and service organizational activities by getting the tasks done in a cheap nations where demands of technology based activities are less.

Identifying the stakeholders and discussing the impacts of offshore activities

5. Listing and assessing the issues of the above strategy including risks, cost savings and revenue increase 

Although Flight Centre has developed a competitive edge by offshoring its operational activities but it has to deal with certain risks with respect to cost and revenue. For example, Ellram, Tate and Petersen (2013) mentioned that when a foreign brand hires the labour force of another nation, it has to comply with labour and Union policy. So, if trade union and labour policy changes in the host nation the organization cannot withdraw its terms of employment. In addition to this, trade policies and taxation are dynamic in nature, which means it can change with the change of any political or economic environment of the nation. Under such condition, the business is bound to comply with the new policies which might bring in financial damages to business.  Thus, the revenue margin might not as similar it is expectedly in the domestic nation.

In Conclusion, it is worth mentioning that offshoring operational activities often leads to positive business outcome as the business is able to cut the cost of its operation and create the balance in productivity due to the terms of offshoring in the host nation. In addition to this, when a business is able to offshore its operational activities to other market or nation, indirectly, the business is developing its brand image in that particular market without fully entering the business. This might further help to business to operate the business completely in that market. Nonetheless, it also to deal with some specified market risk such as certain changes in trade policy and taxation, fluctuation in the economy in the host nation.

References

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Mihalic, T. and Buhalis, D., 2013. ICT as a new competitive advantage factor-Case of small transitional hotel sector. Economic and Business Review for Central and South-Eastern Europe, 15(1), p.33.

Sharifpour, M., Walters, G., & Ritchie, B. W. (2014). Risk perception, prior knowledge, and willingness to travel: Investigating the Australian tourist market’s risk perceptions towards the Middle East. Journal of Vacation Marketing, 20(2), 111-123.

Tarrant, M. A., Lyons, K., Stoner, L., Kyle, G. T., Wearing, S., and  Poudyal, N. 2014. Global citizenry, educational travel and sustainable tourism: Evidence from Australia and New Zealand. Journal of Sustainable Tourism, 22(3), 403-420.