Executive Summary
Dnata offers a wide range of air services to its global customers. In this paper, a detailed analysis of this firm’s operations has been conducted to determine how it manages the external environmental forces. The analysis shows that there is stiff market rivalry among the players in the industry. The company also faces competition from substitute products offered by the above and other related companies in the aviation services sector in the global market. Environmental concerns, especially the issue of climate change are a major cause of concern, not only to Dnata but also to also other players in the industry.
Managing these external forces is the only way that a firm can be assured of achieving sustainability in its operations. A firm’s competitive advantage is determined by how well it is able to manage these external forces compared with its market rivals. The management must come up with a strategy that will help in maintaining regular marketing while at the same time ensuring that its operations are in line with the market needs. The paper strongly suggests that the management of this company should be keen on monitoring changes in the market and coming up with effective strategies of managing these changes.
General Introduction
Dubai National Air Transport, popularly known as Dnata, is a supplier of air services such as flight catering services, travel, cargo, and ground handling in five continents. The company has its headquarters at Al Garhound in the city of Dubai. In a market that is as competitive as where Dnata operations, segmentation is very critical. This firm offers a wide variety of services to its customers. The firm has defined each segment of the market differently based on the needs. For holiday services, it has selected the high-end segment of the market, offering luxury holiday services. The apparent product strategy used by this firm is unique depending on the market segment that is targeted.
For products that target high-end customers such as luxury holiday services, the firm emphasizes on high quality and uniqueness of the product in its product proposition. On the other hand, if the product is basic and needed by all its clients irrespective of social class, then proposition focuses on its efficiency in meeting the need. The market where this firm operates has a number of competitors such as Cathy Pacific Airways, Papillon, Air-Asia, STIC Travel Group, and Azzy Travel Limited. Barriers to entry or exit from the industry are relatively high particularly because of the nature of investment that a firm needs to start operations and the need to find loyal partners in the market (Abeyratne 2016).
The industry suppliers play a very critical role in this industry and the bargaining power of the customers is high, making it necessary for the firm to come up with unique competitive strategies. These factors tend to increase the intensity of industry rivalry.
Operations
Dnata operates in a highly competitive business environment and its ability to remain sustainable depends on its operational strategies. It is important to look at the operational issues of this company that has enabled it to capture the global market despite the stiff competitive rivalry that it faces in this industry.
Products
This company offers a wide range of products. Ground handling services are products offered by this firm, which include cargo handling, technical services to the airlines, and helping travelers with their parcels. It has employed over 6,500 people to help in offering ground handling services. The firm offers travel services for its clients who are in business or tour trips. They help in the booking of hotels, organizing the events, preparing transport services and such related products. Flight catering is another important product offered by Dnata. It is estimated that it serves over 120,000 meals on a daily basis in 62 airports across 12 countries. Most of the products offered by this company are in the growth stage of their life cycle particularly because of the growing number of those who are using air travel services. To manage stiff market competition, the firm has widened breath of its product line relative to what competitors offer. It offers a wide variety of products in each category. For example, it has different types of food to meet varying needs of its global customers. The figure below shows employees of this company preparing snacks for the travelers.
Product change or development is a major factor in the industry. Tastes and preferences of customers keep changing and it forces the firm to come up with ways of adjusting the nature of its products in line with the changing forces in the market. Failure to change in line with these changes may force a firm out of the market
Process
It is important to understand the general classification of the processes involve in this firm’s operations. The wide variety of products offered by this firm means that it has a wide range of inputs and outputs. For example, in its catering services, the inputs are raw materials needed for preparing meals and the outputs are the wide variety of foods that it offers to its customers. In its ground handling services, there is a high level of automation to reduce reliance on human labor, reduce breakages, and increase efficiency. Figure 2 in the appendix shows how this company operates its automated cargo handling activities.
The firm has estimated position on the product matrix is high given the number of employees in various product categories and the level of automation it has embraced in its operations. In this industry, Dnata is an industry leader, always keen on influencing change that keeps it ahead of other market rivals. Technology is particularly very important in the industry and it has been playing a significant role in defining changes that have been experienced in the recent past.
Level of Vertical Integration
Dnata has been keen on embracing vertical integration in its operations. However, the level of vertical integration is limited to a certain extent. For instance, the firm has tried to take control of the sources raw materials that it uses in food production. Other than just taking care of the catering needs of its clients during the flight, the company also helps them check into their desired hotels, organizes their tour and travel activities in their destinations and such other activities.
However, it has been unable to achieve vertical integration because it has not purchased its own planes. The apparent motivation for vertical integration is to not only reduce costs but also take full control of the products offered to the customers and to control quality. Controlling the sources of raw materials assures it that the products will be of high quality based on the quality of the products. According to Jaško and Marinković (2016), vertical integration is becoming an increasingly popular strategy among firms keen on cutting down the costs, reducing the bargaining power of the suppliers, and controlling the quality of the products they deliver to customers. Instead of relying on other companies to help it meet the needs of its customers, this firm has been using its own systems and structures to ensure that it is self-reliant.
Demand Management
Demand for the products offered Dnata vary significantly and this presents a major problem for the company. The demand for its products directly depends on how many people are travelling in a given season. During holidays, especially the summer holidays, there is a huge demand for the products offered by this company as many people move from Europe and North America to tour Africa, Asia, and Middle East. During this time of the year, this company operates at a maximum level. However, during off seasons, the demand significantly drops. There are few travelers and companies struggle to win these customers.
The management has come up with a unique way of meeting the varying demand. It has a pool of permanent and casual employees. During high seasons, it relies on the services of both its casual and permanent employees to ensure that it meets the high demand in the market. Sometimes it subcontracts some of the services to reputable local firms that can offer the desired quality at reasonable costs (Czinkota & Ronkainen 2013).
However, when the demand drops, the firm only retains its permanent employees as a way of managing costs during off seasons. This strategy helps it in ensuring that it adjusts to the changing market patterns. The adaptation is critical in the survival of the firm. It is important to note that the firm has little control over the demand fluctuations in the market. However, this firm has been working closely with other industry players to promote the industry both locally and internationally as a way of influencing the demand patterns. This is done through local and global advertisements to encourage the elderly who are retired and those who have time to spare to travel to other parts of the world such as Middle East and experience the beauty and leisure that the region has to offer.
Capacity
Capacity is an issue in the products and services that Dnata offers in the global market. The management of this company has made a deliberate effort to ensure that it increases the volume of its products as much as possible, especially during the high seasons. The large range of volume output capacity helps in managing costs of its operations and costs of unit products. This firm is keen on taking advantage of economies of scale in its operations (Hodges, Turner, & Kimball 2012).
The unit cost of its products varies significantly with volume. When the firm prepares a large quantity of meals, the cost of the meal per plate goes down significantly. This is so because the firm would purchase the inputs in bulk, which guarantees it discount. The cost of preparation, such as the heating costs and cost of labor goes down per unit if the volume increases. The company has increased its capacity periodically in the past as a way of cutting down the unit cost of operations.
The firm’s effort to increase the capacity of its operations is driven by the desire to increase its profitability in a highly competitive business environment. Increasing the prices of its products is not an option and the only way of increasing its profits is to cut down the cost of delivering a unit cost of the products. However, it is important for this firm to ensure that capacity is increased strictly in line with the market demands to avoid losses. Increasing the volume without a proportionate increase in demand may lead to serious losses in the market. Such delicate balancing defines how successful a firm can be in the competitive market in which this company operates.
Facility Location
Dnata is located at Emirates Group headquarters at Al Garhoud in the city of Dubai. The company’s location was motivated by the need to be close enough to its clients. Having its headquarters next to that of Emirates Group, which is its principal customer, offers it a unique opportunity to avoid competition. The facility location means that there can always be close communication between the management of the Emirates Group and that of Dnata in terms of the changes in demand and other operational issues. It helps this firm to develop a unique bond with its customers that cannot be easily broken by the competitors.
Having the location of the facility close to the raw materials is sometimes advisable, especially when the supply is rare. However, in the case of Dnata, having close interaction with the customers is more important. The firm is able to understand the changing needs and respond to them in the most effective way possible. That is why the location is dictated by the customers. This location provides this firm with a huge advantage over its market competitors.
This firm’s location makes it very difficult for its rivals to win Emirate Group because Dnata and Emirates operates almost as a single entity. They have intertwined their operations to ensure that they achieve mutual success. It is also possible for it to understand the changing trends faster than its market rivals are. However, it is important to note that the location makes it difficult to win over other airlines because it is viewed as a partner of Emirates Group. In a way, this strategy limits the ability of the firm to attract other customers. Firms in this industry are sensitive to location and success or failure of a firm depends on the chosen location.
Use of Inventories
As mentioned above, this company offers both products and services. One of the most important products that it offers its customers is food. The firm prepares a wide range of food designed to meet varying needs of customers in the market. The company produces stock as opposed to ordering it. It has facilities near its headquarters where meals are prepared before the departure of the planes. Producing the stock offers this firm an advantage as opposed to a case of ordering in a number of ways. First, this approach gives this company full control of its operations. It can define when the delivery of the products will be done, the quantity and quality of products and such other related issues. Ordering stock from other companies sometimes raises issues about quality and quantity of products delivered (Kersten 2014).
However, when a firm prepares its own stock, then such issues are eliminated. Secondly, producing stock helps in cutting the cost of production. It is obvious that the supplier will be interested in making profits and that will mean the increased charges will be transferred to the customers. Reducing the channels of delivering products to the customers lowers the cost. Finally, this strategy helps in strengthening the trust with the customers.
The firm’s customers are aware that this company is in full control of the production processes. Inventories maintained as finished goods are the variety of meals that is ready to be delivered to the customers on board the planes. Inventories maintained as work in progress are meals, which are in preparation stage. Inventories maintained as work in progress are ingredients used in the preparation of the meals. The level of inventories at each stage is defined by the prevailing market demand. Figure three in the appendix shows inventories maintained as finished product.
Quality Management
It is important to understand dimensions of quality in reference to the product that is offered in the market. According to Hodges, Turner, and Kimball (2012), dimensions of quality include the features, reliability, performance, conformance, serviceability, durability, and the aesthetics. It is the uniqueness of the product in reference to what is available in the market. Quality defines how well a given product is capable of meeting the needs of its users.
In most of the cases, quality is determined in relation to what other products offer. As such, for a product to be determined to offer high value, it must be superior to other products in all or most of the above dimensions. The staff involvement in quality management is one thing that is not avoidable. For instance, the catering services’ quality is defined by the competencies of the staff and their commitment towards meeting the needs of the customers.
The quality of food directly depends on the skills and experience of the cooks. The manner in which the food is delivered to the customers also defines quality. The level of cleanliness, courtesy of the attendants, and ability to respond to customers’ needs all define clients’ level of satisfaction. Services delivered by industry players have a significant quality differential. As mentioned above, quality of catering services goes beyond the quality of foods itself but also the manner in which it is delivered to the customers. Different players in this industry try to use different strategies in the market, making the quality of their products to vary.
Productivity
Efficiency in the production within this industry is critical because of the small profit margins that these firms get due to stiff market competition. Dnata has a formal measure of productivity that it uses to measure its efficiency in operations. In each of the different units, there is a measure of productivity. For instance, in its cargo-handling unit, the firm always computes the number of containers handled within a month, the costs used in handling the cargo (cost of labor, machinery, and other costs) and time that was spent. The primary reason for computing the productivity is to identify areas of weaknesses that need to be addressed to cut down the overall cost of operations.
It helps in identifying redundancy and possible causes of delay that affects the firm’s efficiency. The management unit is capable of identifying where the firm is spending many resources unnecessarily and how restructuring can be done to improve efficiency. In the catering services, there is always a massive pressure to be precise in terms of quality and quantity. Low quality may lead to customer dissatisfaction and so is low quantity. On the other hand, overproduction of such a perishable product means that there will be wastage, which will translate to reduced profitability (Collins 2012).
Computation of productivity is, therefore, critical in ensuring that the right amounts of products are made available and in the right quantity. The management of the company has put in place a formal productivity improvement program as a way of ensuring that it delivers the best quality to its customers.
Critical Analysis
Conclusion
It is clear from the analysis of Dnata and Dubai port that a firm’s success in the market is defined by its operational strategies. The two cases clearly show when a firm is operating in a competitive business environment, success depends on how well it is capable of understanding the market forces and aligning its strategies with these forces. In both cases, it was clear that cost cutting through automation is critical for a firm to achieve competitive edge over its rivals.
However, the analysis reveals that Dnata is more capable of diversification of its products that Dubai port. This firm has been increasing its profitability by introducing new products in line with the market demand. The nature of business of the two firms, their competitive environment, and target customers are some of the key areas of difference. Couriers rely on the port to operate while Dnata rely on the couriers to operate.
The threat of new entrants is greater in the industry where Dnata operates than where Dubai port is, which means that competitive rivalry for Dnata is very high. However, it is important to note that the two cases presented some similarities, especially in terms of culture. This may be attributed to the fact that both firms handle local and international clients. From this analysis, one can conclude that external forces of the environment have major implications on the success of the firm.
Reference List
Abeyratne, 2016, Competition and investment in air transport: Legal and economic issues, Springer, Cham.
Collins, E 2012, Air crash investigations ghosts? The crash of eastern air lines flight 401, Wiley, Hoboken.
Czinkota, M & Ronkainen, A 2013, International marketing, South-Western Cengage Learning, Mason.
Hodges, J, Turner, L & Kimball, A 2012, Risks and challenges in medical tourism: Understanding the global market for health services, Praeger, Santa Barbara.
Jaško, O & Marinković, S 2016, Reshaping the Future Through Sustainable Business Development and Entrepreneurship: Symposium proceedings, Springer, Belgrade.
Kersten, W 2014, Next generation supply chains: Trends and opportunities, Cengage, New York.
Appendices
