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Requirement
Strategy Development AAA Model Assignment
Solution
Introduction
The AAA framework was given by Pankaj Ghemawat. These are the generic approaches that are adopted by the companies for creating a global value. The AAA stands for Adaptation, Aggregation and Arbitrage strategies. In the adaptation strategies, the components of the business model of a company are tailored and modified so that they suit the preferences of the customers and the local requirements of the market (Ghemawat, 2013). Thus, the adaptation strategies help the companies in generating more revenues and the market share of the company also gets increased. In the aggregation strategies, the companies are suggested to standardize a major part of their value proposition and they also group together the processes related to production and development. This helps the company in achieving economies of scale and economies of scope as, by doing all this, they are able to create the regional and the global efficiencies (Ghemawat, 2013). In the arbitrage strategy, the companies identify the various parts of their supply chain at various places and thus, they are able to make use of the various economic and other differences between the markets of that country as well as the international markets (Jha, 2014).
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In this report, the theory related to adaptation, aggregation, and arbitrage will be used to explain how the different companies i.e. Toyota and Holden from Car Industry and Virgin Australia Airlines and Jetstar Airways from airline industry use this theory for the pursuit of their business.
‘AAA’ Model
Industry 1: Car Industry
Company A: Toyota
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Adaptation: Toyota expanded its business and focused towards making common car. The main aim of this expansion and for shifting the focus was that the company wanted to make such a car that would position in the local market successfully and will be able to meet the requirements and the preferences of the people in the market of the world. By doing this, the company was able to capture the market of many different regions and the revenues of the company also got increased (Chege, 2015). The common car produced by the company helps in satisfying the customers in all the regions that were targeted by the company and hence it was able to use design adaptation and adapt as per the requirements of the market and its customers.
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Aggregation: The company used regionalization by beginning its production process in Japan and then it expanded production to US. When the company expanded, and moved its business towards a common car business, the customers across many regional got satisfied and the product platforms of the company also got consolidated. The regional aggregation strategy of Toyota not just focused on the product design, but also on the focus, portfolio, platforms, networks, hubs etc. In this way, the company Toyota exploited the similarities among the different regions. By this aggregation strategy of Toyota, the company made each of the production plant a common vehicle for the production of cars (Dupuy, 2013). Thus, restructuring of the production plans of the company helped the company in gaining efficiency and flexibility so that the needs of the customers throughout the regions could be satisfied.
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Arbitrage: Though in the arbitrage strategy, the company exploits differences more than the similarities and Toyota focused on the similarities of different regions, but then also arbitrage strategy was used. This is because, the company identified differences in the various regions and that motivated the company to exploit these differences (James, 2014). The company made use of the cultural and economic differences among regions as they researched about the differences and then strategized that how these could be used to create an arbitrage. The parts of the production of the company as broken in parts and each part was separately installed at different regions for creating the production facility successfully in the regions. Though the facilities that were installed were similar, but each of the facility suited the different requirements of different regions.
Company B: Holden
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Adaptation: In 2011, a consumer affairs report pointed that the domestic car market of Australia was very competitive in the entire world and the company Holden was losing its presence in the country. So, to remain in the competition, the company Holden picked one formula and they made the correct number of cars for paying their overheads and sold them in the similar way. They picked the right kind of vehicle that the people of Australia would easily accept and it suits their requirements and preferences. By doing this, the company sold more number of cars and the cover costs of the company also got covered (Gollan, 2013). The cars that were produced by Holden were right handed. But the people of Australia demanded left-handed cars so, the company shifted to that. Thus, by adapting to the design, the company was able to maintain its position in the market of Australia.
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Aggregation: The company Holden standardized a major portion of their value proposition as the cars that were manufactured had standard safety measures. The company also fitted the seat belts in a standard way that provided value to the customers in terms of safety. Then the company had a closed loop catalytic converter fitted in all the vehicles that was another standard for the Holden cars (Clarsen, 2013). Even the engine that was there in the Holden cars was most powerful and standardized. This was possible because the company grouped together the processes related to production and development and thus aggregated the parts of the cars.
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Arbitrage: Apart from Australia, the company also serves the various other markets like USA, Europe etc. By identifying the needs to the people in different regions and by utilizing the macro-environment conditions of the various regions, the company was successful in capturing the market if different regions (Clarsen, 2013). New models were introduced in the new countries and these were as per the economic condition of the people in these countries so that the people easily buy the car. Thus, in this way the company Holden was able to utilize the economic arbitrage and enter different markets of different countries.
Industry 2: Airline Industry
Company A: Virgin Australia Airlines
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Adaptation: The airline is using the innovation adaptation strategy to give the crosscutting effects. It is planning to redesign its business by making the premium economy cabins like it is including the more space in the seats of passengers, and it is also planning to include the suite-style seating (Srisaeng, 2014). The service that will be given to the travelers will also be enhanced in the sense that they will get a restaurant-style service and the guests of the business class will get a bar that will be designed in a new way. By doing this, the company is planning to attract more customers and capture more markets.
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Aggregation: In 2011, the airline came into a strategic alliance with Perth-based Skywest Airlines. This was done so that the airline could take new regional routes. This made them globalize their business model and their routes. By running in different locations, the company was able to create economies of scale for itself. Though the cost of operation was increased because the number of roués expanded, but the profit increased in greater proportions than the costs incurred (Homsombat, 2014). Also, the services that were given to the passengers were similar. So, the airline exploited similarities rather than it adapted to the differences between the regions in which it started its routes.
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Arbitrage: Virgin Airlines came into a strategic alliance with Singapore Airlines (SilkAir) and thus it created economic arbitrage for itself. The economic condition of both the airlines were very different but, both the Airlines offered premium service to the customers, and the Virgin Airlines got access to a new expansion network (Freed, 2015). It was able to give a wide range of the travel to the customers. When they came into the alliance, the Virgin Airlines created more revenues for itself from doing these things. The flying also got increased, and award winning services could be provided to the customers.
Company B: Jetstar Airways
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Adaptation: This airline introduced an innovative carrier-within-carrier approach which is also called airline-within-airline approach. This made the company compete with the low-cost carriers because the company differentiated its service from others (Freed, 2015). This strategy of the two brands helps the airline in defending the market share that it captured with this adaptation strategy. This innovation helped the airline in adapting to the requirements of the travelers across many regions and from a domestic market; it could better serve the international market as well. This helped Jetstar Airlines in generating more revenues and the market share of the company also gets increased.
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Aggregation: This strategy has not been practiced by Jetstar as such, but after it had started its CWC approach, it created product differentiation among the low-cost carrier airlines. When this service was differentiated, the airline could serve the travelers of different regions in different ways, but the service was similar. So, similarities were created by the CWC approach, but the regions were different that were served (Roberts, 2012). Since the airline also started in operating the short haul routes, so economies of scale and economies of scope were created along with the regional and the global efficiencies.
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Arbitrage: Jetstar came into a strategic alliance with AirAsia that made the airline take benefits of reduced costs, and the expertise was pooled. Thus, the rate of fare was cheap. Since it got expertise from its alliance partner, so the airline was able to operate at reduced costs and economic arbitrage was created for Jetstar (Snyder, 2014). Also, this alliance gave the airline a natural benefit of being the most competitive airline in the market. By using the knowledge of the alliance partner, the airline was able to serve the international markets in a better way.
Conclusion
From the above discussion, it can be concluded that different companies in the airline industry and car industry have successfully used the theory of arbitrage, adaptation, and aggregation for the pursuit of their business. Toyota has been very much successful in using the aggregation theory as it has used the regionalization approach and the company Toyota exploited the similarities among the different regions. It has also used adaptation and aggregation in a very effective manner. But in comparison to Toyota, Holden from the same industry has used adaptation in a much better way as it picked the right kind of vehicle that the people of Australia accepted easily, and it suited their requirements and preferences. Then from the airline industry, Virgin Australia Airlines used the adaptation strategy and the arbitrage theory in a much better way than the aggregation because it was able to cater to the differences in a much better way than the similarities. But the use of these theories by Jetstar has not been very much visible except for the adaptation strategy. Though the CWC approach by Jetstar created product differentiation among the low-cost carrier airlines, but it is not a core aggregation strategy use, and similar is the case with the arbitrage theory.
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Chege, N.M., 2015. Strategies adopted by Toyota Kenya ltd to cope with socio cultural diversity among its employees (Doctoral dissertation, University of Nairobi).
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Clarsen, G., 2013. An end to Australia’s auto dream: why we loved Holden.
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Dupuy, C. and Lung, Y., 2013. Institutional investors and the car industry geographic focalisation and industrial strategies. Competition & Change.
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Freed, J., 2015. Air New Zealand reveals plans to fight threat from Qantas.
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Ghemawat, P., 2013. Redefining global strategy: Crossing borders in a world where differences still matter. Harvard Business Press.
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Gollan, P., Bendemra, H., Ergas, H., Van Acker, E., Economou, N. and Toner, P., 2013. Holden to cease making cars in Australia by 2017: experts react.
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Homsombat, W., Lei, Z. and Fu, X., 2014. Competitive effects of the airlines-within-airlines strategy–Pricing and route entry patterns.Transportation Research Part E: Logistics and Transportation Review, 63, pp.1-16.
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James, R. and Jones, R., 2014. Transferring the Toyota lean cultural paradigm into India: implications for human resource management. The International Journal of Human Resource Management, 25(15), pp.2174-2191.
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Jha, S., Dhanaraj, C. and Krishnan, R., 2014, January. MNE R&D in Emerging Markets: Arbitrage, Adaptation & Aggregation in Global Innovation Networks. In Academy of Management Proceedings (Vol. 2014, No. 1, p. 17650). Academy of Management.
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Roberts, J., Danaher, P., Roberts, K. and Simpson, A., 2012. Jetstar Airways: How Modeling Guided the Brand Migration Strategy of a Low-Cost Carrier. GfK Marketing Intelligence Review, 4(2), pp.42-51.
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Srisaeng, P., Baxter, G.S. and Wild, G., 2014. The evolution of low cost carriers in Australia. Aviation, 18(4), pp.203-216.
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Snyder, D.J. and Tai, A.P., 2014. Customer Satisfaction At Low Cost Airlines: A Case Study Of Jetstar Pacific Airlines (JPA). In Proceeding of the Clute Institute International Academic Conference (pp. 254-265).
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