CHALLENGES OF GLOBALIZATION AND THEIR IMPACT ON KENYA AIRWAYS LIMITED

CHALLENGES OF GLOBALIZATION AND THEIR IMPACT ON KENYA AIRWAYS LIMITED

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ABSTRACT

‘The world is becoming a global village’, so the adage goes.

It is a fact that the world has truly become a global village. Globalization has presented to the world new ways of doing things. This has affected not only how organizations conduct their business but also how they compete and ultimately survive. Effects of distance have been greatly minimized. Advances in information technology have enabled communication across global office networks as though they were next door.

The objectives of this study were to establish the challenges that globalization poses to one such organization and their effects on the business though a case study, which targeted the senior management staff of Kenya Airways Limited. 15 out of the targeted 17 members were interviewed, which was a response rate of 88%. The study findings indicate that the greatest challenges of globalization to an airline like Kenya Airways Limited are competition and rapid technological changes. The competitive force of global airlines originating from the developed world was described as forceful.

In spite of the challenges brought about by globalization, 67% of the respondents described globalization as good for business. The remaining 33% described it as a threat to business. The researcher noted that none of the respondents described globalization as irrelevant to business.

Recommendations arising from this research are to be found in chapter 5.

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CHAPTER ONE - INTRODUCTION

1.1  Background

A fundamental shift is occurring in the world economy. Countries of the world are moving away from national economies that have been relatively self-contained entities, isolated from each other by barriers to cross border trade and investment; by distance, time zones, and language; by national differences in government regulation, culture, and business systems. The countries are moving towards a world in which barriers to cross-border trade and investment are tumbling, perceived distance is shrinking due to advances in transportation and telecommunications technology, material culture is starting to look similar the world over, and national economies are merging into an interdependent global economic system. The process by which this is occurring is commonly referred to as globalization (Hill, 2005).

The growing integration of economies and societies around the world has become an important aspect in the new world order representing one of the most influential forces that are determining the future course of the world. Globalization has had significant impacts on all economies of the world with major effects on efficiency, productivity and competitiveness (Intriligator, 2002).

1.1.1     The concept of globalization

The concept of globalization has only recently (20th Century) been popularized through the spread of multi-national enterprises. The roots of globalization however, date back to

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the 16th century when European nations struggled to establish empires worldwide. In late

18th century many European firms went global by setting up manufacturing facilities in

their colonies to extract raw materials. In mid 19th Century, many US firms begun to globalize by setting up business plants in various parts of the world. By the 1970s, the process of globalization was quite entrenched marked by tremendous movement of people, knowledge, capital, goods, services and technology across boarders.

In the sphere of economics, globalization is reflected in the increasing acceptance of free markets and private enterprise as the principal mechanism of promoting economic activities. Therefore, globalization is generally seen as the process of broadening and deepening of inter-relationships in international trade, foreign investment and portfolio flows (Wignaraja, 2001).

Previous episodes of globalization (1960s and 1970s) took place in an environment where many barriers to full integration were in place. The 1980s and 1990s have witnessed a rapid integration of the global economy through reduction in trade barriers. Increasing globalization has come about due to the easing of policy barriers to trade and factor flows and from technical change, which have lowered the costs of trade and factor flows. Recent episodes of globalization have, thus, been characterized by unprecedented fall in production costs, reduced trade barriers, increased trade, and access to new sources of supply, mobile labour and capital, increased competition and stringent quality requirements and rapid transmission of technology across the borders.

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The accelerating pace of economic integration among nations is expected to change future direction of social relations and customs, consumption patterns and lifestyles as well as values, religion and identity. At the political level globalization is expected to further see the spread of pluralist systems, multi-party democracies, free elections, independent judiciaries and political unions. Globalization, thus, holds greater promise for empowering multinationals in creating larger markets both locally and internationally and by promoting greater international understanding, linkages and partnerships. However it also threatens to widen the gap between the rich and poor, leaving some poor countries and regions increasingly behind due to collapse of some local corporations if poorly managed, (Hill, 2005).

Its growing importance is captured in such indices as trade in goods and services, capital flows in different forms, foreign investment, technology transfer, operations of transnational enterprises, business travel and communications, migration and remittances.

At the business organization level, adaptation to the changing environment of international trade has become a critical success factor. The effects of globalization have cut across all spheres of existence at the national, corporate and individual level. Previously, only multinational organizations embraced international outlook geographically and otherwise. With the world becoming a global village, organizations cannot underplay the need to think globally irrespective of their geographical operation. This is because competition has come to their doorstep (Aosa 2006). Challenges brought about by globalization and economic liberalization necessitate a change of strategy. Organizations that failed to change their mode of operation in the light of increased

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global competition have either ceased to exists, or continue to struggle with no competitive edge. Many businesses sought o increase their worldwide representation mainly through establishment of departmental offices across national borders or through franchising.

1.1.1.  Globalization in the airline industry

Prior to globalization and economic liberalization wave of the 1990s, most airlines were state-owned and served as flag carriers for their mother countries linking the nations’ domestic economy with major foreign trade partners. The national carriers were sheltered from industry competition through government regulation, protection and subsidy which accorded them undue advantage over other privately owned airlines (The Economist, Jun 93). Landing rights were granted through bilateral agreements between nations. A scenario that ensured nil threat from new entrants into these markets as priority on bilateral agreements was given to the national carriers. Barriers of entry included high airport charges, allocation of inconvenient arrival and departure times and poor connections flights.

As world’s GNP grew, demand for air travel increased. Air travel grew by over 400% between 1970 and 1990, (The Economist, March 1993). As the wave of globalization crept in, in the early 1990’s, the airline industry was not spared. Airlines also faced challenges associated with globalization. As world markets opened to liberalization, businesses strove to become more competitive through restructuring, and cost cutting to increase efficiency. Many organization executives eliminated executive classes in their travel and adopted economy classes in the name of cost cutting. Subsequently, airline





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