Virgin Strategic Management Analysis International Business Report
Virgin Group Limited is a United Kingdom-based holding company similar to Berkshire Hathaway in the United States and was incorporated by Richard Branson in 1989. The conglomerate specializes in the travel and entertainment industries but has group diversified into 200 different businesses ranging from the financial services industry to wineries. Branson retains complete control of the Virgin Brand, and in effect, his name has become synonymous with the brand to the point of Virgin becoming a reflection of his own personal ideologies.
The name and philosophy are often listed as the most important factors in Virgin Group’s success. “The heart of Virgin’s core strategy is to develop the five pillars of the business empire: travel, leisure, mobile phones, entertainment retailing and personal finance”. Sir Richard Branson has focused on initiating groundwork in each of these businesses and allowing innovative managers to take the reins as he once did with Virgin Records. With a limited corporate hierarchy, Virgin Group is able to allow capable managers expand the brand into as many markets as is feasible.
As the previously mentioned brand name is arguably one of the most important assets to the Virgin group. In the United Kingdom, Richard Branson is a tycoon celebrity who brings instant recognition and sway to any business venture he undertakes. One goal of Virgin moving forward should be to relay this formidable power to the United States. If Branson can make the Virgin name as respected and recognizable in the States as in the U.K., then his companies could capitalize on a market that feeds on value. By pushing his brand as the “consumer champion” Branson can expand recognition of the brand across the U.S. and gain consumer support for other ventures. The Virgin name in the U.S. is currently dominated by differentiation-based air travel, like Virgin Atlantic which flies trans-Atlantic. The next step is expanding consumer knowledge of the brand into other Virgin competent business sectors such as entertainment and financial services.
Part of expanding the brand name across the U.S. is expanding Virgin America, the domestic-only airline that is “reinventing domestic travel” and has been rated the best business class airline for three years running by Conde Nast Traveler magazine. By offering better in-flight amenities at a lower cost than many domestic carriers, Virgin is creating strong brand loyalty for itself and dollar value for its customers. With the long-term goal of Virgin in the U.S. being to establish its brand as ubiquitous with consumer value in multiple industries, in short-term Virgin America must succeed in offering this same value to consumers now in an industry riddled with bankruptcy and high fixed costs. By acquiring small, regional airlines Virgin America must expand its territory of coverage on domestic flights into and out of major cities.
Check the difference in amenities and cost in these 2 flights:
By analyzing the general and industry environment of Virgin Travel, one can identify Virgin Travel’s opportunities and threats in this Virgin Strategic Management Analysis International Business Report. The conditions in our environment that Virgin Travel needs to take advantage of to become more profitable include the business travel sector, the international environment, and retaining current customers. The conditions in our environment that endanger the integrity and profitability of the company’s business are our competitors and fluctuations in the prices of the economic environment. The general environment factors to be considered are demographic, sociocultural, technological, economic, global, and legal/political.
Economically, Virgin Travel is a segment that highly involves consumer consumption. High debt levels and low job security are keeping the brakes on consumer spending for this business segment. Business travel budgets also remain weak but are currently on the rise (Arnott). Currently, good sales of premium seats have shown rising sales of first and business-class seats. Virgin Travel has tried to analyze its load factors, or its industry index calculated as a ratio between passenger miles flown and seat miles available, to better allocate these premium seats. These load factors have remained strong thanks to Virgin’s rigorous price-cutting strategy. Governments too are not supporting airlines’ environmental efforts, nor responding to them fast in terms of regulatory change. Markets need to be liberalized and barriers removed to allow the airline industry to focus as a commercial industry. Yet, governments are unwilling to provide the right incentives for research into biofuels and are too fast to apply green taxes. Virgin Travel has tried to solve these issues with fuel hedging, or issuing a contract that commits an airline to paying a pre-determined price for future jet fuel purchases. Virgin Travel bought two years of fuel in advance insulating the company from the worst excesses of oil price rises. By selling off much of the hedge book since then, the group also hopes to avoid being hit by subsequent falls that could affect the company long-term. The gas price fluctuation rates should highly be taken into consideration due to its effect on both Virgin’s total cost and buyer willingness to choose different modes of transportation.
Globally, Virgin has branches and business units across the globe that has to stay technologically current. Virgin is expanding into the international market slowly. Currently, Virgin Blue has flights to Australia, New Zealand, the Pacific Islands, Thailand, Indonesia and Papua New Guinea. Virgin Australia offers direct flights to Australia. The Virgin Travel segment is continuing to look to expand internationally and has recently announced new nonstop service to Los Cabos and Cancun. Virgin also has river cruising and transatlantic cruise destinations to Alaska, Canada, New England, USA, Hawaii, Mexico, the Caribbean, the Bahamas, Bermuda, Europe, Africa, Asia, South America, Antarctica, Australia, and New Zealand (Cruise Deals).
Socioculturally, the society’s attitudes and values with concerns about the Virgin Travel environment have been satisfied by Virgin’s values of customer service. The new aircraft offer interactive in-flight entertainment systems and outlets near every seat for technological appliances. Virgin America offers in-flight internet service on every flight and hosts the largest in-flight entertainment library in the U.S. skies via its touch-screen Red™ seatback system. Virgin America has also elevated its loyalty program, which offers guests the ability to redeem points for any unsold seat on any Virgin America flight, at any time (Plane Tickets). Virgin America also finds it important to satisfy in-flight experience by offering one of the largest selections of fresh menu items, with a focus on lighter, more health-focused options in keeping with the airline’s California roots. Virgin America also trains it, staff, to include a special focus on delivering concierge-like guest care. With outstanding service and elegantly designed new planes, Virgin America has captured a loyal guest following and experienced significant growth since its launch (Press Release).
Demographically, the travel industry contains many population sizes, ages, and ethnic mixes. Virgin Travel deals highly with people that travel for business. Consumer consumption for travel includes such facets as hot air balloon travel, space travel, flight travel, car travel, and boat travel. Virgin has targeted that most of its consumers want a travel industry that can provide technology, low fares, and good customer service. “Virgin airlines offer unrivaled value with low fares and innovative features like touch-screen seatback entertainment, power outlets, mood-lighting and custom-designed leather seating with a deeper, more comfortable pitch.” Virgin space travel has also begun research in innovating new space travel (Press Release).
Technologically, Virgin is “ahead of the game.” In May 2009, Virgin America became the first airline to offer guests in-flight internet on every flight. Virgin America is the only airline in the U.S. with a touch-screen seatback menu that allows guests to order what they want when they want it during a flight. Virgin Travel also uses the best fare finder to help find you the quickest and cheapest form of travel to your destination (Virgintravel.co.uk.com). It is also hard to find internet on many trains in the transportation travel segment. Virgin Trains has also included Wi-Fi to solve this problem (virgintrains.co.uk). In addition to Orlando and Toronto, the airline intends to announce at least three more new destinations in 2010. Not only does Virgin plan to use its technology to travel internationally, but also in Space. Virgin Galactic is a new venture that is dynamically changing to enter into the space travel market.
Finally, Virgin Travel has many legal/political obligations that it must adhere to. Dealing with international security regulations concerning international travel and equipment affect travelers alike. All international travel requires a passport, which is required for travel to most countries around the world. When flying internationally, Virgin Travel recommends that you should check the customs regulations for your destination. Customs may prohibit you from bringing certain items into the country that you may need to be informed about. Baggage requirements for flights are as follows:
2 pieces plus 1 personal item
International Premium Economy
1 piece plus 1 personal item
1 piece plus 1 personal item
(Business Travel). Warnings concerning other miscellaneous items are also included in the equipment regulations. Excess baggage will be charged for and taken into consideration before handling. New travel rules state that passengers can take liquids or gels in their carry-on bags, but only if they are in 3-oz. or fewer bottles. Although it may seem obvious, passengers may not carry on knives, guns or any other sharp objects that may be used as weapons, including scissors. Even nail clippers may get confiscated. For this reason, they must be in a single, 1-quart clear plastic bag. Virgin Travel states that you should arrive at the airport two to three hours before your flight in order to give you time to clear security and customs.
Concerned with high threats of new entrants, or barriers to entry, the economies of scale and scope required is very high and elaborate. Virgin contains many different products that are price-cut due to the economic downturn of the recession. High fixed and investments are also required for Virgin’s elegant new aircraft. International regulations must be met and switching costs for some consumers to Virgin Travel can be costly. However, Virgins location in California provides it with substantial access to raw materials.
The rivalry is high in Virgin Travel because many other companies are in competition with their many different dabbles of modes of travel. These include passenger airplanes, trains, rent a car, hot air balloons, space travel, and cruise lines. Key competitors in Virgin Travel’s industry include Delta, British Airways, Royal Caribbean, Hertz, and Enterprise. However since rivalry is high in the travel industry, Virgin is able to benefit from their competition. The supplier power is moderate because there are only a few suppliers as airline manufacturers. Suppliers for airplanes include Airbus and Boeing. For train manufacturers, they include Siemens and Bombardier. Most airline services lease aircrafts because they are too expensive to own and are a substantial investment that can be depreciated over the years.
The buyer power is high due to the different choices of consumer transportation. Consumers do have the option to drive domestically to take the airline industry out of the picture completely. Yet, for people that do business abroad, flights are essential and seen as a necessity. On the contrary, there are a plethora of airline services that offer cheap flights for those buyers that lean more toward a cost leader than a product differentiator. This creates a need for Virgin to be both a cost leader and product differentiator. Substitutes that exist for international travel include domestic transportation. Rent-a-cars and buses can be used to get around, but Virgin’s flying experience is non-substitutable. Virgin relies heavily on providing great customer service to an enjoyable travel experience.
Virgin Travel’s primary financial resource is its fleet of Boeing and Airbus jets. In 2007, all the Virgin airlines had profits of $5 billion. Specifically for Virgin America, the Virgin Group invested $312 million to get the company up and running, and, for Virgin Blue, Branson earned $500 million when he took the company public. In addition to its financial resources, Virgin Travel has intangible resources. Virgin’s innovative management style is the main intangible resource. This management style makes Virgin Travel capable of growing organically and supports external growth throughout all of Virgin Group as well. Each of the airlines under Virgin Travel (Virgin Atlantic, Virgin Blue, Virgin Australia, and Virgin America) operates independently. That is, they each have their own business model and offer different services for different customers in different cities; however, they work together as needed. Another of Virgin Travel’s intangible resources is the brand name recognition of its parent company, Virgin Group. When people see the Virgin brand, they see a company that is fun, innovative and a great value.
Virgin Travel has two major core competencies. The first is its stylish and innovative flying experience at a low cost. This competency is valuable because it is the basis of their ability to gain customers. They are able to charge low fares because they fly only point-to-point, high traffic routes which they expect to be profitable. Since Virgin Travel is such a young airline business, its fleet of Boeing and Airbus jets is relatively new. Thus, its fleet has the latest technology for both flyers’ enjoyment and the benefit of the environment. The newness of their jets makes it a rare quality relative to other airline companies. For the same reasons that make this competency rare, they also make it inimitable. For well-established airline companies such as Delta and America Airlines, buying new planes to replace older ones is expensive and not in their best interest. Their fleets are too large to realistically replace all the old planes and still be profitable. The flying experience of Virgin Travel is non-substitutable. They offer a one-of-a-kind mood lighting for the cabin, free in-flight Internet, live TV, expansive MP3 library, video games, leather seats for every passenger, on-demand food and drink at every seat, and much more. The only airline that even comes close is Jet Blue, and this is because their fleet is also very young and they are able to offer some of these amenities but not all. The second core competency is their friendly environment and customer service. The Virgin Travel mission statement is: “To have a profitable company where people want to shop at and where people want to work.” Great customer service and a friendly environment are rare qualities in the airline industry. Airlines are constantly canceling flights, causing delays, or losing baggage. Virgin Travel’s mission statement is not rare by itself, but, when combined with a Chairman like Richard Branson, it definitely becomes tangible, realistic, and rare. The ability to provide good customer service and a friendly environment is definitely valuable. For example, when Branson announced Virgin Australia at a press conference in an LAX terminal, he lowered the usual ticket fare of $1000 to $777 for the first 1,000 passengers, since Virgin Australia would be exclusively using Boeing 777’s. This competency is pretty inimitable. A culture of great customer service and a friendly atmosphere is hard to replicate overnight. Most airlines would have to work long and hard to reverse the images they have in the eyes of airline travelers. Lastly, this competency is fairly non-substitutable. While travelers good opt to fly Southwest or Jet Blue, they would be sacrificing Virgin Travel’s first core competency. Virgin Travel’s two core competencies pass the VRIN test and, therefore, give Virgin Travel two competitive advantages and a chance for great profitability.
In terms of value chain exploitation, Virgin Travel outsources the maintenance of its airplane fleet. Their core competencies, however, to help create better value.
Virgin Travel’s strengths include their marketing activities and the brand name recognition associated with the Virgin Group. Their biggest weakness is the expense of companies under the Virgin Group. It faces constant challenges deciding how and where to invest their capital. For Virgin Group, they have to decide whether one of their over 300 different businesses is a cash cow, a star, a dog, or a question mark.
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“Cruise Deals, Discounted Cruises, and Cruise Vacation” Virgin Blue. Cruis Pilot. Accessed September 25, 2010. <http://www.cruisepilot.com.au/virginblue/destinations/>
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“Business Travel.” Vaustralia. 2010. Accessed September 24, 2010. <http://www.vaustralia.com.au/before-you-fly/baggage-dangerous-goods/baggage-allowance/index.html>
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On the first report, we focused on Virgin air travel to better highlight the necessary aspects of the business in regards to the discussion in the first half of class. On this report, we focus more closely and only on The Virgin Group as a whole. We have identified two keys issues that Virgin faces moving forward if they implement what we consider to be obvious and crucial to our recommendations. The first of these issues is easing into the American market and creating brand recognition here. We think it imperative that Virgin expand across the Atlantic and push its brand name here in the U.S. Virgin is an extremely successful company in the U.K. and Europe, but has left the American market as an untapped opportunity in its broad global strategy. If Virgin sees the same success in the U.S. as it has in Europe, then it can reap lots of financial benefits.
The next key issue facing the company is dealing with failing businesses and possible brand depreciation on the European mainland. There are several individual examples in this report detailing how these issues are already affecting Virgin, and how they will in the future. For example, Virgin rail is currently floundering and the brand name is suffering because of it. Virgin is a venture company, so we believe that it eventually needs to divest companies it acquires to be successful. Of course, we are not suggesting it divests from every holding, but only the ones that have reached their potential or are floundering in the market.
Business Level Strategy
The Virgin Group uses an integrated set of business level strategies to gain a competitive advantage in the market by exploiting its core competencies and matching its strengths with opportunities in its respective individual product markets. Virgin group has sometimes been referred to as a keiretsu organization, or a structure of loosely linked autonomous firms run by self-managed teams that use a family brand name. The advantage of these private conglomerates is that owners can ignore short-term goals and concentrate on long-term profits, reinvesting for this purpose. Their approach to management is a decentralized decision-making process, with a focus on independent business-level decision-making and responsibility for their own development (Keiretsu). The brand name Virgin symbolizes the company being a virgin in every business they enter into and creates their actions to enter into different market segments.
As a venture capitalist, Virgin has more opportunities for innovation and profit maximization in accordance to its high rivalry in many business sectors. Its financials are steadily growing along with its physical resources such as jets, phones, cinemas, and overall technological organization. However, Virgin is currently increasing its brand reputation by using its tangible resources more effectively to expand across the Atlantic and U.S. Virgin has a flat management structure that helps encourage innovation. Decisions for Virgin are decentralized which also encourages an environment of managers taking a personal interest in the outcome of the company and accountability of decisions made. Coupled with their management style, Virgin acquires talented people to be managers. The atmosphere of creativity in Virgin’s management style create complacency in the marketplace. For example, each of the airlines under Virgin airlines operates independently. Each airline under Virgin develops a quality of jets that is relatively new creating a rareness and inimitably unmatched by its competitors.
Although Virgin does use some pieces of the cost-leadership strategy, Virgin mainly uses the differentiation business level strategy to try to better develop its brand image and capture profit maximization. The main reason for it to falter in its cost-leadership approach is that it does not have its own manufacturers. By differentiating the brand name and philosophy instead, Virgin can increase its brand awareness. The Virgin brand has been associated with quality and pleasure throughout Europe, but is not as highly valued in the U.S. The Virgin Group name has an established reputation, brand, and customer/stakeholder relations. Virgin increases its customer service by having their staffs take an active role in coming up with new ideas to solve for improvements in products and services. For example, Virgin Active in South Africa, the leading health club chain, is challenged to think of 10 improvements for every new club built. These changes influence customer’s experience of Virgins products and services. Virgin Active management team also highlights outstanding customer service in internal education programs and providing customer service awards that make their employees motivated and happy. However, Virgin does have some competitive risks associated with this strategy. For example, differentiation ceases to provide value for which customers are willing to pay in Virgin Travel when dealing with cheaper flight fairs. Virgin’s minimum level of quality for differentiation also creates threshold pricing. Finally, Virgin faces constant challenges deciding how and where to invest their capital in its respective industries (Customer Service).
Along the Value Chain, Virgin excels in sales and services used to implement its business level strategy. For example, Virgin Travel offers discounts on premium seats that have created rising sales of first and business-class seats for the industry. Virgin also analyzes its load factors to implement its rigorous price-cutting activities. Human resource management, therefore, has been put in place to keep people committed to these different companies by stock options, bonuses/profit sharing, and promotion from within. The Virgin Group is constantly being technologically developed with its touchscreen seatback entertainment, Wi-fi accessibility, health club maintenance, cutting edge smartphones, and new space travel. Their service has been specifically differentiated by each individual segment. The Virgin Group has found success in its ability to identify complacency in other industries in the market to add value to the brand. It achieves this by brand recognition, understanding of the institutionalized markets, and unrestricted management.
The Virgin Groups performance so far as an industry has been influenced directly by its industry environment factors. Its barriers are high with economies of scale and scope highly elaborate while containing high fixed and investment costs that are required. The regulation domestically and internationally in the travel industry also must be taken into consideration. Rivalry for the Virgin Group is high. Virgin faces an array of different smartphones, tablets, laptops, online video services, airline industries, and home computers. Virgin’s supplier power is high. Its suppliers are large and it has few in number in its manufacturing. Gas is moderate in its supplier power due to economic fluctuations, but gas fluctuations can be better planned for by hedging. Buyer power is high in the Virgin Group. Buyers are large but not few in number. Because most of Virgins products are competitively priced, buyers can switch to another product without incurring high switching costs. Consumer spending can be tough to control though. Finally, Virgin has a high group of substitutes. Leading substitutes include innovative products such as iPhones, Blackberries, Times Warner Productions, and Google products. Some of these substitutes products prices are lower, creating buyers to face few high switching costs. In conclusion, the Men in the Back, have decided that the Virgin Group industry is very attractive for incumbents. Yet, in order for Virgin to be truly successful, it must analyze its corporate strategy to fully understand how to solve this magnanimous problem.
Level of Diversification
Virgin is a highly diversified corporation. It has more than 300 companies worldwide ranging from air travel to record stores. From an external look of the company, it may seem that Virgin is highly unrelatedly diversified. However, this strategy is what makes Virgin so unique. Virgin does a lot of things in the travel, entertainment air, travel, and space travel industry to music entertainment from its record stores and radio stations. It even has businesses in shopping malls and health clubs. However, Virgin is adamant that it looks for areas in businesses where they believe that they can create value. Branson explains that they look into a new sector by examining if that specific market is not providing customers something that Virgin would be able to provide. Virgin’s management team has done well in identifying complacency and areas of value in different markets. It is this strategy coupled with the business level strategy of being a differentiator but also offering it at competitive prices that allows Virgin to be successful. If Virgin feels confident that they can provide more value in that market, then they enter that market through a variety of ways.
They also look for synergies that can be created by entering that market to help its other business ventures. Then from their collection of businesses they are able to have a ‘Virgin Community’ in where Virgin companies help each other in their respective expertise. This ‘community’ is something that differentiates itself from other companies. This enables Virgin to benefit from synergies that other companies are not able to replicate. Not only would Virgin benefit from controlling its supply chain but since it has ventured into other sectors, it is able to create even more synergy. An example of this is Virgin Records, Trains, Shopping Centers, and Atlantic are able all to benefit from each other from doing business with each other. This is one of the main benefits Virgin gains from its diversification.
Another benefit of being unrelatedly diversified is that once they establish a company in a sector that they haven’t been in and succeed, it leads to a better reputation and increases their brand image and its value. Virgin is a well-respected brand of value and customer service in the U.K, as well as parts of Europe. This building of brand image leads to an easier transition for Virgin to enter a new market because of its reputation and trust.
In an effort to further diversify Virgin’s product offerings; Virgin Group utilizes various vehicles to enter new markets. In order to overcome extreme barriers to entry and rivalry in many of these markets Virgin Group uses some high-risk vehicles like owning subsidiaries or simply acquiring into various industries. Specifically, they have used these techniques when entering different travel industries. As mentioned above, in Virgin’s diversification strategy this is very common. While acquisitions are a huge factor in the group’s corporate-level strategy they also hold a stake in many other industries as well by modes of partnerships, and alliances. Virgin has quite often used mergers as well for means of entry.
Being such a highly diverse company, Virgin also has to take into account the level to which they are diversified. As cited before, when doing these analyses the management carefully determines whether the businesses Virgin’s name is a part of are sufficient for growth in the overall portfolio. Utilizing this decentralized organizational structure increases the number of ventures the company undertakes and in turn yields more thorough internal analyses. Hence, the company realizes comparably smaller returns on some and decides to divest and restructure their portfolio. History shows this is one of the most common means of exiting an industry for the group and the decisions made add value to the Virgin brand. Exhibit 1 illustrates the number of acquisitions, stakes, and divestitures Virgin Group partook in the last 23 years.
We find it interesting that in this time frame divestitures were more than double the number of acquisitions. In order for a conglomerate type firm to advance and become successful these actions are necessary so that the parent company’s reputation isn’t harmed and so that the company’s focus is strictly on the highly profitable business sectors where ROI is significant to the overall earnings. To better exemplify the complexity of Virgin Group’s modes of entry and exit within industries we will first analyze Virgins ventures within the wireless communications industry showing the different means they pursue and utilize to further growth. Lastly, we will walk through some individual strategic vehicles to illustrate a few of their actions in simpler strategy.
The Virgin brand is well known for its wireless communication services throughout the world for it’s Virgin Strategic Management Analysis International Business. In order to establish this famous brand further, the international provider entered the US market with Virgin Mobile USA in 2002. This strategy to venture into the US market was extremely complex because of the numerous modes of entry. First in 2002, “Virgin Mobile USA, LLC [was] a joint venture between Sprint Nextel and the Virgin Group.” Using an alliance as they did help hurdle the initial costs of entry into a saturated market as it was and gain brand recognition. This worked well at first while Virgin targeted a different demographic and customer basis. Virgin Mobile’s customers were “attracted to affordable prices and relevant mobile data and entertainment content.” Having this joint venture was to both companies’ benefit because Sprint showed areas for growth and Virgin was able to take advantage of Nextel’s knowledge on prepaid products to create low cost, but at the same time have access to Sprint’s quality service. In 2007, some restructuring occurred within the company and Virgin “completed [their] IPO and a related reorganization.” They converted to a limited partnership and became a majority-owned subsidiary of Virgin Mobile USA. Virgin made some difficult decisions during this time, but by doing so they were able to use what they learned earlier on benefiting them more in this partnership. Being the sole general partner of this operating partnership, Virgin gained more control to yield growth.
Moreover, the strategic decisions made by Virgin didn’t stop here in their Virgin Strategic Management Analysis International Business. Being firm believers in servicing the customer well they decided in 2008 to acquire Helio, “a provider of postpaid wireless products and services” (Seeking Alpha) even though it would be difficult to merge their strategies. This strategy to acquire Helio was not as sound as prior decisions made by the holding giant. The Wall Street Journal announced that this strategy was “considered as one way to reduce cost… [but] there was a 7.4% decline in the shares of the company.” This acquisition leads to a vast increase in market share and product pricing but was not a thorough decision by the group.
All of these strategies fostered growth to an extent, but, as they moved from less risky vehicles to more risky ones, the company lost track of their overall goal. The wireless communications industry is a highly competitive playing field and without exhaustive research, the outcome will be unsuccessful. Shifting strategies from joint ventures to partnerships, and then to acquisitions shows a preview of tactics Virgin Group utilizes to yield growth. Referring back to exhibit 1 it is apparent that Virgin exploits divestitures as the main growth tool as well.
Being such a multifaceted industry with the main four rivals consolidating the market, Virgin recently was forced to decide on a multimillion-dollar deal. This negotiation was not simply a one-off though because it involved Sprint acquiring Virgin Mobile in an effort to foster internal growth for Sprint. The rivalry is an intense external force for the industry and with a fast-growing market for prepaid cell phones, the wireless giants attempt to gain more market share in these areas. Therefore, with Sprint already owning a 13.1 % stake in Virgin Mobile through the prior partnership, this became an opportunity for Virgin Group. This offer became a “31 percent premium to Virgin Mobile” with a “$483 million deal” at hand (MSN). This is was an opportunity for Virgin to divest because the brand name is still being represented through Sprint and they were able to capitalize on the investment while demand was increasing. This divestment is a great immediate gain, but in the long run, research shows that “prepaid carriers are expected to have more room to grow than contract-based services, because the pool of people who are eligible for contracts is shrinking rapidly” (MSN).
With that being said, supplemental research should be conducted on the market before capitalizing on Virgin investments. We would have recommended Virgin to deny the Sprint offer and leverage their skills to compete with top wireless providers. By doing so they could mitigate switching costs for buyers and offer top of the line phones with prepaid non-contractual agreements.
One of the main ways Virgin Group has attempted to horizontally integrate is through other cooperative strategies. By utilizing various cooperative strategies Virgin has effectively practiced these tactics in it’s Virgin Strategic Management Analysis International Business. Exhausting other firms’ core competencies to their advantage, Virgin is able to also leverage their own competencies without risking so much. When Virgin is focusing in on business-level strategies, alliances and partnerships are of the utmost importance to the group because they make it possible to differentiate their products to a higher degree. The accessibility to more capital, knowledge, and skills yields an exceedingly differentiated brand name. The Virgin brand name can be concluded from the countless joint ventures that have been formed throughout the firm’s history; “for example, Virgin’s pledge in the Virgin Direct affair was a mere £15m for the initial investment. But AMP Limited the leading international financial services initial investment was an extensive £450m, and yet it is a 50-50 joint venture!” (Abdul). Utilizing others’ resources continues to help them to prosper as well.
Virgin Travel Group is a great microcosm to understand Virgin Group’s overall Virgin Strategic Management Analysis International Business Strategy. Virgin Travel’s international strategy is multi-domestic and decentralized. Each company makes its own business decisions separate from the other companies. Virgin America operates separately from Virgin Blue, Virgin Atlantic Airways, AirAsia X, Air Nigeria, Pacific Blue, Polynesian Blue, and V Australia. In addition, Virgin Trains, Virgin Galactic (space travel), and Virgin Balloon Flights (hot air balloon travel) operate independently of each other and Virgin’s airline businesses. Socio-politically, Virgin Travel has to be aware of the enormous safety regulations that each country enforces. Virgin Travel operates in stable countries, so nationalization is not an issue. Lastly, Virgin Travel has to understand the cultural differences of where it operates. There are language barriers, and there could also be barriers some travelers may have to the idea of flying (i.e., security guidelines/procedures and safety regulations). Virgin Blue (and its holdings: V Australia, Pacific Blue, and Polynesian Blue) and Virgin Atlantic Airways are wholly-owned subsidiaries. This is probably because Virgin Group, being UK based, had more knowledge of the Australian/New Zealand and British markets. Virgin America, AirAsia X, and Air Nigeria are alliances. The alliance in the American industry makes sense for Virgin Group for two reasons. First, international, private companies are not allowed to own a majority stake in American companies. Due to this, Virgin Group only has a 25% stake in Virgin America. Secondly, the American airline industry is very competitive. It makes perfect sense for Virgin Group to ease its way into such a difficult industry. Obviously, operating airlines in Africa and Asia creates all sorts of challenges, both socio-politically and economically, so an alliance there makes perfect sense to minimize as many risks as possible. To summarize, Virgin Group uses a multidomestic, decentralized international strategy. When entering into new industries, markets, and countries, Virgin Group has two strategies. If the market is familiar, they will launch a wholly-owned subsidiary. If the market is unfamiliar or in America, Virgin Group will form alliances (less than 50% in America).
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