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Case Synopsis The decline in passenger liners industry due to the advent of transoceanic air s ervice had given

birth to cruise-line industry, a pleasure voyage on specific r oute that provide passengers with opportunities to experience sea travel, while enjoying the luxury amenities aboard the ship. The nature of the industry make i t a truly international business where everything, from the sourcing of the ship s, travel route, crews to the use of flags of convenience, involve international countries and entities. Carnival Corporation, established by Ted Arison in the 70s had capitalized on the growing demand for cruises and becomes the largest op erator in the industry with operation in six countries. The company leverages on its global presence to optimize its operations and minimizing cost to create mo re values and business growth. While the cruise-line industry looks promising, w here there are untapped opportunities in various part of the globe, the industry is not immuned from challenges and threats that could disrupt the business oper ations. These include the threat from terrorism, economic downtern, environment al issues and natural disasters.

Question 1: What global forces have contributed to the growth of the cruise indu stry? The cruise-line industry growth have been contributed, largely by the following factors: 1. Technological Advances The birth of the industry was a direct respond to the technological advances in air travel that made liner travel less attractive to business people due to the cost and time factors. The decline in the demand for the liner had resulted in t he birth of cruise-line industry that offer pleasure sea travel to the growing m iddle class who are looking for alternative and more interesting excursion. 2. Market Liberisation and International Cooperation The liberalisation of cross-border trade and resource movement had allowed the c ruise-line industry to leverage on the cheaper yet competent labor resources. At the same time, the industry is able to offer various global destinations and on -land excursion package to its potential customers. These contribute to the incr ease in demand and spur the growth of the industry. 3. Support Services The development of new ports allows the cruise-line to expand its destinations and provide varieties of offering to the customers. This will help attract new customers, and at the same time ensure the return of existing customers. 4. Customers Affluence The growing income among the middle class in many countries, particularly in the emerging market, contribute to the increase in discretionary incomes that could be spent on tourism. These are the opportunities that can be tapped by the cru ise industry that will contribute to the growth. Question 2 : What specific steps has Carnival Cruise Lines taken to benefit from social global changes? With globalization, businesses have gain advantages by expanding the business ar ound the globe. Globalization has made companies to gain greater businesses, eco nomic and social impact as well compared to before. As for Carnival Cruise Lines , they have taken specific steps from globalization with the intention to maximi

ze their profit as mentioned follows:1. Political and Legal policies i. Registration of the company No doubt that political policies influence on how international businesses condu ct its operations in the respected country. As for Carnival Cruise Lines, the na ture of its business is international in scope. Therefore, in order to gain the benefits of global business, the company is focusing on the international countr ies that able to provide benefits to the business. The first step focused by the company is on the registration of its legal entity . The company is focusing on countries which are able to give lower taxes as wel l as less stringent labor law, suitable for the company. The Carnival Cruise Lin es, was registered in Panama because it wanted to take advantage of obscure prov ision in the U.S tax code which permits shipping companies to evade taxes incorp orated overseas as well as the freedom of flying foreign countries flags. This h as directly helped the company to uplift its burden of paying excessive taxes in that particular country. ii. Acquiring Ship The company also leverages on globalization whenever it purchases carnival cruis e ships. The cost of acquiring a ship is extremely expensive because when a ship is being build, it involves high usage of commodity product (i.e. steel) and pe ople from various specialties, background and expertise. Thus, in order to minim ize their cost, companies will then bid for less expensive ships available acros s the globe. Cost of a ship can also reduce whenever the government provides sub sidies to boost the shipping industry of a certain country. In this case, the It alian government awarded the shipyard Ficantierie (which costs about $50 million ) as subsidy for Carnival to build five ships (sold at $2.5 billion). The compan y leverage on Italian governments subsidy to buy ships which are less expensive. To further reduce the fluctuating currency risk due to foreign exchange, the com pany also negotiated for their purchasing contracts to be based on the value of the US currency rather than Euros. 2. Economics Forces i. Acquiring Labour Resources To ensure competitiveness in the market, Carnival Cruise must ensure that its cu stomers are given the best services whenever they are on board on a cruise. Exce llent people service especially when it comes to interacting with people, fluenc y in the English language is a must for all crew members. Seeing the importance of having the right crew members in order to support the b usiness, the company is therefore hunting for right skilled and cheap labour in terms of reducing cost and in order to maximize profit. Asean labour (especially Philippinos), are highly demanded for as crew because not only labour is cheap b ut they are also highly skilled in customer service and majority of them are als o fluent in English. ii. Casinos & Other amenities The main revenue of Carnival Cruise is generated from its passengers or customer s. In order to attract customers, there are various range of shipboard stores, p roducts and amenities for customers to spend on. Casinos and gambling on board of the cruise is not restricted especially, because it is not taking advantages of any national law as the cruises operates outside the jurisdiction of national a uthority. Moreover, customers are also able to shop for merchandises all over the world no t only onboard but also by increasing for land based tourism industry whenever t he ship embarked in any foreign country. Cruise companies are able to gain addit ional income by being capable of building business relationship with the land-ba sed tourism company. Question 3: What are some of the national differences that affect the operations of cruise lines?

The cruise line operators can obtain flag of convenience and can benefit from th e national differences through factors such as economic, labour, environmental r egulations and safety/political stability. 1. Economic Countries and ports around the world are eyeing cruise industry as one of the so urces for economic growth. Many companies have embarked and invested on infrastr ucture projects such as providing road access to embarkation ports to cater for additional cruise options including coastal and river cruises. These cruise opti ons have widened the tourists choice as consequently these lead to potential airf are saving. Because of the benefits that cruise lines offer, countries offers mo re lax taxation and employment policy in order to encourage more cruise line ope rators to their countries. Carnival Cruise Lines for example registered its ship s in Liberia, in order to take advantage of the lower taxes and its more lax emp loyment rules. In addition, there were many initiates by the cruise operators to help countries economically by improving the port facilities in return for pote ntial revenue sharing partnership which may include berthing priority and sharin g of port charges income. Since Sept 11 attacks, many companies have redesigned their routes to be closer to United States. Thus other countries especially the Caribbean are willing to o ffer lower port charges and attractive tourist packages in order to attract crui se ships to their ports. The cruise ship industry has also able to boost the lan d-based tourism industry due to the purchasing power of the cruise companies. Th erefore the providers of the land-based services are competing with each other b y offering attractive terms to the cruise operators. This has heightened the ope rators bargaining power. 2. Labour To seafarers on cruise ships, the labour is hard as each cruise operators is com peting on economies of scale by aiming to boast profit. This resulted in reducti on in capital cost and passenger cost with bigger ship size. On the other hand t he labour cost has only reduced marginally due to increase employment in order t o cater for better services to passengers and unfortunately in some cruises the existing seafarers have to work longer hours up to 12 hours a day and seven days a week. Although the ship managers are dominated by the white male, seafarers a re mostly employed from developing countries such as from Asia, Eastern Europe a nd Latin America. Cruise companies admit that they favour certain races and nationalities in selec ting seafarers due to their ability to keep smiling, remain energetic despite th e long working hours. Moreover, all these perks come with reasonable labour cost . The Asian seafarers are known to be hard working and they can always smile whi ch is especially a crucial requirement in hospitality industry. In fact, a third of the worlds ships crews are from Philippines. 3. Environment Environment issues regarding on-board working conditions, on-board health and sa fety need to be maintained in ethically manner in order for the cruise operators to maintain their sustainability. This includes activity of disposing the cruis e ship discharges that received pressure from environmental groups in addition t o the various laws and regulations imposed by different geographic areas. In 200 1, sixteen of the worlds largest cruise lines adopted a set of waste management p ractices for their worldwide operations based on International Maritime Organisa tion regulations. Some of the requirements include discharging gray water and b lack water only when a ship is underway and at least 4 miles shore. These hazard ous wastes be recycled or disposed of in accordance with applicable laws and reg ulations. United States is known to have strong enforcement on environment issue where com panies have to abide the U.S. Environmental Protection Agency regulations. In 1 990s Royal Caribbean Cruises Ltd. for instance had to pay criminal fines totalle d $27 million to US Federal government for environmental violation. In order to remain sustainable, the company had focus efforts in adopting measures that will

protect the ocean environment and had re-engineered its operational practices b y invested in advanced wastewater treatment technology in all its vessels. 4. Safety and Political Instability Cruise lines have committed themselves to safety of their passengers and ethical ly cannot be exposed to high risk geographical areas caused by poor regulations or political instability. On the other hand, to enjoy tax leniency most shipping companies and cruise lines register their vessels in developing or third world countries which have weak or non-existent safety and security regulations. Libe ria and Panama for example have large vessel registry. Some of the flag states are silent about weapons on vessels which exposes the da ngers of piracy and terrorist. Regulations by International Maritime Organisatio n on the matter are considered as merely recommendation rather than enforcement. A s a result most cruise ships had to direct their routes close to US where the Co ast Guard have power to detain vessels that do not meet the standards. Moreover, they are charged with rigorous inspection on all of safety measures for any cru ise ships calling on U.S. ports, no matter where they are flagged.

Question 5: What threats exist to the future performance of the cruise-line indu stry and, specifically, of Carnival Cruise Lines? 1. Millions of dollars (in average) are required in order to train and main tain employees (for the casinos and entertainment, hotel staff, world class chef s, and the maritime staff). Besides that, the start-up capital of a cruise line company is very huge that it discourages and limits the number of potential entr ants. It creates an oligopoly market dominated by a few giants. 2. It is not easy for new entrants with low brand equity to compete with th e established cruise-line companies in the industry. These new entrants adapt th e techniques of giving away discounted tickets in order to capture more customer s. It would normally take a long time for new cruise-line companies to develop t heir identity in the industry. 3. Although cruise-lines cater for people from various demographic populati ons, a typical cruise-line customer is characterized as someone from a middle-cl ass aged at 46 with annual household income of USD $93,000. The average cost of a cruise line ticket, which is about USD $1,500, is low relative to the customer s annual income. Therefore, the price sensitivity of the customers is low. 4. The availability of diversified substitutes (within the leisure industry ) adds to the competitiveness of the cruise-line industry. There are always alte rnative forms of leisure and cheaper accommodation such as traveling via air or land, hotels and resorts, as well as informal accommodations at friends and fami lies. 5. Cruise-lines must be able to always offer competitive vacation packages prices in order to secure sales during all seasons and also to cater for people during all sorts of economic stability. 6. During economic downturn, the cruise-liners will face challenges of cont inuously attracting customers even during times of unemployment and reduced disp osable income. The cruise companies must provide aggressive pricing to retain th e customers stands a better chance of survival. 7. The price of fuel which fluctuates also causes strain to the cruise-line industry. If you were in charge of Carnival, how would you a) try to prevent threats from becoming reality, and b) deal with them if they were realized As mentioned earlier, the cruise-line industry is an oligopoly market where the major cruise-liners make up more than 90%of the market shares. Carnival, being t he leading player, occupies more a less than 50% of both the North American and international market. In order to further compete and to lead in the industry, C

arnival should always offered a relatively highly diversified and differentiate products and services. They should operate on large diversified geographical sca le in order to reduce their rivalry in various countries. Besides that, since there are a few levels or segments in the cruise-line indust ry (contemporary, premium, and luxury), Carnival should be more focused to offer their various levels of services, expertise and strategies according to the var ious customers they have in each country, thus reduce the competitiveness among the other cruise-liners. They should offer different experiences for each target market. Carnival should also incorporate value added services which will in ret urn attract new customers who are not only driven by the need of a comfortable v acation but who are also price conscious (getting more for ones money). Carnival also can cater for target markets comprising of the category below Families, couples and singles between the ages of 24 and 55 years. Business professional that have an active lifestyle and are in their late 20s to early 40s. Young professionals are targeted customer segment because it is believed that th ese groups of people generate more disposable personal income that increases the ir purchasing power. Activities targeted towards these young customers, would so mehow have a strong appeal towards the people in above the age of 50 as these ac tivities would make them feel young. Thus, the strategy of targeting young profe ssionals is so good that it will reach out to the wider customer segment which i s by meeting the needs of the older audiences. The cruise-line industry is expanding hugely and has a major impact on internati onal tourism. Carnival should consider targeting value conscious consumers. Beca use customers are not focused on how a product looks and functions; they are how ever more interested on the desire to experience the unique feel of internationa l vacation offered at a low cost. Carnival should therefore respond to these cha nging priorities, preferences and demands of customers by diversifying and innov ating their brand portfolio and marketing initiatives in order to maintain its c ruise-line industry leadership status. Carnival should offer diversified ship experiences of international ports, diffe rentiated days at sea, and the unique on board services. Otherwise, Carnival wil l be unable to satisfy needs and demands of their stockholders, employees, and a lso of their suppliers. Planning, organizing, leading, continuous changing and c onstantly molding their services to meet the evolving customer needs are a never ending pursuit for future challenges. Carnival could consider collaborating with the other transportation industry suc h as the airline company to better assist its customers. They could also tie agr eements with travel agencies in order to receive feedback from travel experience s, promoting the brand, and establish positive word of mouth. Carnival should th ink about bundle packages, discounted tickets, besides creating travel itinerari es needed for each customer globally (such as Southeast Asia, India, and China). This will then create and increase brand awareness as well transparency and pro vide a more comprehensive service to customers. Carnival being in the tourism industry, should consider penetrating niches withi n the broader tourism industry, such as resorts or low price destination vacatio ns on land. This would provide the opportunity for Carnival to build brand equit y and perhaps entice people to consider a Carnival cruise. Carnival should continue diversification and attempt to further penetrate in the European market besides targeting for the emerging middle class in China to bet ter exploit the resources available.