LIST OF AIRLINES IN HCMC 2011
No Carrier name No Carrier name
LIST OF CARGO AIRLINES IN HCMC 2011
DESTINATIONS SERVED BY KOREAN AIR
No Destination Country No Destination Country
1 Toronto Canada 33 Tel Aviv Israel
6 Los Angeles USA 36 Brussels Belgium
8 New York USA 38 Paris France
9 San Francisco USA 39 Frankfurt Germany
11 Sao Paulo Brasil 41 Amsterdam Netherlands
32 Ho Chi Minh city Vietnam
CUSTOMER SURVEY FORM
We kindly request your participation in the survey below, which serves as a data collection tool for an MBA program conducted by Solvay Brussels School and HCMC Open University Thank you for your cooperation.
The survey is made to measure the service quality offered by Korean Air Cargo in HCMC
It contains 8 questions that need your answer
Criteria Excellent Good Satisfactory Fair Poor
(after hours availability, # of rings, personnel dedicated to customer, email reply)
Advice of Service change or delay
(door service, last-minute acceptance, quick connection, free storage charge)
Criteria Very high High Acceptable Low Very low
Korean Air price level compared to competitors
Criteria Excellent Good Satisfactory Fair Poor
Data link to Korean Air system
Criteria Excellent Good Satisfactory Fair Poor
Error-free invoicing and billing
Corrective actions for wrong invoicing and billing
Question 5: Sales and Management Support
Effective, planned agenda on sales calls
Meeting with Sales and local
Management at least once a month
Percentage of cargo given to
Question 7: Preferred carriers (how often do you use each carrier):
Question 8: Recommendations (what you need Korean Air to improve):
INTRODUCTION
Rationale of the study
Ho Chi Minh City is emerging as a promising market for air cargo transportation due to its rapidly growing economic exchanges As Vietnam transitions from a period of limited economic activity, the demand for international trade is surging This has attracted numerous shipping lines and air carriers to the city, facilitating the import of goods for local consumption and production while also enabling exports to global markets.
Airfreight plays a crucial role in facilitating global trade and reflects a country's economic growth While there are various methods for transporting goods, the two primary modes are airfreight and sea freight Sea freight is typically used for larger, non-urgent shipments, whereas airfreight is preferred for smaller, time-sensitive deliveries Consequently, airfreight tends to be more expensive but offers enhanced security Additionally, the airfreight process is more complex, as shipments must be managed alongside passenger travel from the point of origin to the destination.
Airfreight offers a fast and dependable shipping solution, with transit times typically being just one-tenth of those for sea freight This expedited service is often chosen by shippers facing tight deadlines, allowing them to avoid delays Additionally, air transportation facilities provide superior conditions compared to sea transport, including enhanced warehouse environments, safety, security, and customs services Consequently, shippers who opt for airfreight are willing to invest more for the assurance of timely and reliable service from airlines transporting their goods.
The economy of Vietnam, particularly in Ho Chi Minh City, heavily relies on exports to enhance local economic growth and sustain a steady growth rate Key export products include garments, furniture, agricultural goods, and fresh fruits and vegetables To produce these items, Ho Chi Minh City must import specific raw materials and semi-finished products from abroad, creating significant import and export demands among businesses With an impressive annual economic growth rate of 10-12% over several years and an estimated import-export value exceeding USD 47 million in 2011, the city’s economic vitality is evident.
Ho Chi Minh city is a really promising market for air and sea transportation
To become a leader in air transportation, a carrier must establish a comprehensive global network that connects numerous destinations, ensuring fast, cost-effective, and reliable service for customers However, not all carriers are prepared to make the substantial investments required for such extensive networks The true leader in the industry is the one willing to invest significantly to deliver genuine value to customers in this sector.
Vietnam's market, especially Ho Chi Minh City, has attracted numerous carriers eager to expand their market share Currently, approximately 44 airlines operate in Ho Chi Minh City, linking the region to various key destinations both within Asia and globally.
Vietnam's accession to the WTO in 2007 has significantly enhanced opportunities for airlines, as the air cargo sector experiences rapid growth driven by the market openness mandated by WTO regulations.
The 2008 global economic downturn severely impacted airlines worldwide, leading to a sharp decline in cargo demand and a combined loss of approximately USD 8 billion, according to IATA The Vietnamese market, heavily reliant on exports to Europe and the USA, faced similar challenges In response, many airlines reduced their capacity to mitigate losses, while others exited the market to restructure their operations.
To thrive in the competitive cargo industry, Korean Air Cargo must reassess its business strategy to navigate challenging times and sustain its market leadership The company faces increasing pressure as its market share in Vietnam has been declining relative to competitors since 2008, indicating significant challenges in maintaining its competitive edge Therefore, enhancing operational effectiveness and efficiency is crucial for Korean Air Cargo to regain its position in the market.
This study aims to thoroughly analyze the current situation of Korean Air cargo, identify existing challenges, and propose effective solutions and recommendations to address these issues.
2 Objectives, limitations of the project:
This project aims to analyze the air freight market in Ho Chi Minh City, focusing specifically on the competitive landscape A detailed examination of Korean Air Cargo's operations in HCMC will be conducted to develop effective strategies for increasing market share Additionally, the study will identify key bottlenecks impacting the air freight system's efficiency and provide actionable recommendations for improvement.
This project has defined limitations regarding its scope, focusing specifically on the following key points:
- Air cargo market in HCMC only Sea cargo is excluded
- Air export and air import movements in HCMC Domestic transport is not included
- Airports involved: Tan Son Nhat International airport
- Regular dedicated cargo operations Ad-hoc charter operations will be excluded
- Airlines operating in HCMC only
- Time concerned: from 2004 up to now and future perspectives
- The ultimate objective of this research is how Korean Air gains more market share in HCMC market through differentiation, therefore, the research mainly focuses on market share perspective only
The project will examine Michael E Porter's competitive strategy theories, utilizing analysis techniques such as five forces analysis, three generic strategies, generic value chain, and SWOT analysis, to assess their practical application within the context of the Korean Air Cargo business environment.
Secondly, the project will also review previous studies related to this subject and extract some related data and figures to support for the analysis
This project will utilize secondary data analysis to assess the economic landscape of Vietnam and Ho Chi Minh City (HCMC), focusing on the import-export dynamics in HCMC The study will incorporate information from company data, annual reports, and resources from the International Air Transport Association (IATA) and Tan Son Nhat International Airport to evaluate Korean Air's operations in HCMC.
In addition, some primary data will be collected through interviews with key managers of
Korean Air Cargo about the company business and through customer survey to identify customer’s needs and their satisfaction
In conclusion, this project will present strategic recommendations that align with Korean Air Cargo's mission and vision, focusing on ways to differentiate the brand and enhance its market share in Ho Chi Minh City in the near future.
Methodology of the project
This project will examine Michael E Porter's theories on competitive strategy, utilizing analysis techniques such as five forces analysis, three generic strategies, the generic value chain, and SWOT analysis These methods will be applied to assess the business environment of Korean Air Cargo effectively.
Secondly, the project will also review previous studies related to this subject and extract some related data and figures to support for the analysis
This project will utilize secondary data analysis to examine the economic landscape of Vietnam and Ho Chi Minh City (HCMC), focusing on the import-export dynamics in HCMC The study will also incorporate data from company records, annual reports, the International Air Transport Association (IATA), and Tan Son Nhat International Airport to provide a comprehensive analysis of Korean Air's operations in HCMC.
In addition, some primary data will be collected through interviews with key managers of
Korean Air Cargo about the company business and through customer survey to identify customer’s needs and their satisfaction
In conclusion, this article presents strategic recommendations for Korean Air Cargo to enhance its market differentiation and expand its market share in Ho Chi Minh City, aligning with the company's mission and vision.
LITERATURE REVIEW
General concept
Competitive strategy involves identifying a favorable position within an industry to achieve profitability and sustainability It focuses on navigating the competitive forces that shape industry dynamics, as outlined by Michael E Porter.
Profit is the primary goal for any company, regardless of its industry Business owners and shareholders strive to maximize profitability by manufacturing high-quality products and offering competitive prices Their aim is to become the preferred choice for customers, driving sales to achieve the highest possible profits Additionally, maintaining a competitive edge is crucial for ensuring long-term sustainable growth in the market.
In a competitive business environment, companies often replicate successful strategies to target the same market and customers This imitation leads to intensified competition, as businesses strive to differentiate themselves and enhance efficiency Ultimately, the key to long-term success lies in a company's ability to stand out and maintain its leadership position amidst growing rivalry.
Porter’s five forces and three generic competitive strategies
Figure 1 : Forces Driving Industry Competition
Threats of substitute products or services
The competitive landscape of an industry is shaped by five fundamental forces, as illustrated in Figure 1.1 According to Michael Porter, the objective of a business unit's competitive strategy is to identify a position within the industry that allows the company to effectively defend against these forces or leverage them to its advantage.
New entrants to an industry introduce additional capacity, a drive to capture market share, and often significant resources, which can lead to price reductions and decreased profitability The threat posed by new entrants is influenced by existing barriers to entry and the anticipated responses from current competitors Key sources of barriers to entry include factors that can deter potential competitors from entering the market.
Economies of scale occur when the cost per unit of a product decreases as production volume increases New entrants into a market face two challenging choices: they can either enter at a large scale, which may provoke a strong response from established competitors, or they can enter at a small scale, resulting in a cost disadvantage.
- Product differentiation: refers to customer loyalty to established firms
- Capital requirements: the need to invest large financial resources to compete
- Cost disadvantages independent of scale: refer to proprietary product technology, favorable access to raw materials, favorable locations, or government subsidies
Rivalry is a significant competitive force that arises when competitors feel pressure or recognize opportunities to enhance their market position In various industries, the actions of one company can significantly impact its rivals, often prompting retaliatory measures or strategic responses Several factors influence the intensity of this rivalry, shaping the competitive landscape.
- Numerous or Equally Balanced competitors: there are numerous players of the same size with similar business strategies
- Slow industry growth: the need to expand market share
- High fixed or storage costs: create strong pressures for all firms to fill capacity
- Lack of differentiation or switching costs: when the products or services are similar between competitors, price and service result
- High exit barriers: due to high costs of specialized assets, strategic interrelationships between the business units in the company
This threat exists when customers can identify substitute products that can perform the same function The threat of substitute products is high or low depends on:
- The price performance trade-off of the substitute products or services
The bargaining power of Buyers depends on below factors:
- Buyer volume: more volume, down price
- The products represent a significant fraction of the buyer’s costs
- Buyer low profit, more price sensitive
- Importance of products to buyer’s products
- Backward integration: in-house production
Below key points will determine how strong is the bargaining power of Suppliers:
- Importance of volume to supplier
In coping with the five competitive forces, there are three potentially successful generic strategic approaches to outperforming other firms in an industry:
Advantage Low cost Product Uniqueness
To achieve a competitive edge, a firm must implement a low-cost production strategy while maintaining a specific quality level This involves establishing efficient scale facilities, enforcing strict cost control, optimizing distribution channels, investing in cost-reducing technology, and ensuring effective logistics and a low-cost base for raw materials, labor, and facilities However, the potential for competitors to replicate this strategy poses a risk of diminishing the firm's competitive advantage.
This strategy involves creating a product or service with distinctive features that customers perceive as superior to those offered by competitors, potentially enabling the company to set a premium price However, there is a risk that this approach may lead to a decrease in market share.
This strategy focuses on a specific niche market, allowing the firm to understand its unique dynamics and customer needs By developing a tailored, low-cost, or specialized product, the firm can foster strong customer loyalty, making it less appealing for competitors to enter the market However, this approach may reduce the firm's bargaining power with suppliers due to lower sales volumes and potential shifts in the target segment.
The generic value chain
Figure 3: Porter generic value chain
According to Porter (1985), value in a competitive context is defined as the price that buyers are willing to pay for a firm's offerings, which is reflected in the total revenue generated from sales A firm achieves profitability when the value it delivers surpasses the costs of production Therefore, the primary objective of any generic strategy is to create value for buyers that exceeds the associated costs.
Porter’s Value Chain Model outlines nine generic activity categories, categorized into primary and support activities Primary activities encompass the physical creation of a product, its sales, transfer to the buyer, and after-sales support In contrast, support activities enhance the efficiency of primary activities by providing essential inputs, technology, human resources, and various organizational functions.
In the model, Porter identifies five sub-activities in the primary activities as below:
4.1.1 Inbound logistics: Porter defines inbound logistics are “activities associated with receiving, storing, and disseminating inputs to the product, such as material handling, warehousing, inventory control, vehicle scheduling and returns to suppliers”
4.1.2 Operations: these are “activities associated with transforming inputs into the final product form, such as machining, packaging, assembly, equipment maintenance, testing, printing, and facility operations.”
4.1.3 Outbound logistics: “activities associated with collecting, storing, and physically distributing the product to buyers, such as finished goods warehousing, material handling, delivery vehicle operation, order processing and scheduling.”
4.1.4 Marketing and sales: “activities associated with providing a means by which buyers can purchase the product and inducing them to do so, such as advertising, promotion, sales force, quoting, channel selection, channel relations, and pricing.”
4.1.5 Service: “activities associated with providing service to enhance or maintain the value of the product, such as installation, repair, training, parts supply, and product adjustment
In the context of air cargo transportation, support activities can be categorized into four key areas: procurement, technology development, human resource management, and firm infrastructure These categories are essential for enhancing operational efficiency and competitiveness in the industry.
4.2.1 Corporate support activities: include all the organizational activities related to general management, finance, legal, and administration
4.2.2 Quality control activities: activities to measure service quality offered to customers, including aftersales services and irregularities solving
4.2.3 Human Resource Management activities: relating to activities to arrange labor forces, training, and performance
4.2.4 Security activities: include activities to ensure the highest level of security of air cargo business and comply to all international regulations on security.
HO CHI MINH CITY AIRFREIGHT MARKET
Overview of air freight market
1.1 History of world air freight:
The history of airfreight in India began with its first recorded air cargo movement in 1911, marking the start of significant growth in the air transport industry, particularly in the 20th century The development of air cargo is often attributed to the post-World War I era, which saw the rise of air mail transportation During the 1920s, many airlines commenced operations primarily focused on carrying government-subsidized mail.
The emergence of airfreight as a viable alternative to traditional transport modes began after World War II, driven by two key factors: internal technological advancements and external demand The war spurred significant developments in aviation technology, including radar systems and jet aircraft Concurrently, the war highlighted the urgent need for efficient goods transportation, leading to a substantial increase in demand for air transport, even for shipments typically sent by sea This surge in demand paved the way for new aviation services, including chartered flights, ad-hoc, and dedicated cargo flights.
With ongoing globalization, air cargo transport has developed very rapidly during the past
Over the past 30 years, air cargo has evolved from being a mere by-product of passenger transport to a vital component of the aviation industry Many airlines have now specialized in air cargo services, while several airports have recognized it as a core aspect of their operations This shift has been accompanied by significant industrial and economic developments, including various cooperation agreements within the sector.
The Boeing Air Cargo Forecast 2010-2011 predicts that global air cargo traffic will grow at an average annual rate of 5.9% over the next twenty years, with Asia's air cargo markets leading this growth at 7.9% per year in the intra-Asia sector Additionally, markets linking developing economies to established ones are expected to match or surpass the overall world growth rate.
1.2 Some figures about world air freight market:
IATA projects global airline revenue for 2011 to be approximately USD 594 billion, with air cargo contributing around USD 67 billion Additionally, Boeing anticipates that global air freight will experience significant growth, expected to more than triple in the next two decades, rising from 160.3 billion Revenue Ton Kilometers (RTKs) in 2009 to 518.0 billion RTKs by 2029.
Over the next two decades, the freighter fleet is projected to grow significantly, increasing from 1,755 aircraft in 2009 to 2,967 by 2029, marking an expansion of over two-thirds The addition of large freighter aircraft will be a key driver of this growth, with their share rising from 27% to 33% as demand for long-haul international trade continues to rise.
Below is the list of world’s top air cargo operators in terms of freight-ton-kilometers flown published by IATA in 2011:
Table 1: Top ten air cargo operators in 2011 (Source: IATA)
1.3 Role of air transport in the economy:
Air cargo plays a crucial role in the global economy by transporting valuable consumer goods and manufacturing components, thereby enhancing international trade It serves as a vital link in the supply chain, effectively connecting Asian labor markets with consumers in Europe and North America.
In an increasingly globalized supply chain characterized by time-definite international transactions, air cargo is becoming essential to the global economy, driven by the need for enhanced production flexibility and speed Over the past few decades, global export growth has consistently surpassed production growth, with airfreight growth outpacing GDP growth despite various challenges, including economic recessions and significant events like the Asian currency crisis, SARS, and the aftermath of the 9/11 terrorist attacks.
In 2010, the global air cargo industry generated approximately $554 billion in revenue, indicating its status as a mature sector This maturity allows for strategic planning that extends well beyond the fundamental entrepreneurial frameworks typically seen in emerging industries.
Figure 4: International air freight and passenger volumes (seasonally adjusted): 2005 to
1.4 Air cargo industry key drivers and trends:
The air cargo industry is significantly influenced by several key drivers and trends, including GDP growth, escalating fuel prices, the increasing demand for express services, and the surge in e-commerce usage.
A key factor influencing freight transport demand is GDP growth, as general freight transport correlates with economic activity Research, including a study by Kupfer et al (2008), indicates that the growth of airfreight is closely tied to international trade in high-value goods rather than overall GDP Furthermore, the robust GDP growth projected for Asian countries, driven by merchandise exports and imports, will significantly impact intra-Asia trade as well as trade flows between Asia and Europe/North America in the foreseeable future.
The growth of air cargo is significantly driven by the globalization of trade and the increasing complexity of supply chains Recent global and regional trade agreements, such as those from the WTO, NAFTA, ASEAN, and Mercosur, along with the implementation of "open skies agreements," have positively impacted cargo operations Additionally, the trend of globally outsourced production has extended supply chains, making them more intricate As a result, concepts like lean manufacturing and Just-In-Time production have heightened the demand for time-definite services in the international marketplace.
The rising cost of aviation fuel, which surged by 244% from July 2004 to July 2008, has become the largest operating expense for airlines, significantly impacting the air cargo industry This increase poses a substantial challenge to airfreight growth, as customers are now more cautious about opting for air shipments due to higher costs To remain competitive and provide quality service, airlines must invest in new, fuel-efficient aircraft that align with technological advancements.
The airfreight market is significantly influenced by the rapid expansion of the express market, which grew from 4.1% of total international air cargo traffic in 1992 to 12.8% in 2008, showcasing a higher-than-average annual growth rate (Boeing, 2010) Following substantial growth in the US during the 1970s and 1980s, express traffic continues to outpace the overall air freight market, growing at more than twice its rate The lines between traditional express services and general air cargo operations are increasingly blurred, as traditional air cargo operators enhance their time-definite offerings and value-added services Additionally, express carriers, freight airlines, freight forwarders, and postal authorities are forming partnerships or pursuing vertical integration through mergers and acquisitions.
A significant trend in the cargo industry is the rapid formation of both horizontal and vertical alliances Initially established to enhance synergies in passenger services, alliances such as Sky Team, One World, and Star Alliance are now expanding their focus to the cargo sector Notably, the Sky Team Cargo alliance is actively developing and integrating its network around key hubs, demonstrating the growing importance of collaborative strategies in cargo logistics.
HCMC air freight market analysis
2.1 General information about Ho Chi Minh city airfreight market:
Ho Chi Minh City, located in southern Vietnam, is the country's largest and busiest city, with a population exceeding 10 million It serves as a vital hub for production and trade, attracting numerous local and foreign direct investment (FDI) companies to establish their offices As the southern gateway of Vietnam, Ho Chi Minh City plays a crucial role in the nation's import-export activities and is a major center for foreign investments and labor.
HCM City, occupying 0.6% of Vietnam's land area and home to 6.6% of its population, is a key component of the Southern Focal Economic Zone (SFEZ), which includes Dong Nai, Ba Ria-Vung Tau, Binh Duong, Long An, Tay Ninh, and Binh Phuoc provinces.
Ho Chi Minh City, Vietnam's largest economic hub, stands out as the most dynamic city in the country, consistently demonstrating high levels of economic activity and leading the nation in economic growth.
Figure 5: Import export revenue in 2010 in HCMC by month
During 2010, HCMC had a export revenue of USD 20.9 billions and import revenue of USD 21 billions The growth rate of export is forecasted to be at 17% in the period 2011-
In 2015, Vietnam's total export revenue reached approximately USD 100 billion, presenting significant opportunities for transport companies Currently, Tan Son Nhat International Airport serves as the sole airport in Ho Chi Minh City, but it is set to be replaced by the larger Long Thanh International Airport in the future.
2020 The latter one has been projected and the first phase is going to be conducted in 2015 and will be put in operations in 2020
Figure 6: Air cargo export – import in HCMC from 2005-2010 Unit: tons
During a recent visit to Ho Chi Minh City, the CEO of the International Air Transport Association (IATA) commended Vietnam's air transport market, highlighting that the country ranks third globally, even amid a downturn in the international aviation sector.
By 2014, Vietnam was expected to rank as the third fastest-growing market for international passengers and freight globally, following China and the United Arab Emirates Additionally, it was projected to be the second fastest for domestic passenger growth, again trailing only China, according to Giovanni Bisignani.
According to Bisignani, the global airline industry is projected to grow at an average annual rate of approximately 5% In contrast, Vietnam's aviation market is expected to experience significant growth, with a forecasted increase of over 10% by 2014 and a current growth rate of 9.5% this year.
Tan Son Nhat International Airport, covering an area of 800 hectares, is Vietnam's largest international airport, surpassing Hanoi's Noi Bai International Airport and Da Nang International Airport With a handling capacity of 15-17 million passengers annually, it serves as the primary gateway for Ho Chi Minh City and the southern region of Vietnam, accounting for over half of the country's air passenger traffic In 2009, the airport managed more than 12.5 million passengers, and by 2010, it recorded 15.5 million passengers and over 130,000 aircraft movements Its IATA code, SGN, reflects the city's historical name, Saigon.
Ho Chi Minh City (HCMC) is currently served by approximately 44 airlines, including 8 that operate all-cargo flights, known as freighters Unlike passenger flights, which transport both passengers and cargo, freighters exclusively carry cargo in their belly holds These freighters have a substantial capacity of around 100 tons, while passenger flights can typically accommodate 10-15 tons of cargo, depending on the aircraft type.
In addition, the capacity of each airline depends on what type of airplane being used and on the frequency of the airlines
An airline's market share is influenced by its capacity, network, pricing strategy, and overall service quality Additionally, the type of customers it serves, such as local or global forwarders, and the specific commodities being transported play a crucial role in determining market share.
Usually, carriers who have more global forwarders tend to have more market share since the global forwarders will have more cargo from global customers In HCMC, among over
In Ho Chi Minh City, over 500 freight forwarders operate, with more than 40 of them managing significant global accounts, including major brands like Nike, Adidas, and Gap These global accounts collectively represent approximately 50% of the total export market share in the region.
In Ho Chi Minh City (HCMC), all airlines rely on ground handling companies to manage the intricate processes of inbound and outbound cargo Until 2009, Tan Son Nhat Cargo Services (TCS) was the sole provider of these services However, with the entry of Saigon Cargo Service Corporation (SCSC) into the market, competition has emerged, offering customers additional choices and enhancing service quality in the region.
Main export commodities of HCMC market include: garment, rubber, footwear, rice, electronic parts, seafood, furniture, … The below figures show the importance of major commodities:
No Commodity Revenues (mil USD) Percentage
Total export revenue till Sep 2011 69,731 100%
Table 2: export by commodity until Sep/2011
No Commodity Revenues (mil USD)
Accessories for textiles and footwear
Table 3: Import by commodity until Sep/2011
No Country Revenues (mil USD)
Table 4: Vietnam’s top 15 export markets in 2011
No Country Revenues (mil USD)
Table 5: Vietnam’s top 15 suppliers in 2011
Vietnam's major exports include textiles, footwear, seafood, and cell phones, which significantly contribute to the air freight industry While crude oil is a key export, it is a natural resource that is less relevant to air freight and will not be analyzed further This article will focus on the four remaining commodities to provide a deeper understanding of the air freight market in Ho Chi Minh City.
According to Vinatex, Vietnam's textile and garment export revenue is projected to reach USD 13.5 billion in 2011, capturing 3% of the global market share and positioning the country among the top seven exporters, following China, Bangladesh, Germany, Italy, India, and Turkey Currently, approximately 2.5 million individuals are employed in this sector, a reflection of Vietnam's competitive labor costs and the quality of its workforce.
% in total export of VN 16.02% 14.50% 16.02% 15.60% 14.98%
The textile industry is a key export driver for Vietnam, contributing approximately 15% to the country's total export revenue and experiencing significant growth According to Vinatex, textiles are expected to remain the largest contributor to Vietnam's exports over the next 5 to 10 years, fueled by production shifts from China and the exploration of new markets in Taiwan, South Korea, and ASEAN.
Export commodity in 9 months of 2011
ANALYSIS TO BUILD A COMPETITVE STRATEGY FOR
Competition in HCMC market
1 Competition intensity in Ho Chi Minh city market:
Ho Chi Minh City, the largest city in Vietnam, plays a crucial role in the country's trade and import-export activities, attracting numerous foreign investors to establish businesses Key export industries, particularly garment and footwear, have shown significant growth in recent years and are expected to continue generating high revenues Major global brands, including NIKE, Adidas, Puma, Reebok, GAP, Zaragoza, and Target, have established factories in the city To ensure efficient distribution, a robust inbound and outbound transport system is essential for these factories to deliver their products worldwide.
The airfreight industry is evolving to meet the growing demand for urgent shipments, as sea freight alone cannot accommodate all cargo needs from Ho Chi Minh City While sea freight is suitable for large volumes and non-urgent deliveries, air freight plays a crucial role in handling smaller, time-sensitive shipments Despite representing less than 5% of total cargo volume, air freight generates approximately 30% of total traffic revenues It is essential for implementing just-in-time production, as major companies increasingly connect their global manufacturing and sales networks to minimize costs and maximize profits By establishing factories in low-cost countries and requiring a robust logistics system, air freight becomes vital in transforming complex supply chain strategies into reality.
Ho Chi Minh City is emerging as a key player in production and logistics, attracting investors with its low labor costs and favorable geopolitical conditions, positioning it as a viable alternative to China This growth is driving the development of the airfreight market, encouraging new businesses to establish operations in the city Currently, 44 airlines operate in Ho Chi Minh City, with this number on the rise, enhancing capacity and improving customer satisfaction in the airfreight sector.
Ho Chi Minh City is served by 44 airlines, including 8 dedicated freighter carriers that operate exclusively with cargo aircraft Among these, Korean Air, China Airlines, Cargolux, and Eva Air stand out as the largest players, recognized for their capacity, extensive networks, and reliable services This study focuses on three key competitors of Korean Air: China Airlines, Eva Air, and Cargolux, highlighting their strengths, weaknesses, and strategic approaches in the competitive air cargo market.
2 Strengths, weaknesses and strategies of key competitors in Ho Chi Minh city:
In Ho Chi Minh City, three major freighter carriers dominate the competition among eight, with Korean Air HCMC facing significant challenges to sustain and grow its market presence This article summarizes the goals, strengths, weaknesses, and strategies of each carrier, providing insights into their competitive positioning within the industry.
To be the reliable airline
- Big capacity in Ho Chi Minh city
- Services to some places that others do not have
- No barrier to ad-hoc customer
- Less connection network from hub
- Financial risks from new and small customers
- Less focus on profit and loss
- Flexible in schedule and price
- Easy to do business with
- Induce all kinds of cargo
To be the safe, reliable and high quality airline
- No barrier to ad- hoc customer
- Less connection network from hub
- Financial risks from new and small customers
- Less focus on profit and loss
- Flexible in schedule and price
- Easy to do business with
- Induce all kinds of cargo
To be the undisputed global leader airline in air cargo world
- Weak connection in US and other areas
- Small capacity from Ho Chi Minh city
- Focus on big European customers
- Block space with big customers
Each airline employs unique strategies tailored to their specific markets, making it challenging to determine which approach is superior A strategy is deemed effective when it successfully aligns with the airline's objectives and market conditions However, no strategy is flawless; its effectiveness is contingent upon the airline's goals and circumstances What works for one airline may not necessarily be suitable for another.
Analysis of Korean Air Cargo HCMC business
Korean Air Cargo made its debut in the Ho Chi Minh City market in 1989 with passenger flights and later solidified its commitment by introducing its first freighter to the city.
Since its inception in 1997, Korean Air Cargo has expanded its operations alongside its passenger services Today, it stands as one of the largest cargo carriers in Ho Chi Minh City and continues to grow, positioning itself as a leading carrier for the future.
This study aims to provide a comprehensive analysis of Korean Air Cargo's operations in Ho Chi Minh City by focusing on three key areas Understanding these aspects will enhance our knowledge of Korean Air's business activities and strategies in this important market.
Porter’s generic value chain analysis on Korean Air business
Mission, vision of Korean Air
Below are the details of the analysis
1 Porter’s Generic Value Chain Analysis:
According to Michael Porter, every company consists of a series of activities aimed at designing, producing, marketing, delivering, and supporting its products His model categorizes these activities into nine generic types, divided into two main groups: Primary activities and Support activities.
Porter's model highlights that value chains can differ significantly across various industries and even among firms within the same sector This variation is influenced by the unique sources of competitive advantage each company possesses In the airline industry, for instance, the model must be tailored to reflect the specific operational characteristics, customer needs, and service offerings of each airline.
Inbound Logistics Activities, as defined by Porter, encompass the processes of receiving, storing, and distributing inputs essential for manufacturing, including material handling, warehousing, inventory control, vehicle scheduling, and supplier returns However, the airline industry functions differently as a service sector To align Porter's model with the airline business, this study redefines Inbound Logistics as "Operational Coordination," which more accurately reflects the unique operational dynamics of the airline industry.
The Operational Coordination activities consist of following sub-activities:
Korean Air's fleet management focuses on optimizing operations through two key strategies: Long Term Fleet Sourcing and Short Term Fleet Sourcing The Long Term Fleet Sourcing is essential for maintaining stable routes, while the Short Term Fleet Sourcing addresses peak demand and ad-hoc charter services This short-term strategy often involves Wet Lease agreements with other airlines, where Korean Air leases an aircraft along with its crew, maintenance, and insurance, while covering fuel and airport fees Additionally, Short Term Fleet Sourcing is crucial for mitigating aircraft shortages within the Long Term fleet due to maintenance needs.
Korean Air Cargo operates the Boeing 747-400F in Ho Chi Minh City, renowned for its exceptional space utilization and efficiency This aircraft, with a maximum capacity of approximately 500 cubic meters and a load limit of around 100 tons, can accommodate various cargo types, including oversized and heavy items The stable and rapidly growing freight market in Ho Chi Minh City necessitates Korean Air's commitment to reliable aircraft and consistent scheduling to meet demand effectively.
Fuel procurement is essential for the operational readiness of a carrier like Korean Air To guarantee that every flight is adequately fueled for takeoff, the airline must establish long-term contracts with one or more fuel suppliers.
Ground and cargo handling agreements involve contracting services for ground and cargo operations at airports where carriers operate While some carriers manage these activities in-house at certain stations, others choose to outsource them to local service providers.
Flight permits are essential for carriers to obtain authorization from government authorities, specifically the Civil Aviation Administration of Vietnam (CAAV) in Vietnam Prior to the commencement of summer and winter flight seasons, Korean Air submits its entire seasonal schedule for approval from CAAV Additionally, if there are any changes to the approved schedule or requests for extra flights, Korean Air will apply for additional permits as needed.
Porter defines operations activities are “activities associated with transforming inputs into the final product form” In airfreight industry, the operations activities can be defined as below:
Cargo acceptance at the origin involves receiving shipments at the airport terminal, conducting measurements and weight checks, and performing security scans This process follows specific procedures, with TCS company in Ho Chi Minh City outsourced to manage cargo acceptance at Tan Son Nhat Airport under the supervision and audit of Korean Air.
Cargo buildup at the origin involves the assembly of cargo into Unit Load Devices (ULDs) following a security check This process is managed by TCS, an outsourced company Once completed, the ULDs are temporarily stored in a warehouse until they are ready to be loaded onto the aircraft.
Proper documentation preparation at the origin is crucial for successful shipments, as it involves issuing the airway bill and verifying all necessary documents This process ensures that the cargo meets all international customs and security requirements, facilitating smooth transit and compliance with regulations.
Loading and unloading cargo at the origin and destination involves adhering to specific IATA regulations and the carrier's requirements to ensure safe and timely aircraft operations Compliance is crucial when handling overhang, perishable items, or live animals In Ho Chi Minh City, this task is managed by TIAGS company under the supervision of Korean Air.
Suggested Competitive Strategy for Korean Air Cargo HCMC
An analysis of the HCMC airfreight market, alongside a SWOT analysis of Korean Air Cargo, highlights the importance of developing a tailored strategy that aligns with the company's strengths and weaknesses while addressing external market conditions.
Organizations generally operate with four strategic levels: Corporate Strategy, Business Strategy, and Functional Strategy, while Global Strategy is typically determined by the headquarters, such as Korean Air's in Korea The remaining three levels of strategy must align internally and cohesively, creating a supportive and integrated hierarchy of strategy.
Korean Air Cargo's overall strategy in Ho Chi Minh City focuses on selecting competitive business areas and developing a robust business portfolio This corporate-level strategy includes three key components: (a) growth strategy, which defines the growth objectives; (b) portfolio strategy, which outlines the desired lines of business; and (c) parenting strategy, which determines how to allocate resources and manage capabilities across the portfolio effectively.
There are three basic alternatives the company management needs to choose to lead the company: growth strategy, stability strategy, and retrenchment strategy
1.1.1.1.Growth strategies: growth strategies can be classified into one of two fundamental categories: concentration with existing industries or diversification into other lines of business a Concentration: there are two basic strategies to achieve concentration: vertical integration and horizontal growth
Vertical integration involves a company expanding its operations by taking on tasks previously handled by suppliers (backward integration) or by businesses within its distribution channel (forward integration) However, this strategy has not been effective for Korean Air Cargo in Ho Chi Minh City due to two key reasons.
Korean Air Cargo in Ho Chi Minh City (HCMC) is unable to manage essential tasks such as cargo pickup from factories, relabeling, storage, and customs clearance due to the sheer volume of small customers and factories in the region Handling these responsibilities demands significant investments in human resources, warehouses, and logistics, which Korean Air Cargo cannot feasibly support Consequently, these operations are best suited for specialized agents, making a backward integration strategy ineffective for Korean Air Cargo in HCMC.
Korean Air Cargo's forward integration strategy necessitates acting as an agent or consignee, which involves customs clearance, cargo storage, and delivery to the final consignee This process demands significant investment, similar to backward integration However, such operations are typically managed by professional freight forwarders, indicating that forward integration has not been effective for Korean Air Cargo Furthermore, the company currently lacks the necessary systems to facilitate either backward or forward integration.
Korean Air Cargo's horizontal growth strategy focuses on expanding its existing services into new market segments or locations, particularly at Tan Son Nhat International Airport, where all export cargo from Ho Chi Minh City (HCMC) must be processed Given the limitations on geographic expansion, the company should target new service offerings related to its traditional operations Market analysis and SWOT evaluations suggest that Korean Air should enhance its market share by introducing services for high-tech and perishable cargo, as these segments have shown significant growth and are projected to remain key contributors to the country's exports.
Vietnam, particularly Ho Chi Minh City (HCMC), is emerging as a prime destination for significant investments from high-tech companies Intel Group has established its first production line in the Saigon Hi-Tech Park, with plans to expand this facility into one of its largest chipset factories globally The initial factory is already operational, and two additional factories are set to be completed soon Moreover, several high-tech firms from Japan and Korea have chosen HCMC for manufacturing components in the automotive, mobile phone, and electronics sectors With approximately 11% of HCMC's export share in 2011 attributed to the high-tech segment, this industry presents a promising growth opportunity for Korean Air Cargo in the near future.
Korean Air Cargo HCMC should focus on the seafood and fresh fruit segment, which accounts for 6% of the city's export share and boasts an annual growth rate of 20-25% Handling these perishable cargos presents unique challenges, including late bookings and last-minute changes due to production and quality checks Additionally, strict temperature control in professional cooling warehouses is essential to prevent spoilage Timely delivery is crucial, as these cargos must arrive in the morning to facilitate customs clearance and distribution to supermarkets Not all airlines can meet these specific requirements, but Korean Air Cargo possesses competitive advantages that position it well to dominate this market segment and drive growth.
The article discusses two strategies of diversification: related diversification, where a company expands into a related industry, and unrelated diversification, where it enters an unrelated industry However, it does not recommend these strategies for Korean Air Cargo HCMC, as the company solely focuses on air transport services This policy is consistent across all Korean Air Cargo branches globally, which are exclusively engaged in air cargo transport Consequently, the study concludes that Korean Air HCMC should not pursue any form of diversification beyond its primary business.
Air Cargo in HCMC as a result In other words, the company should remain “single- business” company accordingly
Korean Air Cargo is focused on maintaining its traditional market segments, particularly garment and footwear, which account for approximately 60% of its revenue in Ho Chi Minh City (HCMC) and 22% of the region's export revenues Despite increasing competition in the airfreight market, these segments provide a stable growth foundation To safeguard this significant revenue stream, Korean Air Cargo plans to establish blocked space agreements with major customers, ensuring consistent volume on flights, stable pricing, and high service quality Regular reviews of these contracts every three to six months will help maintain customer satisfaction and adapt to any necessary changes, thereby protecting key growth objectives for the company.
Currently, the strategy is ineffective for Korean Air Cargo in Ho Chi Minh City, as the company exclusively offers air transport services Despite challenges posed by the global economic downturns in 2008 and 2011, the air freight market has shown consistent growth over time Forecasts indicate that the airfreight sector is on the path to recovery and anticipated growth in the upcoming years.
1.1.2 Portfolio Strategy: since Korean Air Cargo Cargo in HCMC in doing business in air transport services only, and the company is not allowed to enter a new line of business in HCMC, therefore there is nothing to do with this strategy and the study will not go in any details about this
1.1.3 Parenting Strategy: this third component of corporate level strategy is relevant for multi-business company, which is concerned with how to allocate resources and manage capabilities across the portfolio of business However, in the case of Korean Air Cargo in HCMC, there is no portfolio management, thus there is no parenting strategy as the result
CONCLUSION AND FURTHER RESEARCH
Conclusion
Vietnam is rapidly emerging as a prime investment destination in Southeast Asia, with diverse business opportunities flourishing across various sectors The airfreight industry in Ho Chi Minh City is experiencing significant growth, attracting major players like Korean Air Cargo, one of the world's largest cargo airlines This vibrant market presents both substantial opportunities and challenges for Korean Air Cargo as it strives to maintain its competitive edge To thrive in this dynamic environment, Korean Air Cargo must effectively differentiate itself and compete vigorously against other market contenders to ensure profitability and sustained growth.
This study analyzes the airfreight market in Ho Chi Minh City (HCMC) and conducts a SWOT analysis of Korean Air Cargo, offering strategic recommendations to enhance its competitiveness and market share It suggests that Korean Air Cargo pursue a Corporate-level Horizontal Growth Strategy for overall expansion Additionally, at the Business-level, the company should adopt a differentiation and focus strategy to target high-tech and perishable market segments effectively.
To implement a successful Differentiation Strategy, the project recommends that the company concentrate on three key areas: Inbound Logistics, Operations, and Service activities Enhancing Inbound Logistics will bolster the brand by improving fleet sourcing and ensuring optimal performance for customers Operations should prioritize handling capacity and warehouse facilities to effectively cater to the high-demand Perishable and Hi-tech products in the HCMC market Additionally, improving Service activities is crucial for establishing robust communication channels between Korean Air Cargo and its customers, ensuring that any issues are promptly addressed, especially when targeting sensitive market segments like global shippers such as Intel, Canon, Samsung, and Nidec While differentiation may incur costs and potentially reduce market share, the company must strategically choose areas for differentiation that require minimal investment while maximizing market share opportunities.
The study advises Korean Air Cargo HCM to adopt a Differentiation-Focused strategy, leveraging its operational and service capabilities to carve out a niche market Successful implementation of this strategy could enhance the company's market position; however, if the company misjudges industry forecasts, the Focus strategy may fail, potentially leading to losses or a reduction in market share.
Further research
To strengthen its position in the Ho Chi Minh City market and expand its business, Korean Air Cargo should implement a differentiation strategy However, the potential for competitors to imitate these strategies poses a challenge to maintaining competitiveness To ensure sustainable differentiation, Korean Air Cargo must focus on reducing costs, increasing barriers for target segments, and raising switching costs to retain customers These aspects present opportunities for further research and study for both future students and the company itself.
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APPENDIX 1: LIST OF AIRLINES IN HCMC (2011)
No Carrier name No Carrier name
APPENDIX 2: LIST OF CARGO AIRLINES IN HCMC (2011)
APPENDIX 3: DESTINATIONS SERVED BY KOREAN AIR
No Destination Country No Destination Country
1 Toronto Canada 33 Tel Aviv Israel
6 Los Angeles USA 36 Brussels Belgium
8 New York USA 38 Paris France
9 San Francisco USA 39 Frankfurt Germany
11 Sao Paulo Brasil 41 Amsterdam Netherlands
32 Ho Chi Minh city Vietnam
We kindly request you to complete the survey below, which is designed for data collection for an MBA program conducted by Solvay Brussels School and HCMC Open University Thank you for your participation.
The survey is made to measure the service quality offered by Korean Air Cargo in HCMC
It contains 8 questions that need your answer
Criteria Excellent Good Satisfactory Fair Poor
(after hours availability, # of rings, personnel dedicated to customer, email reply)
Advice of Service change or delay
(door service, last-minute acceptance, quick connection, free storage charge)
Criteria Very high High Acceptable Low Very low
Korean Air price level compared to competitors
Criteria Excellent Good Satisfactory Fair Poor
Data link to Korean Air system
Criteria Excellent Good Satisfactory Fair Poor
Error-free invoicing and billing
Corrective actions for wrong invoicing and billing
Question 5: Sales and Management Support
Effective, planned agenda on sales calls
Meeting with Sales and local
Management at least once a month
Percentage of cargo given to
Question 7: Preferred carriers (how often do you use each carrier):
Question 8: Recommendations (what you need Korean Air to improve):
Criteria Excellent Good Satisfactory Fair Poor Total
# of rings, personnel dedicated to customer, email reply)
Advice of Service change or delay 2 4 35 8 1 50
(door service, last- minute acceptance, quick connection, free storage charge)
Criteria Very high High Acceptable Low Very low Total
Korean Air price level compared to competitors 0 11 39 0 0 50
Criteria Excellent Good Satisfactory Fair Poor Total
Criteria Excellent Good Satisfactory Fair Poor Total
Error-free invoicing and billing 2 8 33 5 2 50
Corrective actions for wrong invoicing and billing
Question 5: Sales and Management Support
Effective, planned agenda on sales calls
Meeting with Sales and local Management at least once a month
Percentage of cargo given to Korean Air
Question 7: Preferred carriers (how often do you use each carrier):
Often Sometimes Rarely Never Total