NAME MEMBERS : ISHAK B. AB GHANI / EZUDDEAN B. ZAINAL ABIDIN

: MOHD FAIZAL AZIZ

MATRIX I.D : 2011424226 / 2011296836 / apai id

SUBJECT : INB 780 INTERNATIONAL BUSINESSES

CASE STUDY : CARNIVAL CRUISE LINE (Pg 68-73)

1) What global forces have contributed to the growth of the cruise-line industry?

Answer:

The global forces which have contributed to the growth of the cruise-line industry

are-

* Technological advance: the birth of industry was a direct respond to the

technological advance in air travel that made liner travel less attractive to business

people due the cost and time factors.

* Market liberalization and international cooperation: the liberalization of cross

border trade and resource movement had allowed the cruise line industry to force on

the cheaper yet competent labor resources. At the same time, the industry is able to

offer various global destinations and on land elimination package to its potential

customers.

* Support services: the development of new ports allows the cruise line expand its

destinations and provide varieties of offering to the customers. This will help attract

new customers, and the same time ensures the return of existing customers.

* Customer’s 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.

2) What specific steps have Carnival Cruise Line taken benefit from global

social changes?

Answer:

With globalization, businesses have gain advantages by expanding the business

around the globe. Globalization has made companies to gain greater businesses,

economic and social impact as well compared to before. As for Carnival Cruise

Lines, they have taken specific steps from globalization with the intention to maximize

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 conduct its

operations in the respected country. As for Carnival Cruise Lines, the nature of its

business is international in scope. Therefore, in order to gain the benefits of global

business, the company is focusing on the international countries that table to provide

benefit so 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 well as less stringent labour law, suitable for the company. The Carnival

Cruise Lines was registered in Panama because it wanted to take advantage of

obscure provision in the U.S tax code which permits shipping companies to evade

taxes in corporate overseas as well as the freedom off lying foreign countries flags.

This has 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 cruise

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 people from

various specialties, background and expertise. Thus, in order to minimize their cost,

companies will then bid for less expensive ships available across the globe. Cost of a

ship can also reduce whenever the government provides subsidies to boost the

shipping industry of ascertain country. In this case, the Italian government awarded

the shipyard Ficantierie (which costs about $50 million) as subsidy for Carnival to

build five ships (sold at $2.5 billion). The company leverage on Italian government’s

subsidy to buy ships which are less expensive. To further reduce the fluctuating

currency risk due to foreign exchange, the company also negotiated for their

purchasing contracts to be base don’t he value of the US currency rather than Euro’s.

2. Economics Forces.

i- Acquiring Labour Resources

To ensure competitiveness in the market, Carnival Cruise must ensure that its

customers are given the best services whenever they are on board on a cruise.

Excellent people service especially when it comes to interacting with people, fluency

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 business, 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 Philippino’s ), are highly

demanded for as crew because not only labour is cheap but they are also higly skilled

in customer service and majority of the mare also fluent in English.

ii. Casinos & Other amenities

The main revenue of Carnival Cruise is generated from its passengers or customers.

In order to attract customers, there are various ranges of ship board stores, products

and amenities for customers to spend on. Casino’s 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 authority. Moreover,

customers are also able to shop for merchandises all over the world not only on

board but also by increasing for land based tourism industry whenever the ship

embarked in any foreign country. Cruise companies are able to gain additional

income by being capable of building business relationship with the land-based

tourism company.

3) What are some of the national differences that affect the operations of cruise

lines?

Answer:

Cruise lines obtain flags of their convenience from about 30 different countries

because of the lower taxes and less stringent employment policies of those countries.

Few countries have shipyards capable of building cruise ships. These are the national

differences that affect the operations of cruise lines. The cruise line operators can

obtain flag of convenience and can benefit from the national differences through

factors such as economic, labor, environmental regulations and safety stability.

4) How might the cruise lines increase sales to people outside the United States?

Answer:

Carnival Cruise Lines offers cruises to every continent on the global. The specific

steps to increase sales to people outside the united state are:-

Geographically pertinent themes – Design tour package suit to location and places

by offering shorter cruises that embarks closer to home

Offered fixed cruise-price - Cost per cruise offer low than others.

Implemented strict health and safety measures - Avoided areas to make the

passengers free from political upheaval.

Dealt with economic recessions - Minimized staffing costs by sourcing employees

on a global basis.

5) What threats exist for the future performance of cruise-line industry and,

specifically, of carnival cruise lines?

Answer:

Millions of dollars are required in order to train and maintain employees,

besides that, the startup capital of a cruise line company is very huge that it

discourages and limits the number of potential entrants.

It is not easy for new entrants with low brand equity to complete with the

established cruise line companies in the industry. The availability of

diversified substitute adds to the competitiveness of the cruise line industry.

There are always alternative forms of cheaper accommodation for families.

Cruise lines must be able to always offer competitive vacation packages prices

in order to secure sales during all seasons and also cater for people during all

sorts of economics stability. The cruise companies must provide aggressive

pricing to retain the customers stands a better chance to survival.

6) Discuss the ethics of cruise lines regarding the avoidance of taxes while buying

ships built with governmental subsidies.

Answer:

Carnival paying taxes only on revenues from princess and Holland America’s sales of

U.S. hotel and tour packages. Carnival secures bids from all over the world. Because

shipbuilding employs so many people and uses so much locally produced steel,

government often subsidize the industry a practice that work to the benefit of the

cruise line industry by offering less expensive prices for ships.