Competitive advantage analysis and strategy formulation of airport city development The case of Taiwan

Kung-Jeng Wang,Wan-Chung Hong Department of Industrial Management ,School of Management, National Taiwan University of Science and Technology (TaiwanTech), MA417,#43,Sec.4, Keelung Road,Taipei106, Taiwan, ROC

journal homepage: www.elsevier.com/locate/tranpol

Available online 12 October 2010

By HariWibisono Umma Ilma Tri Noviyanto Beny Purnama Ardian Nur W. Rian Adhi S. Azizah Nurmasari Pricily A. Darmapala 9109 201 502 910 920 1407 910 920 1413 910 920 1401 910 920 1405 910 920 1408 910 920 1402 910 920 1415 910 920 1410

Background
In the past decade, the focus of international airport development has shifted from a transportation hub towards a multi-functional aero metropolis. A transport hub is a place where passengers and carga are exchanged between vehicles or between transport modes (wikipedia). Traditional airports are often located at a distance of 1530 km away from the main city. Their original purpose is solely for air transportation purpose and has little, if nothing, to do with the economic or urban development of the neighborhood area. Nowadays, besides serving as hubs between people and goods, airports play the role as impetus for promoting national industries and gateways for fostering regional economic development (Canaday,2000) such as Dallas in USA, Schiphol in the Netherlands, Chek Lap Kok in HK, and Changi Airport in Singapore, are world-famous airportcity.

Background (contd)
Taoyuan International Airport (TIA) of Taiwan lies in the intersection of two regional air navigation spheres in northeast and southeast Asia. Geographically, it has the potential to serve as the bi-regional air line hub connecting Tokyo, Incheon and Beijing in the north; HongKong, Singapore and capitals of Association of South East Asian Nations (ASEAN) in the south.

Location of Taoyuan International Airport of Taiwan in Asian Pacific Region

Background (contd)
Since its establishment in 1979, TIA has undergone rapid development, making it, one of the busiest and most advanced airports in Asia (1990). Nevertheless, factors including political troubles and cross-strait relations in recent years had strangled further development of TIA, with its growth in passenger and cargo being the lowest among Airports of NIEs
(NIEs: Newly Industrialized Economies; also known as Four Asian Tigers:Taiwan, Hong Kong, South Korea and Singapore)

Growth inpassengerandcargoofNIEs ACI (2008a)

Background (contd)

To foster local development and economic growth of the airport region, the municipal government of Taoyuan put forward a proposal in 2008 for turning TIA into Taoyuan airport city with the surrounding 6150 ha of land becoming a Free Trade Zone of Airport City.

Spatial zoning of airport city industries. 5 Planning for Taoyuan airport city (http://www.tycg.gov.tw)

What is airport city?

An airport city is a dynamic hub integrating people and businesses, logistics and shopping, information and entertainment (Schiphol Group, 2008).

Zhou (2006) defines an airport city as a regional economy of the airport area with air transportation for cargo logistics and passenger flow to foster the clustering of production, technology, capital, trade and population around the airport.

With the airport as its center, an airport city combines airport logistics, business travel, leisure and recreation throughland-use planning and organizational management, and extends further into an integrated industry with both vertical links and horizontal collaboration.

What is airport city?

Being a new mode of airport economy development, an airport city has the six major characteristics (Xia and Li, 2006). 1. Airport-oriented: the airport is the core of an airport city, air transportation has significant impact on industrial operations, land use and the environment. 2. Industrial cluster: industries oriented towards, related to or dependent on airport operation and air transportation tend to cluster within the airport city. 3. Space gradient: taking into consideration the cost and time involved, industries with different intensities of utilization are concentrated at different distances from the airport. 4. Market efficiency: with time being the key factor to global competitive advantage, proximity to the airport promises swift and efficient business flow and good stransit. 5. Global accessibility: the global networks of air transportation overcome geographic barriers, and accessibility to such is most preferred by multi-national corporations (MNCs). 6. Technological preeminence: air transportation relies much on hi-technology support, which plays keyrole in passenger and cargo flow, airport facilities and the environment.

2.2 Diamond Model of National Competitive Advantage (Porter: 1990)

Four Determinant: - Demand Conditions - Productive Factors - Firm Strategy, Structure & Rivalry - Related & Supporting Industries

Two Variable: - Goverment - Chance

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2.3 Theories for Competitiveness Analysis

y RBV (Resource-Based View) by Harel & Prahalad
y Key Characteristics

Valuable Rare RBV Inimitable Nonsubstitutable

y Five Forces Analysis by M. Porter

y SWOT Analysis

CAoN & SWOT Analysis

With better understanding of the environment and competitive advantages of nations (CAoN) and due consideration given to both government policy and industrial development, integral development strategies can be formulated to enhance competitiveness of airport city

3.1. Hong Kong International Airport, Hong Kong

y Opened in July 1998, the Hong Kong International Airport (HKIA) is

completely owned by the government of the Hong Kong Special Administrative Region (HKSAR), and operated by the Airport Authority Hong Kong (AAHK). y The AAHK was established in 1995 in accordance with the Airport Authority Ordinance (AAO) with the main objective of sustaining HKIA as a regional and international airline hub. y To strengthen its position as a gateway to south China, and to enhance and sustain the capability and competitiveness of HKIA, the AAHK has formulated a 20-year long-term roadmap with revisions made every five years. Not only are plans drawn up for extension and enhancement of facilities related to passenger and cargo transport, new measures concerning customer, immigration, quarantine and security (CIQS) procedures are also devised.
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HKIA has the following competitive advantages:

y The most important international finance, logistics and business y

y y

center in Asia and China with superior geographic location. Proximity to China, India and other newly emerging markets in Asia, and easy accessibility to the massive hinterland and market of the Pearl River Delta region. Abundant human resources with international perspective, bilingual culture and quality education, as well as good knowledge and understanding of the China market. A free trade zone (FTZ) with convenient, rapid and efficient CIQS procedures. Integrated and proactive long-term planning for airport city development with excellent infrastructure as well as efficient organization for operation and policy execution.

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3.2. Changi International Airport, Singapore

y Changi International Airport (CIA) has been in operation since

1990. It is not only an air hub, but also a gateway for transit from East Asia to Middle East and Europe. Singapore is also a FTZ nationwide. y CIA is frequented by 79 airlines flying to 265 airports and there were 4432 regular flights per week as of 2008, making it the most preferred global transit center. y CIA is operated by the Changi Airports International (CAI) under the Civil Aviation Authority of Singapore. Since its operation, there has been ongoing upgrade of its facilities, terminals and infrastructures. y In 2003, the Air Hub Development Fund (AHVF) was founded with the objective of attracting more airlines to use CIA.

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CIA has the following competitive advantages:

y Superior geographic location from Asia to the Middle East, y y y

Africa and Europe. Sea/air gateway to emerging markets in Southeast Asia and India as well as logistics center in Asia Pacific region. A FTZ nationwide offers a competitive niche for the airport city. Highly efficient administrative operation and one-stop service, providing a favorable environment for investment and operation for multi-national enterprises. Cheap labor force from Southeast Asia and well-educated professionals with international perspective available.

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3.3 Incheon International Airport (South Korea)

Achievement : 2005 2008, The Best Airport For The Cargo Capacity (Top 5 in the world) The Best in Service Award in Class by the International Air Transport Association Vision : Provide professional service of comfort and safety for the greatest customer satisfaction, and a goal to become one of the top five airline hubs worldwide.
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Advantages
1. A transportation hub in Northeast Asia with easy accessibility to abundant natural resources and massive market in North- east China and Russia. 2. Full-range and long-term development plan with resolute and efficient execution. 3. Aggressive and ambitious central and local governments eager to attract investments in airport city forenhancing the benefit of industrial clustering. 4. Uniform administrative procedures providing good public facilities, cheap land and low tax,creating a favorable environment for business investment and operation 5. Labor policies adjusted to enhance flexibility of labor market and to meet the needs of international corporations.

Competitive Intelligent and Current Status

y To gain better understanding of their future

development trends, their competitive advantages are explored in the CAoN theory.
y The results thus obtained not only can confirm

the applicability of such analytical framework to airport city development, but also provide useful references for subsequent strategy formulation.

4. Flowchart dari formulasi strategi TIA

Definisi dan Keunggulan isi dari CAoN Bandara di NIEs (Tabel 1)
Korelasi antara NIEs dan CAoN (Tabel 2) Integral Strategi dari TIA berda sarkan Perspek tif CAoN (Contoh di Tabel 7)

Data Primer dan Sekunder

Keunggulan TIA berdasarkan CAoN (Tabel 3)

Control Force of Firm

Analisa SWOT dari TIA (Tabel 4)

Korelasi TOWS (Tabel 5)

Formulasi Alternatif Strategi (Tabel 6)

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Analisa CAoN (1)

CAoN Aspects Productive Factor Advantages Superior geographic location Large hinterland near airport Ample fund Complete local infrastructure and transport network Continual growth in Asian emerging markets Multi transportation modes on demand under globalization Complete aero economy and industry World-famous electronic and IT industry Disadvantages Lack of ability and experience in airport city operation and management Insufficient modern airport facilities Trend for developing multi functional airport

Demand

Related and supporting industries

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Room for improvement in business and exhibition, and tourism services Lag behind in establishing and operating FTZ Need for transformation faced by technology and traditional industries

Analisa CAoN (2)

CAoN Aspects Firm strategy, Structure and rivalry Advantages Asian headquarters of MNCs Cross-strait division of labor Most advantageous conditions for tapping into China market Disadvantages No concrete orientation or direction for airport Existing competitors of NIEs in the lead Inefficient organizational operation and management Threat of new entrants in China and ASEAN Not liberal or international enough Inadequate legislation on airport city development

Government

Relaxed cross-strait policy Improved cross-strait relationship

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4.2. Competitive Advantages of nation on Tao yuan airport city

A Company has Competitive Advantage if it has an edge over rivals in attracting customers and defending against competitive forces. The 25 competitive advantages/ disadvantages listed in right table are further divided into controllable internal and uncontrollable external factors by control force of firm (Fleisher and Bensoussan, 2002)
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4.2. SWOT analysis

Controllable internal Factors Uncontrollable external factors

Human resource

Society

Organization

Technology

Product

Market

Knowledge

Competition

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According to the SWOT analysis approach (Valentin, 2001), these factors are assigned to the four quadrants: strength (S): internal/favorable factors, weakness (W): internal/unfavorable factors, opportunity (O): external/favorable factors and threat (T): external/unfavorable factors, as shown in right table.

4.3. Correspondence analysis and TOWS matrix

In order to correlate the relationship between SWOT factors, correspondence analysis using the TOWS matrix (Weihrich, 1982) is then conducted for strategy formulation. Then these correlated factors just can be formulated appropriate matching strategies, and the results are shown in below table.
Corresponding all uncontrollable external factors (O and T) with controllable internal factors (S and W) using the TOWS matrix yield four types of matching strategies, namely SO, WO, ST and WT. In addition, controllable internal factors that are related under the same CAoN aspects are further formed into factor groups, such as (S1, S2, S3), or (W6, W7). Internally controllable factors (S, W) are actively corresponded with the externally uncontrollable ones (O, T) so as to maximize benefit and minimize threat to the industry. As the number of m exceeds 70, indicating many highly correlated factors, forming factor groups can help reduce complexity in correspondence analysis and facilitate more subsequent formulation of integrated strategies. 28 Correspondence analysis using TOWS matrix.

Strategies formulated for Taoyuan airport city

y For example,(W4,W5) and (O4,O5) can be combined into one basic

corresponding strategy WO3.Combining factor groups is not always possible because the nature and implementation of the strategies formulated may vary. y For example,S1,S2 and S3 being internal favorable factors grouped under P (productive factors) can not be combined with external favorable factors O4 and O5 at the same time, but individually with O4 into SO2 and with O5 into SO3. y The 20 basic strategies are formulated using the TOWS matrix, as shown in next slide.

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Opportunity

Kwadran II (Ubah Strategi Weakness

Kwadran I (Progresif) Strength

Kwadran IV (Strategi Bertahan)

Kwadran II (Diversifikasi Strategi)

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Threat

4.4. Strategy formulation for Taoyuan airport city Integral Strategy

Integral Strategies in CAoN perspectives are :
Formulation : Integral strategy = Driving strategy + Competitive Benchmarking + Expert opinion + Related strategy

Related and supporting industries

1. Link with the neighboring Taipei Harbor to establish inter modal supply chain and transportation network. (Driven by SO1,SO2, related to ST2, ST5.) Plan to construct a multi-functional new terminal for both business and leisure. (Driven by WO1,related to WO2, WT2.) Establish industry parks and innovation centers. (Driven by ST1, related to ST4, SO5, WT3) Relax regulations on visa requirements for visitors and transit passengers. (Driven by WT1, related to WO1,WO4.) Construct an ideal international living environment. (Driven by ST3, related to ST1.) Speed up renovation of existing airport facilities. (Driven by WO1, related to WT1,WO4.)

Productive and demand factors

1. 2. 3. Prioritize development of air cargo-related industries. (Driven by ST2, related to SO2, WT3.) Expand the FTZ for joint development with air port city. (Driven by SO5, related to ST1, ST4, WT3.) Construct a Business & Recreation Park to attract international business travelers and their families. (Driven by WO2, related to ST1.) Attract Mainland tourists with the unique cross-strait historical background (Driven by WO2, related to SO6,ST1,ST5.)

2.

3. 4.

4.

5. 6.

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INTEGRAL STRATEGY
Firm strategy, structure and rivalry
1. Establish the independent AirportCompany with government participation. (Driven by WO3, related to WT4,WT5.) Cooperate with world-famous airport city operators. (Driven by WO1, related to WT1.) Offer incentives and preferential terms for international airlines to use TIA as a transit stop. (Driven by WO3, related toSO2,ST2,ST5.) Recruit talents in international marketing to promote Taoyuan airport city ;and organize international business exhibitions on Taiwans high-tech innovative products to enhance its image and fame. (Driven by WT4, related to ST4, WT3.)

Government

1. 2. 3.

2. 3.

4.

4.

5.

Relax cross-strait policy to foster direct links, trade and transport;. (Driven by SO6 and related to ST5.) Target on East Asia Transit Hub (Driven by WO3, and related to SO1, SO3.) Enact specific legislations for airport city development and to endow the Airport Company with power to operate the organization, manage its finance, etc. (Driven by WT5, related to WO4.) Strive to become more liberal and international; relax restrictions on investment in airport city and FTZ. (Driven by WT5, related to WO4.) Formulate policies for airport city development as soon as possible; with the airport city as center (Driven by ST5, related to ST3, SO4, WT4.)

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Conclusion
y This presentation was reviewing journal that has explored

both meanings and contents with regard to airport cities through the literature review and analysis of primary and secondary data. y The development features, competitive advantages and operation strategies of airports in Hong Kong, South Korea and Singapore are examined to provide references for the academy and industry. y Strategic analysis and formulation of TIA is made using the theory of competitive advantage of nations and SWOT analysis. Strategic suggestions categorized under Porters five forces are made.
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