. Lewis, P. A perpetual crisis machine. Fortune, September 19, 2005, 11. Yu, R. Samsung cranks up creativity. USA Today, November 16, 2010, CASES P. 65. p . 4B . 5. Edwards, C., Ihlwan, M., and P. Engardio. The Samsung way. 2. Gartner. 2019. Market share held by semiconductor vendors Business Week, June 16, 2003, p. 61. worldwide from 2008 to 2018 [Graph]. In Statista. April 11, Retrieved 6. Yu, R. Samsung cranks up creativity. USA Today, November 16, 2010, from https://www-statista-com.rlib.pace.edu/statistics/266143/global- P. 4B. market-share-of-leading-semiconductor-vendors/ 3. Harris B. and Song Jung-A. Samsung record profits mask looming CASE 22 . Rocks, D. and M. Ihlwan. Samsung design. Business Week, December 6, 2004, p. 90. crisis. Financial Times, October 14-15, 2017, p. 15. . Chen, B.X. Samsung's strategy to brake Apple juggernaut. New York 4. The Associated Press. 2019. Samsung folding phone is different but EMIRATES AIRLINE* Times, February 11, 2013, p. BI. also almost $2,000. WTHR, February 20. https://www.wthr.com/ 9. Anonymous. 2008. Samsung Electronics gets 46 CES innovations article/samsung-folding-phone-different-also-almost-2000-1. In 2019, Emirates Airline was rethinking its growth strategy Boeing 777 long-range planes and Airbus A380 superjumbos. awards for 2009. Wireless News, November 24. 5. Harris B. and Song Jung-A. Samsung record profits mask looming that had propelled it from a small start-up to one of the In particular, Emirates has managed over the years to radically 10. Samsung News. 2018. Samsung Electronics wins 49 IDEA Design crisis. Financial Times, October 14-15, 2017, p. 15. world's biggest carriers measured by international passen- redraw the map of the world, transferring the hub of interna- Awards. September 20. https:/ews.samsung.com/global/samsung- ger mileage. Started in 1985, the airline deviated from the tional travel from Europe to the Middle East. Dubai, the hub electronics-wins-49-idea-design-awards. strategy of most other airlines to use its position between of Emirates, which currently handles over 80 million passen- the United States, Europe, Africa, and Asia to connect gers each year, has become the world's busiest airport for in- flights between distant pairs of cities such as New York and ternational passengers. A new terminal, the largest in the Shanghai or London and Nairobi. Tim Clark, the firm's world, was recently built at a cost of $4.5 billion just to ac- president referred to these as "strange city pairs." No airline commodate the almost 265 Emirates aircraft that fly out to has grown like Emirates, whose expansion qualifies it to 155 destinations around the world (see Exhibit 1).' claim the crown of the freewheeling sultan of the skies. Recent developments, however, such as the drop in oil Its strategy of flying large numbers of passengers around prices and the growth in terrorist attacks have led to a de- the would have been difficult without the introduction of cline in demand. Many companies, particularly in the Mid- dle East, have been reducing travel for their employees, * Case prepared by Jamal Shamsie, Michigan State University, with the reducing the premium revenue that Emirates has been gen- assistance of Professor Alan B. Eisner, Pace University. Material has been erating from first- and business-class passengers. Similarly, drawn from published sources to be used for purposes of class discussion. growing fears about terrorism has led passengers to cut back Copyright @ 2019 Jamal Shamsie and Alan B. Eisner. on international travel and to reduce connecting through the EXHIBIT 1 Top Global Airlines Started Main Hub Fleet Destinations SINGAPORE 1972 Singapore 121 64 CATHAY PACIFIC 1946 Hong Kong 174 232 EMIRATES 1985 Dubai 265 155 THAI 1960 Bangkok 81 62 ASIANA 1988 Seoul 82 62 ETIHAD 2003 Abu Dhabi 110 91 EVA 1989 Taipei 79 63 AIR NEW ZEALAND 1940 Auckland 113 48 GARUDA 1949 Jakarta 90 102 QATAR 1994 Doha 146 146 ANA 1952 Tokyo 211 73 SOUTH AFRICAN 1934 Johannesburg 60 42 VIRGIN ATLANTIC 1984 London 40 30 QANTAS 1920 Sydney 137 42 LUFTHANSA 1953 Frankfurt 288 193 There are several rankings of the world's airlines, but a few have consistently been rated highest in service over the last five years. These are listed in no particular order. Source: Skytrax. CASE 21 : SAMSUNG ELECTRONICS 2019 C171 C172 CASE 22 :: EMIRATES AIRLINE Strategic Management: Text and Strategic Management: Text and Cases Casesfinances, used international auditors, and posted regular EXHIBIT 4 Balance Sheet (in millions of United Arab Emirates Dirham) EXHIBIT 2 Performance Highlights quarterly profits (see Exhibits 2 to 6). "We are confident that 2019 2018 2017 2016 Year Ended, Passengers Flown Operating Profit or any allegation that Emirates has been subsidized is totally with- 31 March (thousands) Loss (AEDm) out grounds," Clark declared. The dispute was finally settled ASSETS 201 58,601 2,647 with a deal between the United States and U.A.E. in May 2018. Non-current assets 2018 58,48 4,086 In fact, Emirates claims that it has worked hard to Property, plant and equipment 89,431 85,951 86,898 82,836 achieve its leading position by offering onboard amenities, 2017 56,076 2,435 1,317 like bars and showers on its aircraft, which other carriers Intangible assets 1,574 1,496 1,441 2016 51.853 8,330 find frivolous (see Exhibit 7). Beyond this, it points to the 683 662 676 522 2015 19,29 5,893 high standards of service from its crew that speak many lan- Investments accounted for using the equity method guages and come from many countries. Emirates service 3,254 Advance lease rentals 4,619 5,065 4,421 2,580 2014 44,537 manager, Terry Daly, says that he uses a quote as an inspir- 172 238 494 2013 39,391 2.839 ing light: "I may not remember exactly what you said. I may Loans and other receivables 139 not remember exactly what you did. I will always remember Derivative financial instruments 24 60 38 2012 33,98 1,813 exactly how you made me feel."3 13 11 2011 31,422 5,443 Deferred income tax asset 93,417 93,722 87.752 2010 27,454 3,565 Launching a Dream Total non-current assets 96,483 2009 22,73 2,278 The roots of Emirates can be traced back to Gulf Air, which Current assets was a formidable airline owned by the governments of 2,525 2,387 2,238 2,106 2008 21,229 4,451 Inventories Bahrain, Abu Dhabi, Qatar, and Oman. In the early 1980s, Trade and other receivables 11,342 11,354 9,922 9,321 Source: Emirates Airline. the young sheikh of Dubai, Sheikh Mohammed bin Rashid 12 al Maktoum, was upset by the decision of Gulf Air to cut Derivative financial instruments flights into and out of Dubai. He responded by resolving to 11,974 14,745 6,706 7,823 Middle East. The availability of Boeing's 787 long-range Short-term bank deposits planes has also added to the problem by allowing passengers start his own airline that would help build Dubai into a cen- Cash and cash equivalents 5,063 5.675 8,962 12,165 o fly directly from Europe to Asia. ter of business and tourism, given the emirates' lack of sig- Furthermore, the largest U.S. airlines alleged that Emirates, nificant oil resources. Total current assets 30,915 34, 170 27,836 31,427 like others such as Etihad and Qatar, have received subsidies The sheikh recruited British Airways veteran Sir Maurice Total assets 127,398 127,587 121,558 119,179 from their governments. It has, according to their claims, pro- Flanagan to lay the groundwork for the new airline, which vided Emirates with an unfair advantage. Tim Clark, Emirates' he bankrolled with $10 million in royal funding. He placed EQUITY AND LIABILITIES president, responded to the charges in the report by insisting a member of his royal family, Sheikh Ahmed bin Saeed al Capital and reserves 801 that his carrier has never received government subsidies or Maktoum, to the top post. Just 26 years old, Ahmed bir Capital 801 801 801 obtained free or cheap fuel. The airline has always disclosed its Saeed had just graduated from the University of Denver in Other reserves (60 ) 15 (141) 36,40 35,638 33,84 32,287 EXHIBIT 3 Income Statement (in millions AED) Retained earnings Attributable to Emirates' Owner 37,149 36,454 34,508 31,909 Consolidated Income Statement for the year ended 31 March 594 592 586 496 2019 2018 2017 2016 Non-controlling interests 37,743 37,04 35,094 32,405 Revenue 96,040 91,22 83,832 83,500 Total equity 1,097 1,251 1,544 Non-current liabilities Other operating income 1,867 Trade and other payables 155 123 683 513 (88,236) (82,648) 76,714) Operating costs 95,260) Borrowings and lease liabilities 45,433 42,071 40,17 40,845 Operating profit 2,647 4,086 2,435 8,330 281 Deferred revenue 1,063 979 1,596 220 Finance income 497 375 2,437 2,621 2.227 1,090 Finance costs (2,173) (1,593) (1,383) (1,329) Deferred credits 81 26 192 440 116 155 157 142 Derivative financial instruments Share of results of investments accounted for 3,825 3,762 using the equity method Provisions 4.081 4,067 Profit before income tax 1.087 3,023 1,490 7.363 Deferred income tax liability (45) 52, 190 49,975 48,082 48,250 Income tax expense (57) (44) (40 ) Total non-current liabilities 1,030 7.318 Profit for the year 2.979 1.450 Current liabilities 159 183 200 193 Trade and other payables 26,795 29,303 25, 193 27,037 Profit attributable to non-controlling interests 19 35 Profit attributable to Emirates' owner 871 2,796 1,250 7,125 Income tax liabilities 35 18 Borrowings and lease liabilities 7,606 9,030 10,831 9,260 Source: Emirates Air CASE 22 :: EMIRATES AIRLINE C173 C174 CASE 22 : EMIRATES AIRLINE Strategic Management: Text and Strategic Management: Text and Cases Cases2019 2018 2017 2016 Providing the Ultimate Experience They are not attracted to the starting salary-only about $30,000 per year-or to the free room and board that comes Deferred revenue 2,009 1,180 1,486 1,316 Emirates strives to provide the best possible experience to its passengers in all sections of its aircraft. It was the first airline with it. They are excited about the possibility of joining an Deferred credits 322 313 253 139 to offer in-flight viewing in the back of every seat. "That seems iconic brand that joins people around the world. Derivative financial instruments 20 35 737 pretty normal for long haul airlines now, but it wasn't then," Once they have been recruited, Emirates uses a state- Provisions 687 597 said Terry Daly, who is in charge of service at the carrier.' A of-the-art facility to train its employees-from those who 678 caravan of flight attendants, who are fluent in a dozen lan- check in passengers to those who serve them on their planes. Total current liabilities 37,465 40,56 38,382 38,524 guages, pass up and down the aisles, providing service with a The exterior of the training facility resembles the fuselage of a jetliner. Inside, everyone pays particular attention to the Total liabilities 39.655 90,541 86,464 86,774 smile. Daly, who maintains the highest standards for all 127,398 127,587 121,558 119,179 in-flight services, is known for having once fired eight service flight attendants who must make sure that everyone on the Total equity and liabilities supervisors on a single day when he discovered that the flight aircraft receives the highest level of service on every single flight. This is particularly important for a carrier whose Source: Emirates Airline. attendants they had supervised deviated from his precise instructions on how to respond to requests from passengers. flights are of long duration because they serve destinations EXHIBIT 5 Revenue Breakdown (in millions AED) the United States. Since he had not held a job before, the From its start, Emirates has also been known for the across all continents. young Sheikh looked to Flanagan in order to figure out how quality and selection of food that the airline provides, even Catherine Baird is in charge of training the airline's new 2019 2018 to passengers in the back of the aircraft. The catering divi- recruits who constitute only about 5 percent of the applica- to run the airline. tions that make it through the selection process. The low Passenger 78,562 73,963 However, the speculator growth of Emirates can be at- sion is the world's biggest, a multi-floor maze of monorails Cargo 12,439 tributed to Sir Tim Clark, who was handed the critical task and cameras, vast warehouses of wines and liquors, multi- acceptance rate pushes people with diverse backgrounds to 13,056 national chefs slaving over steaming pans, kettles, grills, compete in an American-Idol style brains-and-beauty contest Consumer Goods 1.591 1,625 of route planning. He recognized that about two-thirds of for a chance to travel around the world as an Emirates cabin the world's population was within eight hours of Dubai, but stretching into eternity, along with the latest in robotics, all crew. According to a recent report, the crew has an average Food and Beverages 673 680 the firm lacked the aircraft to take advantage of its location. of which delivers 180,000 meal trays to Emirates planes each day. "It's about making sure the culinary offering is age of 26 years, compared to over age 40 at U.S. Airlines, and Hotel Operations 669 746 This began to change with the arrival of more advanced air- is 75 percent women. Their weight is carefully monitored, Catering Operations 654 577 craft, beginning with the introduction of Boeing 777 in absolutely first class across the airplane," said Daly. their makeup mandatorily reapplied regularly, and unwed 444 133 1996 to the Airbus A380 in 2008. The long range of these But Emirates has always tried to push further and fur- Excess Baggage ther on the service and amenities that it provides to its pre- pregnancy is not allowed. aircraft allowed Emirates to develop routes that could link mium class passengers. Included with a business class ticket The airline offers a vast no-expenses-spared crew training Others 391 562 any two points in the world with one stop in Dubai. Total Revenue 91,225 From serving 12 destinations in 1988, Emirates was able is a limousine ride to and from the airport, personal assis program, where each new recruit moves through different 96,040 departments with specialists in different areas for seven to expand at an alarming rate, particularly after it started add- tance with the check-in process, and use of one its 30 world- Source: The Emirates Group, Annual Report 2017-2018. ing Boeing 777s to its fleet after 1996. The carrier continued wide lounges. One of 600 multinational and multilingual weeks. By the end of their training, the newcomers have been instructed in aspects of posture, etiquette, safety, and to grow even through the recession that began in 2008, tak- members of a welcome team called Marhaba-Arabic for welcome-help all first- and business-class passengers clear evacuation. There are strict standards for the color of the EXHIBIT 6 Operating Costs (in millions AED) ing possession of more new aircraft than any other competi- tor. "We operated normally. We put on more aircraft. We ll formalities upon departure and upon arrival. lipstick, the shade of hair color, and even the style of linge- rie. Everything must go well with the pinstripe khaki uni- 2019 2018 carried more passengers," said Mohammed H. Mattar, senior Over the years, as Emirates has moved to larger and larger aircraft, it has found ways to enhance the experience of its form, the color of sand, with white scarfs billowing like Jet Fuel 30,768 25,715 vice president of the carrier's airport services.4 premium passengers during flight. The airline had pioneered exotic sails. Women must adhere to certain hairstyles that Employee (incl. retirement 12,623 13,080 the concept of a suite in first class with its launch of A340 the crowning blood red hat will work with. "When walking benefit obligations back in 2003. With its 50 A380s, the world's biggest jetliner, through an airport terminal, it's usually a Catch Me If You Can movie moment, with passengers all turning their heads," Aircraft operating leases 11,964 EXHIBIT 7 Service For Premium Passengers On Emirates 11,691 A380 more than any other competitor, Emirates is able to offer 14 first class suites, each with a vanity table, closet, 23-inch TV said one of the new recruits." Depreciation and amortization 9,680 9,193 screen, and electronic doors that seal shut for total seclusion. Like everything else, Emirates is over the top in what it Offer 4,000 channels of in-seat entertainment Sales and Marketing 6,137 6,404 calls Nujoum, the Arabic word for stars, by including motiva- 5,335 Offer unlimited free wi-fi throughout the flight First class passengers also have access to two enor- Handling 5.544 Serve Cuvee Dom Perignon, 2000 champagne mous spa showers-a first in the industry. An event plan- tional team-building exercises in its training program. Travel writer Christine Negroni, who participated in one of these In-flight catering and operating 3,519 3,323 ner who flew first class said, "To walk onto the A380, to Serve Iranian caviar Overflying 2,891 have an average-size bathroom, a seven minute shower, full- exercises, described the experience the new recruits typically 2.761 Serve gourmet cuisine prepared by chefs of 47 nationalities size bath towels, and your own attendant is pretty amaz- go through: "It is a combination of a customer service experi- Facilities and IT related costs 2,626 2.485 Offer largest selection of premium wines ing."7 All premium class passengers-both in first and ence and a come-to-Jesus rally, highly produced like a Holly- wood spectacular. If you had told me that Disney produced Aircraft maintenance 2,413 2,364 Use bone china by Royal Doulton business class-have access to a big and circular lounge, with a horseshoe-shaped stand-up bar in the center, for it, I wouldn't doubt it. By the end of the day, they are whipped Landing and parking 2,231 2,153 Use specially made cutlery by British design house Robert into a frenzy of feeling 'What can I do for Emirates?";10 588 1,575 Welch which Emirates forfeited a number of business-class seats. Cost of goods sold Crew layover 1.094 1,125 Provide Bulgari-designed amenity kits Communicating to the Masses Foreign exchange loss - net 333 Feature a stand-up bar Employee In spite of the extra touches that Emirates can provide to its Corporate overheads 979 1,902 Offer two on-board walnut and marble design showers* Each year, Emirates holds Open Days in more than 140 cities passengers, the carrier discovered from focus groups they 95,260 *Only for first-class passengers. across 70 countries for the purpose of attracting new conducted that their name was not well known in many Total operating costs 88,236 recruits to join its elite force of 23,135 flight attendants parts of the world to which they were expanding. They Source: The Emirates Group, Annual Report 2017-2018. Source: Emirates Airline. from 130 nationalities who speak more than 60 languages. realized they needed to create a message used to develop CASE 22 :: EMIRATES AIRLINE C175 C176 CASE 22 :: EMIRATES AIRLINE Strategic Management: Text and Strategic Management: Text and Cases Casestheir brand among consumers that would inform them passengers who are willing to pay a little more. Singapore CASES what to expect from Emirates. This message could also be Airlines, for example, has introduced a premium economy used to encourage existing and potential employees to rally section that offers wider seats with more recline, a cocktail behind the airline and work to deliver on its promise. table, more storage space, and a sleek 13.3-inch high defini- In its usual style of pushing for the best, Emirates sum- tion screen-the largest in its class. On it's A380 flights, Etihad moned the world's top 10 advertising agencies to Dubai to has introduced, with grand bravado, a three-room, $21,000 CASE 23 compete for a massive international advertising campaign. one-way Residence and nine $16,000 one-way one-room First GENERAL MOTORS IN 2019* StrawberryFrog, an advertising agency that had recently Apartments, complete with a Savoy Academy-trained butler started operations in New York City, was one of the firms and private chefs. In 2019, General Motors (GM) was in the midst of a great Peugeot and Citroen cars. The sale had freed the firm from vying for the contract with the rapidly growing carrier. Its Rumors have circulated that Emirates might take over Etihad transformation. Mary T. Barra, the CEO of GM was mov- persistent losses in Europe and fulfilled pledges by Mary to founder, Scott Goodson, had read an interview with Emirates Airways, which has been losing money since it began service ing the firm away from many of the passenger cars that it improve overall profit margins and increase returns to president Tim Clark shortly before this gathering of adver- in 2003. A merger would create the world's largest airline, had sold to generations of consumers. It had also moved shareholders (see Exhibits 1 and 2). tising agencies. "And in that article, he was talking about measured by available passenger seat kilometers. Both airlines away from many overseas markets, knocking the leading Industry analysts had expected that Barra, who had his vision, that he wanted Emirates to be a global company rely on "super-connector" business models and serve many of U.S. automaker out of the chase to be the top seller glob- worked for GM her entire career, would let the firm re- and wanted to make the world a smaller place by bringing the same markets. But several hurdles exist, since Emirates is ally, a spot it had owned until recently. A couple of years lapse into the arrogance, complacency, and denial that people together," said Goodson. "! nervous about taking on Etihad's liabilities, which include ago, GM had exited from the European market by selling its had plunged it into bankruptcy in 2009. Instead, Barra These comments inspired Goodson to come up with over 160 orders for planes worth tens of billions of dollars. chronically unprofitable Opel unit to the French maker of has been preparing GM to be a formidable player in the the idea of "Hello Tomorrow," which allowed his firm to Some industry analysts have questioned the ability of future. She has pushed the firm to be more involved with clinch the contract with Emirates. These words became Emirates to deal with these growing challenges. Joe Brancatelli, new developments, such as electric vehicles, ride sharing, not just the idea for an ad campaign but for a new way to a business travel writer, recently stated: "I could make the think about an airline. Through the use of powerful story- case that Emirates' moment has passed. Emirates was the * Case prepared by Jamal Shamsie, Michigan State University, with the and driverless cars. When the firm launched its first hy- telling, words, images, music, and film, this message por- trendy airline three or four years ago." In a recent meeting assistance of Professor Alan B. Eisner, Pace University. Material has been brid car, the Volt, in 2010, it was significantly lagging be- drawn from published sources to be used for purposes of class discussion. hind all other competitors in terms of investing into trayed Emirates not just as a carrier that delivered a to announce the latest performance figures for the airline, Copyright @ 2017 Jamal Shamsie and Alan B. Eisner. emerging technologies. Nevertheless, Barra claimed that superior experience, but as a catalyst for connecting a new Emirates chairman and CEO His Highness Sheikh Ahmed global culture of shared aspirations, values, enthusiasm, bin Saeed Al Maktoum brushed away these concerns. "Over and dreams. In his conversation with Tim Clark, Goodson the years, we have always managed to come up with new EXHIBIT 1 Consolidated Income Statements (in millions of dollars) said: "Ad campaigns are fleeting. The power of a move- products," he responded to any concerns that were raised. 16 ment is that it can change habits and rally millions."12 Years Ended December 31, Immediately afterwards, the StrawberryFrog team 2018 2017 2016 spent 18 months at Emirates headquarters educating em- ENDNOTES Net sales and revenue ployees, making them foot soldiers in this campaign. In 1. Dubai Airport. 2019 (March). Fact Sheet. http://www.dubaiairports. early spring 2012, the "Hello Tomorrow" brand was Automotive $140,205 ae/corporate/media-centre/fact-sheets/detail/dubai-airports. $133,045 $133,449 launched, a universal message in myriad languages in 150 2. Seal, M. 2014. Fly me to the moon . . . with a stop in Dubai GM Financial 14,004 12,139 8,979 countries. In television ads, an Emirates flight attendant Departures.com., Summer, p. 276. 145,588 pushes his drink cart as a mammoth A380 airplane seemed 3. Departures.com, Summer 2014, p. 277. Total net sales and revenue 147,049 149, 184 to be literally built around him, its various parts and per- 4. Carey, S. 2015. U.S. carriers claim unfair practices. Wall Street Journal, Costs and expenses sonnel coming from countries spanning the globe, provid- March 6, p. B3 5. Departures.com., Summer 2014, p. 276. Automotive cost of sales 120,656 116,229 121,784 ing proof that the airline was truly a global enterprise. 6. Ibid., p. 277 GM Financial interest, operating and 7. Ibid., p. 277. other expenses 12,298 11,128 8,369 Chasing Tomorrow? 8. Emirates. 2019. The Emirates Service. https://www.emirates.com/ english/experience/the-emirates-service/. Automotive selling, general and Even as Emirates tries to set itself apart from other carriers administrative expense 9,650 9,570 10,345 by enhancing the customer experience, it is facing new 9. Departures.com, Summer 2014, p. 278 10. Ibid., p. 277. challenges. It has found it difficult to fill its A380s, leading Total costs and expenses 142,604 136,927 140,498 11. Ibid., p. 310. it to reduce its latest orders for the plane. Emirates is also 12. Ibid., p. 278 Operating income 4,445 8,661 8,686 running out of room for further expansion at its hub in 13. Press Release. 2019. Emirates signs deal for 40 A330-900s, 30 A350- Automotive interest expense 655 575 563 Dubai. The loss of orders from Emirates may have played a 900s. Emirates, February 14. large part in the recent decision by Airbus to shut down 14. Tim Hepher & Alexander Cornwell. The future of the Airbus A380 is Interest income and other non-operating 2,596 1,645 1,603 production of the A380. 14 under threat as Emirates considered dumping the superjumbo for a income, net At the same time, many of its competitors have also been smaller jet. Reuters, Jan. 31, 2019. 2, 163 15. Departures.com, Summer 2014, p. 278 Equity income 2, 132 2,282 trying to improve on their offerings, particularly for the 16. Ibid., p. 275. Income before income taxes 8,549 1,863 12,008 Income tax expense 474 11,533 2,739 Loss from discontinued operations 70 4,212 Net income (loss) 8,005 (3,882) 9,268 Source: GM Annual Report 2018. CASE 22 :: EMIRATES AIRLINE C177 C178 CASE 23 :: GENERAL MOTORS IN 2019 Strategic Management: Text and Strategic Management: Text and Cases Cases