Analysis to build a competitive strategy for Korean air cargo in Ho Chi Minh city until 2016

1







TRNG VN LIÊN



ANALYSIS TO BUILD A COMPETITIVE
STRATEGY FOR KOREAN AIR CARGO
IN HO CHI MINH CITY UNTIL 2016







MASTER PROJECT
MASTER IN BUSINESS ADMINISTRATION
(PART-TIME)

Ho Chi Minh City
(2011)


TRNG I HC M TP.HCM UNIVERSITÉ LIBRE DE BRUXELLES
HO CHI MINH CITY OPEN UNIVERSITY SOLVAY BRUSSELS SCHOOL

MBAVB4
3



DECLARATION

I hereby declare that this project is written by myself as requested by the Part-time MBA
Program from Ho Chi Minh City Open University and Solvay Brussels School.

In the project, I use theories from books published by well-known authors such as Michael
Porter and other authors whose studies and researches related to my study. Besides, I also
collect data and information from newspapers, magazines, and government authority
websites such as Vietnam Customs website, Vietnam GSO website, Ho Chi Minh city
website, … In addition, I also pick up some information from previous projects studying
the same issue. All extracted information and data are attached with links to the author or
original sources to ensure author rights.

I also use the guidelines and instructions from the Tutor, Associate Professor Doctor Ha
Nam Khanh Giao from the University of Economics in Ho Chi Minh city (UEH) to
accomplish this project.

Ho Chi Minh city, February 2012.
TRUONG VAN LIEN












4



ACKNOWLEDGEMENTS

I would like to thank all Professors of the program who bring me valuable knowledge to
accomplish this thesis.

I would like to show my unforgettable thanks to Associate Professor Doctor Ha Nam
Khanh Giao who guided me with interesting learning experience throughout the thesis.

Special thanks to Mr Nguyen Khanh Diep, Cargo Sales Manager of Korean Air Cargo in
Ho Chi Minh city who inspired me with this subject and who dedicated strong support to
me during the thesis accomplishment.

I would also like to thank my classmates for their exciting support during the two-year
MBA program and in my thesis as well.

Last but not least, I would like to dedicate this paper to my wife who has given full support
and understanding to me during the writing time of this study.

Ho Chi Minh city, February 2012.
TRUONG VAN LIEN











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COMMENTS FROM THE TUTOR

As tutor working with Mr. Trng Vn Liên in his Final Report, namely Analysis to Build
a Competitive Strategy for Korean Air Cargo in Ho Chi Minh city until 2016, I found out
that Liên proved to be hard working, and disciplined.

His Final Report analyzed the environment and suggested some possible ideas about the
strategy of Korean Air. The strong point of this report is based on Mr.Liên’s knowledge of
the air cargo business as he has been working in the area for years.

I strongly recommend Mr. Trng Vn Liên to present his work to the jury panel as part of
his Master of Business Administration. And I do believe that he will be successful in the
future.

Ho Chi Minh city, the 1
st
of March, 2012.
Assoc.Prof. Dr. Ha Nam Khanh Giao

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TABLE OF CONTENTS

DECLARATION 3
ACKNOWLEDGEMENTS 4
COMMENTS FROM TUTOR 5
EXECUTIVE SUMMARY 10
ABBREVIATIONS 11
LIST OFTABLES 13
LIST OF FIGURES 14
REFERENCES 95
APPENDIX 1: LIST OF AIRLINES IN HCMC 2011 96
APPENDIX 2: LIST OF CARGO AIRLINES IN HCMC 2011 97
APPENDIX 3: DESTINATIONS SERVED BY KOREAN AIR 98
APPENDIX 4: CUSTOMER SURVEY FORM 99
APPENDIX 5: CUSTOMER SURVEY RESULT 102

CHAPTER 1: INTRODUCTION 15
1. Rationale of the study 15
2. Objectives, limitation of the project 17
3. Methodology of the project 17
CHAPTER 2: LITERATURE REVIEW 19
1. Previous studies on competitive strategy & related issues 19
2. General concept 20
3. Porter’s five forces and three generic competitive strategies 21
3.1. Porter’s five forces 21
3.2. Three generic competitive strategies 23

4. The generic value chain 25
4.1. Primary activities 25
4.2. Support activities 26

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CHAPTER 3: HO CHI MINH CITY AIRFREIGHT MARKET 27
1. Overview of air freight market 27
1.1. History of world air freight 27
1.2. Some figures about airfreight market 28
1.3. Role of air transport in the economy 29
1.4. Air cargo industry key drivers and trends 29
2. HCMC air freight market analysis 31
2.1. General information about HCMC airfreight market 31
2.2. Customer behaviors 36
2.3. How the process works 40
2.3.1. The players involved in the process 41
2.3.2. Process flow 42
2.4. Porter’s five forces driving industry competition in HCMC market 44
2.4.1. Intensity of rivalry 44
2.4.2. Potential entry of competition 47
2.4.3. Threat of substitute product 50
2.4.4. Bargaining power of Buyer 52
2.4.5. Bargaining power of Supplier 55
2.4.6. Summary of Porter’s five forces analysis 56
2.5. Trends of airfreight industry in Ho Chi Minh city 58
CHAPTER 4: ANALYSIS TO BUILD A COMPETITVE STRATEGY FOR
KOREAN AIR CARGO UNTIL 2016 60

I. Competition in HCMC market 60
1. Competition intensity in HCMC market 60
2. Strengths, weaknesses and strategies of key competitors in HCMC 61
II. Analysis of Korean Air Cargo HCMC business 62
1. Porter’s generic value chain analysis 63
1.1. Primary activities 63
1.1.1. Inbound logistics 64
1.1.2. Operations activities 65
1.1.3. Outbound logistics 66
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1.1.4. Marketing and sales 67
1.1.5. Service activities 67
1.2. Support activities 68
1.2.1. Corporate support activities 68
1.2.2. Quality control activities 68
1.2.3. Human Resource Management 68
1.2.4. Security activities 68
2. Korean Air Cargo SWOT analysis 68
2.1. Strengths 69
2.2. Weaknesses 71
2.3. Opportunities 72
2.4. Threats 74
3. Korean Air vision and mission 76
III. Suggested Competitive Strategy for Korean Air Cargo HCMC 77
1. Three levels of strategy 77
1.1. Corporate-level strategy 78
1.1.1. Growth strategy 78

1.1.2. Portfolio strategy 82
1.1.3. Parenting strategy 82
1.2. Business-level strategy 82
1.2.1. Cost Leadership strategy 82
1.2.2. Differentiation strategy 83
1.2.3. Focus strategy 87
1.2.4. Competitive Tactics 87
1.3. Functional strategy 88
1.3.1. Marketing strategy 89
1.3.2. Financial strategy 89
1.3.3. Production strategy 89
1.3.4. Human Resources strategy 89
1.3.5. Information System strategy 90
1.3.6. Research and Development strategy 90

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2. Strategy Implementation 90
2.1. People 90
2.2. Resource Allocation 90
2.3. Structure 91
2.4. System 91
2.5. Culture 91
CHAPTER 5: CONCLUSION AND FURTHER RESEARCH 93
1. Conclusion 93
2. Further research 94

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EXECUTIVE SUMMARY

Since Ho Chi Minh city is growing fast and continues to be the biggest city of Vietnam, the
airfreight market here is also an attractive business for all airlines. The growing market
generates big opportunities as well as tough challenges to existing airlines in Ho Chi Minh
city.

As a leading cargo airline in the world, Korean Air Cargo extended their business network

to Ho Chi Minh city since 1989 with passenger aircraft and since 1997 with all-cargo
flight. Since then, the competition in the market is getting harder with the presence of
several other carriers. The market demand is growing but the capacity from airlines is also
very much expanding, making the competition between airlines harder than ever.

This paper is trying to analyze internal as well as external factors of the market, of Korean
Air Cargo, and of the competitors in Ho Chi Minh city market. Based on Korean Air Cargo
SWOT analysis, Ho Chi Minh city airfreight market analysis, Customer Survey results,
and other elements that affect the air transport business, this paper recommends some ideas
about competitive strategy to Korean Air in Ho Chi Minh city market. In Corporate-level
Strategy, the company should achieve growth by implementing Horizontal growth
Strategy. In the Business-level Strategy, this paper recommends the company to implement
the Differentiation Strategy and Focus (Differentiation) Strategy which best fit Korean Air
business in HCMC.









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ABBREVIATIONS

AFAS: ASEAN Framework Agreement on Services

ASEAN: Association of Southeast Asian Nations
AWB: Air Way Bill
BR: Eva Air
CAAV: Civil Aviation Administration of Vietnam
CI: China Airlines
EU: Europe
FDI: Foreign Direct Investment
FOB: Free On Board
FTK: Freight-Tonne-Kilometers
GDP: Gross Domestic Product
GSO: General Statistics Organization of Vietnam
HCMC: Ho Chi Minh city
IATA: International Air Transport Association
IEA: International Energy Agency
KE: Korean Air
KPI: Key Performance Indicator
M&A: Merger & Acquisition
NAFTA: North American Free Trade Agreement
OPEC: Organization of the Petroleum Exporting Countries
RTK: Revenue Ton Kilometers
SAGS: Saigon Airport Ground Service
SCSC: Saigon Cargo Service Corporation
SGN: Ho Chi Minh city
SWOT: Strength, Weakness, Opportunity, Threat
TCS: Tan Son Nhat Cargo Service
TIAGS: Tan Son Nhat International Airport Ground Service
ULD: Unit Load Device
USA: United States of America
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VINAPCO: Vietnam Air Petrol Company
VINATEX: The Vietnam National Garment and Textile Group
WTO: World Trade Organization

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LIST OF TABLES

Table 1: Top 10 air cargo operators 2011 28
Table 2: HCMC export commodity 2011 35
Table 3: HCMC import commodity 2011 35
Table 4: Vietnam top 15 export markets 2011 36
Table 5: Vietnam top 15 suppliers 2011 36
Table 6: HCMC export revenue 2007-2011 37
Table 7: Fleet of BR, CI and KE 46
Table 8: Air/Sea cost example 51
Table 9: Top 10 freighters 2010 69
Table 10: World’s top 10 busiest cargo airport 2010 70
Table 11: Boeing GDP growth forecast 2010-2029 72
Table 12: Boeing air cargo traffic growth forecast 2009-2029 73

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LIST OF FIGURES

Figure 1: Forces Driving Industry Competition 21
Figure 2: Porter’s Generic Strategies 24
Figure 3: Porter Generic Value Chain 25
Figure 4: International air freight and passenger volumes 2005-2010 29
Figure 5: Import Export revenue 2010 in HCMC by month 32
Figure 6: Air cargo export – import in HCMC 2005-2010 32
Figure 7: Export commodity in 2011 37
Figure 8: Airfreight processing flow 41
Figure 9: SWOT of Korean Air Cargo in HCMC 69
Figure 10: Korean Air employee 71
Figure 11: World fuel price 1998-2011 75
Figure 12: Value chain for KE 84

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CHAPTER 1: INTRODUCTION

1. Rationale of the study:
Ho Chi Minh city is considered a potential market for air cargo transportation. There are
certain reasons to believe that this market is growing fast in coming time. Firstly, Vietnam
in general and Ho Chi Minh city in particular is just walking out of the old time in which
the economic exchanges are very limited. The demand to exchange economic activities
between the country and other countries is booming. Several shipping lines and air carriers
have come here to do business. They bring goods from overseas to Ho Chi Minh city for
local use and local production and take goods out of it for export.

Airfreight movements can be seen as a way to promote trade exchanges between countries
all over the world, and also in the same time an evidence of a country’s growth. There are
some certain ways to move products from one place to another place, and two main modes

are by sea freight and airfreight. Seafreight is usually for big and less urgent shipments
while airfreight is for smaller and urgent ones. As a result, airfreight is more expensive
then sea freight and thus more secured. Airfreight also requires more complicated process
in handling shipments between points of loading and during the flight since shipments are
travelling together with passengers.

Airfreight is quick and reliable. Usually airfreight transit time is just one-tenth of sea
freight. That’s the reason why when a shipment is going to miss the deadline if shipped by
sea, shipper will move it by air to save some transit time. In addition, facilities of air
transportation are much better then sea transportation which include warehouse condition,
safety and security, customs services, … Therefore, when shipper accepts to pay more
money for airfreight, they tend to require quick and reliable service from airlines who carry
their goods from origin to destination and vice versa.

Vietnam economy in general, and Ho Chi Minh city in particular, is relying on export to
expand the local economic scale and to maintain growth rate. The main export items are
garment, furniture, agricultural products, and fresh fruits and vegetables. In order to make
the end products, Ho Chi Minh city needs to import certain raw materials and semi-
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finished products from overseas. These activities will generate import and export needs
from enterprises. With the annual economic growth rate of from 10-12% for a long period
and an import-export value of over USD 47 millions (estimated for 2011), it is obvious that
Ho Chi Minh city is a really promising market for air and sea transportation.

In order to be a leader in air transportation, a carrier needs to have a big enough network
that links many places all over the world into a huge circle to ensure a quickest, reasonable
price, and most reliable service to customers. Not all the carriers in the world are ready to

do that because of huge investments needed into that network. The real leader is the one
who is willing to invest enough money to create real values to customers in that area.

Recognizing the potentials of Vietnam market in general and Ho Chi Minh city in
particular, several carriers have come here to do business and try to get as more market
share as they can. Up to now, there are about 44 airlines coming to Ho Chi Minh city
connecting the country with many key points in the region and other places over the world.
In addition, The WTO membership of Vietnam in 2007 has brought bigger opportunity to
airlines when the air cargo business is growing fast thanks to the market openness required
by WTO regulations.

However, the global economic downturn in 2008 put all of the airlines in a very difficult
situation when the cargo demand dropped down sharply. All of airlines have suffered a
combined loss as much as USD 8 billions (IATA source). Vietnam market which mainly
relies on export to Europe and the USA also suffered the same situation. Many airlines
reduced their capacity to reduce loss and some airlines withdrawn from market to re-
structure their business.

In order to survive and to be growing, Korean Air Cargo needs to review their business
strategy to overcome the difficult time and to maintain the leading position in the cargo
industry. They need to be very much effective and efficient in a very tough competition
environment. The fact shows that Korean Air market share compared to competitors’
market share in Vietnam is shrinking from 2008 until now. This is the sign proving that
Korean Air Cargo is facing certain problems in competing against competitors.
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Taking the inspirations from the above point, this study is made to fully understand the
situation of Korean Air cargo and try to find out some solutions and in the mean time to

make some recommendations to the mentioned problems.

2. Objectives, limitations of the project:
The objective of the project is to make an analysis about the air freight market in Ho Chi
Minh city to gain a deeper understanding about the competition in this market. In particular,
Korean Air Cargo business in HCMC will be analyzed in details to help build up a
competitive strategy for Korean Air to gain more market share in HCMC. Finally, the
study will point out bottleneck that affects the output of the air freight system and give
some recommendations on how this could be treated.

Due to the size of the task, some limitations must be established on what will be actually
treated in this project. The scope of the project is limited to below 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.

3. Methodology of the project:
Firstly the project will review literature on theories from Michael E. Porter about
competitive strategy. Analysis techniques such as: five forces analysis, three generic
strategies, generic value chain, SWOT analysis … will be practically analyzed in
accordance with Korean Air Cargo business environment.

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Secondly, the project will also review previous studies related to this subject and extract
some related data and figures to support for the analysis.

Regarding the data collection method, the project will select and analyze secondary data
and analysis related to Vietnam and HCMC general economy to support the status of
import-export situation of HCMC, through which Korean Air business in HCMC will be
analyzed. In addition, the research will also take information from company data, annual
reports, information from International Air Transport Association (IATA) and from Tan
Son Nhat International Airport, to make analysis about Korean Air 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.

Finally, based on the above literature review and analysis, the project will make some
recommendations, which align with company’s mission and vision, on how Korean Air
Cargo differentiates itself and how to expand its market share in HCMC in coming time.

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CHAPTER 2: LITERATURE REVIEW

1. Previous studies on competitive strategy and related issues:
Competitive strategy and related issues have been analyzed in numerous studies and
researches from numerous perspectives. Besides the theories from books, this study also
reviews certain key points relating to competitive strategy in the below studies and
researches:
Item
Name of research
Author
Date
Subject
1
Economic Feasibility study into
viability of air cargo in the Pacific
Northwest
Michael Peter
Kant
2006
Five forces analysis for
air cargo transport

2
Analysis of strategic alliances as a
source of competitive advantage in
the airline cargo business

Juan Carlos
Serna Velez
2006
Value chain analysis for
a cargo airline
3
Competing for air cargo
Willem-Jan
Zondag
2006
Air cargo history,
demand for air cargo
services, air cargo
supply chain, integrated
express services
4
The Swedish air freight industry
Niclas Anderson
2001
Players in air freight
industry
5
Freight transport for development
toolkit : Air Freight
Heinrich

Bofinger
2009
Role of air cargo, case
studies of some
commodities of air
freight
6
Key factors contributing to
management strategy development
at air cargo carriers
Wouter Dewulf,
Eddy van de
Voorde and
Theirry
Vanelslander
2011
Air cargo industry key
drivers and trends
20



7
The aggregated and disaggregated
relationship between air freight and
merchandise trade
Franziska
Kupfer, Hilde
Meersman, Evy
Onghena and

Eddy Van de
Voorde
2010
Air freight and trade
imbalances, trends in
the air business
8
The oil crisis and its impact on the
air cargo industry
Gal Luft
2006
Impact of oil costs on
the air cargo business
9
Airport development and air cargo
logistics: Korea’s initiatives in
Northeast Asia
Oh Kyoung
Kwon and
Yonghwa Park
2003
Review of business and
Incheon Airport facility
review
10
Air freight Industry – White Paper
J.Peterson
2007
Players, process flow in
air freight business

11
Transitioning the U.S Air
Transportation System to higher fuel
costs
James
K.D.Morrison,
Brian Yutko, and
R.John Hansman
2010
Fuel costs

Regarding literatures on competitive strategy, the study will mainly base on theories about
strategy from Michael E. Porter, which is defined in the book Competitive Advantage:
Creating and Sustaining Superior Performance, and Competitive Strategy: techniques for
analyzing industries and competitors.

2. General concept:
Competitive strategy is the search for a favorable competitive position in an industry, the
fundamental area in which competition occurs. Competitive strategy aims to establish a
profitable and sustainable position against the forces that determine industry competition
(Competitive Strategy – Michael E. Porter).

In fact, profit is the ultimate target for any company. No matter in what business the
company is, the owners or shareholders of the company will always drive their company in
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such a way that they can get profitable as much as possible. They will do anything
including manufacturing the best products and offering them to customers at best rates in a

quickest and most effective way. They always want to be the first choice of customers and
they want to sell as much their products or services as they can to ensure that they can get
the highest profits possible. In addition, they want to maintain this good position over the
competitors as long as they can to ensure sustainable growth time over time.

However, this is not that easy since other competitors will also do the same. In theory,
what this company does can also be done by other companies when they are in the same
business environment. Competitors in the same area of business tend to imitate or copy
same tactics to attack the same market and same customers. Of course, the tactics applied
by different competitors can be more or less different which is usually more favorale to
customers in order to win the business. The competition will get tougher and tougher in
this way and the winner is the one who can make themselves the most different and most
efficient among others and can maintain the leading position in a long time.

3. Porter’s five forces and three generic competitive strategy:
3.1. Porter’s five forces:








Figure 1 : Forces Driving Industry Competition



INDUSTRY
COMPETITORS

(Rivalry among
existing firms)
POTENTIAL
ENTRANTS
BUYERS
SUPPLIERS
SUBSTITUTES
Bargaining power of
buyers
Bargaining power of
suppliers
Threats of new
entrants
Threats of substitute
products or services
22



The state of competition in an industry depends on five basic competitive forces which are
shown in Figure 1.1. The goal of competitive strategy for a business unit in an industry is
to find a position in the industry where the company can best defend itself against these
competitive forces or can influence them in its favor (Michael Porter).

3.1.1 Threat of Entry:
New entrants to an industry bring new capacity, the desire to gain market share,
and often substantial resources. Prices can be bid down reducing profitability. The
threat of entry into an industry depends on the barriers to entry that are present,
coupled with the reactions from existing competitors that the entrant can expect.

Below are major sources of barriers to entry:
- Economies of scale: refer to declines in unit costs of a product as the
absolute volume per period increases. The entrant will face 2 undesirable
options: forced to come in at large scale and risk strong reaction from
existing firms, or come in at small scale and accept 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.
3.1.2. Intensity of rivalry:
This is one of the most powerful force of competition. Rivalry occurs because
one or more competitors feel the pressure or sees the opportunities to improve
position. In most industries, competitive moves by one firm have noticeable
effects on its competitors and thus may incite retaliation or efforts to counter
the move. The below factors will have affects on the intensity of rivalry:
- 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.
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- 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.

3.1.3. Threat of substitute products:
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.
- Switching costs
- Buyer inclination to substitute
3.1.4. Bargaining power of Buyers:
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
- Product differentiation
- Switching costs
- Buyer low profit, more price sensitive
- Importance of products to buyer’s products
- Buyer has full information
- Backward integration: in-house production
3.1.5. Bargaining power of Suppliers:
Below key points will determine how strong is the bargaining power of
Suppliers:
- Supplier concentration
- Importance of volume to supplier
- Differentiation of inputs
- Switching costs
- Presence of substitutes
3.2. Three generic competitive strategies:
In coping with the five competitive forces, there are three potentially successful generic
strategic approaches to outperforming other firms in an industry:
24

- Overall cost leadership
- Differentiation
- Focus

Porter’s Generic Strategies
Target Scope
Advantage
Low cost
Product Uniqueness
Broad
(Industry wide)
Cost Leadership
Strategy
Differentiation
Strategy
Narrow
(Market segment)
Focus Strategy
(low cost)
Focus Strategy
(differentiation)
Figure 2: Porter’s Generic Strategies
 Cost leadership Strategy:
This strategy requires a firm to be a low-cost producer in an industry for a given level of
quality by construction of: efficient scale facilities, tight cost control, efficient distribution
channels, investment in technology to reduce costs, efficient logistics, or a low cost base
(raw material, labors, facilities,…). However, this strategy can also by copied by other
competitors, eliminating the competitive advantage.

 Differentiation Strategy:
This strategy calls for the development of a product or service that offers unique attributes
better valued by customers than products from competitors. This may allow the firm to
charge a premium price for it. However, the risk of this strategy is that market share may
shrink.
 Focus Strategy:
This strategy concentrates on a narrow segment or particular niche market. By
understanding the dynamics of that market and the unique needs of customers within it, the
firm will develop a uniquely low cost or well-specified product for the market. This
strategy can bring the firm a high degree of customer loyalty and this will discourage other
firms from competing directly. The risk for this strategy is that it can lower down the
firm’s bargaining power to supplier due to smaller volume, and changes in the target
segments.
25



4. The generic value chain:

Figure 3: Porter generic value chain

According to Porter, “in competitive terms, value is the amount buyers are willing to pay
for what a firm provides them. Value is measured by total revenue, a reflection of the price
a firm’s commands and the units it can sell. A firm is profitable if the value it commands
exceeds the costs involved in creating the product. Creating value for buyers that exceeds
the cost of doing so is the goal of any generic strategy”. (Porter, 1985, p.38)

The Porter’s Value Chain Model identifies nine generic categories of activities which are
linked together and divided into 2 types: primary activities and secondary activities.
Primary activities are the activities involved in “the physical creation of the product and its

sales and transfer to the buyer as well as after-sales assistance. (Porter, 1985, p.38).
Support activities, on the other hand, “support the primary activities and each other by
providing purchased inputs, technology, human resources, and various firmwide
functions”. (Porter, 1985, p.38).

4.1. Primary activities:
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”.
26



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.

4.2. Support activities:
Porter divided this into four categories including: procurement, technology development,
human resource management, and firm infrastructure. However, due to the specific

business area of air cargo transportation, this study will define four categories of support
activities as below:
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.