Mount Royal UniversityINBU 3301-007 | Market Entry Analysis | VIH Aviation | | Cassandra BianchiniMichael HaShoaib HasanLeo LamTaylor Smith | 12/1/2011 |

EXECUTIVE SUMMARY
VIH Aviation has built credibility for its well trained staff, well maintained equipment, safety standards, and technological developments. The performance of the organization has caught the attention of some foreign firms, and additional business ventures will analyzed. China’s second-largest airline has proposed a joint-venture offering shares, profits, cultural know-how for equipment and managerial know-how. Australia’s HNZ group has proposed an acquisition and has offered their staff, equipment, and cultural know-how in exchange for technological expertise and heavy equipment. Finally the sister corporation VIH Cougar in the Gulf of Mexico could be further expanded.
The analysis completed was a competitor analysis; Bristow, PHI, and CHC are all industry leaders bringing their own expertise to the table. Bristow is one of the largest companies in the industry and recently started using TCAS2’s (traffic collision avoidance system) for new equipment. PHI dominates the North American oil and gas market, and has the most air time experience of all firms. CHC also has strong ties with oil and gas firms, but after a significant loss they are looking to be acquired by another firm. Overall the helicopter industry is growing due to the new exploration sites for oil and gas, and many opportunities exist.
The second part of the analysis was comparing the economic, political, legal systems: and cultural, ethical, and human rights standards of the three countries to gain further insight into the degree of risk each country has.
Australia has proven to have a resilient economy during the recession due to the growing oil and gas industry. Foreign business has been encouraged through decreased trade barriers and a shift to an export-oriented country. The political system is similar to Canada’s and is very stable. The legal system is also similar to Canada’s and based on the common law system, which is perceived to be fair and open. The cultural, ethical, and human rights standards are again very similar to Canada. Australia is an individualistic society that scored an 8.7 on the corruption perception index (CPI), and upholds the same degree of human rights seen domestically.
The US has the highest economic risk; the US lost their AAA credit rating this year, and the government debt equal is to 92.8% of the GDP for 2010. The economic difficulties have caused a certain degree of social unrest, which is a political risk. Unemployment, high personal debt, and dissatisfaction with government and corporate decisions have caused grievance for the American people. The US citizens have not turned violent as the situation is livable, but it is a long-term risk if the economic situation doesn’t pick up. The legal risk is slightly higher in the US solely based on the lower CPI rating; corruption in the US is more frequent than in Canada or Australia, but not high enough to cause a high risk level for foreign firms. The cultural, ethical, and human rights standards are fairly equal to Canada’s, there were no significant differences to discuss.
China has the strongest economy of all countries analyzed. The GDP is $5.879 trillion US dollars with a growth rate of 9.1%, beating out most nations in the world. Two safeguards are used in China; high foreign exchange reserves, and a low currency. These economic policies protect the country from external forces, and the low currency brings in foreign trade. The political risk is the highest in China as violent demonstrations do occur from peasants and different ethnic groups; China will also use brute force against Taiwan if they declare independence. The legal risk is also the highest in China due to high levels of corruption, bribery, and intellectual property theft; safeguards are required to do business in China. The cultural, ethical, and human rights standards also provide the most risk. The Chinese airline did offer cultural know-how and relationships to VIH if a deal is made, but the low ethical and human rights standards are moral values that are difficult to work around.
The third part of the analysis was determining the pros and cons to market entry in each country. Australia offers the lowest risk, has similarities to Canada in all four risk categories making business dealings easier. The acquisition would allow for VIH to mix what they do best with what HNZ does best Barriers to entry are reduced with acquisitions and the APEC trade agreement. The economy is also stable due to the resource boom Australia is experiencing. The cons associated to Australia are the two strong competitors in the market, the common law system requires meticulous precision for contracts, and a carbon tax is going to be introduced.
The US also has similar systems and values to Canadians, and VIH already operates in the market so expanding wouldn’t require research or knowledge on competitors, clients, or the culture. Expanding in the US is also likely to be the smallest financial investment out of the three options. The cons related to the US are the poor economic system, an agitated political state, and increased wait time for drilling permits which will slow down expansion.
China’s biggest benefit is the massive economy that offers the highest growth of the three options. The Chinese are also looking to have senior management to be a part of the airline so VIH would have more control over operations and in return they are willing to offer political connections, which is extremely beneficial when expanding in China. The cons for China are the social unrest and possibility of uprising, the financial investment required to complete the joint-venture, and the legal risk associated with intellectual property theft.
Overall the best market to enter is Australia due to the similar economic, political, and legal systems supported by the similar cultures, ethical and human rights standards. The risk is the lowest in all four categories and Australia is experiencing a resource boom. The small number of competitors in the market place gives VIH a great opportunity to capitalize the Australian market place. The acquisition also gives VIH control over operations so the reputation and standards of VIH will be upheld. Also HNZ brings something to the table, they have the operations started and facility built, some equipment, and trained staff so VIH is gaining valuable assets in the acquisition.

Table of Contents

SITUATION ANALYSIS 6 Strengths 6 Weaknesses 6 Competitive Advantage 6 Competitors 7 Bristow 7 Petroleum Helicopter Inc. 7 CHC Helicopter Corporation 8 Key Factors Affecting Global Expansion 8 RISK ANALYSIS 9 Australia 9 Economic Risk 9 Political Risk 9 Legal Risk 10 Culture, Ethics, and Human Rights 10 Gulf of Mexico 11 Economic Risk 11 Political Risk 11 Legal Risk 12 Culture, Ethics, and Human Rights 12 China 12 Economic Risk 12 Political Risk 13 Legal Risk 14 Culture, Ethics, and Human Rights 15 POSSIBLE SOLUTIONS 15 Australia 15 Pros- Australia 15 Cons- Australia 16 Gulf of Mexico 17 Pros- Gulf of Mexico 17 Cons- Gulf of Mexico 17 China 18 Pros- China 18 Cons- China 19 FINAL RECOMMENDATION 20

SITUATION ANALYSIS
Strengths
The VIH Aviation Group has a variety of strengths within the industry and demonstrates that they are strong competitor against other aviation companies. VIH currently has several joint ventures and partnerships in Canada, U.S, Brazil, Peru, Guyana, Portugal, Sudan, Thailand, Malaysia, Indonesia, China and Taiwan (Zietsma, 2010, p. 1); this being said global expansion is not new to VIH, and the knowledge gained from previous expansions would be considered a strength of VIH. VIH is an industry leader in safety, on-time service, and world class logistics which has made the firm a desirable supplier (Zietsma, 2010, p. 3). VIH is also the only firm offering search-and-rescue services in the Canadian Arctic, Alaska, and Gulf of Mexico. VIH has varied fleets giving the company flexibility in fleet deployment and the ability to balance cyclical market demand and provided a one-stop-shop for clients as the firm sells parts, aircrafts, and insurance (Zietsma, 2010, p. 2). The company’s versatility, highly skilled workforce, and performance has made the organization an attractive partner for suppliers as all of the client’s needs can be satisfied by one group. Another key strength was capital assets; they currently have 73 helicopters and four heavy SikorskyS-92s, as well as 10 Agustas AW-139s on order (Zietsma, 2010, p. 3).
Weaknesses
The biggest weakness to VIH is that they are highly leveraged with a debt to equity ratio of 2.42 to 1 (Zietsma, 2010, p. 3). This large debit could make investors weary that VIH may be unable to manage their debt and remain profitable. VIH does not currently have a large cash flow in comparison to competitors (Zietsma, 2010, p. 6 -11), which can also hinder investment and expansion abilities without leveraging more debt. VIH also does not have a sufficient labor force for each country being assessed to venture into. Finally, VIH does not have a significant market share in the locations being analyzed in comparison the competing firms (Zietsma, 2010, p. 5).
Competitive Advantage A competitive advantage occurs when an organization acquires or develops an attribute that allows it outperform its competitors; VIH went forth with developing new technology. The company has created in-flight de-icing, and they are the only firm offering onboard auxiliary gas tank in-flight refueling of Sikorsky S-92 helicopters (Zietsma, 2010, p. 2). These technologies differentiate VIH from competitors, such as Bristow, Petroleum Helicopters Inc., and Helicopter Corporation, as the firm’s core competencies. Another key competitive advantage for VIH is the company’s safety records. Safety is a factor of people, product, and performance, and as VIH has properly executed each they have become successful.
Competitors
Bristow Bristow is one of the world's largest providers of helicopter services and the first civil helicopter company to work in the oil and gas industry ("Bristow about us," 2011). Bristow Helicopters has begun operations using TCAS2 (traffic collision avoidance system) for the newer additions to its helicopter fleet. The system has just received European Aviation Safety Agency approval. (Learmont, 2011). The company also has an excellent safety record (Zietsma, 2010, p. 2) and already carries large market shares in many regions of the world. Revenues, net income, and stockholders’ investment have all doubled from 2004-2008, indicating the firms growing success in the industry (Zietsma, 2010, p. 6). A concerning weakness for Bristow could possibly be that in 2008 they had debt of $606.2 million, which has resulted in a 45% leverage of debt (Zietsma, 2010, p. 6). The high leveraging poses as a weakness to the firm as the high debt ratio can deter lenders/investors, as well as possible partners.
Petroleum Helicopter Inc. PHI has flown more types of helicopters, under a greater variety of conditions, over a longer period of time than any other civilian helicopter operator ("PHI, Inc. is," 2010). In achieving more than 10 million flight hours, they have maintained a safety record that is preeminent in the commercial helicopter industry ("PHI, Inc. is," 2010). To provide customers with the aircraft exactly suited to their needs, they offer Models from Bell, American Eurocopter and Sikorsky ("PHI, Inc. is," 2010). PHI is a leader in support of deepwater oil and gas exploration in the Gulf of Mexico serving installations more than 200 miles offshore in nearly 10,000 feet of water. PHI's fleet is well suited to meet the deepwater needs of our customers with specific Sikorsky and Bell aircraft ("PHI, Inc. is”, 2010). PHI has a large market share in the oil and gas sector; they currently own 64% of market share and the firm only has an equity to debt ratio of 0.45 (Zietsma, 2010, p.2) which makes the firm a strong competitor. A key weakness for PHI is that they mainly only operate in the North American market with 95% and 5% in Africa (Zietsma, 2010, p. 2). By only operating in two markets, the global expansion may be difficult that they would have to look into many factors when trying to expand internationally.

CHC Helicopter Corporation CHC Helicopter is one of the world’s largest helicopter services specializing in three main areas of operation; Transportation to offshore oil and gas platforms, civilian search and rescue services, helicopter maintenance repair and overhaul ("About CHC," 2010). CHC has long-term working relationships with several major oil and gas companies including, the operating subsidiaries of BP, ExxonMobil, Royal Dutch Shell, and Chevron Corporation ("Some quick facts," 2011); the oil and gas industry comprises 70% of CHC’s revenue (Zietsma, 2010, p. 2). A key issue for CHC is that in 2007 they lost almost three million dollars in restructuring cost, and their net earnings dropped nearly half of what it was in 2006. In September 2009 they earned another net loss of $2.9 million during its first fiscal quarter on one-time charges (Zietsma, 2010).
Key Factors Affecting Global Expansion

In mid-2008 orders for new helicopters reached an all-time high due to the wars raging in Iraq and Afghanistan, travel and tourism industries booming, and exploration companies pushing into increasingly remote areas. But, much like the fate of plane makers, the future of helicopters manufactures has been turned on its head in the collapse of the global economy (Deveau, 2009).
During hard economic times many different markets, including the helicopter industry, have been affected. While demand for military helicopters will help keep the market somewhat buoyant, deliveries of new civil helicopters are expected to be flat through 2013 after three consecutive years of unprecedented growth, according to Honeywell International Inc. (Deveau, 2009).
However, Global information Inc. did research for the helicopter industry and they conclude that the demand in the global helicopter market is driven by regional differences. The types of helicopters range from single engine helicopters in the North American market to multi-engine aircrafts in Europe. The dominating industry remains to be oil and gas exploration for the North American, African, the Middle Eastern, Russian, and South American helicopter markets ("Worldwide helicopter market”, 2010) generating demand for helicopters.
Understanding the industry factors, like demand and consumer prices, that shape the external environment is important for strategic decision making. These key elements will be coupled with a risk analysis encompassing the economic, political, and legal systems of the three markets VIH is considering entering into.
RISK ANALYSIS
Australia
Economic Risk
Australia’s economic structure is based on a mixed system and is one of the richest countries in the Asia-Pacific (Heritage Foundation, 2011). Prior to the 1980’s Australia was an inward-looking, highly protected, and regulated marketplace but has since made significant reforms into an open, internationally competitive, export-oriented economy (Michigan State University, 2011). Some of the key reforms made were: reduction of high tariffs and other protective barriers to free trade, deregulation of the financial services sector and liberalizing access for foreign banks (Michigan State University, 2011). Currently Australia is ranked third in the world for Economic Freedom with a score of 82.5 (Heritage Foundation, 2011). This allows for great freedom in choosing how to produce sell and use resources.
The Department of Foreign Affairs and Trade stated that, “Australia is a major exporter of liquefied natural gas (LNG), with considerable potential for further development… based on its abundant resources of natural gas. Australia is now the third largest LNG producer in the Asia-Pacific region and the fifth largest producer in the world” (2011).The mining sector in Australia, which includes oil and gas, accounts for the bulk of the country’s exports (Michigan State University, 2011). Australia’s economy has remained strong in past years and has an ever growing export industry including oil and gas. The country has some of the largest supplies of oil and gas resources and can be seen by the expanding industry.
Political Risk
The Australian Government was founded in 1901 on the liberal democratic tradition… [and is] based on the values of religious tolerance, freedom of speech and association, and the rule of law (Department of Foreign Affairs and Trade, 2011). Potential investors are provided a high degree of confidence and security with a political and regulatory environment that is stable, open, and progressive (Australian Trade Commission, 2011).
Similar to the United States, Australia has a written constitution that defines the responsibilities of the federal government which include foreign relations, trade, defense and immigration (Department of Foreign Affairs and Trade, 2011). Australia is considered to have one of the most politically stable countries in the world; in 2009 Australia came in ninth out of 17 countries in the world considered to be of low political risk (Australian Trade Commission, 2011).
Australia has a strong attractiveness for foreign investors resulting from a strong and well established government. Frequent elections with mandated voting participation ensures that the country as a whole is being represented and their needs are be satisfied by the current Government.
Legal Risk
Australia’s legal system is based on a fundamental belief in the rule of law and justice; Australians and non-Australians alike are treated equally before the law and safeguards exist to ensure that people are not treated arbitrarily by governments or officials (Department of Foreign Affairs and Trade, 2011). The common law system is used in Australia; the judge’s decisions in pending cases are informed by the decisions of previously settled cases in the common law system. The common law system has both negatives and positives to it. The common law system allows judges to “interpret the law” as it applies to a particular case. However, Australia is commended on their legal system for its openness and overall fairness.
The legal frame work of the country is considered to be open, efficient, and transparent (Australian Trade Commission, 2011). As well corruption levels are ranked lower than those in US, the UK, and most regional countries (Australian Trade Commission, 2011). These results can be attributed to a strong system of checks and balances, and a highly respected judicial and law enforcement system.
In order to promote international cooperation in the legal sector, an International Legal Advisory council was established in 1990. The purpose of this council is to promote understanding of different countries’ laws, legal systems and legal institutions, particularly in the areas of trade, business and international law (Department of Foreign Affairs and Trade, 2011).

Culture, Ethics, and Human Rights
Similar to Canada, Australia is highly ethical and places an emphasis on human rights. Australia has a commission who focuses solely on fostering understanding about, and protection of, human rights and to address Human Rights concerns. As mentioned previously Australia has been ranked notably low for corruption levels (Australian trade Commission, 2011). A large part of this comes from their strong belief in law and the enforcement of it. The overall culture in Australia is very similar to that of Canada. Australians may be considered to be a bit more “down to earth” or “relaxed in nature”, that being said you will be seen as very respectable if you follow the behaviours you would employ in business matters in Canada when in Australia.
Gulf of Mexico
Economic Risk
The United States is still facing difficulties after the economic bust of 2008. Although the country is still the richest in the world with a GDP of $47,423 per capita (“Risks and Vulnerabilities: USA”, 2011, P.5) the enormous debt level has put a significant strain on the country in an attempt to move out of the recession. The US has also relied on FDI as opposed to foreign exchange reverses, but with the long and difficult road to recovery the appeal of the US market is at risk (“Risks and Vulnerabilities: USA”, 2011, p. 5). Currently, the United States is experiencing economic instability from the recession that initially took place in 2008. It is important to note that the World Bank (2010) points out that United States was ranked fourth out of 183 countries for ease of doing business with, which indicates the country has potential for foreign firms.
The US government has pumped a significant amount of money in order to stimulate the economy causing the debt to reach nearly 93% of GDP in 2010 (“Risks and Vulnerabilities: USA”, 2011, p.7). The debt crisis has also made foreign investors weary of doing business in the United States due to uncertainty of the long-term stability and ability to regain control over the economic situation. Due to the reliance on foreign investment in the US the country has not invested a lot in foreign exchange reserves to protect the economy, like China has, and without the confidence of foreign countries and firms the economic state faces even higher uncertainty.
Political Risk
The largest political risks facing the United States are the rising unemployment rates, and an imbalance of power of wealth (Nasaw, 2011, para. 4) which together have created a degree of social unrest, luckily it has remained non-violent. High unemployment rates can often result in a distressed population. With many college graduates unable to find a relevant job they feel as if their future has been taken from them (Nasaw, 2011, para. 12). Some experts believe that the youth will be the driving force behind any retaliation (Nasaw, 2011, para. 6) if it were to happen. Part of the unrest regarding the future of US youth pertains to the continuous disintegration of the middle class and an uneven balance of power and wealth (Nasaw, 2011, para. 16), where few prosper and many suffer. Perceived inequality can result in changes of behaviour and has created the social unrest that the US is currently experiencing. Although “quiet riots” are the most common method used by the dissatisfied US population, there is always the possibility of violent protests developing in the future as the economic outlook is remains uncertain.
Legal Risk
The US also has a common law system (“CIA Factbook”, para. 9) which applies the theory of precedence, previous similar cases dictate new outcomes, and is often open for interpretation as discussed earlier. Contracts often need to be fairly detailed in order to fully describe which party is responsible for what and how finances will be handled, but overall the legal documenting protocols do not differ significantly from Canada. The US scored a 7.1 on the Corruptions Perception Index (“Corruption Perceptions Index 2010”, 2010, p. 5) which could be due to corporate scandals that have occurred and the lack of transparency of major banks leading up to the recession. The US doesn’t offer a significant level of legal risk, to foreign firms as contracts are taken extremely seriously and enforced strongly (Gupta, Wang, 2011, para. 10) by American firms. This is especially for Canadian companies that operate in similar fashions.
Culture, Ethics, and Human Rights
A clear advantage of operating in the Gulf of Mexico are the similar cultures and values between the US and Canada. While differences remain, both Canadian and American cultures score similarly on five cultural dimensions (Nardon et al., 2010, p. 68) - See appendix 1 below- which allows Americans and Canadians to work together with minimal cultural disagreements. Both Canadians and Americans enjoy fairly equal power distribution; believe in serving individual needs, controlling their environment, keeping working and life separate, and lean towards rule-based decision making over personal relationships when conducting business. Ethical and human rights standards between Canada and the US are also very similar with both cultures placing value on equal treatment of citizens, equal opportunities, and giving to those less fortunate. These factors allow Canadians and Americans to work well together with little discrepancy between values.
China
Economic Risk
China is the fastest growing economy in the world (“Economic Outlook”, 2011, p. 13) and many experts forecast that the country will be a leading economic powerhouse by 2020. The massive population, growing middle class, and economic reform policies (“Economic Outlook”, 2011, p. 13) have supported the economic growth the country has experienced in the past decades. China has utilized several tactics to stimulate the economy including strong trading relationships, low currency, foreign exchange reserves, and geographic urbanization (“Economic Outlook”, 2011, p. 13) which have proven successful in creating economic stability. For potential investors China has a great short-term rating, but the long-term economic risk is higher according to Business Monitor International Ltd (2011).
China’s growth has secured key trade partnerships with global leaders including the US which has resulted in a $17.9 billion trade surplus with the US (“Economic Outlook”, 2011, p. 16) and perpetuated economic growth while many countries still face a recession. As a method to gain trade interest from foreign countries China has chosen to keep the currency relatively low thus increasing exports (“Risks and Vulnerabilities”, 2011, p. 2) due to the lower cost for importers. The government has also applied another economic policy to protect the economy from external forces; which is purchasing large amounts of foreign exchange. The foreign exchange reserves allow China to purchase foreign goods, and repay debts in the foreign countries currency to avoid a high exchange rate.
The government of China has been urbanizing the country for the new middle-class and the expansion is presumed to move inland creating new major cities and continuously perpetuate growth (“Economic Outlook”, 2011, p. 16) in upcoming years. Unfortunately the construction expansion of China’s cities has proven to be a double-edged sword due to the expected inability for debtors to repay local government investment vehicle (LGIV) loans which will strain both local and central governments. The local governments in China have lent out an estimated $2.2 billion US dollars (“Economic Outlook”, 2011, p. 17) to local contractors many of which face default. The strain on the local banking system would require a central government bailout, but the major banks cannot sacrifice their own stability for local governments (“Economic Outlook”, 2011, p. 17) which has made the solution unclear. The economic issue China faces with the local governments also affects China’s political risk.
Political Risk
China’s political structure has served many benefits during global expansion as the communist party continues to build international relationships (“Political Outlook”, 2011, p. 7) in order to support the growth the country has experienced. The new generation of leaders for the Communist Party of China is also expected to bring further reform to political policies and to continue to modernize the country to remain globally competitive (“Political Outlook”, 2011, p. 7). The biggest risk factor facing China is the social unrest due mainly to the mistreatment of peasants and the diversity and clash of religion and ethnicity within the country (“Political Outlook”, 2011, p. 7, 11). These groups have reached the point of violent retaliation which increases China’s political risk.
Housing and land prices are booming in China and local officials, alongside property developers, have forcibly removed over two million peasants from their homes to capitalize on the property (“Political Outlook”, 2011, p. 10). The cultural diversity within China is another cause for concern due to social uproars and protests. There are over 18 nationalities in China with a population greater than one million people and over 56 recognized nationalities which causes great difficulty for the attempt to lead the country as one single cohesive group (“Political Outlook”, 2011, p. 11). Currently the Tibetans, Muslim Uighurs, and the Taiwanese are the biggest cause for concern due to uprises or desire for separation (“Political Outlook”, p. 11). China has not yet backed down from their decision to use military force against Taiwan if the nation does try a political rebellion for separation. Several demonstrations and protests have occurred in China and analysts believe the government will need to address the people’s issues to avoid further uprising or violent action.
Legal Risk
The government also needs to address corruption and bribery within politicians and powerful business owners. A reason for the continual corruption in China could be that local governments have more control than provincial governments, so often times the policies put in place are not upheld (“Political Outlook”, 2011, p. 7) and corruption is still a very common issue. China does not have the types of institutions and structures to completely enforce legal business behaviour in lower forms of government (Johnston, 2008, p. 216). For a foreign firm looking to operate in China the legal risks should be well understood so a company can properly protect themselves.
China has many examples of corruption quite often including bureaucrats and public officials, but cases have been made against Chinese politicians and businessmen under various types of corrupt dealings (Johnston, 2008, p. 216). For foreign firms, the biggest concern is intellectual property theft. Businesses have found that the rented facility has been bugged, or Chinese employees are providing information to a state-owned business to use that information to become a stronger competitor (Gupta, Wang, 2011, pg. 7). Firms entering into the Chinese market need to take preventative measures in order to avoid losing core competencies to competitors. Many foreign firms will also need to ensure that contracts are clear and concise, and apply for patents in China (Johnston, 2008, p. 217). All legal risks involved can be reduced with safeguarding as the government has not been able to create a strong ethical environment.

Culture, Ethics, and Human Rights
The ethical standards in China are slowly improving although solid corrective change takes time to achieve. Many of the unethical practices found in China are related to corruption and bribery, which were discussed within a legal context, but when a Chinese firm and a foreign firm complete a business venture, culture can also be an important factor.
The issue of intellectual property theft, copyright infringement, or bribery can partially be related to the cultural values of China. Guanxi is a term used to represent strong interpersonal relationships (Nardon et al., 2010, p. 177) but translates into business as strong networks. Within the Chinese culture Confucianism beliefs often dictate social behaviour, including group harmony, and saving face (Nardon et al., 2010, p. 178) that can lead to an agreeable response and lack of content communication about true feelings. The Chinese culture is also collectivist so the needs of the group are put before the needs of one’s self. In conjunction with the Confucian belief system sometimes the “group” is seen as the Chinese, and the foreign firm is seen as an outsider thus exploitative behaviour can result.
In 2009 the Chinese Government issued the first Human Rights Action Plan enabling freedoms and rights to citizens of China in that resemble the Canadian Human Rights Act. There has been much criticism of the plan,with a belief that the achievements the government has promoted are not a fair representation of what actually occurred. The promotion was mainly used as a PR campaign (“China: Human Rights”, 2011, para. 3). The Chinese people often still face political constraints in terms of freedom of expression, right to education and health care, or freedom of assembly which are often taken for granted in Western civilizations.
POSSIBLE SOLUTIONS
Australia
Pros- Australia
One of the big benefits for VIH with the acquisition is that the HNZ Group already has existing helicopters, operations, staff, and connections in Australia. This will allow VIH to begin operations very quickly and bring their expertise to further develop the international business. As well as a result of Canada and Australia having similar political, economic, and cultural behaviours there will be a minimal effect felt by the already existing employees who currently work for HNZ Group. By having minimal changes, especially in terms of treatment of employees, a smooth transition is possible if VIH were to go through with the acquisition. Through the use of an EDC program VIH may also be able to receive 100% debt financing.
Australia has a very strong economy, especially in the oil and gas sector which will be highly beneficial to VIH as they can enter into the market with a sense of security. As an international company it will be quite easy to begin operations in Australia as a result of deregulations, and the reduction of high tariffs and barriers of free trade. Both Australia and Canada are members of APEC (Asia-Pacific Economic Cooperation), an intergovernmental forum dedicated to free trade and investment, economic growth and development, and cooperation in the Asia-Pacific Region (Foreign affairs and international trade Canada, 2011) which reduce entry costs.
Australia is a good investment decision partly because of a political system that has been assessed as being highly effective in responding to economic challenges and policy direction (Australian Trade Commission, 2011). Corruption levels in Australia are some of the lowest in the world. This has resulted from an extremely stable political and legal system that ensures fair treatment and enforcement of the law. Lastly, Canada and Australia have very similar cultures and beliefs interaction between partners, employees and officials would be quite easy and require little preparation.
Cons- Australia
The biggest problem with the acquisition or partnership in Australia is there is already a large competitive force present in Australia. Two of their biggest competitors as well as a local competitor are already operating in Australia. The existing firms may already have contracts with many of the oil and gas companies in Australia making it difficult to attain new business. Additionally in order to attempt to win contracts VIH may have to place lower bids reducing their profit.
As Australia is run under a Common Law System the formation of contracts will require meticulous construction to ensure both parties are aware of the performance obligations, and financial agreements. Common Law systems allow for interpretation so it is of the utmost importance that contracts lay out all the details in depth to ensure there is no room for interpretation and it is as straight forward as possible.
There is also a planned carbon tax that will greatly affect the oil and gas industry. If implemented “industries would have to pay $23 a ton tax for carbon dioxide emissions… [and] would increase by 2.5% every year” (Petroleum Economist, 2011). If this tax is enforced it may become quite costly to produce oil and gas in the region.
Gulf of Mexico
Pros- Gulf of Mexico
VIH also operates in the Gulf of Mexico and has knowledge of the types of clients operating in the US, their needs, and how best to serve them. Further expansion within the US would not require significant investment of time or money to understand the marketplace in terms of customers, competitors, or regulations as VIH already holds this knowledge. VIH has also been the sole search and rescue provider in the Gulf of Mexico (Zietsma, 2010, p. 3) and not only has a competitive advantage over other firms in the marketplace, but has also built a good reputation for potential clients. The company also has knowledge of the US legal, political, and economic systems, cultural values, and ethical standards due to the similarities between Canada and the US so further expansion in the market would not cause problems for the firm in any of these regards. The similarities between the US and Canada along with NAFTA to reduce trade barriers make the US a desirable marketplace for Canadian firms due to the reduction of costs. The costs of an expansion is also assumed to be lower than an acquisition, joint venture, or greenfield approach as a mode of entry into a market. Currently both the China and Australia business ventures would require capital loans, and with the high leveraging (Zietsma, 2010, p. 3) VIH is currently using, a smaller financial risk would be easier to sustain if a loss was incurred. It is also expected that the number of deepwater platforms in the Gulf to double by 2012 (Zietsma, 2010, p. 4), which supports future growth in the area and VIH could capitalize that opportunity.
Cons- Gulf of Mexico
Referring back to the risk analysis, the current economic state of the US is very volatile due to soaring government debt, high unemployment, and weak financial regulations. The economic status of the United States was significantly affected this year, losing the AAA S&P credit rating and increasing the debt ceiling to continue pumping funds into the US economy. The degree of economic uncertainty for the United States’ future has result in a loss of faith on an international level, and VIH should take this into consideration when dealing with US ventures. The political unrest that the country is experiencing also serves as a negative factor for expansion in the US. As discussed earlier, US citizens have not yet reached the point of violent revolts, like China, but the possibility remains due to the lagging economy. In the event of violent uprisings, or social movements performance could decrease, demand for services could decrease as the focus shifts to making social change, or the environment could be unsafe to conduct business if businesses are targeted in any way. The focus of the government will be reactive and policies that hinder business could be put in place for the protection of the greater good, as seen many times in history.
Research indicates that receiving permits to drill in the Gulf of Mexico can take up to 95% longer than previous years because of the deepwater Horizon incident which resulted in oil spill along the coast (Nancy Miller, 2011, para. 2). Longer wait times for oil companies could affect VIH’s ability to move quickly into new regions of the Gulf as projects take longer to get approved, and subsequently VIH will also have to wait for new contracts. The market is also highly saturated with competitors (Zietsma, 2010, p. 4), such as PHI and Bristow, and further penetration in a highly saturated market can lead to weak results.
China
Pros- China China is the second largest economy in the world, next to the US, and is one of the fastest growing economies in the world (“Economic Outlook”, 2011, p. 14). China’s GDP for 2010 was $5.879 trillion US dollars and achieved a 9.1% growth rate into the third quarter of 2011 (“China GDP”, 2011), substantially exceeding most countries. The population has continued to support the economic growth over the past decade and tapping into such a large economy could result in a large pay-off for VIH. China has also utilized safeguards to create economic stability including large foreign exchange reserves, a low currency to promote trade, and maintained a trade surplus with the US. The strategic decision making makes the market extremely appealing to foreign firms and investors globally. The offshore market in China is currently serviced by only three firms and 30 IFR helicopters although within the next few years the demand is estimated to be between 50 and 100 IFR aircraft (Zietsma, 2010,p. 4). The growing demand and low competition make the market very appealing for entry. The growing demand is also suspected to lower price sensitivity and bring fees up to operational standards so VIH can operate profitably in the country. VIH would also be the first aviation company to enter China (Zietsma, 2010, p. 4) and could get first-mover advantages such as: brand awareness, sales volume, and move down the experience curve (Hill, McGraw p. 402-403). Having a joint venture with a Chinese firm also has its advantages. The Chinese airline is offering political connections, cultural awareness, and networks which are extremely important to success when operating internationally. This is especially true for China as Confucianism beliefs value guanxi and in many circumstances relationships are more important than contracts. The knowledge regarding the culture and political and legal systems would prove to be beneficial in achieving success in the Chinese market. Senior management would also be in place in China to keep some degree of control over decision making and operations to ensure VIH’s reputation is not sullied.
Cons- China Providing senior management in China for control over decision making and operations is a double-edged sword because of China’s reputation for legal risk, like intellectual property theft. The degree of corruption, bribery, and IP theft in China makes the joint venture extremely risky. Although the company is offering a lot of what VIH needs to enter and be successful in the Chinese market replicating the operating system, training staff, and leasing out aircraft (Zietsma, 2010, p. 4) give the Chinese several opportunities to exploit VIH and steal managerial competencies and technical competencies. Although some safeguards exist, like creating an ironclad contract, and registering patents in China (Gupta, Wang, 2011, para. 7) additional time and money would be required to do these things a degree of inherit risk is still involved. The Chinese venture would also require a significant level of capital, $24 million (Zietsma, 2010, p. 4), which is a large amount for a firm that is already highly leveraged. Adding the financial risk to the legal risk could result in a substantial loss for VIH if anything goes awry. There are several things that could go wrong in China that should be considered, such as: foreign exchange fluctuations, unexpected taxes, and ownership restrictions (Zietsma, 2010, p. 4). Due diligence will need to be done on all of the smaller risk items as well, even if that entails just being prepared for them to occur at any point in time and being ready to respond quickly.
The political environment in China is also a risk for business. The social unrest of the migrant workers, peasants, and ethnic minorities has reached a violent level. Violent protests could affect business depending on how the government reacts to the uprising, and the degree of violence. Some experts believe that the death of the Dalia Lama could bring another violent uprising from the Tibetans (“Political Outlook”, p. 11) which would most likely result in military action by the Chinese government. Also discussed earlier was China’s refusal to back down if Taiwan declares independence and will most certainly use military force to prevent that motion from carrying through. The political risk in China is much higher than in the US as the revolts have become already become violent and could get worse.
FINAL RECOMMENDATION After reviewing and analyzing the data the venture that provides the least amount of risk and the highest possible reward is the Australian acquisition of HNZ group. The political, economic, and legal systems are stable and similar to those in Canada; the market is expanding and with only three firms in the marketplace, there is an opportunity and finally the acquisition processes does reduce several risks.
The culture is relatively similar to Canadian culture and with proper attention merging the corporate cultures should not cause problems for the company and affect performance. The country has low barriers to entry, and with an acquisition most barriers are overcome through the purchase. The political, legal, and economic structures are also fairly similar and while minor adjustments and learning will be required it will not be an enormous change.
Australia is also undergoing a resource boom and has limited restrictions for foreign firms (Zietsma, 2010, p. 4), making it an easy country to do business in, which presents an opportunity to move into the market and capitalize on it. HNZ is also looking the VIH because they lack some of the core competencies that VIH possesses, heavy-equipment, technical expertise, and new technology (Zietsma, 2010, p. 4). The acquisition also reduces risk of exploitation of having HNZ steal the technological and mechanical know-how as the firm would become a wholly owned subsidiary. The financial aspect of the venture will be the largest risk as VIH does require 100% financing from the EDC in order to obtain the foreign firm. With the current debt load and leveraging, the pressure to succeed will be greater.
Overall the acquisition of HNZ has the lowest risk and many factors to indicate success; with further financial analysis to properly valuate the company’s assets and evaluate costs and returns to support this conclusion VIH could move forward with the foreign venture.

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