Subject: International Businesses

Case Study: Carnival Cruise Line (Pg 68-73)

1) What global forces have contributed to the growth of the cruise-line industry?
Answer: The global forces which have contributed to the growth of the cruise-line industry are*
Technological advance: the birth of industry was a direct respond to the technological advance in
air travel that made liner travel less attractive to business people due the cost and time factors.
* Market liberalization and international cooperation: the liberalization of cross border trade and
resource movement had allowed the cruise line industry to force on the cheaper yet competent
labor resources. At the same time, the industry is able to offer various global destinations and on
land elimination package to its potential customers.
* Support services: the development of new ports allows the cruise line expand its destinations
and provide varieties of offering to the customers. This will help attract new customers, and the
same time ensures the return of existing customers.
* Customers affluence: the growing income among the middle class in many countries,
particularly in the emerging market, contribute to the increase in discretionary incomes that
could be spent on tourism.

2) What specific steps have Carnival Cruise Line taken benefit from global social
changes?
Answer: With globalization, businesses have gain advantages by expanding the business around
the globe. Globalization has made companies to gain greater businesses, economic and social
impact as well compared to before. As for Carnival Cruise Lines, they have taken specific steps
from globalization with the intention to maximize their profit as mentioned follows:
1. Political and Legal policies. i- Registration of the company No doubt that political policies
influence on how international businesses conduct its operations in the respected country. As for
Carnival Cruise Lines, the nature of its business is international in scope. Therefore, in order to
gain the benefits of global business, the company is focusing on the international countries that
table to provide benefit so the business. The first step focused by the company is on the
registration of its legal entity. The company is focusing on countries which are able to give lower
taxes as well as less stringent labor law, suitable for the company. The Carnival Cruise Lines was
registered in Panama because it wanted to take advantage of obscure provision in the U.S tax
code which permits shipping companies to evade taxes in corporate overseas as well as the
freedom off lying foreign countries flags. This has directly helped the company to uplift its
burden of paying excessive taxes in that particular country.
ii. Acquiring Ship the Company also leverages on globalization whenever it purchases carnival
cruise ships. The cost of acquiring a ship is extremely expensive because when a ship is being
build, it involves high usage of commodity product (i.e. steel) and people from various
specialties, background and expertise. Thus, in order to minimize their cost, companies will then
bid for less expensive ships available across the globe. Cost of a ship can also reduce whenever
the government provides subsidies to boost the shipping industry of ascertain country. In this
case, the Italian government awarded the shipyard Ficantierie (which costs about $50 million) as
subsidy for Carnival to build five ships (sold at $2.5 billion). The company leverage on Italian
governments subsidy to buy ships which are less expensive. To further reduce the fluctuating
currency risk due to foreign exchange, the company also negotiated for their purchasing
contracts to be base dont he value of the US currency rather than Euros.
2. Economics Forces. i- Acquiring Labour Resources To ensure competitiveness in the market,
Carnival Cruise must ensure that its customers are given the best services whenever they are on
board on a cruise. Excellent people service especially when it comes to interacting with people,
fluency in the English language is a must for all crew members. Seeing the importance of
having the right crew members in order to support the business, the company is therefore hunting
for right skilled and cheap labour in terms of reducing cost and in order to maximize profit.
Asean labour (especially Philippinos ), are highly demanded for as crew because not only labour
is cheap but they are also higly skilled in customer service and majority of the mare also fluent in
English.
ii. Casinos & Other amenities The main revenue of Carnival Cruise is generated from its
passengers or customers. In order to attract customers, there are various ranges of ship board
stores, products and amenities for customers to spend on. Casinos and gambling on board of the
cruise is not restricted especially, because it is not taking advantages of any national law as the
cruises operates outside the jurisdiction of national authority. Moreover, customers are also able
to shop for merchandises all over the world not only on board but also by increasing for land
based tourism industry whenever the ship embarked in any foreign country. Cruise companies
are able to gain additional income by being capable of building business relationship with the
land-based tourism company.
3) What are some of the national differences that affect the operations of cruise lines?
Answer: Cruise lines obtain flags of their convenience from about 30 different countries
because of the lower taxes and less stringent employment policies of those countries. Few
countries have shipyards capable of building cruise ships. These are the national differences
that affect the operations of cruise lines. The cruise line operators can obtain flag of
convenience and can benefit from the national differences through factors such as economic,
labor, environmental regulations and safety stability.

4) How might the cruise lines increase sales to people outside the United States?
Answer: Carnival Cruise Lines offers cruises to every continent on the global. The specific steps
to increase sales to people outside the united state are:
Geographically pertinent themes Design tour package suit to location and places by offering
shorter cruises that embarks closer to home
Offered fixed cruise-price - Cost per cruise offer low than others.
Implemented strict health and safety measures - Avoided areas to make the passengers free
from political upheaval.
Dealt with economic recessions - Minimized staffing costs by sourcing employees on a global
basis.

5) What threats exist for the future performance of cruise-line industry and, specifically, of
carnival cruise lines?
Answer: Millions of dollars are required in order to train and maintain employees, besides
that, the startup capital of a cruise line company is very huge that it discourages and limits the
number of potential entrants.
It is not easy for new entrants with low brand equity to complete with the established cruise
line companies in the industry. The availability of diversified substitute adds to the
competitiveness of the cruise line industry. There are always alternative forms of cheaper
accommodation for families.
 Cruise lines must be able to always offer competitive vacation packages prices in order to
secure sales during all seasons and also cater for people during all sorts of economics stability.
The cruise companies must provide aggressive pricing to retain the customers stands a better
chance to survival.

6) Discuss the ethics of cruise lines regarding the avoidance of taxes while buying ships
built with governmental subsidies.
Answer: Carnival paying taxes only on revenues from princess and Holland Americas sales of
U.S. hotel and tour packages. Carnival secures bids from all over the world. Because
shipbuilding employs so many people and uses so much locally produced steel, government
often subsidize the industry a practice that work to the benefit of the cruise line industry by
offering less expensive prices for ships