After reading Case 6.3 in our e-text (or in this week’s Module)
Respond to the following questions:
- How do firms such as Stagecoach Group enter foreign markets?
- Why do they enter certain countries but not others?
- Would you consider taking a Megabus and to where would you take the bus?
CASE 6.3:
Enter the United States by Bus
If you are a college student studying in the Midwest or Northeast parts of the United States, you may have heard of (or taken a ride on) Megabus. Its website announces that it is “the first, low-cost, express bus service to offer city-to-city travel for as low as $1 via the Internet.” Currently serving 50 US cities from five hubs (Chicago, New York, Philadel- phia, Pittsburgh, and Washington, DC), Megabus, according to Bloomberg Businessweek, “has fundamentally changed the way Americans—especially the young—travel.”
A generation ago, Greyhound was a national icon for intercity travel. Unfortunately, as Americans fell more in love with cars and the cost of airfares dropped further, intercity bus ridership steadily decreased. Further, as inner cities, where the bus depots (terminals) were situated, decayed, bus travel became the travel mode of last resort. In 1990, Greyhound filed for Chapter 11 bankruptcy.
Yet, the demand for medium-distance trips ideal for intercity bus travel did not go away. For some of the most traveled routes (such as between Chicago and Detroit and between New York and DC), the distance is too far for a leisurely drive but too close to justify the expense (and increasingly the hassle) of air travel. While Greyhound has been in decline, small, entrepreneurial bus operators, known as the “Chinatown buses,” emerged. They started by shuttling passengers (primarily recent Chinese immigrants) between Chinatowns in New York and Boston. Such niche operators quickly grabbed the attention of many college students. Despite four decades of decline, overall US intercity bus ridership spiked in 2006, the year when Megabus entered.
Although Megabus is a brand-new, no-frills entrant into the US market, it is backed by the full strength of the second-largest transport firm in the UK, Stagecoach Group, which employs 18,000 people there. Founded in 1980 and headquartered in Perth, Scotland, Stagecoach not only operates buses, but also trains, trams, and ferries throughout the UK, moving 2.5 million people every day. It is listed on the London Stock Exchange, where it is a member of the FTSE 250. Megabus is a brand of Stagecoach’s wholly owned US subsidiary, Coach USA.
Stagecoach is not a stranger to international forays, having previously operated in Hong Kong, Kenya, Malawi, New Zealand, Portugal, and Sweden. However, these opera- tions turned out to be lackluster and were all sold. For now, the sole international market it focuses on is North America (Megabus entered Canada in 2008).
Although Megabus is clearly a late mover in North America, its future looks bright. So what allows Megabus to turn a declining national trend of bus ridership around? At least four features stand out. First, tickets are super cheap, starting at $1 (!). Megabus uses a yield management system, typically used by airlines, which offers early pas- sengers dirt-cheap deals and late passengers progressively higher prices. Although
only one or two passengers per trip can get the $1 deal, even the “higher” prices are very competitive. In routes where it competes with Amtrak (the railway), Megabus costs about a tenth of Amtrak. All tickets have to be booked online. This not only elim- inates the expenses of maintaining ticket booths, but also attracts a more educated demographic group.
Second, instead of using depots, Megabus follows the Chinatown buses by using curbside stops (like regular city bus stops) to board and disembark passengers. Interest- ingly, dumping the depot model not only saves a lot of money, but also makes Megabus more attractive, because passengers do not have to spend time in the typically poorly maintained (and sometimes filthy and unsafe) bus depots.
Third, all Megabus coaches are equipped with Wi-Fi and power outlets, allowing the time on board to be more productive (or more fun). These features, which are sometimes not available even when flying first class, have made travel by bus totally cool to the online-savvy younger crowd. Among surveyed passengers, 37% said that Wi-Fi and power outlets were central to their decision to travel by Megabus.
Finally, as gas prices and environmental consciousness rise, bus travel offers an unbeatable “green” advantage. At eight cents per mile, a bus is four times more fuel- efficient than a car. US curbside carriers, led by Megabus, have already reduced fuel con- sumption by 11 million gallons a year, equivalent to taking 24,000 cars off the road. While politicians like to talk about the “bright future” of high-speed rail and $10 billion has been budgeted to jump-start the new rail projects, not a single mile of high-speed rail tracks has been laid as of this writing. At the same time, Megabus has been charging ahead and carrying more than 13 million passengers since its entry, while requiring zero additional investment in infrastructure. Texas, Florida, and California are some of the markets it may enter soon. Given the cost and political headache to build new high-speed rail, Bloomberg Businessweek speculated: “The Megabus approach works so well, it may scuttle plans for high-speed rail.”
ALSO PLEASE RESPOND 2 OF THE PEERS COMMENT;
1-)
Nikolai Bazhenov
- How do firms such as Stagecoach Group enter foreign markets?
Stagecoach Group is a British Company that mostly operated in Europe and Africa. I think that the reason for them to be present in Europe is because in 1980’s European Union was moving hard towards integration and Stagecoach Group just happened to be the first bus operating company to try establishing presence across the Union. Yet, when more companies emerged, Stagecoach Group had to close in some countries, since they could not keep up with the competition.
When it comes to Africa. Most of the nations there were have just established their independence from European colonists and their economies could not afford certain businesses. That is why many european investors opened operations in Africa.
- Why do they enter certain countries but not others?
The companies enter certain countries due to international agreements and political unions. For example, establishing bus transportation amongst nations of European Union is relatively easy, because there are no borders between the nations. You show your identification once you enter European Union and then you can travel across it without any customs and checks. Same goes for travelers between US and Canada or Mexico. There are agreements between these countries and US and Canada citizens can travel to each of those destinations only with their IDs. that makes it simpler for the bus to cross the border quickly.
- Would you consider taking a Megabus and where would you take the bus?
I would consider Megabus over any other company. I have lived in Boston for four years before I moved to New York and all these years I have been traveling between those two cities by bus. I have tried PeterPan, Greyhound, Chinese charters and Megabus. Out of all Megabus always has the best price and service. The company picks the best routes and avoids delays, their wifi always works, clean toilets and the bus is comfortable and clean.
The worst company I have taken was greyhound. The price was high, the bus was uncomfortable. The worst problem was that I once had a bus from NYC to Boston scheduled for 4am but the company did not have available drivers until 6am, therefore I had to wait at the terminal that has no seating, lodging or accommodation.
2-)Angel Batista
Hello everyone,
1) Stage coach is an a publicly owned transport company , operating in UK, US, and Canada. They are the biggest in transportation, creating a public monopoly operating in all major cities within UK. Firms like stagecoach can enter foreign markets through joint ventures with other companies having major market share to enjoy profit share without having to bear excessive risk.
2) Firms can gain monopoly in home country , but establishing entities in other countries could be a costly proposition based on resource cost , law , infrastructure etc. The firms face massive competition from domestic players in the market who have a greater market share benefitting from the first mover advantage. Permits to operation is another problem ,wages and oil prices are a factor too.
3) Megabuses are used for longer routes , travelling inter state . Usually stagecoach would have to devise a plan to keep the cost low else they face a threat to competitors. There are always substitutes like flights , local buses , taxes , shuttles which may affect their operating cost.
I really do not like public transportation. Any destination that a Megabus is needed, I would much rather fly and be there in a fraction of the time. For example my friend came down from Boston for my birthday. The trip would normally take about four hours if driving your own car. And about five to six hours if taking a bus service. However, for just $200 he takes a flight and he is here in about 40 min.
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