SUN TZU ART OF WAR INTRODUCTION SERIES(PART 5)
-September 17, 2010
This week, we will be discussing the importance of knowing your financial costs when involved in competition with your competitors.
In his chapter “ Waging War” in the Art of War, Sun Tzu said “In the operations of war, where there are in the field a thousand swift chariots, as many heavy chariots, and a hundred thousand mail-clad soldiers, with provisions enough to carry them a thousand li, the expenditure at home and at the front,including entertainment of guests, small items such as glue and paint, and sums spent on chariots and armor, will reach the total of a thousand ounces of silver per day. Such is the cost of raising an army of 100,000 men.”
Bearing this statement in mind, what Sun Tzu wanted to convey was that one must know the costs when waging a war on your enemy. In other words, whether, it be the costs associated with operating your own business or engaging with your competitor in the same market with your products, one must know it thoroughly, for it is an important aspect to your success in your respective businesses.
To further point out, by knowing the costs associated with running your business or the costs of launching into a new market, you will know whether or not to engage with your competitiors, or compete with them in other markets, thereby reducing the chances of squandering valuable financial resources that one may have.
On the other hand, if one does not fully anticipating your costs, the end consequence is, as Sun Tzu gravely foretold “no man, however wise, will be able to avert the consequences that must ensue.”
APPLICABILITY-OASIS HONG KONG AIRLINES
Oasis Hong Kong Airlines Limited was once a long-haul low-cost airline that was based in Hong Kong. The Airline had operated scheduled services to London Gatwick Airport and Vancouver International Airport from itshub, Hong Kong International Airport.
Oasis offered their flights at minimum fares of 1000 Hong Kong dollars, from London to Hong Kong each way. However, it is this very reason that led to their financial demise. Even though they offered cheap prices for their flights, they either under-estimated or were not fully aware of the financial costs in running a long haul airline.
Flying long haul consumes a lot more fuel and coupled by the fact that these planes require similar maintenance as short haul flights, meant that its price of its product was not able to sufficently meet its operating costs. Moreover, the airline suffered from intense competition by other big name airlines that were already operating in the Hong Kong-London route, such as Cathay Pacific, British Airways, Qantas, Air New Zealand and Virgin Atlantic( these big name airlines were also able to fly into Heathrow Airport while Oasis was consigned to Gatwick which meant that consumers were more likely to choose them as well).
All these factors translated to the failure of the Airline, and on April 9, 2008, Oasis Hong Kong was liquidated on 9 April 2008, and KPMG China was appointed as provisional liquidators. In total, Oasis suffered 1 billion Hong Kong Dollars in debt.
In conclusion, understanding and knowing your costs in your respective businesses is an aspect that many aspiring entrepreneurs and businessmen should not neglect, nor under-estimate.
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