Autonomous Drone Delivery: Business Model | Free Essay Example

Autonomous Drone Delivery: Business Model

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Topic: Business & Economics
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Business Opportunities

Commercial transportation and logistics companies are in search of new delivery solutions that would be more cost-efficient, environmentally-friendly, and able to meet customer interests more efficiently − drones can be an elegant solution to these needs (Wang, 2016).

Advantage of Opportunity

The project provides an opportunity to expand the transportation and logistics service, and ensure a highly flexible and fast delivery at lower financial and environmental costs (Welch, 2015; Stanford Business, 2016).

Target Market

The service is targeted towards young (age 14-40) individuals from medium to high-income levels and corporate clients.

Business Model

The drone delivery service will ship packages in 30 minutes or less. ET will build a network for “seamless peer-to-peer delivery by air” (Eniverse, 2017).

Marketing and Sales Strategy

Social media and websites will be used as the primary advertising and promotion platforms because they offer greater customer connection to customers and cost efficiency (Paquette, 2013). The aim of the marketing strategy will be the development of public knowledge about the innovation, and improvement of perceptions.

Competition

Since drones are associated with reduced delivery costs, services can be provided at affordable and competitive prices (Space, 2017). Other service values will include innovation, high quality, convenience, and speed of delivery because these are the main factors motivating companies to adopt ADD (Brar et al., 2015).

Financial Plan

The start-up will have the budget of $2,000,000 for one year, which will be used to cover the initial entry, network construction, and other operational costs. The break-even is expected in year 3.

Staff

Mohammed Johmani, the CEO, is the key figure in ET. He is responsible for the integration of the strategic direction, communicating the vision and mission to stakeholders, and the overall organisational guidance.

Implementation

Preparation January 2018-April 2018
Registration April 2018-May 2018
Licensing April 2018-May 2018
Search for facilities and equipment acquisition April 2018-May 2018
Network construction May 2018-September 2018
Personnel recruitment August 2018-September 2018
Project promotion Since July 2018
Service provision Since September 2018
Evaluation of results December 2018

Introduction of Autonomous Drone Delivery to Switzerland

Introduction

Nowadays, there are a plethora of environmental scanning tools, which businesses can apply to support strategic decision making. SWOT, Porter’s five forces (PFF), and PESTEL analyses are only a few of the commonly used instruments. For example, SWOT analysis helps to identify strengths and weaknesses of current internal business processes, as well as opportunities and threats posed by the external environment (Osita et al., 2014). At the same time, PFF model focuses on competition in the industry, barriers to new entrants, buyer power, supplier power, and threats to substitute products (Dobbs, 2014). The tool allows developing strategies, which may help organisations to gain competitive advantages over other companies in the industry, i.e., cost leadership and differentiation strategy, etc. (Indiatsy et al., 2014). However, in this report, the focus will be made on PESTEL analysis mainly because it focuses on macro-environmental factors, which is appropriate for the assessment of the potential for investment in the market.

PESTEL Analysis

When analysing the macro-environment of a firm, one must identify factors that might impact distinct vital variables, which can affect the level of the company’s supply, demand, and costs (Koumparoulis, 2013). PESTEL analysis pursues to fulfil this goal. The basic PEST framework examines four types of external factors including political factors (political stability, entry mode regulations, etc.), economic factors (GDP, costs of living, etc.), social factors (social, cultural and demographic indexes, lifestyle, education, etc.), technological factors (technology-related activities, infrastructures, knowledge management, incentives, etc.) (Ho, 2014; Hasan, 2015; Gupta, 2013). An expanded version also comprises environmental and legal factors. Legal factors include various legislations and regulations governing the entry into the market and the industry as such (Kolios and Read, 2013). Lastly, environmental factors refer to “all those elements that are concerned with ‘green’ and sustainability issues” including climate change, waste disposal, water and air pollution, infrastructure, energy availability, etc. (Gockeln, 2014, p. 5).

PESTEL helps “to understand market growth and decline, positioning business, and knowing the potential and direction for operations” and, in this way, fosters the design of appropriate management solutions in the given business context (Talib et al., 2014, p. 121). Overall, the tool address the issues of volatility. For instance, by measuring trends and tendencies in the macroeconomic environment, the management can identify the scope and possible effects of economic volatility − if it will affect the economic policy, stimulate customer savings or purchases, etc. (Cariolle, 2012). However, due to a few limitations regarding the evaluation process, PESTEL is not entirely consistent with VUCA paradigm. For instance, although PESTEL implies a holistic analysis, it is not always reflected in the assessment process because different environmental categories are usually evaluated separately (Yüksel, 2012). The independent assessment of each macroenvironmental PESTEL category may not reflect the actual situation because it does not assist in capturing the complexity of interfactorial relations. However, the analysis of environmental complexity is extremely important because it includes such constructs as effect uncertainty, predictability, and utility of information in decision-making (Cannon and John, 2007).

It is also important to remember that while some of PESTEL factors have critical effects on business operations and the overall success of a project, others may have a limited impact. The efficiency and extent of regulation, technologic advancement, and societal acceptance largely define the integration of ADD systems in the Swiss market (SESAR Joint Undertaking, 2016). Considering this, the given report will look at legal, technological, and social factors because they are expected to have a more significant impact on the ability to implement the selected investment project.

Strengths and Weaknesses of PESTEL

Strengths
  1. Macro-factors define a nation’s attractiveness for investors most (Nganga and Maruyama, 2015).
  2. The tool is very easy to use, and the results of PESTEL analysis can serve as a starting point in brainstorming even if other analytical tools are used as well (UNICEF, n.d.).
Weaknesses
  1. PESTEL is often regarded as complementary to SWOT because its results may be insufficient in developing strategies (Barbara et al., 2017).
  2. Compared to the industry-specific PFF model, it is too general (Johnson, 2014).
  3. The framework does not allow the analysis of interconnections between factors (Yüksel, 2012).

Analysis

Technological Environment

For a long time, technological advances and research contributed to the sustainability of the Swiss economy. Today, the country is still associated with a strong capacity for innovation (MarketLine, 2012). In 2016, Switzerland was at the top of the Global Innovation list and outrun such technologically advanced countries as the United States, Japan, and Germany (World Intellectual Property Organization, 2017). According to recent statistics, the country invested about 2.99% of GDP in R&D initiatives in 2008, and 3,2% in 2012, which is above the OECD average (Organisation for Economic Cooperation and Development [OECD], 2012; Federal Statistical Office [FSO], 2017). “The private sector in Switzerland plays a leading role in developing the innovation system, contributing more than two-thirds of the research budget” (MarketLine, 2012, p. 23). Both domestic and foreign, private and public companies, such as Swiss Post and Matternet, have already conducted multiple automated delivery trials (DEV Economic Development, 2015; Ong, 2017). It means that many innovation projects are market-oriented and aimed at commercialisation. Moreover, the Swiss innovation system is integrated into international research endeavours, which leads to its better global visibility and enhanced quality of research (Breznitz and Etzkowitz, 2016).

Legal Environment

The Swiss legal environment is conducive to new investments in the economy. “The Swiss regulatory environment guarantees the freedom to start, operate, and close a business” (MarketLine, 2012, p. 26). According to 2017 Index of Economic Freedom report, Switzerland was ranked 4th among the total of 180 analysed countries (Heritage Foundation, 2017a). The factors that define the country’s leading position in this category are the efficient protection of property rights including intellectual property, the absence of corruption, independence of the legal system from political interference, high level of transparency, and efficient bankruptcy laws (Heritage Foundation, 2017b). In 2013, Switzerland was ranked 28th among 185 countries that were assessed for the ease of doing business (World Bank and International Finance Corporation [IFC], 2013). On average, the time for starting a business in Switzerland equals 18 days compared to the global average of 28 days (World Bank and IFC, 2013).

Switzerland is open to foreign investors and does not discriminate them or imposes special regulations on them (U.S. Department of State, 2014). However, the degree of government regulation is particular sectors is high. These sectors include banking and private insurance, telecommunication, nuclear power, civil aviation, etc. (International Business Publications, 2014). Since the investment project is focused on drone operation, the aircraft regulation should be paid greater attention. As stated by Saal (2016), the ownership in aviation and maritime transportation companies should mostly belong to Swiss citizens (at least 50%). However, since drones are very small crafts, they are subject to the model aircraft regulation and some international treaties, which provides more freedoms for investors (Federal Office of Civil Aviation, n.d.). According to the general provisions in the DETEC Ordinance on Special Category Aircraft (OSCA), model aircrafts should not be recorded in the Swiss Aircraft Registry, their airworthiness should not be tested, and noise certificates should not be granted for them (The Federal Council [FC], 2017). Additionally, no FOCA authorisation is needed for commercial flights using drones that weight up to 30 kg (The FC, 2017).

Social Environment

Since 1960, Swiss population has grown by 3 million (World Bank, 2017). The size of the urban population is currently on the rise and equals 74% (Federal Statistical Office [FSO], 2014). During the 20th century, “the proportion of elderly people increased, while that of young people (under age 20) and people of working age (aged 20–64) declined” (FSO, 2016). Due to high immigration rates, racial and ethnic diversification in Switzerland increases, but the overall population remains tolerant to multicultural differences − 56% consider that social integration of foreigners works well (Federal Department of Home Affairs, 2017).

Since 1990, the rate of participation in education at upper secondary level and tertiary level has increased considerably (FSO, 2015). The country is characterised by the high quality of the educational system with an average student score of 518 in reading literacy, math, and science compared to the OECD average of 497 (OECD, 2015). However, in recent years, a decline in the number of science, technology, engineering, and mathematics college students was observed compared to humanities students (Bauer, 2013).

Although public perception of technology in the country is highly positive, the evidence regarding social attitudes to unmanned aircrafts is currently scarce. The lack of sufficient knowledge about the technology, safety, privacy, military use and misuse are among the major public concerns associated with drones (Abid et al., 2015). Overall, 60% of Swiss population regard commercial drones as intrusive (compared to 28% in the military drone category), and 57% have an unfavourable perception of them (compared to 46% in the hobby drones category) (Klauser and Pedrozo, 2017).

Competitive Rivalry

The intensity of rivalry is one of the PFF categories. It is implied that if the rivalry is weak, “companies have an opportunity to raise prices and earn greater profits” (Amrollahi and Akhgar, 2013). When speaking of the Swiss drone industry, the technology is already used in multiple areas including agriculture, journalism, humanitarian aid, mining, etc. (Federal Department of Foreign Affairs, 2016). Moreover, “with two of the world’s leading engineering universities, there is plenty of scope for rivalry” in the Swiss drone scene (DroneApps, n.d.). Additionally, some of large domestic technology and logistics enterprises can dominate the market and, thus, high entry costs and a relatively small size of the Swiss market may create barriers to the market entry (U.S. Department of State, 2015).

Recommendations

  1. Switzerland is characterised by well-developed infrastructure needed for safe integration of drone delivery in the market.
  2. A high rate of educational attainment is associated with the presence of skilled, productive, and innovative labour force in the country, which may translate into the organisational competitive advantage if the HR recruitment and retention practices will be selected well (OECD, 2016; Department for International Trade, 2016).
  3. A larger number of ageing individuals in Switzerland may, however, be associated with reduced consumption possibilities and, thus, the implementation of a B2B model can be recommended at the initial stage of the entry (Hock and Weil, 2012).
  4. Since Swiss society is highly risk-aware, and since drones are still an emerging technology, during the project implementation, the management should pay significant attention to safety measures; customer and public communication must be increased (Clothier et al., 2015; Carrin et al., 2003).
  5. Joint venturing can be suggested as an acceptable entry mode because it will help acquire necessary complementary knowledge, develop operational experience, and mitigate competition threats (Alvarez, 2003).
  6. The wholly-owned subsidiary mode will, however, be associated with greater operational freedom and revenues − still, it is advisable to nominate share-holding Swiss directors to manage the company on the fiduciary basis (Osland et al., 2001)..

Conclusion

For the successful ADD integration, a supportive infrastructure and legal system are required. Moreover, public perceptions may largely define the demand and acceptance of the new service in the market. It was established that the environment in Switzerland is favourable to foreign investments and there are no significant barriers. However, PESTEL provided a limited capacity to analyse the dynamic interrelations between the different categories of factors. A specifically-oriented perspective is required for this. Additionally, since the information collected by using this method is rather generalised, the assessment may largely benefit from the inclusion of other tools such as PFF. A brief look at the market rivalry category helped to find possible barriers to the market entry, namely, the small size of the market and the presence of potential competitors. Thus, it is possible to conclude that the combination of results obtained by using diverse tools may support the design of more accurate recommendations.

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