Airbus: Aviation And Aerospace Industry Leader, Essay.

This assignment is about global business management. The word count for this assignment is 3000 words. The dead line for this assignment is 26th September 2018.

Basically this assignment is about case study analysis report, you have to choose one company from a given four organization and apply it to the given case study. You must choose any one company from the following four companies:

• General Dynamics
• Dassault Aviation
• Boeing
• Airbus.

And apply it according to the given case study with strictly concepts from the week 6 to 11 lecture slides. I have attached these lectures below for your references. You must use the concepts from these lectures according to the one selected company from four companies and relate it according to the case study scenario. You must strictly apply theoretical frame works from week 6 to 11. These frameworks will form the basis of the structure in the body of your report. Body of the case study analysis mainly needs to include problem identification and problem analysis.

The main purpose of this case study report is to identify and evaluate strategies adopted by a firm to pursue an international growth opportunity related to emerging economies. Preparation of an analytic case study that critically examines the strategy adopted by a firm to pursue an emerging economy opportunity. This may be from the perspective of an incumbent local firm in an emerging economy or an incumbent multinational. Select relevant frameworks of analysis to shed light on your chosen firm’s cross-border growth strategy .

Airbus is a leading organisation in the aviation and aerospace industry. The company has over the years served as European Aeronautic Defense and Space Company (EADS). Over the years of operation the company has established as a major company in the market and has also gathered reputation among the stakeholders. Airbus is registered in Netherlands and is categorized as Societas Europaea with the European Union (Airbus.com 2018). As per the official website of the company, the number of aircrafts delivered by the end of 2017 is 10926 (Airbus.com 2018). Innovation has been one of the greatest strategies of the company to gain an edge over the other competitors in the market. The company encourages innovation and has also incurred a number of advanced technology form its predecessor companies. The company is a consumer oriented business that is focused on the needs and requirements of the customers while developing strategies. In order to meet the requirement of the customers the company encourages the experts to broaden their horizon and develop technologies and scientific procedures to assist the business as well. The aim of the organisation is to establish and help in building a world that is better connected, safe and prosperous (Airbus.com 2018). There are three categories of the company in terms of operation commercial aircraft manufacturer, space and defense and helicopters (Airbus.com 2018). In Europe the company is the largest in the industry and is also among the world leaders (Airbus.com 2018). The company has its existence in over 180 locations and 12000 direct suppliers. In 2016 the company has been investing a significant amount in research and development being one of the significant global innovators (Airbus.com 2018).

The business jet is the category of commercial aircrafts which transports a small group of people and has a focused target market. The services that are provided in these aircrafts are premium and exclusive. Most of the airline companies have a segment of business jet, the ticket price of these airlines are also higher in comparison to other aircrafts in the same route. Airbus has a list of ACJ (Airbus Corporate Jets) which has around 10 models in the list (Airbus.com 2018). Depending on the model of the craft the interior varies and are developed to make maximum utilisation of the space (Cavusgil et al. 2014). The idea of the company is to provide the customers with comfort and luxury. There are also opportunities for the customers to customise their space and comfort accordingly in some of the models. Airbus associates with a number of acclaimed designers to plan and strategies the interiors of the aircrafts providing a class-apart approach to the customers. On the other hand, the experts of the company have incorporated some of the innovative technologies in these jets as well.

In order for a company to expand the market there are a number of challenges and barriers that the company has to face in terms of the external environment that impacts the business as well as the resource and capabilities of the company. Chinese market though being a lucrative market has a significant number of barriers as well. The airspace in china is controlled by their military forces and hence in order to get permission companies have to undergo a number of legal procedures and regulations. Also the flight plans have to be submitted prior in order to get clearance and acceptance. Beijing is one of the most important airports in China and has just two hours in a day allocated to business jets. On the other hand, there are also a number of tax, export and import duties etc levied upon the customers which is a major hindrance for the services of Airbus or any other company that is trying to establish business in the market. Another barrier of expansion in the industry is the anti-corruption strive that has launched by President Xi Jinping, this has led to a number of organisation to stand down and give up on their assets. This has also led to a reduction in the market opportunity as well. Another challenge in the market according to Jason Liao, chairman and CEO of China Business Aviation Group is that the buyers in the country are becoming more and more consumer centric and thus are also becoming picky regarding their choice of aircraft.

Innovation and Customer Focus

In order for Airbus to establish the business jet market in China the company will require a strategic management plan regarding the alliance and other decisions that will be required in order to align with the industry as well as the capabilities of company.

This alliance will enable Hunan airlines to provide a substitute services for the clients who choose to take business class tickets on commercial flights that Hunan Airline provide. In order to understand the intensity of competition in the market Porter’s five forces will be used.

Threat of new entrants: there are a number of aircraft manufacturing companies that are trying to establish their foothold in the Chinese market. However, the establishment of a new company in the aviation industry is difficult as it would require significant amount of capital. It can be thus said that the threat of entrants is medium.

Intensity of competition: The Chinese market has opened a window of opportunity for the investors in the business jet market based on the political guidelines that has been upgraded in the country. There are a number of direct competitors in the market like Gulfstream aircraft, Dassault Aviation, Bombardier. Hence it can be said that the intensity is still low as these are the only significant companies in the market.

Bargaining power of the buyers: As the intensity of competition in the market is limited to a certain number of options the bargaining power of the buyers are low, they do not have a large number of choice. The switching cost of the customers therefore becomes high.

Bargaining power of the suppliers: the suppliers in the industry also have a higher switching cost based on the fact that there are a limited number of companies. Hence the bargaining power of the company is higher than the suppliers.

Threat of substitute: one of the major substitutes for the service of a business jet are the business class tickets that are available on a commercial flight. 

For an aircraft manufacturing company the way of entering a market is by aligning with other airlines and other organisations, as they are B2B service provider. Therefore the mode of entry into a market is with the help of alliance. Airbus already has commercial aircraft supply to Hunan airlines which is a low cost airline company in the Republic of China. An alliance with Hunan airlines will help the company to establish its business jets category (Lin and Darnell 2015).  As an established brand Hunan airlines is famous among the regular travellers and the fact that the company has a low cost strategy adds to the popularity of the brand. The alliance with Airbus would enable Hunan airlines to diversify and focus on a new set of target market. Therefore, the alliance in between the these two organisations will help Airbus in expanding the business in the Chinese skies and will also allow Hunan airlines to device a business strategy for the development and growth of its own organisation. Strategic alliance has a number of advantages and disadvantages for the company that is set to establish the market in the international front. The cost, risks etc reduce as an established company will back up the strategy in the Chinese market. There is certain goodwill that is associated with both the companies therefore both the companies will enjoy the assets associated with each other (Verbeke 2013).

Business Jet Category

The alliance will be equity based, which means that there are this alliance will be based on equity.  It is said to be an alliance when one company purchases a certain equity percentage of the other company.  The advantage of this for airbus is firstly being associated with the goodwill of the Hunan Airlines; this will help establishing value in the Chinese market. In this kind of alliance the nature of shared resources are high and thus provided an advantage for the company. There is significant amount of control from the center as well. This strategy will help in speeding up the process of introducing business jets in the Chinese market (Yeung and Coe 2015).  

Joint venture is equity based strategic alliance that the two or more companies cooperate to develop. The alliance in between the two companies will be joint venture as it will provide Airbus room to expand the business further in the country as well as maintain a stable balance with the alliance with an establish airline.  As a manufacturing company it is important for airbus to be able to comply with these airlines and their requirements.  Some of the advantage of the process is that the investment will be shared both Airbus and Hunan Airlines are new to the business jet market in china and thus significant investment is required.  As Hunan Airline is a well known company in the Chinese market, Airbus will get support in establishing their market by complying with relevant regulations.

However, there are also risks associated with the Joint venture, Chinese have a significantly strong cultural impact on their organisations structure and governance on the other hand, Airbus is a European organisation that has its own governance and culture. This stark difference in the companies can be a major basis of conflict.

This alliance in between Hunan Airlines and Airbus is vertical corporation as the companies are not competitors but are in the same industry, where Hunan Airline is a B2C industry, the Airbus is a B2B industry therefore it can be said that the alliance is upstream vertical alliance. This alliance will help and support both the companies to venture into the new market. Hunan Airlines is an organisation that is known for being affordable and serving the customers with high quality services. Business jet market caters to a very different target market from what Hunan Airlines serve and thus this alliance will be a new approach for both the companies and support from a world leader like Airbus will also provide Hunan Airlines with experience and value.

                               

                                                                              Figure: Strategic Action framework

                                                                                 (Source: Graham and Hede 2016)

Challenges and Opportunities: Expanding into the Chinese Market

Strategic intension of the company is to establish and expand the business in the business jet market in China. Airbus is a company that has a number of competitors in the Chinese market as the region is lucrative and has opened an area of opportunity for business jet market.  The intention of the company is not only to set the foot but also have competitive advantage over the other players like Gulfstream aircraft, Dassault Aviation, Bombardier.  

The operational process would be involved in this alliance is based on a contractual relation and the process involves a number of legal formalities and terms and conditions that both the companies have to affirm before commencement of the functions. It includes the new initiative that is taken by the company:

• The new initiativethat airbus has undertaken to move in the industry in the Chinese market is to partner with an old alliance in the new market. As explained above the alliance with the Hunan airlines will allow advantages as the company has goodwill in the industry and venturing to diversify to cater to a focused market like business jet would allow Hunan Airlines to also grow (Graham and Hede 2016).

The resources of internal circumstance of Airbus are capable for this strategy; the company has 10 models of business jets or corporate jets which are designed for comfort and space for the travellers (Airbus.com 2018). These jets allow the customers to have a luxurious and personal flight experience. The models are designed by renowned designers form around the world to provide an exclusive experience.

The Response that airbus has introduced due to the internal capability is the expansion strategy that the company has developed. The availability of the resource like research and development sectors and equipments help the company to provide the type of product that they are looking for.

External circumstance:  The external factors that impact the business are mostly political, economical, social and technological aspects that are associated with the product or service that the company offers (Graham and Hede 2016). In this case of the Chinese market referring to the case study is a growing opportunity for the business jet category (Jennings 2018). Politically the issue or the challenge mainly is that the sky routes are controlled by the military and a large process has to be undertaken by the companies to draw a flight plan and get it sanctioned by the authorities’ etc (Jennings 2018). There is also heavy taxation policy on the country which discourages investment in luxurious products among the target market (Akaka et al. 2013). However, there are change in the policies and government regulations and the Chinese government have come to realise the opportunity of business aviation thus dealing with some of the above stated issues (Jennings 2018). The target market of the business jets is present in the society of the Republic of China; there are significant numbers of billionaires who are the target market of the company (Graham and Hede 2016).

Therefore, the strategy to enter the market with alliance with Hunan airlines will provide the company an edge over the other competitors as the reputation of Hunan airlines is significant and popular in China.

The most common reason for a company to incorporate this strategy in the business is to gain synergy in the market.  Airbus is trying to enter the Chinese market and the competition is intense, therefore by collaborating with Hunan Airline the company will gain the value of a new enterprise which is more than two separate companies competing in the market.

Porter's Five Forces Analysis

There are three stages to an alliance: formation, evolution and performance. Formation is the stage where the relation in between the two companies is established the conditions of the contract and the regulations by both the companies are laid out (Lynch and Jin 2016). Here the company has to take decisions regarding the formation of cooperative interim relations or to depend upon pure market transactions (Yeung and Coe 2015). Here the company is pursuing an interim relationship.   In the evolution phase, the alliance is accepted and by both the parties and hence it is assumed that there is a middle grounds where the terms and conditions of both the companies are met. In this case, the companies are forming a Joint Venture to continue with the equity based alliance.  The performance stage is set when the alliance in between the organisations are rolled out in order to function.  The alliance that has been staged for Airbus and Hunan will be profitable for both the companies as there is already existing contract in between the organisations, Hunan has a number of airbus commercial flights in the fleet and thus making it more practical and possible (Cavusgil et al. 2014).

The ways in which performance of alliance are based are: equity, learning and experience, nationality and relational capability. The alliance that has been discussed is based equity and is a joint venture in between the two companies. Airbus is a company that focuses on the requirements of the customers while developing the products and services, this focus is driven by the competition that other company give in terms of innovation. The nationality difference in between the two companies as mentioned above can be a cause of conflict as there is a lot of cultural difference among the two nationalities. According to Ragab and Arisha (2013), knowledge acquisition, retention, outflow, transmission and inflow are the elements in the management of knowledge.  Innovation is an essential part of the business model of Airbus and thus with the help of innovation in not only product but also the process the can establish the new market with the alliance strategy (Noruzy et al. 2013).

The attack strategy that the company has is the amalgamation of the Chinese culture with the quality of the services provided.

There are three types of Attack strategies: thrust, feint and gambit and in this case the company will follow the feint strategy. Here the company will target the major competitor like COMAC which is a Chinese aircraft manufacturing company and is set to launch business jet as well.  The company will build the interiors of the jet in correspondence with the Chinese culture.

This strategy will help the customers to connect with the Chinese culture as well as enjoy the luxury of the Airbus. The purpose of having this strategy is to provide the customers with a personalized yet culture based experience. When a person is travelling in a business jet they would expect to have an experience that is unlike any other business class seat services. The involvement of the cultural aspects in the service and appearance will help in the risk that is associated in the difference of nationality (Yeung and Coe 2015).

There are three drivers of counterattack:  awareness, motivation and capability. Market research is the way the organisation can keep check on the trends and opportunities of the industry and develop strategies to align with the same. Since the company has an attack strategy to diversify the services in the business jet category. A company can have either attack or a counter attack strategy (Birkinshaw 2016).

                         

                                                                             Figure: Ansoff Matrix

                                                                        (Source: Hussain et al. 2013)

Airbus is a company that manufactures commercial aircrafts and corporate jets are a part of this segment. According to the Ansoff matrix that is displayed above, the market expansion in the Chinese market with a modification in the products to suit the alliance as well as the customers who will be directly catered by the service of the aircraft (Shaw 2016). According to (Basu 2014), Modification in the product will lead to limited diversification, for example: the layout of the interior might not be changed but the designers can add elements aligned with the Chinese culture to the decoration and the kind of services can also be changed accordingly.

In this strategy both product and geographic diversification is taking place at the same time. The product diversification is based on the design aspect of the aircraft; on the other hand the geographic expansion is based on the opportunities in the Chinese market (Airbus.com 2018).  

In order to set up a business in international market the company will require having a structure established for the organisation. Multinational companies have operation and distributions in a number of countries based on their strength and opportunities. Airbus will have Engineering, distribution and logistics segment in the country in order to deal with the alliances and the delivery of the services whenever required (Lawton et al. 2013). 

There are usually four strategies with the help of which multination company: Home replication strategy, localization strategy, global standardization strategy, transnational strategy (Lawton et al. 2013).   In this case, the company is going to undertake the global standardization strategy, with the help of which the company maintains a standard in the international front. The CEO of the company Thomas Enders has the highest position in the company and all decisions that are taken in the company has to be sanctioned by him (Airbus.com 2018). The company follows a hierarchal form of structure which will be replicated in the new place of expansion as well (Airbus.com 2018). The advantages of this structure is that the company has the advantage of having a clear line of communication among the employee they know the person whom they have to report and who will guide and support them in case there is need. Another advantage for the company has to incur low cost (Birkinshaw 2016). As a multinational organisation the company has established itself in this structure in a number of other countries which assures the effectiveness of the strategy. The company has its commercial aircraft segment in the country already and this will be an extension to the already established structure as the product division is different this time.

The global strategy supports the idea of dealing with each division of products exclusively on a global stand front, this is not possible. There is cost efficiency in the process of global standardization in organisation structure which is an advantage.

Airbus is an organisation that follows a traditional hierarchal organisation structure which means that the company has the advantage of maintaining a clear line of communication. Therefore it can be said that in this case of Airbus, the company will follow the international division strategy. This is replicating the home governance policy as the companies are arriving at a joint venture this will help airbus in maintaining the global standard of the company. 

                                       

The Board of Directors and the Executive Committee of Airbus is responsible for the company’s governance. The governance ensures that the company is aligned with the Regulating Laws and Articles of Association. The Governance of airbus works to be clear and transparent among the stakeholders to fulfill the functions of the company on an international front.  There are also operational communities in the company: Airbus Operational Executive Committee, Commercial Aircraft Subsidiary Presidents, Members of the Helicopters Executive Committee, Members of the Defense and Space Executive Committee (Airbus.com 2018).

The alternative solution to the issue that has been identified above is the expansion of the company in a different Asian market.  For example like India, the company stands in the third position housing the third maximum number of billionaires (Elkins  2018).

The recommendation for the new venture in china is to incorporate CSR in the startgies of the business. CSR activities are an important part of the companies function; this is the platform where the company uses the resources to strategies in order to achieve the sustainability objective. Airbus has undertaken a number of CSR activities for a long time. Airbus has an alliance with the UN in order to perform their responsibilities that the company has towards the society and the environment. The company has utilised the resources in order to add value to the society and help in addressing some of the issues or challenges that the company faces (Airbus.com 2018). This will not only help the company improve its value and goodwill in the industry and among the stakeholders it will also help in attracting the attention of the press.  

7. Conclusion: 

It can be concluded from the above discussion that the Airbus is a company that is globally renowned for its innovation and agile functions in terms of the requirements of the aviation industry.  The company has its operation in a number of countries and the Chinese business jet market is the region that every aviation company is looking out to join, the attractiveness of the industry depends on the government’s renewal of the policies regarding the space for the business jets, the number of billionaires in the country. The strategies developed by the company are based on alliance in between an already established partner, Hunan airlines. With this strategy both the companies will have an opportunity to grow from the Hunan airlines perspective they will be served with a differentiation focus where the company can serve a larger target market. On the other hand, for Airbus the company can establish its foothold in the Chinese market with a brand that is popular among the target market.

Reference: 

AF Ragab, M. and Arisha, A., 2013. Knowledge management and measurement: a critical review. Journal of Knowledge Management, 17(6), pp.873-901.

Airbus.com 2018.  Corporate Governance. [online] Airbus. Available at: https://www.airbus.com/company/corporate-governance/executive-and-operational-committees.html  [Accessed 25 Sep. 2018].

Airbus.com 2018.  Corporate Jets. [online] Airbus. Available at: https://www.airbus.com/aircraft/corporate-jets/comfort-space/outfitters.html  [Accessed 25 Sep. 2018].

Airbus.com 2018.  Designers. [online] Airbus. Available at https://www.airbus.com/aircraft/corporate-jets/comfort-space/designers.html  [Accessed 25 Sep. 2018].

Airbus.com 2018. We are Airbus. [online] Airbus. Available at: https://www.airbus.com/company/we-are-airbus.html [Accessed 25 Sep. 2018].

Akaka, M.A., Vargo, S.L. and Lusch, R.F., 2013. The complexity of context: A service ecosystems approach for international marketing. Journal of Marketing Research, 21(4), pp.1-20.

Basu, S., 2014. Product market strategies and innovation types: finding the fit!. Strategic Direction, 30(3), pp.28-31.

Birkinshaw, J., 2016. Multinational corporate evolution and subsidiary development. Springer.

Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L., 2014. International business. Pearson Australia.

Graham, W.A. and Hede, A.J., 2016. Strategic Actions Analysis: A new tool for managers. The Journal of New Business Ideas & Trends, 14(2), p.1.

Hussain, S., Khattak, J., Rizwan, A. and Latif, M.A., 2013. ANSOFF matrix, environment, and growth-an interactive triangle. Management and Administrative Sciences Review, 2(2), pp.196-206.

Jennings, R., 2018.  Corporate Governance. [online] Airbus. Available at: https://www.forbes.com/sites/ralphjennings/2018/04/19/first-private-cars-caused-congestion-in-china-are-private-planes-next/#3ecf585f7bd2  [Accessed 25 Sep. 2018].

Lawton, T., Rajwani, T. and Doh, J., 2013. The antecedents of political capabilities: A study of ownership, cross-border activity and organization at legacy airlines in a deregulatory context. International Business Review, 22(1), pp.228-242.

Lin, H. and Darnall, N., 2015. Strategic alliance formation and structural configuration. Journal of Business Ethics, 127(3), pp.549-564.

Lynch, R. and Jin, Z., 2016. Exploring the institutional perspective on international business expansion: Towards a more detailed conceptual framework. Journal of Innovation & Knowledge, 1(2), pp.117-124.

Noruzy, A., Dalfard, V.M., Azhdari, B., Nazari-Shirkouhi, S. and Rezazadeh, A., 2013. Relations between transformational leadership, organizational learning, knowledge management, organizational innovation, and organizational performance: an empirical investigation of manufacturing firms. The International Journal of Advanced Manufacturing Technology, 64(5-8), pp.1073-1085.

Shaw, S., 2016. Airline marketing and management. Routledge.

Verbeke, A., 2013. International business strategy. Cambridge University Press.

Yeung, H.W.C. and Coe, N., 2015. Toward a dynamic theory of global production networks. Economic Geography, 91(1), pp.29-58.

Yeung, H.W.C., 2014. Governing the market in a globalizing era: Developmental states, global production networks and inter-firm dynamics in East Asia. Review of International Political Economy, 21(1), pp.70-101.