Boeing's Business Growth Strategies In China's Emerging Economy: A Case Study Essay.

The purpose: Identify and evaluate strategies adopted by a firm to pursue an international growth opportunity related to emerging economies.     

The product: 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      

Boeing's Business and Marketing Approaches

The case study analysis is particularly based on the emerging economy in China providing potential business opportunities to both local and international airlines. The case study analysis includes business and marketing approaches of Boeing- aircraft manufacturing company. Boeing is determined to incorporate multi-national business approaches to use the growth opportunity provided by emerging economy in China. The major purpose of the study is to examine the business growth strategies adopted by Boeing to pursue internal growth opportunity to the emerging economy of China. The case study implies that due to the economic stability in the recent time in China, the both international and local airline organizations are planning to keep their footstep in China. Initially, processing the airline services in China was difficult as airline services in China are usually controlled by military and there are several taxes and duties that are imposed on such businesses.  

Boeing is known as world’s largest aerospace manufacturing of commercial jetliners, space and security systems. The organization also provides aftermarket services. It has been identified that Boeing is America’s largest manufacturing exporter, the organization supports airlines and United State as well as allied government customers in more than 150 nations. It has been identified that Boeing products as well as tailored services which involves commercial as well as military aircrafts, electronic and defence system. The major marketing stand taken by Boeing is development of a broad range of products and services for multiple customer groups. When it comes to acquiring a new market, Boeing particularly pay heed to a diverse categories of services. On the other side Taneja (2016) commented that Boeing prefers to operate in critical businesses with the help of its mainline businesses. It has been identified that the business has extensive presence in commercial security in the capital services for supporting customer purchases. The major competition, Boeing faces in the segments such as commercial jet aircraft as well as airline sector. When it comes to analysing customers, Boeing uses a large range from different organizations from different aviation sector, government of different nations, space and research settings who have diverse as well as differentiated needs. As China is economically a potential market, this range or group of customers may change or increase in the airline sector of China.

Even though China has potential business opportunities and observed a rise in the economy, all major airline service providers from the global market are trying to extend their focus on the virgin skies of China. Nonetheless, the market has institution-based condition controlling the airline services and flight through a complicated process due to the enforcement of tax and burdensome duties. In addition, particularly the business air jets are only entitled to two take-off slots an hour, which is making a difficult scenario for the services providers when dealing with the mass-crowd of international visitors (Wu and Maher 2016). On the contrary, the government has become little stiffer with respect to the allowance of state-owned service providers. For example, it is found in the case study that President of China ordered special provisions which causing a shift in the existing services of the organizations in China. State owned enterprises used to make u almost 15% of business jet market in China but the percentage now went down to 5%.

Competition in the Commercial Jet Aircraft and Airline Sectors

Although the airline service providers are supposed to deal with compliance and trade regulations, due to the economic stability, Chinese government has offered a glimmer of hope for airline trades as a significant stand has been taken for the establishment of non-airline aviation and businesses jets are entitled to little more space. However, this opportunity also attracts the other global airlines from Europe and America (Morrison and Gillen 2017). Taneja (2016) commented that complying with the newly developed policy will not be an easy choice of implementation, as entry of other airline agencies could generate another cumbersome process. Moreover, accessing the China market may also be a difficult challenge, as using the back-up of resources and capabilities, each business jet market is trying to beat each other and excel. Particularly, the major jet maker such as Beech Hawker, Cessna and Gulfstream of United State, Dassault Falcon of France are the conventional competitors. Currey (2017) also commented that it is quite difficult for any business jet maker irrespective of being local and international as China’s jet market is vastly acquired by Gulfstream and the organization has the biggest market share. Gulfstream has been able to strengthen its market share as all of its approaches are market-oriented and China governments are in favour of market oriented efforts. Thus, when accessing the China market, Boeing needs to consider the market oriented efforts which might help to gain governmental backup.

It has been identified that Boeing’s resource and capabilities are developed to aligned with a set of objectives that include continuous improvement, extremely skilled as well as motivated staff and technological excellence, financial strength as well as commitment to future integrity. According to Nason and Wiklund (2018), the competitive advantage is gained on the basis of utilizing the bundle of unique internal resources that lead to advanced and developed distinctive capabilities as well  as the core competencies. Pearson, Pitfield and Ryley (2015) commented that there could be two types of internal resources –tangible and intangible. Here, Pearson, Pitfield and Ryley (2015) mentioned that efficient integration of business’s internal resource often lead to competitive capabilities to complete a comprehensive series of interrelated business activities. Starting and initiating a successful airline is extremely difficult as it often requires extensive resources capabilities and core competencies. The commercial segments of airplanes of Boeing is strategically well-prepared and enriched divisions with respect to enhancing new as well as managing existing resources that help business to build distinctive capabilities as well as the core competencies. As mentioned by Teece (2017), the resources and capabilities of Boeing include Airport Technology, Boeing Capital Corporation, Commercial Aviation Services and Fuel Conversation Services.  

Resources and Capabilities of Boeing

Globalization has changed the market scenario in th3 remerging countries and emerging economies are growing at a faster rate to compete with the global super powers (Popova 2014). China is the most attractive market for the past five years and foreign direct investment has been flowing in due its potential capabilities.

                                                                                             (Source: Lapickii 2018)

The market potential of China is huge in terms of the MPI index denoting the eight dimensions.  The enormous size of the market and growth in the market is one of the key factors of attractiveness. Even though the growth is cooling down in the market, it is among the top 10 fastest emerging economy all over the world. The real GPD of China has grown by 7.2 % every year in the past five years (Lapickii 2018).  However, the market respectability and low internet access are two factors that act as a weakness for the economy. There are restrictions on the economy and constraints have hampered the flow of capital investment.  Moreover, the financial sectors is fully dependent and susceptible to the control of the government.  The openness of the market is low which affects foreign trade and share of GDP is at the bottom of the group.  The perception income of the population is also quite even though the country is progressing at a rapid rate (Wijeratne, Oberoi and Tripathi 2017).  

China is one of the key examples of globalization and majority of the companies are still looking for investing in China as its potential capabilities have not been fully utilized in the market.  However, in the recent years, doubts have risen about the economic model of the country due to the increase in cost of the labours and shortage of talents (Hsbcnet.com 2018).   The country is going through a transition from being an export based economy to consumer based economy which could reduce the growth of the GDP and China may not experience the growth in double figures which they have enjoyed so long.  However, the airline industry in China has been booming in China and growth rate in the airline industry is quite high.

Globalization and Emerging Economies

The growth in the low cost carrier category is dynamic in nature and is expected that the local airlines to increase the number of their carriers. The reformation of the Chinese economy has made changes to the airline industry where the Chinese airline industry has become a global force in the market.  The year of 1982 marked less than 4 million passengers travelling to China and the number has grown ten folds where in the year of 2016, the population travelling to and from China were 487 million (Nunlist 2017).

The above figure shows the growth of the airline traffic in China and the graph shows that steep growth in the disposable income and airline traffic.  The intercontinental routes opened up by China in the year of 2006 with just 6 carriers have grown to more than 50 carriers in the industry.  The forecast of the market shows that by the end of 2029, China will take over United States as the largest growing market over United States.  Moreover, the number of flights scheduled from China to USA is more than the vice versa and they have been operating 10% more flights (Nunlist 2017).  The change in disposable income of the population is made thing within the reach of the people which were out of their reach.  The journey from being a luxury to being successful is evidence of the success story of the Chinese airline industry.  However, this has led to dramatic increase in air traffic but the Chinese airlines are unable to keep up with it due to their infrastructural incapabilities.  These problems with capacity are not restricted to domestic airlines and international flights have been affected similarly.   The progress of the Chinese industry is thus enormous in terms of safety measures and quality of flights.  However, even though the Chinese airlines have more number of flights but none of the Chinese airlines have come even close in terms of revenue generation.  This shows that the airline industry can grow even further.

The companies making an expansion in the global market always face a void which dealing with the issues in the emerging market.  In majority of the cases, the lack of specialised intermediaries, mechanisms for contract enforcing and regulatory systems are the causes for the institutionalised void.  The role of soft infrastructure has been taken lightly by majority of the companies from developed nations (Marquis and Raynard 2015). The soft infrastructure plays a great role in executing the business model in the home environment. However, the soft infrastructure is underdeveloped or absent in most of the emerging nations.  Therefore, it is difficult for companies to identify skilled market research firms that will provide the in depth analysis of the needs and wants of the consumers so that the organization can customize their offerings based on it (Helm and Gritsch 2014).  

China's Market Potential and Attractiveness as an Investment Destination

This is the basic reason that there are large number of companies performing poorly in developing countries.  It has been seen that majority of the United States companies fare well in their home market than in the emerging market.  Moreover, there are companies that move away from the remerging nation instead of moving closer to them (Prajogo 2016). The companies that are successful develop strategies for performing business sin the emerging market due to the increase that are quite different from the strategies implemented at home.  Moreover, they develop innovative ways of implementing them.  

The three major strategies implemented by the global companies for maintaining competitive advantage are increasing operational efficiency (Helm and Gritsch 2014).  The business strategies developed should be flexible and short term. The supply chain has to be effective by developing strong local partnership and technology.  The footprint have to be optimized for revaluation of the manufacturing presence. Innovation is the next key aspect of gaining success in developing markets (Chen et al. 2014). The organization will have to identify new ways of reaching the untapped markets and innovation process has to be continuous and stepwise.  The products have to be developed as per the needs of the consumers so has to be localised.   Go-to market has to be used effectively in order to develop presence at all price points and across diverse channels.  There has to be cross share between the local and global practices for developing a string local presence.

Boeing is the one of the largest supplier of aircrafts all over the world but in China Airbus has taken a lead over them. Airbus was the first to make Greenfield investment in China and Boeing is setting up their facilities by developing an offshore factory in China. The commercial aircraft purchasing is controlled by the Chinese companies so in order to gain competitive advantage being in the market is necessary for foreign companies. However, the cost of investment is this strategy is highest and comes with very high amount of risk in the market.  Another strategy that Boeing can implement is joint venture which will result in the formation of a new third party company combing of the local company and the foreign company. This will help Boeing to gain the knowledge about the local market with the help of effective transfer of knowledge from the local company (Jiang 2016). This means that they will be able to develop their expertise based on the needs of the local market and compete with the companies in the local market to become the market leader.  

Partnership is another way of entering the foreign market where Boeing can form strategic alliance in manufacturing of their products.  The culture in China is quite different than in other countries so it can be used to gain market knowledge.  However, partnership is different from joint ventures where there is no formation of a different entity. Direct exporting is another option for Boeing where they can directly sell off their products into the foreign market. However, gaining competitive advantage is tough as the cost of operations in increased due to export strategies and due to the restriction in China, the overall cost of the aircraft increases.  Boeing would also be unable to increase their level of the expertise as they would be able to gain any knowledge about of the needs of the clients without being in the market due to the lack of good market research companies.

The best strategy to be implemented in the market is joint ventures which means that production joint ventures are encouraged by the Chinese government as the government is looking to upgrade the workforce in the aviation industry so that they can compete with the aircraft makers in the Western market with its own company Comac and Avic.  Cessna, the lightweight aircraft maker from United States and Embraer, the Brazilian business jet maker have enjoyed majority of the share in the Chinese Market but initiating the manufacturing of Avic units in China.  This shows that Cessna and Embraer are the major leader in the Chinese market due to the expertise and establishment of operations within the Chinese market. Boeing has to follow the same route if they want to gain competitive advantage in the market.  Therefore, it is essential for Boeing to entering into joint ventures with the companies in the local market to effective establish their command in the Chinese market.

There has been significant growth in the Chinese airline industry but investment in the airline industry comes with many risk factors.  The international business dealings are linked with ramifications that are in numerous consisting of issues such as international business laws, immigration law, intellectual property laws, litigations and appeals and intellectual laws.  These laws are reason for binding the companies and increasing the level of risk factor. Joint venture, being the safest potion of Boeing for entering into the Chinese market comes with many risk factors (Henisz and Zelner 2015).  Joint venture can be risky in cases when the company forms a relationship with a local company whose resource capabilities are not matched with that of Boeing.  The business will falter when the objective of the business is not clear and the goals of the joint venture lacks clarity. The business will also falter when both parties have different objectives and gaols to fulfil.  The problem may also arise when different partners bring in diverse levels of investments, assets and expertise.  Moreover, two companies having different cultural background will have a tough time in developing a joint venture as developing an appropriate  organizational culture will be difficult.

8. Conclusion:

The conclusion that can be drawn from the study is the fact that China is one of the potential markets which can be capitalised and in terms of the emerging economies it still has the highest market attractiveness.  Boeing is one of the aircraft manufacturing companies originating in America have been trying their way to get in to the Chinese market. However, it has been seen that majority of the United States companies have faced difficulties in sustaining in the emerging countries due to their lack of customization of their business policies as per the needs of the country. However, as the market entry strategy, joint venture seems the most fruitful strategy as the aircraft industry is controlled and regulated by the Chinese government and they have been promoting joint ventures to meet the demands of the airline industry in China. Therefore, Boeing will have to develop their own centre of manufacturing and operations to compete with other multinational companies.

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