Expanding in the overseas market is not an easy task as there are many issues that a company has to face, such as policies and laws, security and payments, logistic challenges, approval issues, benefits distribution, competitions, new working rules, etc. To elaborate more on global business management, a case study of Airbus and its cross-border strategies and issues in the context of China had been outlined in this report. There were two parts in this report. The first part discussed the identification of the problem and the second part dealt with the problem analysis part. A various problem associated with the cross-border business operation had been mentioned in this report. It talked about the strategies opted by the company, analyse its performance while competing in the global market using a wide number of theories, such as diversification, resource-based view, competitive force view, etc.
In the last three decades, many business organisation has expanded their businesses in overseas countries due to the rising impact of globalisation. Every organisation has faced the pressure from the global market and they have responded differently to it while competing internationally. This document will discuss determine and analyse such organisations. It will talk about the strategies opted by the company, analyse their performance while competing in the global market using a wide number of theories, such as diversification, resource-based view, competitive force view, etc. The chosen organisation is Airbus. In general, the interrelationships and implications will be discussed.
Airbus SE former name ‘European Aeronautic Defence and Space Company is one of the major European aerospace enterprise headquartered in Netherland. The company produces and sells military and civil aircrafts globally. In addition to this, the company has set up its manufacturing plant in many countries in out of Europe. It produces defence, commercial aircrafts, and helicopters. Currently, the company operates in many parts of the world, such as the USA, India, China, Tobago, the UK, Algeria, Trinidad, Brazil, Australia, and many more.
Airbus aims at creating a long-term value for the shareholders through the acquisition, discovery, marketing, and development of the aerospace product. The company is focused on operating and owning large, low-cost, long-life, upstream, expandable assets that are diversified by the market, geography, and commodity. The operating model makes sure that each subsidiary of the Airbus has autonomy and can make important decisions effectively and quickly (Klimas, 2016).
China is aiming at becoming the world's largest aerospace market due to its rapid development in the aviation market. The country is the major client for Airbus as it purchases one-fourth of its products. It was in 1994 when Airbus entered the aerospace industry of China. Since then, the company is rapidly growing and become the hallmark for the Chinese aerospace industry. The company has expanded the sale of the commercial jetliners to China within two decades by a factor of fifty.
Strategic Alliance and Network
In 2013, the company sold its 1000th commercial jetliner and is targeting at increasing the sales to 2000th before the 2020 ends. In order to appreciate and strengthen the relationship with the host country, Airbus make use of components manufactured by the Chinese local companies in its aircrafts. Even if the company has formed strategic alliance and joint ventures in China in order to manufacture commercial aircraft at multiple units across the country, it is lagging behind in delivering the orders on time (Kim and Singal, 2013). More than 1900 employees work in Chinese First Assembly Line which is a joint venture between the consortium of Tianjin Free Trade Zone, Airbus, and China Aviation Industry Corporation (AVIC). They together assemble the A320. Apart from this, Airbus holds the majority of shares in Airbus (Beijing) Engineering Centre which is a joint venture between AVIC and the Airbus. They together develop the modern day’s C919 aircraft. The major problem that Airbus faces in these strategic alliance is to protect the investment of the company from joint venture partners. The company has to take care of its interest while preparing joint-venture agreements with the local partner in the country. In addition to this, the management puts extra care when the company shares equal profit or owns a minor stake in the venture (Jharkharia, 2012).
Managing Competitive Dynamics in Global Context
The competitive dynamics of Airbus is dependent on various factors, namely competitors’ strategy, market share, product quality, pricing, distribution and promotion, and customer relationships. These factors pose various challenges to the management of competitive dynamics. In China, the main competitor is the US-based aerospace giant ‘Boeing'. The company is focusing on various areas, especially product development and innovation. Airbus has set the high levels of competitions for Boeing by developing modern aircraft in order to dominate the market and vice-versa. However, the company is facing some real challenges due to the liberalisation of foreign investment policies of China. The government has taken some steps to ease-off the investment in the aerospace sector that have opened up the gates for the other investors from Europe and the USA. Moreover, the China government's efforts to promote the local aerospace industries in the country have also increased the competition for Airbus. Airbus is fully inclined towards its product differentiation strategy and this has weakened its pricing strategy. No doubt that the company has taken a lot of steps in eliminating delays in delivering the orders. Apart from this, the competitive dynamics are also affected by the negotiating powers of the firm (Vespermannand Wald, 2012).
Diversification strategies, mergers, and acquisitions
There are numerous reasons for foreign aircraft manufacturers like Airbus to invest in China. These reasons are: the Chinese government offers support to the investors and Chinese customers, improves an organisation's image in the country, and increase sales by promoting purchases of the products by Chinese customers. Airbus is leading in China because of its cross-border collaboration in the different countries. It is capitalising on skills, talent, partnership, and nurturing supply chain relationship by forming a joint venture across the borders. Airbus understands that strong partnerships with local companies operating in China can generate higher values for the company. The company has established a composite manufacturing unit in Harbin and an engineering centre in Beijing. However, Airbus has to face a lot of challenges while forming the mergers or joint venture. These are mostly associated withpolicies and laws, security and payments, logistic challenges, approval issues, benefitsdistribution, competitions, new working rules, etc. The company often faces the seniority issues. The foreign organisation holds the major fraction of the share and it wants to operate in its way. In cross-border trading, there is a tremendous risk of payments from the traders. Apart from this, the geographical conditions can also pose a serious challenge for the company.
Cross-border structuring, innovation, and learning
As the maturity of the US and European aviation and defence sector is rising, aerospace giants from these regions are putting their focus on expanding and grabbing the opportunities in the Middle East and South Asian markets, such as China, India, and Pakistan. Chins in the last two decades have witnessed cross-border joint ventures, especially in the field of commercial aerospace and avionics (Gupta, 2012). In addition to this, the Middle East region is leading in triggering the joint ventures formed with the other regions, such as Southeast Asia, Eastern Europe, etc. With China focusing on its Foreign Direct Investment policies, penetrating into the aviation and defence sector is quite easier for overseas investors. This has made China a key market for the aerospace industries and made the situation vulnerable for the existing giant like Airbus and Boeing as other competitors from the US and European Union may enter the market. This would reduce the revenue and number of tenders Airbus is currently getting annually. Apart from this, Airbus is facing internal competition from the local aviation industries within China as the country is making efforts to trigger the in-house plane making and supplying (Wilson, 2015).
The executives and management at Airbus need to consider certain key issues while planning to enter into an international joint venture. These consist of end markets, regulatory compliance, supply chains, and geopolitical alliances.Business planning and expansion in the aviation and defence sector is not easy as the process is full of atrocities that are often faced only in this particular sector. Nation's policies regarding foreign investment are one of the major issues in expansion in the aerospace sector. In China, there is a code of Civil Aviation Administration of China that restricts the foreign organisation to design and produce aircraft in the country. Only those organisations can build aircraft that are co-ventures with the Commercial Aircraft Corporation of China, Ltd. (COMAC) and Aviation Industry Corporation of China (AVIC). Airbus and Boeing both have to assist AVIC and COMAC to gain a sizable share of the world’s aerospace market and help them in achieving the goal of becoming a key supplier of aircrafts and other aviation modules. Apart from the aforementioned issues in the cross-border expansion, other problems are protecting the rights of intellectual property. Being operational in China for a very long time, the companies have to deal with the challenges of safeguarding its secret technologies from local competitors. The most effective way of doing that is producing the key components of the aircrafts outside the country and then import those elements for assembly in China. The Chinese government put pressure on these foreign companies to set the production plants in China only.
Governance in a global context
Winning the tender and other regulatory approval of supplying and manufacturing aircraftsfor the world’s largest and fastest emerging market, China is very significant for the aviation giant Airbus. The company has pinned its future hopes on China. The company is currently undergoing delays in delivering the aircrafts to China. In addition to this, it is also facing slow approvals in the country. The delays are more associated with politics instead of technology. The delays are more related to the wish list from Beijing that consists of provisions regarding new safety agreements and the making of aircrafts in China. The diplomacy by the Chinese government is slowing down the production of the aircraft in Europe. China plays an ascendant role in the aerospace market as it is both customer and competitor. This characteristic has provided the country a unique leverage over Airbus and Boeing. The company is putting their best in pleasing the Chinese government (Muldoon, 2018). In addition to this, the agreement signed between the US and China on aviation safety has also impacted the Airbus business. China is emphasising on recognising its airworthiness standards. For that purpose, it is in conversation with Europe in order to sign a new bilateral air safety agreement. This agreement will trigger the in-house plane making and supplying in China. For this, the country's officials are putting tremendous pressure on Airbus to intervene with the European Commission and European agencies involved in the deal. The negotiation has drawn that has slowed down the supply of Airbus.
Strategizing with corporate social responsibility
Being a giant multinational aviation company, Airbus is continuously making approaches in order to promote responsible business propaganda. The company aims at strengthening the value chain through sustainable development. In addition to this, Airbus is also taking efforts in solving the most difficult societal issues. However, many allegations have been raised by the social groups that the company’s CSR principles are not grounded on the responsible business principles. They are more inclined toward what the organisation wants it to be and what could be more convenient for it (Chang, et.al, 2015). The proponents of CSR want organisations to raise their standards by reforming their modus operandi of producing and manufacturing the aircrafts. CSR in case of Airbus appears to be defined based on cherry-picking those social benefits that might benefit the company will address. The main and widely accepted CSR initiatives taken up by the companies are related to environmental issues. For instance, the majority of the companies make efforts to reduce the carbon footprint and greenhouse gas emissions. These efforts only help in improving the company's efficiency, bettering the bottom line, and enhance the brand image. This ambiguity in defining the CSR policies of the Airbus creates problems of stakeholders and makes the organisation less accountable. A discretionary approach towards defining the CSR policies can lead to considerable business risks.
In the problem identification part, a lot of issues have been determined associated with Airbus in the context of its operations in China. This part will try to analyse that problem in brief. The first and foremost problem is associated with the competition dynamics. Airbus faces both internal and external competition in China (Muldoon, 2018). The most effective way of beating the competition is through product differentiation and innovation. These two factors are the key to success for Airbus. Most of the products have been developed by the expert teams who have heaps of knowledge. Apart from this, the company can negotiate the pricing of the aircrafts by offering certain additional features to the customers. For instance, Airbus made a deal with Thai Airways by offering them a discount of 10 million dollars on each jet and convincing them to retain their original order instead of deducting it.
One of the major issues identified was related to cross-border strategies. The company faces numerous issues including the safeguarding of the intellectual property and conflicts between the venturing parties. For that purpose, the company should opt autonomous and flexible approach to overcome the conflicts. The executives should understand that when the joint venture forms, the resources, objectives, and relative powers will change. These trends are difficult to anticipate and therefore, there are chances of discrepancies to take place. In most of the venture formed by Airbus, the majority shareholder is Airbus only (Thompson, 2012). This makes the company dominate the decision-making and puts its personal interest above the partners. The China government has emphasised in the agreement that Airbus has to assist AVIC and COMAC to gain a sizable share of the world’s aerospace market and help them in achieving the goal of becoming a key supplier of aircrafts and other aviation modules. This would conflict with the organisational goals of Airbus.
The company should comply with the guidelines and provisions given in the agreement signed at the time of forming joint ventures. China government has formed some specific laws and regulations in order to prevent external investors to manufacture aircrafts individually. This was done to attract the giant companies rich in technological resources like Airbus and Boeing. Chinese government offers a glimmer of hope by providing them with financial and other kinds of support. Airbus by forming the joint ventures can operate in the Chinese aviation market. To expand its business in the market, Airbus has to understand the specific needs of the clients. Airbus can adopt the specific product designing approach for the Chinese clients. Airbus can focus on quality, efficiency in manufacturing, and distribution in order to compete with the local Chinese competitors.
To expand in China's aviation and defence market, Airbus should look beyond the traditional merger and acquisition approaches (Gupta, 2012). It should go for forming the joint ventures in order to grab opportunities that exist in the defence and aviation sector. However, this may bring many other challenges, such as cultural differences, loss of managerial control, exit strategies, issues related to the protection of intellectual rights. China has a big defence and aviation budget, thereby offering humongous opportunities to Airbus to form cross-border joint venture. This way Airbus can get access to the Chinese market and expand its business. In addition to this, it will help the company to reduce competition, distribute cost and risks, capture important opportunities, and increase brand value and brand image (Klimas, 2016). In addition to this, joint venture also increases production abilities and technological resources of the firm. Furthermore, joint ventures can allow Airbus to expand without even raising finance from equity capital markets and debts. In addition to this, cross-border ventures also result in low manufacturing cost, strategic locational benefits, and high domestic demands. All that is required from Airbus is to carry out rigorous due diligence so as to form a joint venture in the overseas countries. This would help the management to plan for complexities that may exist in an effective way (Vespermannand Wald, 2012).
The last issue was related to CSR policies. It has been identified that most of the CSR initiatives efforts of the company are related to environmental protection. In addition to this, they are aimed at building the brand values for the company. The Business and Human Rights Committee suggests that the company should also include the need for human rights and show full accountability towards employees working in the firm. CSR policies should clearly reflect the company’s efforts in discarding socially irresponsible practices while performing their operations. Airbus's CSR policies are based on the fact that the company conducts most of its businesses with integrity and apply its expertise to create the safe and prosperous world (Chang, et.al, 2015).
This report highlighted a case study of Airbus and its cross-border strategies and issues in the context of China. In the last three decades, it has expanded its business in overseas countries like the Middle East, Southeast Asia, etc. Due to the rising impact of globalisation, Airbus has faced the pressure from the global market and they have responded differently to it while competing internationally. This document discussed, determined, and analysedAirbus’s approaches. It talked about the strategies opted by the company, analyse its performance while competing in the global market using a wide number of theories, such as diversification, resource-based view, competitive force view, etc. In general, the interrelationships and implications were discussed.
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