Civil Aerospace Market and Aircraft Construction Industry - Report Example

Analyse the industry structure of the civil aerospace market in the aircraft construction industry Part One Civil aerospace market and aircraft construction industry – PESTEL analysis Pestel analysis of civil aerospace market In order to understand the position of civil aerospace market in relation with the aircraft construction industry we should primarily examine the external environment of the particular industrial sector, applying the rule of PESTEL analysis. Usually, the analysis of a particular industrial sector can be made through several paths/ methodologies in accordance with the targets set in advance. In this context, it has been supported by Pritsker (1997, 32) that ‘industry analysis typically focuses on a companys external dimensions such as its markets, customers, and competitors’. In the particular case, Pestel analysis is considered to be the most appropriate scheme for the examination and the evaluation of external environment of civil aerospace market not in relation with a particular country but in the context of the international community. 1.1 Political Civil aerospace industry is critical for the performance of aircraft construction industry. Under these terms possible failures in the former may lead to severe political consequences for the country where the latter is related. It is for this reason that governments around the world pay significant attention to the particular industry taking all measures (at the highest possible level) that ensure the profitable and effective operation of the firms that belong in the specific industry. Possible financial support of the relevant firms by the state is also a common phenomenon. 1.2 Economic Currently, financial markets around the world are characterized by severe turbulences. In this context, exchange rates and interests tend to change almost daily. As a result, the design and the application of a long term strategy for the firms operating in the civil aerospace industry is a challenging task. In this context, appropriate measures should be taken by governments around the world towards the stabilization of rates at least for a specific period. Moreover, alterations in the value of currencies within all countries should be avoided at the highest possible level trying to keep the balance among economies in the global marketplace. Only in this way civil aerospace industry could be effectively developed in the long term. 1.3 Social A major characteristic of modern era is the trend for creation of common social and cultural patterns. However, this ‘globalization’ in cultural and social traditions cannot be considered as having only positive aspects. In fact, firms operating in the civil airspace industry should take into consideration that culture still remains the major factor that influences factor preferences within the international community. Traditions and cultural trends related with a nation’s past have still a significant power and they should be taken into consideration when designing and applying corporate strategies regarding all commercial activities. 1.4 Technological Modern technology is characterized by a continuous and extensive growth. Under these terms, any firm of the civil airspace industry that is interested in surviving within the global marketplace should proceed periodically to the update of its systems trying to keep passengers’ safety as a priority. 1.5 Legal An issue that should be taken into consideration by firms that operate in the civil aerospace industry is the fact that legal principles related with this industry present many differentiations across countries worldwide. Apart from the general accepted rules of international law established through Treaties and Conventions, all particular issues related with the civil airspace industry are regulated by laws that include different provisions in each country worldwide. The reason is that laws applied in the national territory should be based on the social and cultural characteristics of the population involved. In this context, international law could be considered as just a supplementary basis for the regulation of issues related with the civil airspace industry. Part Two Civil aerospace market and aircraft construction industry – Strategic Analysis 2.1 Porter’s Five forces One of the most known ‘scheme’ for the measurement and the evaluation of a firm’s performance within the international market is the Five forces model designed and explained by Porter. In accordance with this theory, a firm that operates within the international market has to face pressure by the following forces: a) customers, b) suppliers, c) position in the market, d) threat of new entrants and e) substitute products or services. Figure 1 – Porter’s five forces (source: Porter, 1998, 22) Suppliers The power of suppliers within the civil aerospace market is significant. In fact, there are no many suppliers that can provide the material required for the products of this industry. In this context, suppliers can have the power to pressure firms in this industry to increase the amount pay for buying the material required for the various products of this industry. Customers In aircraft industry, customers have not the power to impose to the firms a particular strategy. In fact, customers are depended on the firms operating in this industry – there are no many firms that operate in this area; so customers are depended on existed firms. Substitute products The particular issue should not worry firms that operate in the specific market. There are few chances for substitute products to enter the specific market mostly because of the limited number of firms operating within this market but also because of the limited number of suppliers. So in any case substitute products are not likely to appear in the specific market. Threat of new entrants Civil aerospace market has been developed at a high level the last few years. In fact, there have been many entrants of new firms in this area. However, not all firms have the same chances to survive mostly because they have not made the appropriate preparation for a long term survival in this market. In other words, entrants in this market appear very often but few of them manage to survive for a long term. Jockeying position in the industry Because of the existence of many competitors in the civil aerospace industry, the position of any firm operating in the industry is difficult to be retained at least for a long period. Appropriate strategies should be adopted in order to ensure that the position of the firm in the market will be gradually improved. In this way, any potential power of competitors to threaten the position of a specific firm in the market is decreased. In accordance with a recent research (October 2007) ‘US remained the largest aerospace manufacturing market in 2006 by registering a growth of 8% and this is expected to continue in 2007 also when it is expected to grow by 5.98%; Asia-Pacific is anticipated to dominate the growth of global aerospace industry largely due to emerging economies such as India and China. The growing economic impact of these countries will result in increased demand in air traffic’ (RNCOS, 2007) 2.2 SWOT analysis In accordance with the above the SWOT analysis of the particular industry leads to the assumption that firms that operate in this industry present the following characteristics/ meet these conditions: Strengths 1. Limited number of firms that operate in this industry for a long term 2. Limited competition in terms of the quality of the products/ services provided 3. Customers cannot press the firm on issues like price of products or cost of technology improvement Weaknesses 1. There are many entrants in this market, 2. Instability in the prices/ difficulties in communication with customers Opportunities 1. The particular market presents a continuous development 2. The profitability of firms operating within this industry is usually high Threats 1. Powerful new entrants 2. Changes in currencies and rates internationally 3. Events that put in risk the viability of the industry (e.g. September the 11th and the following reduce in passengers) 2.3 Strategic drivers – supply chain management In order for the firms that operate within the civil aerospace market to survive for a long term, a series of criteria should be met. Regarding this issue, Agrawal et al. (2001, 23) supported that ‘companies should decide which elements of the chain could produce the greatest efficiencies and then choose the exchange most likely to promote them’. On the other hand, in accordance with Krishnan et al. (2001, 259) ‘supply chain management has become an important part of strategic planning in both large and small businesses since the 1990s as firms increasingly choose outsourcing as an externally-driven strategic growth path’. In other words, supply chain management should be handled carefully by all firms operating in this area trying to identify the most appropriate (in terms of cost and time required) solution regarding the development of supply chain (in accordance with the firm’s interests). Towards this direction, Cook et al. (2001, 14) noticed that ‘the major tools of supply chain management are the following: making and keeping relationships, implementing new technology in the supply channel, the use of forecasting to increase supply chain effectiveness, outsourcing to increase efficiency, and cost management as a strategic weapon’. From another point of view, Baker et al. (2005) claimed that in order for supply chain management to be appropriately developed the following process should be followed: ‘1. Layout analysis; 2. Routing analysis; 3. Bottleneck identification; 4. Bottleneck management and 5. Work-in-process (WIP) management’ (Baker et al., 2005, 44). In accordance with the above, a firm that is interested in improving its position with the civil aerospace industry should examine the following sectors: a) facilities offered to its customers, b) methods and cost of transportation of its products, c) application of appropriate inventory and d) provision to potential customers of the information involved in every stage of the production process. References Agrawal, M., Pak, M., (2001). Getting Smart about Supply Chain Management. The McKinsey Quarterly, 22-24 Cook, J. S., Debree, K., Feroleto, A. (2001). From Raw Materials to Customers: Supply Chain Management in the Service Industry. SAM Advanced Management Journal, 66(4): 14-23 RNCOS (2007) Global Aerospace Market Analysis, available at http://www.mindbranch.com/Global-Aerospace-R459-1032/ Krishnan, H., Park, D. (2001). Supplier Selection Practices among Small Firms in the United States: Testing Three Models. Journal of Small Business Management, 39(3): 259-269 Porter, M. (1998) On Competition. Harvard Business School Press Pritsker, K.D. (1997). Strategic Reengineering: An Internal Industry Analysis Framework. SAM Advanced Management Journal, 62(4): 32-43 Read More