Boeing & Airbus Case Study

Strategies to Manage Competition December 26, 2010 Leo Welch Strategic Management Professor Brad Bridges Background The aerospace industry is dominated by two major competitors, Boeing and Airbus. Boeing has long been the dominant market share leader, however, recently Airbus has gained significant market share and surpassed Boeing’s position as the market leader. The aerospace industry is built on long-term engagements. It is typical for the development of a new plane to take several years before the model even begins production.

Thus, the research and development costs are extremely high.

Manufacturers usually do not break even until a large number of units have been sold. The market Is further complicated by the fact that It can take 10 to 15 years before a final product Is produced. As a result, entering the market can be very difficult, requiring a very large capital Investment with little guarantee of success. Boeing Airplane Company Boeing was established by William Boeing in 1916.

The Boeing Airplane Company established itself as a major US manufacturer after obtaining business contracts with the US Military during World War I and continuing that relationship through World War II.

Boeing was able to establish it dominance as a result of the military ordering numerous 8-17 Bombers. After the war many of the Bomber orders were canceled so the firm had to look to the commercial market. “By 1945, Boeing was the US leader in commercial Jet manufacturing with its 707 that had a capacity for 1 56 page 50) By 2003, Boeing was surpassed as Industry leader by the European manufacturer, Airbus.

Airbus Airbus was formed In 1970 as a European consortium of French, Spanish, British and German companies (parent company DADS). The consortium became a single fully integrated company in 2001 and by 2003 Airbus surpassed its main rival as the market leader.

“Airbus was able to establish a significant market share and a brand name by making airplanes that addressed the needs of the market. ” (Hill, page 52) Airlines sought midsized cost efficient airplanes, and Airbus responded with its A-320.

The Airbus strategy was to embrace commonality among its products. Strategies Boeing’s strategy was to “move up the value chain” by focusing less on the many details and more on their core competencies, Integration and assembly. Boeing unconsolidated Its supplier list and only did business with those suppliers that provided the best value.

Boeing completed all research, development and production Internally. “Boeing also sought strategic partnerships globally to reduce costs and generate sales through offset agreements with China and India.

This enabled Boeing to gain entry Into two AT ten largest Ana Tastes growing learned page) Pros * Distribute risk and costs * Exploit firm’s competencies * Ability to develop and market more effectively Cons * Profit sharing and diminished profits * Employee unrest due to outsourcing Giving suppliers control of revenue sharing Boeing’s outsource and supplier strategy are appropriate for the firms efforts to reduce cost so that product pricing can be more competitive. Airbus strategy was to keep tighter control over the knowledge it shares with the suppliers and only outsourced a minimal amount of work to Asian countries. Airbus utilizes suppliers primarily from the European Union countries most of which have ownership in Airbus’s parent, DADS.

“(Hill, page 53) Airbus utilizes Just-in-time delivery and requires suppliers to deliver all components in prepackaged trays. Pros * Control of manufacturing process * Greater profits * Less dependency on suppliers * Greater risk and increased cost of research & development * Weak relationships with suppliers * Limited market access Airbus’s strategy has proven to be effective as it has been able to under price its competitors and gain market share.

However, it has experienced delays with its jumbo airplane that has lead to customer frustration and the loss of contracts. Competition Analysis Boeing had some major issues that lead to its loss of market share. Boeing had a weak sales force.

Its product offerings had less sophisticated technology that contributed to loss of contracts. However, due to some delays with the A-380, Boeing was able to acquire valuable customers from Airbus such as Feted and Virgin.

Airbus was able to consistently price its products below Boeing’s pricing. Airbus incorporated superior technology in the A-320. As a result it gained several clients from Boeing including United Airlines, Air Berlin, Air Asia, and Southwest. “Airbus has extensive support through subsidies from Spain, France, Germany and Great Britain in the amount of $1.

Billion in page 54) This enabled Airbus to build multitude products. Unfortunately, Airbus has experienced serious set backs with its development of the A-380 Jumbo Jet.

Boeing receives subsidies from the US government in the form of federal R&D contracts from NASA and the Pentagon, as well as tax breaks from the state of Washington. Boeing is also able to leverage technologies from its military contracts and apply them to it commercial aircrafts. Boeing has incorporated aspects from the 8-2 bomber program into the development of the 787. “Boeing and Airbus have implanted opposing strategies based on introduction views for their vision of the market’s future.

Boeing maintains that increased fragmentation in the form of point-to-point travel will solve the problem of alert congestion Ana appeal to travelers. Lard’s on ten toner nana Delves Tanat the hub-to-hub travel will continue to grow in particularly in the Asian markets. “(Hill, page 55) Airbus’s strategy attempts to meet customer demand by offering a platform capable of moving mass amounts of people using the hub system with the A-380. Boeing strategy focuses on offering customers long range capabilities while utilizing erect connections with its 787 product offering.

Although both firms have experienced delays with their projects Airbus has suffered the most with its two year delay. Boeing has to take advantage of this opportunity to increase its marketing activities to promote the 787 and recapture its industry leading position.

References: Hit, M. , Hosking’s, R. , & Ireland, D. (2009). Strategic management: Competitiveness and Globalization. Mason: South Western South University: “Online Lectures” 2010.

Strategic Management. Accessed January 21, 2011 from http:// neoclassicism. Com/re/Denouncements. Asp? Coursed=4620444