Global Business Management: Strategies for Airbus to Expand in the Chinese Business Jet Market

The purpose of the assignment is to analyze the global business opportunities of a company. The case study that has been provided revolves around the opportunities in the business jet market of China. This report focuses on the identification and evaluation of strategies adopted by Airbus to pursue expansion in the Chinese market in the business jet categories.

Running head: GLOBAL BUSINESS MANAGEMENT
Global Business Management
Name of the Student
Name of the University
Author’s note

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1. EXECUTIVE SUMMARY
The purpose of the assignment is to analyze the global business opportunities of a company. The
case study that has been provided revolves around the opportunities in the business jet market of
China. This report focuses on the identification and evaluation of strategies adopted by Airbus to
pursue expansion in the Chinese market in the business jet categories. The Chinese market is a
lucrative opportunity for the business jet market as there are the country hosts second largest
numbers of billionaires who are the target market of the business jet services. It has been
analysed that an alliance with the Hunan Airlines is the best strategy of entering the Chinese
market. The companies can base the alliance on equities and joint venture method will be used.

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Table of Contents
2. INTRODUCTION.......................................................................................................................4
3. PROBLEM IDENTIFICATION.................................................................................................5
4. PROBLEM ANALYSIS AND JUSTIFICATION......................................................................7
4.1 EQUITY BASED ALLIANCE.................................................................................................8
4.2 JOINT VENTURE.....................................................................................................................9
4.3 VERTICAL COOPERATION..................................................................................................9
4.4 COMPETING WITH CHINA COMPANY RATHER THAN COLLUSION.......................10
4.5 MOTIVES BEHIND MERGERS AND ACQUISITIONS.....................................................12
4.6 ALLIANCE FORMATION.....................................................................................................13
4.7 PERFORMANCE OF STRATEGIC ALLIANCE..................................................................13
4.8 ATTACK STRATEGIES........................................................................................................14
4.10 COMBINING PRODUCT AND GEOGRAPHIC DIVERSIFICATIONS..........................15
4.11 STRATEGIC CHOICES.......................................................................................................16
4.12 ORGANIZATIONAL STRUCTURE...................................................................................17
4.13 TRIPOD OF CORPORATE GOVERNANCE.....................................................................18
5. ALTERNATIVE SOLUTION...................................................................................................18
6. RECOMENDATION................................................................................................................19
7. CONCLUSION..........................................................................................................................19
8. REFERENCES..........................................................................................................................21

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2. INTRODUCTION
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).

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3. PROBLEM IDENTIFICATION
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

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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.
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.

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4. PROBLEM ANALYSIS AND JUSTIFICATION
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.

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4.1 EQUITY BASED ALLIANCE
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).
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).

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4.2 JOINT VENTURE
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.
4.3 VERTICAL COOPERATION
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

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companies and support from a world leader like Airbus will also provide Hunan Airlines with
experience and value.
4.4 COMPETING WITH CHINA COMPANY RATHER THAN COLLUSION
Figure: Strategic Action framework
(Source: Graham and Hede 2016)
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

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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 initiative that 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.

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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.
4.5 MOTIVES BEHIND MERGERS AND ACQUISITIONS
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.

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4.6 ALLIANCE FORMATION
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).
4.7 PERFORMANCE OF STRATEGIC ALLIANCE
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

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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).
4.8 ATTACK STRATEGIES
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).
4.9 COUNTER ATTACK STRATEGIES
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

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to diversify the services in the business jet category. A company can have either attack or a
counter attack strategy (Birkinshaw 2016).
4.10 COMBINING PRODUCT AND GEOGRAPHIC DIVERSIFICATIONS
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

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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).
4.11 STRATEGIC CHOICES
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

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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.
4.12 ORGANIZATIONAL STRUCTURE
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.

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Owners
Board of Directors
Managers
4.13 TRIPOD OF CORPORATE GOVERNANCE
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).
5. ALTERNATIVE SOLUTION
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).

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6. RECOMENDATION
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.

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