Strategies of Gulfstream in Business Jet Market of China

The paper analyses the strategies taken by Gulfstream to tap the less penetrated market in China. The company mainly adopts non-price competition strategy in the oligopolistic market, focussing on changing and customising products as per the demands and preferences of the potential customers. The booming economy of China and the increase in the economic abundance of the overall population have contributed in bringing changes in the lifestyle of people across the country, which have also been affected by factors like Globalisation, trade liberalisation and increased industrial activities.

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Global Business Management
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Executive Summary
The booming economy of China and the increase in the economic abundance of the overall
population have contributed in bringing changes in the lifestyle of people across the country,
which have also been affected by factors like Globalisation, trade liberalisation and increased
industrial activities. The business jet market in the country can also be seen to be expanding
impressively with time, which in turn has brought several big companies in the market of the
country, including Gulfstream Aerospace which leads the market of the country. This paper
tries to analyse the strategies taken by the company to tap the less penetrated market in
China. As per the findings and economic analysis of the paper, the company mainly adopts
non-price competition strategy in the oligopolistic market, focussing on changing and
customising products as per the demands and preferences of the potential customers. This can
be seen to have positive impacts on the profitability and market dominance of the same.
However, in the long run, the concerned company needs to concentrate on cost efficiency,
price efficiency, targeting greater clientele and product diversification in order to sustain in
the increasingly competitive business jet market of China.

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Table of Contents
Introduction................................................................................................................................3
Business Jet Market of China.....................................................................................................4
Reasons behind increased opportunities in the business jet market of China............................6
Threats and bottlenecks in the business jet market..................................................................10
Case Study of Gulfstream in business jet in China..................................................................12
Strategies taken by Gulfstream in business jet market of China..........................................13
Economic evaluation of the strategy of Gulfstream in China..............................................14
Strengths of the strategic framework of Gulfstream in China.........................................14
Limitations of the strategic framework of Gulfstream.....................................................17
Conclusion................................................................................................................................17
References................................................................................................................................18

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Introduction
The global economic and commercial scenarios have undergone significant changes
and dynamics over the years and much of these changes can be attributed to international
phenomena of immense significance like that of Globalisation, trade and commerce
liberalisation in most of the countries, industrial progresses as well as technological and
infrastructural developments (Sassen 2014). Together, these factors have contributed in
making the global economic scenario more integrated, inclusive and intercommunicated.
With higher integration of economies across the globe and creation of what is known
as a global marketplace, increasing number of businesses from all parts of the world, can be
seen to be attempting to expand their operations and presence in previously unexplored
regions as well as new markets with less penetration, to increase their profitability, prosperity
and sustainability as well as to gain higher share of clientele and markets (Holland 2018).
This is especially true in case of the emerging or the developing economies, in the
contemporary period (like those of the Asian countries namely India, China and others),
which have been appearing as highly lucrative and potential markets for businesses across the
world, especially for the businesses and industries having their origin in the developed
countries. These businesses compete with each other with the objective of tapping the
unexplored markets of these emerging economies, taking advantage of the lifestyle and the
increasing income patterns of a major section of the population in these countries (Harrod and
O'Brien 2012).
Keeping this into consideration, the concerned report tries to explore the recently
expanding market of business jets in the emerging economy of China, thereby critically
analysing and evaluating the strategies which have been adopted by the companies, in this
industry, for the purpose of tapping the market, especially focussing on the strategies taken

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by Gulfstream, which dominates the business jet market in the concerned country (Nolan
2012). The report also tries to analyse the opportunities, bottlenecks and economic rationale
working behind the strategies taken by the concerned firm as well as the other businesses in
this domain in the concerned country. For studying the same, the concerned report refers to
the article named, Business Jet Makers Eye China, by Mike W. Peng.
Business Jet Market of China
To understand the strategies adopted by Gulfstream as well as other companies in the
business jet market of China, it is of immense importance to explore the market dynamics in
the concerned market in the country, in the recent period. The business jet market, across the
world, has been increasing impressively over the years, with the increase in the demand for
personal commutes, increase in the level of income of certain sections of people as well as
with the change in the lifestyle of population across the globe, particularly in the developed
and some emerging economies (Nolan 2012). China, in this context, can be seen to be
appearing as one of the lucrative markets for business jet companies as can be seen from the
following figure:

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Figure 1: Leading countries across the world with highest number of business jets
(2017)
(Source: Statista.com 2018)
As is evident from the above figure, the highest number of business jets can be seen to
be present in the United States of America (20978 units by 2017), followed by Brazil and
Mexico. However, as can be seen from the above figure, several emerging economies can
also be seen to be ranking amongst the leading countries in this context and China is one of
the primary ones among them (Niosi and Zhao 2013). However, the number of business jets
in China, in the contemporary period, can be seen to be considerably low than those of the of
the developed countries like United States, Canada and other. The number of business jets in
the concerned country currently can be seen to be nearly 497 (Budd 2013). However, the
market for business jets in China can be seen to be appearing as a lucrative one, in the
contemporary period, as can be shown with the help of the following figure, highlighting the
fleet breakdown in China, with respect to the size of the aircrafts:
Figure 2: Flight Breakdown by aircraft size in China
(Source: Asianskygroup.com 2018)

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The reasons behind the same are discussed in the following section.
Reasons behind increased opportunities in the business jet market of China
There are several economic, commercial and policy related reason behind the
increasing opportunities for the business jet companies to infiltrate the market of the
emerging economy of China, the primary ones of which being as follows:
a. Increased economic growth and prosperity- The primary and the most crucial reason
behind the increased opportunities and expansion in the business jet market of the concerned
country, can be attributed to the increased economic growth and productivity in the country
over the years, which can be seen from the following figure:
Figure 3: Increase in GDP of China over the years
(Source: Tradingeconomics.com 2018)
The above figure highlights the dynamics in the Gross Domestic Product of the
country, over the years, which can be seen to be consistently increasing for the concerned
country over the last two decades (Jarreau and Poncet 2012). The GDP of the country,
showing the total value of the final goods and services produced within the geographical
boundaries of the same, within a specified period of time, indicates towards the productivity

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scenario of the concerned country and is a major indicator of the economic growth of the
same. In this context, the GDP of China can be seen to be increasing impressively, which
highlights the robust economic growth of the same over the years. This in turn is expected to
increase the income level, economic well-being, demand patterns and lifestyles of a major
share of the population of the country, thereby asserting towards the presence of opportunities
for the companies in the business jet market, in the recent periods (Lewis 2013).
b. Increasing number of billionaires and elites in the country- Along with the increase in
the overall GDP of the country another economic trend can be observed in the country over
the years, which is that of increased skewedness in income distribution among the population
of the country. This can be seen with the help of the following figure, showing the income
inequality among the top 10% and the bottom 40% of the population of the country:
Figure 4: Increasing income inequality in China over the years
(Source: Rba.gov.au 2018)
This in turn, has resulted in accumulation of immense wealth in the hands of a handful
of people in the country, with immense power, wealth and purchasing capacities (Lewis

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2013). This, in turn, has resulted in the increase in the number of billionaires in the country,
especially in the last few years, as can be seen from the following figure:
Figure 5: Increase in the number of billionaires in different countries across the globe
(Source: Businessinsider.in 2018)
As the above figure shows, the number of billionaires in China, which used to be 350
in 2007, increased to 470 in 2012 and further to as high as 1,040 by 2017, the growth rate of
the same being higher than that of the United States itself. This in turn, is also one of the
contributing factors in the increasing demand as well as opportunities in the business jet
market of the country.
Opening scopes for private and international companies- The government of China, in the
recent period, has implemented several policies with the objective of reducing corruptions in
the dominating public sectors in the countries. In this situation, the anti-corruption campaign
started by the government, has led to the reduction of the market share of the large state-
owned enterprises in the country from 15% to 5%, which in turn has increased the scopes of

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the private and foreign multinational firms in this business, to enter the market of the country
(Jennings 2018).
Liberal Policies- The government of the country has also begun to liberalise their
protectionist policies to some extent in the business jet market of the country. In their latest
Five-Year Plan, the government of China has targeted to develop non-airline aviation and
also have instructed the militaries to give up some of their spaces and holdings in order to
make provisions for the business jets. This in turn, makes it lucrative for the companies in
this domain to infiltrate in the market.
All these aspects can be expected to be driving the demand for the business jets in the
country upwards in the contemporary period. This in turn seems to increase the opportunities
for the companies, especially that of Gulfstream and others in the market, which can be
shown with the help of the economic concept of demand and supply, as can be shown from
the following figure:
Figure 6: Increase in demand for business jets in China
(Source: As created by the author)

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The increase in demand is expected to increase the price of business jets, which in
turn is expected to increase the business opportunities and profitability of the firms including
Gulfstream in the concerned market (Iossa and Martimort 2015).
Threats and bottlenecks in the business jet market
Along with the presence of considerable opportunities in the private jet market in
China, there also remains several hurdles in the concerned markets, which may appear as
bottlenecks for the firms venturing in the concerned market. Some of the primary ones of
these bottlenecks can be seen to be as follows:
a. Strict tariff regulations- The government of China can be seen to be imposing stringent
tax and tariff policies in several import markets, of which luxury goods like that of business
jets are eminent ones. The buyers of business jets in the country, have to pay cumbersome
taxes and import tariffs and duties which increases their costs of buying business jets
considerably (Hall and Lieberman 2012). Moreover, the government also intends to impose a
luxury tax on these commodities, which is expected to increase the costs of the same to a
considerable extent, which can be a potential threat for the property of the companies
venturing in this market. The effects of imposition of tariff and import duty can reduce both
demand and supply for the same, as can be shown in the following figure:

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Figure 7: Effects of imposition of import quota
(Source: As created by the author)
b. Strong hold of military- The skies of the country are officially controlled by the military of
the country with their own flight routines and plans. This in turn makes the process of
receiving permission for flights, flight plans and operations a highly cumbersome and time-
taking process, the costs of which have to be endured by the business jet companies venturing
in this market. The airport in Beijing also has only two take-off slots for business jets per
hour (Dobson 2017).
c. Competition in the business jet market- The market for business jets, in the country is an
oligopoly, with the primary competitors being Gulfstream, Cessna, Beech Hawker and
Dassault Falcon. In the recent period, Boeing, Embraer and Airbus can also be seen to be
entering the market, especially in the large jet markets.

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Keeping these into consideration, the market and economic strategies of one of the
major companies in this domain, the Gulfstream, are critically evaluated and explained in the
following section of the report.
Case Study of Gulfstream in business jet in China
As discussed above, the business jet market of China is primarily oligopolistic market,
the company leading the market in China is Gulfstream and the same has alone sold more
than 100 business jets in the country till now. Gulfstream Aerospace Corporation, having its
origin in the United States of America is one of the leaders in this market across the globe as
can be seen from the following figure:
Figure 8: Global market share of different companies in the aspects of business jet
deliveries (2017)
(Source: Statista.com 2018)

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Strategies taken by Gulfstream in business jet market of China
The concerned company, as discussed, operates in an oligopolistic market of business
jets in China, where there are few other considerably strong competitors, the primary ones
being as follows:
 Beech Hawker
 Cessna
 Bombardier
 Boeing
 Airbus
 Embraer
In general, an oligopoly market is characterised by few sellers having considerable
market power, market share and clientele. Each of the sellers in such type of market have
differentiated products and their decisions are also based on the decisions of their rivals.
However, in the concerned market, there are not many numbers of buyers as that of
conventional oligopoly markets. The level of competition, thus, is substantially high in the
business jet market of the country.
In general, there are two different ways in which the firms in an oligopoly market
compete or interact with each other to gain increased clientele, market power and dominance.
These options are of that of price war and non-price war and these two options are also
available to Gulfstream in the concerned scenario (AVIATION and LEFRAK 2015).
However, the strategy taken by the concerned company to increase its presence and
dominance in the business jet market of China, can be seen to be much more aligned to the
latter one than that of the former one. The components of the strategic framework of the
concerned company are discussed as follows:

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 In the business jet market of China, Gulfstream can be seen to be adopting the policy
of personalisation and customization of their products in accordance to the needs,
demands and preferences of the customers.
 Knowing that the targeted customers in the market are less in number and are mostly
elite class, the company has implemented the strategy of knowing the attributes,
preferences and even the cultural patterns of the customers.
 Known for its sensitivity to the cultural attributes of the customers and for
acknowledging the same, in China also the company can be seen to be implementing
these aspects in their operational framework. This can be seen from several instances
in the operational framework of Gulfstream (AVIATION and LEFRAK 2015).
For example, the company has renamed the model G250 (launched in 2008) to G280.
This has been done by the company, primarily to respect the cultural aspects of
Chinese population, as in many areas and certain Chinese culture, the number “250”
is considered to be useless or stupid. By removing the same the company aimed to
increase its goodwill in the market (Atwal and Bryson 2017).
Economic evaluation of the strategy of Gulfstream in China
The non-price war strategy taken by the concerned company, where the company has
concentrated in developing and customising the products as per the needs of the customers.
This strategic framework has several positive sides as well as a few limitations which can be
seen to be discussed as follows:
Strengths of the strategic framework of Gulfstream in China
The strategy can be appreciated in the ground that opting for the other alternative, that
is the price war in oligopolistic market could have led to unfavourable outcome for the
company itself as can be shown with the help of the following figure:

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Figure 9: Kinked demand curve in price war in oligopolistic market
(Source: Fudenberg and Tirole 2013)
In the presence of price war in an oligopolistic market, leads to a situation where the
firms compete by lowering the prices of their products, thereby making the products more
attractive to the customers. However, prolonged price war lead to fall in the profits of all the
firms involved in it, thereby making it difficult for the firms to sustain in the long run.
However, engaging in non-price competition, like those of competing on the basis of
product and service quality, desirability and relevance to the concerned customers, can help
the companies to compete efficiently as each of the companies are expected to develop loyal
client base, on the basis of the attributes of their products or services (Cubbin 2013). The
effects of the same can be seen to be as follows:

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Figure 10: Effects of non-price war in oligopolistic market
(Source: As created by the author)
As the above figure highlights, in the presence of non-price competition in an
oligopolistic market, due to the presence of few sellers and loyal client base for each of the
companies, each of the company, in the equilibrium condition, has the potential to earn
economic profit.
This can be seen to be the case for the concerned company, Gulfstream in the business
jet market of China as the same can be seen to be putting in market-oriented and pro-
customer efforts instead of indulging in price competition with their rivals (Cubbin 2013).
The positive impacts of the same can be seen from the fact that the company has received
immense positive response from the potential customers in China and has also signed a deal
of 60 plane with the Minsheng Financial Leasing.

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Limitations of the strategic framework of Gulfstream
Although the strategies adopted by Gulfstream, in China, have considerable potential,
however, only emphasizing on personalisation and cultural aspects may not have long term
effects, if the company does not focus in improving their cost efficiencies and increase the
varieties of the services, to increase the sustainability of their business in the expanding and
increasingly competitive market of business jet in China in the coming years (Dunne et al.
2013).
Conclusion
From the above discussion it can be seen that the business jet market in China has
been expanding in the contemporary period, much of which can be attributed to the overall
economic growth of the country and to the increasing accumulation of wealth in the hands of
the elite class, especially the industrial tycoons and other influential people. The market for
business jets, however, is an oligopolistic one, with some big companies operating in the
market, of which Gulfstream is one of the primary leaders, capturing a lion’s share in the
business jet market. Primary reasons behind the increasing share and dominance of the
Gulfstream, in the business jet market of the country, can be attributed to the robust and
intelligent strategic framework of the same, by virtue of which the company can be seen to be
engaging in non-price competition, by making their products more acceptable to the potential
customers in the concerned country. However, given the expanding, lucrative and
increasingly competitive nature of the business, the concerned company also needs to focus
on their cost efficiencies, business diversities as well as in attracting more clientele in the
concerned country in the coming years.

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