Strategic Analysis: Airbus's Business Jet Market Expansion in China

This report provides a comprehensive analysis of Airbus's strategic options for entering the Chinese business jet market. It begins with an executive summary outlining the problem: how to expand into the lucrative yet challenging Chinese market. The report identifies the business jet market as a high-potential area, particularly given China's large number of billionaires. It analyzes the external environment, including regulatory hurdles like airspace control and import duties, and the internal capabilities of Airbus. The core of the report examines various strategic options, including equity-based alliances and joint ventures, focusing on a potential alliance with Hunan Airlines. Porter's five forces are used to analyze the competitive landscape. The report justifies the recommendation of an equity-based alliance and joint venture, considering the benefits of shared resources, established goodwill, and market knowledge. It also addresses the risks associated with cultural differences. The report also explores the vertical cooperation aspects of the alliance. The conclusion emphasizes the importance of a well-defined strategic plan to navigate the complexities of the Chinese market and capitalize on the business jet opportunity. The report offers recommendations for Airbus's market entry and expansion in China.

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.