Bombardier is the global leader in business and regional aircraft manufacturing and in recent years has been improving their performance. Their strategic objective has always been to be global leaders in both their aerospace and transportation divisions. However, there have been frequent leadership changes since the diversification era ended in 1999, and many analysts and investors have been questioning what their long-term strategy in the aerospace industry is, especially since the postponement of the CSeries launch. Their regional jet product line is a concern with the aging technologies of the CRJ and Q-Series models. And the threat of the Chinese, Japanese and Russians entering the market is imminent. It remains clear that Bombardier now faces the challenge of having to carefully assess its strategic direction for the future in order to hold its competitive advantage in regional jet market.
Bombardier is part of the Aerospace and transportation industries, but the focal industry in question is the regional aircraft industry. In order to conduct an external analysis, Porter’s 5 Forces Model will be used. Threat of New Entrants: is moderate. If the Chinese and Russian projects don’t follow through (since they would be the direct competitors to the CRJ1000 and CSeries), it would be extremely difficult for other competitors to enter the market because the costs associated are relatively high. For example, the initial cost of Bombardier’s CSeries project reached $100 million as of April 2007, and the estimated cost of the entire project is $2 billion (All figures are presented in USD). Also, there are very powerful firms established in the industry and for a new firm to enter they would have to compete with firms already on the lower end of the learning curve (See Exhibit 1). Bargaining Power of Suppliers: is moderate. There is no threat of suppliers lowering quality because of the high standards set by industry regulators. However, there is always risk of price increases. There aren’t a vast number of suppliers in the industry, and their parts are extremely important in the manufacturing process. Furthermore, Bombardier has integrated technologies and components with their suppliers that are specific to their requirements. As a result, the switching costs would be extremely high, and the availability of substitutes is almost nil. Bargaining Power of Buyers: is moderate to high. Passengers’ preferences changed over time from comfort to low price. Since the passengers are the end users in this industry, airline companies must meet their needs. Therefore, passenger preference is the deciding factor when choosing which aircraft to purchase. The fact that there are several competing manufacturers to choose from adds to this power. Also, the switching costs are low since airline companies deal with many manufacturers regardless of what they have previously purchased. What is important for buyers is to acquire aircraft that will meet their customers’ needs and leave them with low operating costs. Threat of Substitute Products: is low. There are alternatives to planes, such as cars, trains, and buses. However, there is no replacement when it comes to traveling large distances in short periods of time. Rivalry Among Existing Competitors: is moderate to high. Bombardier’s main competitor in this industry is Embraer, however there are several countries (China, Russia) attempting to enter the market. The intense rivalry already exists between Bombardier and Embraer since they’ve both been introducing many new products over the past decade. Also, the low profit margins are a result of this intense competition. Furthermore, governments play an important role because they support their national manufacturers to protect them from foreign competition.
Strategic Implications of Analysis Results:
Currently, Bombardier is in a favorable position. They are the leaders for business and regional jets....