Wednesday, October 10 2012
Case Analysis: Airbus in China
1. Identify the key management issues facing Airbus in China.
Since 1985, cooperation between Airbus and China covers the commercial, industry and research sectors. Laurence Barron, president of Airbus China since January 2004 is willing to expand this cooperation with Chinese aviation industry. Heading this way, a joint venture was launched in September 2008 owned by the European aircraft-maker for 51%, with the remaining 49% held by a Chinese consortium that comprises Tianjin Free Trade Zone (TJFTZ) and China Aviation Industry Corporation (AVIC). In addition, already six Chinese companies are involved in manufacturing parts of the Airbus jet liners, adding a strong “Chinese flavor” to the big airplane family. Airbus in China faces many management issues that I’m going to identify. First, since June 2011, the state-owned manufacturer Comac (Commercial Aircraft Corporation of China) entered into competition with both aircraft companies Boeing and Airbus by presenting its new aircraft: the C919. This became possible because of the technology transfer induced by the many aircraft companies’ joint-ventures created these past decades in China. Comac benefited from this efflux and will probably be able to compete with the experienced eastern companies. This was led by the strategy of most companies that consisted in assembling many parts of their aircraft in China. The stateowned company will benefit from many advantages since it knows its market better than any foreign company and that the government has a lot of power in China. In addition, language and cultural barriers, such as the “Guanxi” which relates to social networking and interactions between Chinese people will play in favor of the new local company that will be able to sort out the best agreements and manage their employees with efficiency. Other issue faced by Airbus is their relationship with the Chinese government. Indeed, in concerns of duties and taxes, China becomes the more and the more coercive with
Wednesday, October 10 2012
overseas companies and high trade barriers are maintained to protect domestic firms from foreign competition. This fact coupled with the will of Comac to compete with other aircraft companies will have a negative impact on taxes for Airbus considering the fact that the government will be in favor of the spur of the state-owned company. This is the result of a lack of the rule of law in the Asian country that usually leads to widespread government corruption. In many cases government “connections” determines which company shall be successful in China. Airbus will be facing this lack of rules, regulation and transparency that might lead them to harsh and unfair competition with the Chinese airline company. Moreover, it’s important to point out the issue of the balance of interests in a joint venture. As a reminder the aim of it is partnership. The difficulty relies on the ability of each partner to foresee and agree what relationship and commitments between them are needed. This type of structure involves the share of problems and risks and responsibility in solving the issues they face. If the partners of the joint venture have unequal interests in the joint venture, relative to total business it can represent a threat for one of the partners. Some of all the partners’ interests may change, when they realize the opportunities that can be offered to them in other markets. For instance, Tianjin Free Trade Zone, which is the place where the Airbus is assembled, is planning on exporting its products to overseas aircraft companies. The supply chain was originally designed for the Chinese market. If Chinese manufacturers decide to do so it will reduce the market shares of both Boeing and Airbus. China Petroleum and Sinopec (one of the major energy company in China) are currently working with Airbus on the development and...