Business Jet Makers Target China’s Emerging Market

Background

There are number of companies which make investments and build capacity in terms of creating the economies of scale. Organization mainly targets the expansion into the new markets by using their potential in effective manner and creating the opportunities related to the additional sustainable incoming. There are various opportunities available in both developed countries and developing countries. It is necessary for the organization to target any particular market, and make their strategies after considering and evaluating all the aspects of the market.

Strategy related to the international expansion mainly includes the market entry strategies. All these market entry strategies mainly focus on the primary markets, determine the target customers, channel strategy, resource allocation, demand of products and service, positioning of brand, and creation of the operating model (International Expansion, no date).

This paper discusses the international strategy adopted by the firm in terms of taking the advantage of the emerging economic opportunities. This is done from the perspective of the multinational firms in the emerging economy. Structure of this paper includes the quality analysis of the necessary frameworks and concepts, understanding of the key issues and implications, arguments which are supported by data, and growth opportunities available in the emerging economies. Lastly, brief conclusion is stated for concluding all the necessary facts of this paper. In terms of discussing this paper the chosen organization is the Boeing and the chosen emerging economy is the Indonesia.

Boeing is deemed as largest aerospace company of the world and also the leading manufacturers of the commercial jetliners, defence, space and security system, and also the service provider of the aftermarket support. This company is the biggest manufacturer of the America, and it also provides its support to the airlines, U.S. and other countries allied governments. It must be noted that, this country has the customers in more than 150 countries. Services of this company mainly includes the commercial and military aircraft satellites, weapons, electronic and defence systems, launch systems, advanced information and communication systems, and performance-based logistics and training (Boeing, no date).

Indonesia is deemed as that country that contains the great economic potential, and this potential is noticed across the globe by number of communities. Indonesia is the largest economy of the South East Asia, and it includes number of characteristics for putting the country into the great position and also ensures advanced economic development for the country. There is one more example of the international recognition in terms of Indonesia economy and that is upgrades in context of the credit rating of the country by the companies of the financial services, and the reasons of this upgrade are the continuous growth of economy, low debts of government, and effective fiscal management. All these things automatically attract the financial inflows and investments from multinational organizations in Indonesia, which means, both portfolio flows and foreign direct investment (FDI). These inflows related to the FDI had been weak for the Indonesia during the time of the financial crises of Asia, and these crises mainly shake the foundations of the country. However, situations changed after sometime and this country proved itself as the emerging economy of the Asia. As this country make continuous efforts in reduce its dependency on the raw commodity exports and trying to boost their manufacturing industry. This transformation mainly occurred because of the falling prices of commodity after the period of 2011 and these prices fall because of the economic growth of China, and this impacted the economy of this country. Export performance of Indonesia weakens significantly, and this implied the few foreign exchange earnings and reduced purchasing power, and it can be said that it result in the economic slowdown in the country (Indonesia Investments, no date).

Global Context

Indonesia is deemed as one of the new Asian emerging markets that mainly run the current-account deficits and as per the recent data these deficits are widening to the four-year high. Al these deficit economies mainly depend on the foreign inflows in terms of financing their import needs and this makes them vulnerable to the crash in sentiments and also in the sharp outflows. Almost 40% of the binds of Indonesia are held by the foreign investors, and this percentage is highest in the emerging markets of Asia (SCM, 2018).

This industry is deemed as world’s fastest growing industry. In next 20 years, it is expected that this country shows the growth of the average annual 7%. It must be noted that, Indonesia witnessed the fast growth of their aerospace industry and it reflects the economic growth in the Southeast Asia, and also the one of the largest economies of the Asia-pacific. This industry also attracts the middle class sector, as they are using the airplanes for both national and international tours.

In context of being the world’s largest archipelago, peoples consider the airplanes as the most logical option for travelling across the country. In the year 2014, number of passengers recorded by BSP in Indonesia reached almost 72.6 million people in comparison of 2013 that is only 68.5 million people (Wasserbaeur, 2018).

However, there is a roadblock also, as increasing competition reduced the profit margin of the organizations, but still capital investments in this industry are still high. In the year 2016, Indonesia officially holds almost 297 Airports and only few of these airports have runways above 3 KM in length. Therefore, presently there are number of new projects in terms of building the new and older airports and systems.

Market positioning is also strengthening by the local organizations, such as Lion air. As this organization order almost 230 aircrafts in the year 2011 from the Boeing Company for the price of almost US$21.7 billion. This purchase of the Lion air involved 201 737 MAX aircraft and 29 737-900 ER aircraft, and this boost the airline’s fleet to more than 400 aircraft by the year 2017.

In March 2013, Lion Air ordered almost 234 airplanes from the France-based Airbus, and in 2016, Lion ordered almost 42 aircrafts from the ATR, Boeing, and Airbus in terms of increasing their capacity (Cekindo, 2018).

It is expected that number of air passengers show growth of almost 30% on the year to year basis, and it reached almost 140million in the year 2018. This market is deemed as the largest market in south Asia. This market is deemed as largest market in the Southeast Asia, because population of Indonesia constituents almost 40% of the 625 million combined populations of almost 10 Asian Countries.

Market Positioning

With almost 17000 Islands across the country which is accompanied with the poor land-based transport infrastructure, both aviation and aerospace play important role for the Indonesia and its economy. Therefore, Indonesia needs the air travel for the mobility of its people and also for the transport of the goods. As stated by the forecast of the World Bank, economy of the Indonesia reflects the growth of 5.3% in 2017 (Salna, 2013).

Aviation industry of Indonesia is considered as the potential market for the aviation manufacturer, as following are the brief summary of the market-

	2015	2016	2017 (est.)	2018 (est.)
Market Size of Indonesia	887	1,070	1,177	N/A
Local Production in	260	440	484	N/A
Exports	158	174	192	211
Imports	785	804	885	973
Imports from the U.S.	237	261	287	315 (Export. Gov, 2017

There are number of ways through which organizations can enter into the market of Indonesia, and before entering into the markets of Indonesia there are number of factors which must be considered by the Boeing. There are number of factors which must be considered by the organization that are tariff rates, marketing and transportation cost, and degree of product adaptation. These factors will increase the cost to markets but it would be expected that the increase in sales will offset these costs. Some of these expansion strategies are stated below-

Joint ventures/strategic alliance- Joint ventures are deemed as the particular form of partnership which mainly involves the creation of the third independently managed organization. In this two organizations are agreed to work together in the specific market, either geographic market or product market and in this context third organization is created to work on this. Risks and profits are shared on equal basis (yeaple, 2013).

Direct Exporting- The most general form of exporting is the direct selling in the chosen market by using the own resources at the initial stage. There are number of organizations which once they have established the sales program turn to agents/distributors in terms of representing then in the market of Indonesia. Distributors and agents work together with the organizations in terms of representing the interest of the organization and it is critical that much time is spent in terms of deciding the choice of agent or distributor. It is possible for the good distributor agents to transform the chances of success in the market of Indonesia. This method is deemed as most suitable methods for the Boeing, because through this  

Acquisition of the overseas organizations- there are number of organizations which enter into the new market by purchasing the existing business of that market, as this strategy is deemed as most appropriate strategy. This happened because acquired organization holds the large market of share, as it may be the direct competitor or because of the government regulations it is the only option through which organization can enter into the market.  Suddenly, it would be deemed costly to acquire the business and determine the value of the organization in the foreign market and this will require the competent financial due diligence. This market strategy will instantly give the opportunity to stand as the local company, and management gets the benefit to receive the local knowledge, In other words, organization is able to get the strong customer base and local government treat this business organization as the local business (Mounfield, 2015).

Indonesia’s Market Potential

After considering all the above strategies, most suitable strategies for the Boeing are the direct export and acquisition of the overseas organization. Both the strategies involve the fewer amounts of risk and high chances of success, if Boeing implements these strategies after considering all the aspects of the market.

In Indonesia, there is growing attention for the requirement of such organizations which need to become the sustainable and optimize the economic contribution, and also ensures the performance related to the environment and social responsibility. Indonesia is deemed as the first country in the world which mandates the CSR by passing the law, and it is not considered as the voluntary practices in terms of the organization performance. However, CSR obligations and sustainable development are mainly imposed on the international and large organizations of Indonesia. Presently, there are number of Indonesian companies which think that CSR is the way through which livelihoods of the local communities can be improved.

This kind of charity is deemed as important social safeguard for the local communities of Indonesia. However, some additional opportunities in terms of incorporating the CSR within the main business and operations conducted by the organizations. This type of approach results in the additional business opportunities for the organizations.

It must be noted that, this can be considered as the big issue for the Boeing because CSR is mandatory in the Indonesia. This is not considered as the voluntary practice under which organizations need to conduct at their own discretion. However, all these things considered as the key challenges for the Boeing (MVO, 2016).

In Indonesia, CSR obligations have been introduced in three types of law, and all these laws are summarized below-

• The state-owned enterprise law (Law No. 19/2003)- Article 88 of this law defines that Indonesian state- owned enterprises must provide their assistance to the small and medium size firms, cooperatives organizations and public.
• The Investment Law (Law No. 25/2007) – this law mainly defined the obligations of the organization attached to every investment in context of maintaining the balanced and harmonious relationship which mainly concurs with the environment, local values, local norms, and local cultures.
• The Limited Liability Company Law (Law No. 40/2007)- Article 74 of this law imposes an obligation on the organizations to engaged in the environmental social responsibility, and these organizations mainly includes those organizations which are conducting their business operations in the natural resources sector or any related sector. Organizations fall under this category is under obligation to allocate the funds under the CSR implementation, and these allocated funds are deemed as the corporate operational expense. On the other hand, organizations are also allowed to treat the CSR expenditures as the cost in their accounting.

Following are the key challenges which need to be addressed by the Boeing if they want to expand their business in the aviation sector of Indonesia-

• There is lack of understanding in terms of the mainstream of CSR, which means, there are number of organizations and their stakeholders who still think of CSR as only the amount of donations and philanthropic activities.
• It becomes hectic for the managers of CSR to prove that CSR is not the cost centre activity, but in actual it is the investment which later provides benefits to the organizations and their beneficiaries.
• Local communities expectations in terms of CSR is also the big challenge for the organizations, as local communities considered the CSR fund as the opportunities for all the individual or collective opportunities. The dependency of the organization resources for local communities also exists.

Under-developed public infrastructure of the Indonesia gives number of opportunities to the aviation sector. As there are number of promising areas of the future growth such as increasing growth of the air traffic, investments and developments in the new airports closest to the tourist destinations, etc. Some of the opportunities related to the aviation sector are defined below-

• New and existing airlines of the Indonesia want additional aircrafts for expanding their routes mainly in the areas outside Java and Bali. This further need to represent the opportunities related to the sales and lease of new aircrafts (EIBN, 2016).
• With the increasing aircrafts operations in Indonesia, also enhance the need of the aircrafts parts and maintenance services. As per the Indonesian Aircraft Maintenance Service Association (IAMSA), the estimated market of the Maintenance, Repair and Overhaul (MRO) is forecasted to reach almost$65.3 million in 2020. Foreign investors become the partners with the local firms in terms of establishing the aircraft maintenance facilities (Export. Gov, 2017).
• With the tremendous growth of the aviation sector, Indonesia needs the proper training for its workforce as this ranging from technical to leadership training. This is also the open opportunities for the organizations with the expertise in the field of aviation in terms of sharing their knowledge and experience.

The biggest opportunity for the U.S. organizations is the U.S. – Indonesia Aviation Working Group Program. On 20^th April 2015, with the support of the U.S. Commerce Department and the FAA, Minister of Transportation Ignatius Jonan and U.S. Ambassador Robert O. Blake signed an MOU for commencing this Program on official basis. The AWG mainly gives the Platform for the government and organizations of U.S. in context of engaging with the Indonesian aviation stakeholders through the agencies of government, state owned enterprises, and the private sector also in terms of sharing the best practices across the globe. This program mainly focuses on the innovative solutions and services in terms of supporting the growth of the aviation sector of Indonesia (IATA, 2015.

Indonesia’s Aviation Industry

Conclusion

Strategy related to the international expansion mainly includes the market entry strategies. All these market entry strategies mainly focus on the primary markets, determine the target customers, channel strategy, resource allocation, demand of products and service, positioning of brand, and creation of the operating model. Indonesia is the fastest growing aerospace industry and it reflects the current engine of the economic growth in the Southeast Asia, and also the one of the largest economies of the Asia-pacific. This industry also attracts the middle class sector, as they are using the airplanes for both national and international tours. In context of being the world’s largest archipelago, peoples consider the airplanes as the most logical option for travelling across the country.

Indonesia is deemed as the first country in the world which mandates the CSR by passing the law, and it is not considered as the voluntary practices in terms of the organization performance. This can be considered as the big issue for the Boeing because CSR is mandatory in the Indonesia. This is not considered as the voluntary practice under which organizations need to conduct at their own discretion.

Under-developed public infrastructure of the Indonesia gives number of opportunities to the aviation sector. As there are number of promising areas of the future growth such as increasing growth of the air traffic, investments and developments in the new airports closest to the tourist destinations, etc.

The biggest opportunity for the U.S. organizations is the U.S. – Indonesia Aviation Working Group Program. The AWG mainly gives the Platform for the government and organizations of U.S. in context of engaging with the Indonesian aviation stakeholders through the agencies of government, state owned enterprises, and the private sector also in terms of sharing the best practices across the globe.

References

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