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ECON600 Managerial Economics : Subsidiaries and Market Strategies

The Boeing Aircraft Company has dominated the commercial aircraft market for decades, but its position of influence has lessened in recent years. Its chief competitor, Airbus, has made significant market gains, and may be posed to become the number one producer of commercial aircraft in the near future.
Use the material in Chapters 1-6 to analyze how Boeing and Airbus approach the aircraft marketplace, how they are alike and different (particularly their production processes), where the rivalry is likely to head, and the most probable outcome of their ongoing competition.

Answer:

Introduction:

Two of the world famous aerospace manufacturer in terms of huge market share is Boeing and Airbus. While Boeing is based in United States of America, Airbus is an European Multinational company focuses on building designing and selling civil and military aeronautical products worldwide. Boeing is much older company having been founded in 1917 and has been operating for almost 100 years. Airbus has come into operation from 1970 has posed a biggest challenge to the existential dominance and market share of Boeing in the aircraft industry. Through large operation of the subsidiaries and market strategies the airbus has been able to bag 50% of the market orders of aircraft affecting the business of the Boeing (Vasigh & Fleming, 2016)..

The paper aims to make a report focusing on the issue and detect how the differing approaches of these two big manufacturers led them toward success or posed in front of challenges. How extent and outcome of competition in their market share and business operation has driven them over years and in recent times have been well captured in this report. A comparative study of the two firm has been done based on their operation, outlook , strategies and approaches. The discussion is wrapped up with stating the outcome of the competition and posing some viable recommendations for the challenges Being has been facing.

Approach To Marketplace: 

The firm Boeing has been enjoying a larger market share for longer time indicating almost 40 years of monopoly in the aircraft market prior to the advent of Airbus. Boeing 747 has been one of the remarkable prod


uctions of the firm so far. On the face of growing market demand in aviation industry even after few of the global economic crises, it is clear how the Industry is resilient and has immense potential to grow. With increase in income of the population all over the world, the purchasing of airplane services has increased expanding the possibility of market emergence. This has pushed the firm to adopt current market outlook that focuses on long-term benefits of the firm calibrating the growing and emerging market (Caliskan, 2010). The firm’s market approach has always been keeping in mind the general outline of the economy and its performance. The indicators the firm focuses upon while developing policies and strategies are in line of the gross domestic product of the country under consideration, population and its proportion involved in partaking airlines services. Worldwide commerce of the nation in form of international trade and transaction, emergence of technology and composition of manufacturing also earn important role in the strategy planning of the firm. Overall, the firm makes non-cyclical forecasts targeting long run growth in its contribution to the aviation industry beyond the deadlocks of the short term.

The importance of the firm Airbus lies in the fact that it is the largest aerospace manufacturing company in Europe with leading innovation in commercial aircrafts. The firm has experienced commercial fails earlier which pushed t to come with some strategy that allows it to stand different in the existing market place ruled by Boeing.  The way the firm has approached toward the market has been through the production and its quality. This led Airbus to go for extensive product innovation and adopted the product differentiation strategy. The idea was, greater the ranges of products meeting utilities and demand higher will be the satisfaction that would further expand the business amid the bounded market so far. Application of these two strategies have propelled the growth of the business firm undertakes leading to expansion of the operation in 170 places globally  (Pitt & Norsworthy, 2012). Another driving approach of the firm has been orientation towards family concepts of airplanes. The families of Airbus aircraft has allowed the firm incur lower cost of operation leading them toward success. The concept applied in avionics has led the firm toward maintaining low cost in management and inventory as well. The success of the airbus is evident in its partnership with larger countries and presence of MRO hubs in five of the continents globally.

Comptetion:

Due to the important contribution, they make in the aircraft industry, both Boeing and Airbus faces toughest competition characterized in form of duopoly in the jet airline market from 1990 onwards. The series of global merging within aerospace industry allowed it to grow as two of the big firms on the face of various faded and merged up bodies. The past 10 years data reveals that the number of orders received by Airbus are 9, 985 compared to the Boeing receiving 8, 978 orders (Naayagi, 2013). This clearly suggests that even if Airbus is leading in the market now it is not much ahead of the Boeing who sighs just on its neck in terms of production and sales. The rivalry of the companies are evident on many fronts and modes of competition lies on various factors like technology, pricing, choice of engine, currency& exchange rates and safety and quality of services provided by the firms.

Technology:

The competitions between the firms have been tough specially for Airbus who had to come up with application of newer technology in order to compete with well-established ranges of products from Boeing. A300 of Airbus applied composite materials and introduced automated the functions of the flight engineers allowing the jets to have two-man flying crew (Caliskan, 2010). It is also the first company to come up with digital fly-by-wires controls in the airplanes.

Outsourcing:

Airlines industries in the world are influenced and controlled wholly or partially by the national governments. This indicates that decisions are taken keeping parity with the political criteria and mindset  (Pitt & Norsworthy, 2012). This has led the firms to go for subcontracting the production and assembling of the components of aircraft in the manufacturing nations of strategic importance. The basic intention is to derive competitive advantage.

Engine choices:

The competition and subsequent strength of the aircrafts coming from these two firms gets determined by what kind of engines are being chosen by the firms. Airbus has made deal with Rolls-Royce for using the engines manufactured by them whereas Boeing goes with engines provided by General electric.

Prices:

Looking at the prices list of both the firm it is evident that Airbus is completely based upon lower pricing with more allowances and discounts provided to the customers compared to Boeing. This price competition is playing major role in driving the market share of airbus up leaving Boeing much behind. Application of efficient technology and consequent lower cost are the key to the secret behind lower price charged by Airbus.

Currency & Exchange Rate:

Airbus costs in euro while Boeing costs in dollar. Currency appreciation like dollars increases the cost of Boeing production relatively making the airbus production more cost efficient and attractive hence (Caliskan, 2010)

Safety & Quality:

Both of the firms have been responsible in keeping up its brand value in terms of safety and quality provided in the aircraft. The companies spare each others on this ground to make comparison or compete rather follow well-engineered structure to deliver greatest quality.

Boeing Vs Airbus:

What makes the competition interesting and intriguing are the strategies and executions of the firms bases on factors like how the products are designed, pricing and cost, market structure faced by them and strategies or approach they adopt, management decisions and marketing policies. Even if both the firms contribute to the same line of production and service as two biggest leading component in the aircraft industry, what drives them apart from each other in terms of  one firm gaining more market share are the managerial factors like production decision on the face of demands and emerging market as the global trend reveals strictly (Naayagi, 2013). Few of the important factors to motivate competition are:

  • Design:
  • Price and cost:
  • Production and demand decision:
  • Market structure:
  • Advertising and other marketing strategies
  • Management and profit

Airbus A320 Vs Boeing 737:

Comparing the sales of these two leaders it has been found that Boeing 737 has outsold Airbus A320 from its very introduction. The firm receives 7033 orders against its own record of 7940 with indication of slight fall in the orders. Airbus received orders of 4471 from the A320 launching in 2010. The recent data shows Airbus to sell approximately 1350 more than Boeing 737 has been sold in 2017 indicating growing market popularity of Airbus. In terms of delivery also airbus lies ahead with 7610 deliveries since its inception in operation with 5501 deliveries in 2017 as compared to 9522 and 4430 of the Boeing family.

Airbus A380 Vs Boeing 747

The launching of Airbus A380 is of greater importance on the face of rising demand of larger aircraft than Boeing 747 which ruled the market then. A380 came up as full  length and double deck aircraft taking the market share of the Boeing. This pushed Boeing to go for to develop a third generation of 747-8, which caused greater competition directly between the firms in terms of long routes.

Outcome Of Competition:

While many of the market players is intimidated by existing competition between firms, the outcome of competition can also bring out some positive factors for the quality of the product or service in the industry as a whole.  Both the firms being involved in complex manufacturing processes are largely exposed to making higher capital investment  (Baye & Prince, 2014). This causes greater sunk costs in the production process. Moreover the complex production and designing requires greater level of research and development expenditures. The competition on the grounds of quality of services has pushed the firms go for best strategies as per the market condition and changes taking place. As result of competition both the firms have been able to build a long supply chain all over the world along with their domestic markets of USA and Europe. Airbus seems to follow system interaction as their mode of production inside USA. This allows the firm to spread the risk of cost and sales are speared over range of foreign as well domestic partners of the firm. Even if the final products are assemble inside USA or Europe, the major airframe parts get produced and transferred through subcontracting made to foreign suppliers.

The huge competition facing the firm posed Boeing toward much concern to come up with some techniques that can outweigh the Airbus and regain its market share like before. The firm pertains to different manufacturing process involving the economies of scale and economies of scope. This allows the firm to go for larger production on the face of greater demand base that allows the production cost to fall over time with having greater initial investment. Boeing is more prone to produce commercial and military aircrafts that reach different markets.

Airbus focuses more on cost portion and tries to minimize cost by producing level of outputs that optimizes the selection of production level at fixed or variable level. The firm adjusts its long run average cost curve adjusting the fixed factors over period amid growing competition and market emergence. More technological inclination is found to be adopted by the firm in comparison with the Boeing that has allowed staying ahead in the market in terms of charging lower price stemming from lower cost incurred (Naayagi, 2013). This creates huge quality challenge for the entire aircraft industry worldwide while capturing the business share with lower costs underlying the process.

Conclusion:

From the discussion one important intuition can be drawn regarding the growing competition between firms of US and Europe as biggest leaders in the aircraft industry that with advent of technology and adoption of proper strategies to calibrate the market,  a failure firm can also come up to the top as leading seller and producer just by enhancing quality. No wonder why the Airbus could leave Boeing behind even coming into operation after many years of Boeing. Understanding the market need and channelizing resources in line of that Airbus put its head up in global market evident in increasing number of orders and delivery comparatively

Reference: 

Airbus. (2014, January 1). Airbus. Global Website -. Retrieved June 16, 2014, from https://www.airbus-group.com/airbusgroup/int/en/our-company/What-we-do/airbus.html

Baye, M. R., & Prince, J. T. (2014). Fundamentals of Managerial Economics. Managerial Economics and Business Strategy (). New York: McGraw-Hill/Irwin.

Boeing. (2013, January 1). About Us. Boeing:. Retrieved June 16, 2014, from https://www.boeing.com/boeing/companyoffices/aboutus/index.page

Burg, E., Berends, H., & Raaij, E. M. (2014). Framing and interorganizational knowledge transfer: A process study of collaborative innovation in the aircraft industry. Journal of Management Studies, 51(3), 349-378.

Caliskan, O. (2010, October 1). An Analysis of the Airbus-Boeing Dispute From the Perspective of the WTO Process. Academia.edu. Retrieved June 16, 2014, from https://www.academia.edu/1063739/An_Analysis_of_the_Airbus-Boeing_Dispute_From_the_Perspective_of_the_WTO_Process

Current Market Outlook 2015-2034. (2015). www.boeing.com. Retrieved 9 November 2017, from;https://www.boeing.com/resources/boeingdotcom/commercial/about-our-market/assets/downloads/Boeing_Current_Market_Outlook_2015.pdf

Harrison, G. J. (2011, July 25). Challenge to the Boeing-Airbus Duopoly in Civil Aircraft: Issues for Competitiveness. . Retrieved June 16, 2014, from https://www.fas.org/sgp/crs/misc/R41925.pdf

Liu, D., Tang, Y., & Cong, W. L. (2012). A review of mechanical drilling for composite laminates. Composite Structures, 94(4), 1265-1279.

Naayagi, R. T. (2013, April). A review of more electric aircraft technology. In Energy Efficient Technologies for Sustainability (ICEETS), 2013 International Conference on (pp. 750-753). IEEE.

Phillips, A., Phillips, A. P., & Phillips, T. R. (2012). Biz jets: Technology and market structure in the corporate jet aircraft industry (Vol. 1). Springer Science & Business Media.

Phillips, A., Phillips, A. P., & Phillips, T. R. (2012). Biz jets: Technology and market structure in the corporate jet aircraft industry (Vol. 1). Springer Science & Business Media. Lee, J. J., & Yoon, H. (2015). A comparative study of technological learning and organizational capability development in complex products systems: Distinctive paths of three latecomers in military aircraft industry. Research Policy, 44(7), 1296-1313.

Pitt, I. L., & Norsworthy, J. R. (2012). Economics of the US commercial airline industry: Productivity, technology and deregulation. Springer Science & Business Media.

Png, I. (2013). Managerial economics. Routledge.

Vasigh, B., & Fleming, K. (2016). Introduction to air transport economics: from theory to applications. Routledge.

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