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Team Members: Kristin EisengaShawn Erickson Kristin Grecsek Justin Hummel
History of Embraer• EMBRAER--is a Brazilian aerospace company that produces commercial military and executive aircraft.• Founded in 1969 as a government owned company.• Fully separated from government control in 1997.• In 2000 went public (First public offering-NYSE)• Company split pretty evenly as far as number of commercial vs. military aircrafts built.
History of The Industry• First commercial flight was actually conducted between St. Petersburg Florida and Tampa in 1914 by Chalks Airlines.• It really took of in after 1945 when the government set safety standards for commercial flights.• In 1978 a Deregulation Act was passed that provided opening to new airline entrants to the market.• 1979- early 1980’s there was an influx of new companies that penetrated the market.
History of the Industry continued..• Three new Business models emerged by the late 1980’s:• 1- Major- Hub and spoke type system, large capacity planes with a couple major airports though out the country.• 2- Regional Carriers- These carriers connect smaller communities to major hubs and flights range in the 400- 1000 mile area.• 3 - Low Cost Carriers- These carriers connect medium sized communities with fairly large capacity planes. These planes cover 600-2000 mile routes on average and hold between 60-120 people.
Question 1• Describe the competitive position of each of the major firms in the aircraft manufacturing industry. Which segments are they pursuing? What is their business-level strategy?
Industry Today• There are four Major players in the commercial industry -Embraer, Bombardier, Boeing, and Airbus.• These four firms are separated into two different markets; large commercial jet and regional jet market. Boeing and Airbus create a duopoly in the large commercial jet market while Embraer and Bombardier are the two dominant companies in the regional jet market.
Embraer’s segment• The segments Embraer is trying to pursue are commercial, military and corporate aviation segments in the aerospace industry.• Embraer has recently entered the 70-120 seat market due to the increase demand for this market.
Question 2• What value and cost drivers have enabled Embraer (a relatively new firm from an emerging market) to grow rapidly and compete against established firms from the U.S., Europe, and Canada?
Quality• Increases Embraers perceived value while lowering costs at the same time. With Embraer building better products they lower the after-sale service requirements/costs, creating satisfied customers.
Innovation• Embraer designed and developed the 90-120 seat planes to satisfy demand for a vacant market. Embraer has also increased its research and development spending to fulfill consumer preferences. For example they have increased head space, luggage and legroom in its aircraft compared to its competitor Bombardier.
Economies of Scope • Embraer develops common platforms for its aircraft. This reduces the design costs by allowing the company to develop every aircraft roughly 90 percent the same. This savings helps the company keep overhead costs lower than its competitors.
Ambidextrous Organization• Embraer has been able to balance trade-offs between cost and innovation to be successful. Embrears aircraft can be customized effortlessly with its easy inexpensive interchangeable interior design. Also, Embraer has been able to use new innovative technology that lowers the price of the aircraft, reduces operating costs for the consumers, and their aircrafts are more reliable, comfortable, and safer.
The 70-120 seat void.• According to the book 61% of all US flights had approximately 70- 110 people.• Embraer filled the vacancy with the EMBRARER 170 and really filled a gap in that market.• As predicted the other major Airline companies are beginning to follow.
Embraer Success In Short.• Embraer is successful, because it reduces its operational cost at the same time creating innovated products that differ from their competitors coupled with constantly attacking un-served markets.• Will Embraer be able to counter the likely attacks from other Airline Industries in this 70- 120 seat market?
Question 3• Use Porter’s diamond of national competitiveness to analyze potential reasons why Embraer has emerged as a successful competitor from Brazil. What should Brazil do to strengthen its national competitiveness in this industry in the future?
Factor Conditions Factor: • Human Resources •People with the knowledge and education to innovate and create at Embraer.The stable and healthy culture coupled with the extraordinary educationthat the government aviation schools provide were a large contributor to theoverall National Competitive Advantage for Embraer.
Supportive Institutional Framework: •Aeronautical Technology Center ( CTA) • Aeronautical Technological Institute (ITA) • Government Funding of Embraer in their early days.The presence and availability of the above institutions created an unmatchedopportunity for the Brazilin company.
Demand Factors/Conditions Demand Conditions: •Brazil had a demand for regional airlines •Embraer was able to fulfill this need. The untapped market of regional airlines is something that Embraer tookadvantage of in Brazil. After mastering this segment it was very easy to duplicate in other parts of the world.
Local Competitive intensity Competitive Intensity in a Focal Industry: Not a major source of development leading to international competitive advantage For Embraer.As many international companies like Volkswagen have experiencedmolding your company in a very competitive a home market makesexpanding globally much easier. As for Embraer however the governmentwas so heavily involved that national competition was not much of a factorin the long term success of Embraer.
Question 4• To what degree might airplanes be considered a “global” product that requires minimal local adaptation? Where is adaptation necessary? Chinese Embraer!!
Global Product Outlook• Airplanes are mostly a global product because they are relatively standardized product throughout the world. Due to international flights, airplanes have become fairly similar internationally because the airlines must travel to airports in different countries.• Although Embraer is a Brazilian company, they make airplanes for countries in North America, Europe, Africa, Asia, as well as other countries in Latin America.
Question 5• What strategy would you recommend that Embraer pursue over the next three to five years? What do you see as a potential long- term vision for this company?
Future Strategy• Embraer has no choice but to keep up with innovation.• They have done a great job of targeting profitable markets. This must continue..• The Inside sales and Marketing department needs to be top notch as other competitors enter the market Embraer needs to compete directly in this 70-120 seat market.• Quicker planes! ie… Create a new market advantage as the small plane segment gets flooded they need an advantage. .
Commercial Aerospace In the Future• The outlook for the industry is very optimistic.• Boeing reports a demand of 39,000 planes in the next 7 years.• Airbus will need to replace a large portion of the European feet in the next 10 years due to age.• The rising world urban middle-class means there will be a rise in demand in air travel.• The International Air Transport Association (IATA) stated that combined profit this year will exceed 7 billion the highest ever reported.
Case Questions Recap1. Describe the competitive position of each of the major firms in the aircraftmanufacturing industry. Which segments are they pursuing? What is their business-level strategy?2. What value and cost drivers have enabled Embraer (a relatively new firm froman emerging market) to grow rapidly and compete against established firms from theU.S., Europe, and Canada?3. Use Porter’s diamond of national competitiveness to analyze potential reasonswhy Embraer has emerged as a successful competitor from Brazil. What should Brazildo to strengthen its national competitiveness in this industry in the future?4. To what degree might airplanes be considered a “global” product that requiresminimal local adaptation? Where is adaptation necessary?5. What strategy would you recommend that Embraer pursue over the next threeto five years? What do you see as a potential long-term vision for this company?
Additional questions for Discussion• If a new market opened up in the jumbo jet arena should Embraer participate?• How was Embraer able to succeed internationally even when they had only a few competitors at home. Many international companies link there success to fierce national competition.• What Markets do you see Embraer in 10 years from now.• How does government control and regulation effect the advancement of an industry like commercial aeronautics.
Works Cited• Rothaermel, Frank. Strategic Management. 1st. Ney York: Mcgraw-Hill, 2013. Print. Rothaermel, Frank. Strategic Management. 1st. Ney York: Mcgraw-Hill, 2013. Print.• Embraer, , dir. We are Embraer. 2013. Film. 24 Mar 2013. <https://www.youtube.com/watch?v=3VGOc3aydRc>.• Embraer, . "For the Journey." . Embraer SA, 24 03 2013. Web. 24 Mar 2013. <http://www.embraer.com/en- US/Pages/Home.asp&xgt;.• "Airline." 1st. 2013. <http://en.wikipedia.org/wiki/Airline>.
Works Cited Continued..• Bajusz, Pavol. "Flying above the clouds." . Gulliver, 20 09 2011. Web. 24 Mar 2013. <http://www.economist.com/blogs/gulliver/2011 /09/aviation-industry>.• Price, Wayne. "Brazilian engineering company eager to land at Melbourne airport." Florida Today. Floridatoday.com, 19 MARCH 2013. Web. 24• Frontier, . Frontier Airlines, 24 Mar 2013. Web. 24 Mar 2013. <http://www.flyfrontier.com/who-we- are/company-info/our-fleet/embraer-e190>.