The types of competitive strategies utilized by aerospace/defense companies in developing or emerging markets - Research Paper Example

Discuss the types of competitive strategies utilized by aerospace/defense companies in developing or emerging markets Table of Contents Discuss the types of competitive strategies utilized by aerospace/defense companies in developing or emerging markets 1 Table of Contents 1 Introduction 2 Critical Analysis 2 Corporate Level Business Strategies 5 Conclusion 7 References 8 Introduction The era of globalization has generated opportunities as well as challenges for business organizations across the globe. On one hand globalization has opened up the boundaries of the globe generating numerous opportunities for business organizations in the form of access to new markets. On the other hand it has also given rise to high levels of competition in the markets that has led to fierce competitive rivalry among the existing players. The present study would analyze the business strategies of global aerospace and defense companies towards their business strategies for capturing market share in the developing and emerging nations across the globe. The choice of the industry segment assumes significance considering the fact that the industry is highly capital intensive and has significant scope for growth especially in emerging nations like India and China where the demand for the products of the industry is on the rise. Moreover with comparatively small number of player and large scale restrictions on the players of this sector from the governments of nations it becomes very important to analyze this industry segment that holds a lot of promise for growth in the coming years. Critical Analysis The most critical aspect of business strategy for aerospace and defense companies to succeed in emerging markets is to create distinction and differentiation in the products that is perhaps the key to capture a market size in emerging nations and markets. This call for the need to introduce innovations and its consequent diffusion into the organization that would help generate distinction among the products. Companies in this sector must therefore put their focus on creating excellence in research and development to gain an upper hand in the market. Figure 1: Percentage Change in Research and Development spending over different Industry Segments (Source: PriceWaterhouseCoopers, p.2) The figure above shows the spending in research and development by industries across different sectors. It is very clear from the figure that aerospace and defense is the only industry segment that has continued its spending in this area. This largely shows the importance of research and development as a critical strategy towards creating organizational excellence and generating competitive advantage. The percentage dip in spending in the aerospace and defense sector was only 1.2 percent that is far less than the industry average across all the sectors. The success of aerospace and defense firms are also linked to the strategy with which the firms handle the suppliers. This is important considering the fact that the companies in this sector are largely engaged in assembling with the original parts and equipments being procured from various suppliers. Therefore maintaining good relationship with the supplier can also lead to advantage for these companies (PriceWaterhouseCoopers, p.7). A suitable strategy in this regard can be to increase the number of overseas suppliers that would help in spreading out the risk of relying on single suppliers (National Defense University, p.9, 10). The global aerospace and defense industry is also affected by strategies like consolidation. Consolidations for entering into new market can help generate enough space for business organizations. This can also help reduce competition in the market and would also generate greater consolidation in the tough and competitive landscape of the industry. Creation of new products can also help tide over the present recessive forces within the industry that has taken a toll on the profitability of the firms. New products with modifications in product features that would come at a lower cost can actually help in generating competitive advantage in the new markets. The new markets largely resemble uncontested markets with very few and marginal domestic players and hence a blue ocean strategy can be implemented by the companies engaged in the aerospace and defense industry. Strategies like aggressive marketing tactics and cost advantage along with new and innovative products can largely enable market players to more beyond the traditional markets and look towards new and emerging markets like India and China that have considerable potential and hold considerable opportunities for the organization (Kim & Mauborgne, p.3-6). Nations like India hold immense potential for aerospace and defense industry as the demand for the products of the industry is consistently on the rise in these nations that is quite unlike other developed nation where recession has played a major spoilsport and defense budgets have been squeezed by the national governments. Expansion into these areas can be considered one of the most effective business strategies for players in this industry segment. India recently has floated tenders for a deal for purchasing military aircraft that is considered to the mother of all defense deals in history. Along with defense spending the demand for aircrafts in the civil aviation sector is also on the rise in India with a large number of aircrafts being ordered by both state run as well as private companies (CII, p.11). Along with India other nations like Brazil and South Africa also hold potential for these companies in the form of demand in both civil as well as defense sectors. Adopting good marketing strategies can very well generate huge advantages. Moreover a well defined strategy that would include new products can also help in generating greater market share globally. It would also reduce the pressure on the existing markets that have already become saturated in terms of demand for the products of this sector. This apart some of these developing nations have been less impacted by the effects of the ongoing recession and hence foray into these markets can help generate advantages. Considering the fact that switching cost for customers is high in this sector hence a market presence in these nations would also help in generating consistency in demand patterns. Corporate Level Business Strategies Michael Porter proposed a set of generic strategies that can be adopted by any organization with regards to its business strategies. Porter grouped these strategies into three types namely cost leadership, focus and differentiation. Cost leadership is a strategy under which organization undertakes operational efficiency and minimizes its cost of production and delivers products at low prices as compared to its competitors in the market. Differentiation involves a strategy in which organizations differentiate their product and service offering on the basis of aspects like quality and service delivery in a manner that is unmatched by the competitors in the market. Firms adopting a focus strategy essentially undertake policies under which they concentrate on certain specific market segments or specific products and concentrate their entire business mechanism towards attracting market segments and customers. Any firm in the industry can either adopt one of the strategies or a combination of these strategies. This largely depends on the nature of industry and the dynamics of demand and supply as well as consumer behavior of the market. Internal resources and expertise are also another significant aspect that determines the course of strategies for the business organizations. Firms should adopt a strategy that best suits their business objectives and the expertise. This would help in generating a greater advantage in the market and should also help in beating the existing competition prevailing in the market (Griffin, p.207). The best strategy for firms in the aerospace and defense sectors could be a mix of cost leadership and differentiation. This strategy would help firms to have a greater flexibility to target different markets. Amalgamation of these strategies would help in providing best services or products at affordable rates. In this regard companies must try to gain operational excellence through adoption of efficiency techniques like Six Sigma or Total Quality Management that would help reduce costs and at the same time generate operational efficacy. Combining this with differentiation in terms of quality of service such as excellent after sales service can largely help firms to not only capture new customers but to also retain them for the future time. This strategy would also be beneficial considering the present trend of the economy where the spending power is reduced to the turbulence in macro economic conditions and would allow firms to establish a strategic foothold in new and emerging markets. Conclusion The analysis of the industry reveals considerable advantage and potential in emerging and new markets. However it also reveals considerable extent of competition in the market with every other firm trying to reap the benefits of globalization. Moreover with saturation of existing markets and the deep impacts of economic recession on the developed markets can also lead to considerable pressure on firms to venture out to new markets. However the success of the firms in the new markets also depends on a large extent to the level of operational and organizational excellence that can be pursued by the firms as the success of the firms in the new markets largely depends on the ability of the firms to differentiate their products and provide the best possible service with lowest price that can only be achieved by undertaking strategies that can help generate innovations along with low operational cost. All these strategies can essentially be the ingredients of a strategy that would help the firms in this sector to become global players and leverage the benefits of globalization. References CII. Drivers of the Global Aerospace Industry. No date. India’s Aerospace Industry. September 28, 2011 < http://www.pwc.com/gx/en/aerospace-defence/pdf/india-aerospace.pdf>. Griffin, R.W. Management. Cengage Learning, 2008. Kim, W.C. & Mauborgne, R. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Harvard Business Press, 2005. National Defense University. Challenges Facing the Aircraft Industry. 2010. Aircraft Industry. September 28, 2011 < http://www.ndu.edu/icaf/programs/academic/industry/reports/2010/pdf/icaf-is-report-aircraft-2010.pdf>. PriceWaterhouseCoopers. The Innovation Imperative. 2011. Gaining technological advantage A&D Insights. September 28, 2011 . Read More