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Government Intervention at Boeing and Airbus - Case Study Example

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This paper aims to investigate the case of government intervention at Boeing and Airbus. The phenomenon of government intervention has been the subject of heated debates over several years as far as international business and trade is concerned. The debate is rested on practices that encourage free trade versus those that are protectionist or supportive in nature…
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Government Intervention at Boeing and Airbus
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Download file to see previous pages Globalization led to the cross-border free flow of capital, labor, information and other resources. Countries began to realize that the only way to reap the fruits of comparative advantage was to compete internationally. FDIs and generation of government revenues were common results of international business in technology intensive areas (page 33) (Cavusgil, Knight, & Reisenberger, 2012) and, thus, the collaboration of various European governments in this respect can be attributed to this reasoning. The major reason behind Boeing’s complains is that the provision of subsidies by the EU government to its competitor Airbus is preventing both the companies to compete on equal footing. It is seen as an unfair trade practice by the U.S, although, the case reflects that the country itself is offering protection to its airline Boeing, albeit, in a different way. Thus, although the U.S government is not providing outright subsidies to Boeing, it is still protecting its business by bestowing it with military contracts. The key elements highlighted in the case are those of intervention through provision of subsidies, development of infrastructure, tax rebates and strategic national contracts.
Part of the explanation underlying government support for Airbus is grounded in the democratic socialism political system of the EU. As learnt in the text, this form of system called social democracy is characterized by government intervention in private enterprises and in business activities....
To this extent, as pointed out in the case study, the governments of various EU countries including the French, German, Spanish and British governments have embarked on a mission to enhance the international competitiveness of its national airline, Airbus, through the provision of subsidies primarily. A major implication of globalization has been that in the midst of cut-throat competition, companies often find themselves competing on costs. The text also supports the fact that the costs of doing business are relatively higher in the EU which is largely because of high corporate taxes (page 178) (Cavusgil, Knight, & Reisenberger, 2012). This is a major reason behind the government rationale to support Airbus financially. To this extent that the cost of capital in EU is higher than that in U.S, the government’s intervention in Airbus’s operations is justified. The defensive rationale of government intervention manifests itself along these lines of thinking by claiming that protection of the national economy is a major factor behind government intervention (page 204) (Cavusgil, Knight, & Reisenberger, 2012). The offensive rationale is also applicable here, since one of the major reasons for government intervention in the case of Airbus was to protect the infant industry that could not compete effectively with the two giants (Mac Douglas and Boeing) and the creation of tax revenues. Also one of the fundamental justifications for the same was the generation of jobs and employment opportunities that were created once Airbus had its operations all over Europe (Cavusgil, Knight, & Reisenberger, 2012). Furthermore, this move of European governments to support Airbus and make it ...Download file to see next pagesRead More
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