Impact of Airbus and Embraer on the Environment - Case Study Example

A COMPARATIVE ANALYSIS OF AIRBUS AND EMBRAER This paper examined the environmental factors that impact thebusiness operations of two of the leading aircraft manufactures in the world—Airbus and Embraer. The analysis reveals several striking differences between how management decisions are made in Europe where Airbus is located and in Brazil where Embraer is headquartered. The political, social, ethical and legal environments under which the two companies must operate, present strategic opportunities as well as significant challenges. The comparative analysis indicates that Embraer, although a smaller company than its rival Airbus, enjoys a competitive advantage as a result of its ability to maximize the opportunities available through the company’s assessment and management of these environmental factors. Airline manufacturing industry analysts have identified several critical management areas related to cost reduction, market expansion and production flexibility that will define the industry over the coming decade. The environmental scan presented in this paper indicates that Embraer has the unequivocal support of the Brazilian government, the company has a competitive advantage in the growing Asian markets, it is not subject to the rigorous ethical standards of its competitors and the legal environment in which the company operates is much less complex that what Airbus experiences in Europe. The net result is that Embraer is much better positioned to maximize its opportunities within the aircraft manufacturing industry. Introduction The aircraft manufacturing industry is arguably one of the most competitive in the new global economy. A few years ago, the supply of commercial and military aircraft was dominated by a handful of companies located in the United States. Today, there are several international companies who now compete in this multi-billion dollar market. This paper provides a comparative analysis of two of these companies—Airbus, a European Union based company and Embraer, an aircraft manufacturer based in Brazil. The paper examines how the political, social, ethical and legal environments in Europe and Brazil affect the manner in which these companies are managed. The paper concludes with a discussion of how the external environmental factors may affect the strategic direction of both companies over the next decade. The Global Airline Market Airline industry consultants define five major decision points that international airline manufacturers must address if they are going to remain as successful companies over the next decade. These decision points are: Expansion into international markets primarily in the Asia-Pacific region and Latin America; Reduction in production costs; Planning for small jet (50 seat) regional markets; Undertaking major investments in research and development; Developing the capability to rapidly adjust production processes in response to changing market conditions (R.J. Mann, 2010). The ability of the senior leadership at Airbus and Embraer to be able to respond to these five factors with a series of business strategies that will maintain their competitiveness, will depend largely upon how they are able to manage within the political, social, ethical and legal constraints that they face. These are discussed below. Political Factors Airbus operates within a very complex political environment. The company is controlled by its parent company EADS which is headquartered in Brussels. The company’s main manufacturing facilities are in France. However, Airbus also operates major engineering, parts fabrication and component assembly facilities in Germany, Spain and the United Kingdom (Airbus.com, 2010). Airbus is subject to a complex array of political forces. The EU Commission has a vested interest in ensuring that the company remains competitive and fiscally sound. The governments of France, the U.K., Germany and Spain recognize the importance of the tens of thousands of jobs that are directly connected to Airbus, and the billions of dollars annually that the company generates in their respective economies. European governments have been aggressive in their political and financial support for Airbus. In August, 2009, the British government provided a direct loan to Airbus in the amount of $500 million (BBC, 2009). This type of direct government subsidy has upset companies such as Boeing who claim that Airbus has an unfair competitive advantage because of its political ties with European governments. In a recent decision, the World Trade Organization agreed with the U.S. in concluding that Airbus received illegal subsidies in excess of $4 billion primarily for the development of the Airbus 380 (Maennig & Wittig, 2010). These direct loans as well as loan guarantees provided through several of these governments creates a political expectation that government has a direct say in how the company is managed. Embraer, originally owned by the Brazilian government, was privatized in 1992 and is now publicly traded. The company operates on a corporate governance model that is similar to other manufacturers in the airline industry, with one major exception. The Government of Brazil has retained direct involvement in the management of the company through a special veto authority that provides it with the power to overrule Embraer’s senior management decisions. In addition, the government has a significant presence on the company’s Board of Directors (Embraer.com, 2010). Political influence has played a critical role in gaining Embraer preferential status in China. The Brazilian and Chinese governments are close trading partners and through political influence, Embraer is strategically positioned to be a dominant player in the emerging Asian markets (Goldstein, 2008). Social Factors There is one primary difference in the social and cultural environments between Brazil and Europe. This involves social entitlements associated with employment and the role that unions play in corporate decision-making. Recall, that two of the strategic decision points defined by industry analysts and required for future success were cost reductions and adaptability to rapidly changing markets. In both cases, Embraer has a clear advantage. Unions in France, Britain, Spain and Germany are very powerful and are in many ways, are co-managers of Airbus. The culture in France where Airbus is headquartered is one where employment is considered to be a right and employers are expected to demonstrate a moral and social responsibility for the welfare of employees and their families. This is not the case in Brazil (Brewster, 2007). These social expectations can prove to be a major constraint to companies like Airbus who may require a reduction in work force or a realignment of production facilities in meeting changing market demand. The flexibility that Embraer enjoys has been instrumental in the company’s ability to capture large increases in market share for military aircraft and small, regional jets (Brueckner & Pai, 2009). Ethical Factors Airbus and Embraer both publish statements related to ethical and responsible business practices on their company websites. Given the multi-government political environment and the emphasis on corporate social responsibility in the U.S. and Europe, Airbus is held to a different ethical standard than its Brazilian competitor. This is particularly the case when it comes to corruption. Corruption is viewed as an unacceptable practice in Western European and North American societies. Indeed, those caught engaging in such behavior face serious jail time and public ridicule. This is not the case in Brazil where corruption is not only rampant, but an accepted part of the local culture as well. Routine management involves under-the-table deals and the bribing of officials to gain lucrative government and military contracts. This give companies like Embraer a competitive advantage. (Halter et al, 2009). Legal Factors In examining the respective legal environments that impact Airbus and Embraer, the fact that Airbus has major facilities in four European countries and is also subject to the legal and regulatory authority of the European Union, certainly complicates the company’s legal business environment. This multi-government regulatory framework imposes as cost on business that Airbus’s competitors do not incur. In addition, the company’s management must take into consideration when securing aircraft orders, that delivery times may be extended because of the administrative burden of legal compliance. Embraer does not face the same legal constraints. Moreover, as noted earlier the Government of Brazil is much more directly involved in the management of Embraer and is able to assist the company in expediting legal matters associated with its domestic as well as its international operations (Schaffer et al, 2008). Conclusion This paper clearly demonstrates that business leaders must have a solid understanding of the political, social, ethical and legal environment that impacts the strategic decisions that they make in running their companies. The comparative analysis of Airbus and Embraer reinforces how dynamic and complex the environment of business really is. It demonstrates that one of the major components of effective leadership is the ability to manage within and adapt to the changing corporate environment. . References Airbus corporate website. Retrieved from http://www.airbus.com Brewster, Chris. (2007). Comparative HRM: European Views and Perspectives. The International Journal of Human Resource Management, 18, 769-787. Brueckner, Jan, & Pai, Vivek. (2009). Technological Innovation in the Airline Industry: The Impact of Regional Jets. International Journal of Industrial organization, 27, 110-120. Embraer corporate website. Retrieved from http://ri.embraer.com.br Goldstein, Andrea. (2008). A Latin American global player goes to Asia: Embraer in China. International Journal of Technology and Globalisation, 4, 56-69. Government to lend Airbus 340 million pounds. April 14, 2009. BBC News, Retrieved from http://news.bbc.uk/2/hi/business Halter, Maria Virginia, Continho de Arruda, Cecilia, & Halter, Ralph Bruno. (2009). Transparency to Reduce Corruption? Dropping Hints for Private Organizations In Brazil. Journal of Business Ethics, 84, 373-385. Maennig, Wolfgang, & Wittig, Stephan. (2010). WTO dispute settlement proceedings: European support for airbus in the spotlight. Intereconomics, 45, 180-187. R.W. Mann & Company, Inc., Airline Industry Analysis and Consulting. (2010). Retrieved from http://www.rwmann.com Schaffer, Richard, Agusti, Filiberto, & Earle, Beverly. (2008). International Business Law and its Environment, 7th ed. Mason, OH: Cengage. Read More