Global Trade Issues of Boeing - Essay Example

?Global Trade Issues of Boeing Company Background The Boeing Company is an American company famous for its commercial, defense and space products. Incorporated in 1916 by William E. Boeing, the company has since developed to become one of the leading airplane and space manufacturers in the world (Rankin 2008, p.6). As part of its growth strategy, Boeing merged with McDonnell Douglas Company in 1997. Boeing’s headquarter is located in Chicago, Illinois after being moved from Seattle, Washington in 2001 (Rankin 2008, p.6). Boeing is also the Americas leading exporter by value. In fact, the company’s stock is part of Dow Jones Industrial Average. Absolute and Comparative Advantage A company is said to have an absolute advantage when it is capable of producing a specific good or service at a lower cost per unit compared to other companies in the same industry (Newquist 2010). It also pertains to the ability to produce a good or service more efficiently than other companies in the same industry. On the other hand, a company is said to have a comparative advantage when it has the ability to produce a particular product more efficiently than any other product (Newquist 2010). As earlier stated, Boeing is currently the leading exporter and manufacturer of airplane in the U.S. This is attributed to the absolute advantage it has acquired through the idea of the economy of scope. Report indicates that Boeing is the only aircraft manufacturer that has implemented the economy of scope making it possible for Boeing to produce two different products in two different markets at a relatively lower cost than two different firms do (White 2010). This has given Boeing an absolute advantage over other firms in the same industry. This is evident from the fact that Boeing manufactures both commercial and military aircrafts that sell in different markets (Rankin 2008, p.6). According to Benkard (2000, p.1035), all the competitors of Boeing competitor do not use this idea. Boeing also has a comparative advantage in its manufacturing processes. The company is regarded as the best manufacturer of military and commercial aircrafts in the U.S. The company has demonstrated these through quality airplanes it has manufactured for many years now (Benkard 2000, p.1035). Restrictions of trade Newquist (2010) reveals that Boeing is among the leading exporters of commercial and military aircrafts. Despite having enjoyed free trade with many countries that the U.S. trades with, the company has also faced a myriad of trade challenges. One such was witnessed when China imposed trade restriction on Taiwan, which placed Boeing at an awkward position (Bloomberg 2010). It is reported that China forced Boeing to comply by its trade restrictions or risk losing its U.S. arms contract in case it went ahead to sell its military arms to Taiwan that was then at a political dispute with China. China also went ahead to threaten Boeing of cancelation of its lucrative contract and expulsion out of China in case of noncompliance with trade restrictions imposed on it (Naele 2009, p.44). Marketing Marketing of Boeing products is normally done through segmentation. However, since traffic and economic growth rates vary from one region to another, Boeing segments its market geographically. For example, Boeing has focused most of its marketing efforts in Europe and North America regions because of their mature economies. As such, Boeing believes that these regions have a great potential of continuing to buy most of its airplanes (Golich 1992, p.899). In fact, the ability of the company to segment its market geographically gives it the opportunity to ascertain the demand of each segment. For example, Boeing can easily forecast the demand of Europe and North America due to their mature economies. This is due to the high number of air travelers in these regions (Golich 1992, p.899). Strategic Issues Boeing operation and reputation was recently affected due to what can be described as a strategic problem. The company has continually delayed the delivery of Boeing 787 to Japan’s Nippon Airways, a delay that has raised eyebrows. The delay has been linked to too much outsourcing by the company for the designs it used in the manufacture of the airplane. Report indicates that Boeing outsourced 60% of the design and manufacture of the Boeing 787. In addition, the company also used components it had never used before for large aircrafts (Golich 1992, p.899). It is noted that Boeing once outsourced only the manufacturing aspects but not design, and previously used aluminum instead of composites. Cohan (2010) argues that; however, much the new approach saved up-front investment of the company it resulted in unwarranted delay, in delivery of their aircrafts, which is a strategic problem. It was also a strategic failure for Boeing to manufacture Boeing 787 using component materials it had never used before (Newquist 2010). This is attributed to the fact that the use of the composite material made it difficult for engineers to come up with a software model to envisage how the aircraft would handle the stress associated with flying. Cohan (2010) reveals that the failure to predict the aircraft response resulted in undesirable surprises, such as cracks at the point joining fuselage and wings. This in itself was a strategic failure according to Cohan (2010). Operational issues Report indicate that Boeing is also facing a challenge as regards the operation of the company. This is particularly in relation to the 787 airplane, which has been stopped by the FAA and Boeing from flying passengers until all the outstanding issues are resolved. The seventh delay of 787 is not only a strategic problem, but also an operation issue (Pandey 2010, p.32). Distribution processes Boeing has a very effective distribution process for its products. The company’s products are mainly distributed from its manufacturing point to customers. The products are then distributed by road, air, railway, or sea depending on the geographical location of the customer (Sell 2004). Documentation & risks Boeing has a very comprehensive risk management programs to ensure that the lives of its passengers are not at risk. In this regard, the company has ensured that the airport facilities such as the runway is properly managed and fitted with appropriate safety measures. There is also a comprehensive documentation of operations of the company to ensure that everything is done according to plan (Rankin 2008, p.6). Transportation Boeing manufactures both commercial and military aircrafts. The commercial aircrafts provide flights to both passengers and cargo. In fact, the company’s airlines have maintained high flight performance in all regions all over the world (Sandholtz and Love 2001, p. 5). References Cohan, P 2010, Boeing 787 Delays: Will the Seventh Missed Deadline Be the Last? Daily Finance, 15 July 2010, viewed 25 April 25, 2013 http://www.dailyfinance.com/2010/07/15/boeing-787-delays-seventh-missed-deadline/. Benkard, C.L 2000, Learning, and Forgetting: The Dynamics of Aircraft Production. The American Economic Review, Vol. 90, No. 4, pp. 1034-1054. Bloomberg 2010, “Boeing urges government help with trade barriers.” Viewed 25 April 25, 2013 http://www.taipeitimes.com/News/biz/archives/2010/02/21/2003466252. Golich, V. L 1992, From competition to collaboration: the challenge of commercial-class Aircraft manufacturing International Organization, Vol. 46, No. 4, pp. 899-934. Naele, T 2009, For Boeing, international trade counts, even in bad times. Here’s a look at the myths and truths of trade. Boeing Frontiers, p.42-49. Pandey, M 2010, How Boeing defied the airbus challenge. Createspace, New York, USA. Rankin, W. L 2008, Safety management systems, and Boeing-related safety activities. Boeing, p.1-146. Sandholtz, W., & Love, W 2001, Dogfight over Asia: Airbus vs. Boeing. Business and Politics Vol. 3, pp. 2-6. Sell, T.M 2004, Boeing-Airbus battle exposes global trade flaws. Puget Sound Business Journal. November 2004, viewed 25 April 25, 2013 http://www.bizjournals.com/seattle/stories/2004/11/08/editorial3.html?page=all. Newquist, D. E 2010, "Global Competitiveness of U.S. Advanced-Technology Manufacturing Industries: Large Civil Aircraft". U.S. International Trade Commission. White, M 2010, How can America's biggest exporter gets foreign airlines to buy more planes? And what can the U.S. government do to help? The Boeing Co., viewed 25 April 25, 2013 http://www.slate.com/articles/business/exports/2010/11/the_boeing_co.html. Read More