DOMINION GLOBALIZATION WORKSHOP · Aerospace DOMINION GLOBALIZATION WORKSHOP Dennis Encarnation...
Transcript of DOMINION GLOBALIZATION WORKSHOP · Aerospace DOMINION GLOBALIZATION WORKSHOP Dennis Encarnation...
Aerospace
DOMINIONGLOBALIZATION WORKSHOP
Dennis Encarnation
Harvard University
For more information, please contact me atwww.encarnation.com
MANUFACTURING
Aerospace
Topics:
1. Two Views of Globalization, Revisited
a. A “Flat” World:
The Rise of Asia-Based Companies &
Asia-Based Operations
b. A “Mountainous” World:
Continued Trans-Atlantic Dominance
2. Aerospace Value Chain
a. Downsteam: Sales & After-Market
b. Midstream: Manufacturing & Systems
Integration
c. Upstream: R&D, Design, Engineering
3. Multi-Tiered Supply Chainsa. Primes: A World of ‘Coopetition’
b. Tier 1: ‘Coopetition’ vs. Specialization
c. Below Tier 1: Asia outside Japan
TWO VIEWS OF GLOBALIZATION
THE EMERGINGCONCENSUS
the world is flat
it’s a borderless world
where geography mattersless and less
with increased geographicdispersal of assets,capabilities and wealth
where our choices--business, cultural, economic,political, technological, social--are converging
GARMENTS: A FLATTER WORLD
the garment trade is highly segmented, with Asia generallycompeting for volume & Europe generally competing for price…
ELECTRONICS: A FLATTER WORLD
16.8Lenovo (China)499.38.1Canon (Japan)189.
17.2Xerox (US)489.37.0Philips (Netherlands)197.
18.2Sanyo (Japan)459.38.3Intel (US)188.
19.4Ricoh (Japan)438.40.4NEC (Japan)174.
19.5Whirlpool436.46.7Fujitsu (Japan)149.
21.9Onex (Canada)386.51.5Microsoft (US)136.
22.2Sumitomo Electric (Japan)383.51.8Hon Hai (Taiwan)132.
22.6Emerson Electric (US)375.61.1Dell (US)106.
23.0Asustek Computer (Taiwan)363.67.1Toshiba (Japan)91.
344.
342.
332.
325.
292.
261.
218.
210.
200.
192.
23.7Quanta Computer (Taiwan)69.9Nokia (Finland)88.
23.7Schneider Electric (France)77.7Sony (Japan)75.
24.0Apple (US)79.4Matsushita (Japan)72.
24.6Alcatel-Lucent (France)82.1LG (Korea)67.
27.6Flextronics (Singapore)98.3Hitachi (Japan)48.
29.9Sharp (Japan)98.8IBM (US)46.
34.9Cisco Systems (US)104.3Hewlett-Packard41.
35.5Mitsubishi Electric (Japan)106.0Samsung (Korea)38.
36.6Motorola (US)106.1Siemens (Germany)37.
37.7Tyco (US)176.7General Electric (US)12.
RANKING AMONG THE FORTUNE GLOBAL 500 COMPANIES, 2007(revenues in US$ billion)
Nearly half of the world’s largest electronics companies are based in Asia…
TWO VIEWS OF GLOBALIZATION
AN ALTERNATIVEPERSPECTIVE
a very “mountainous”world, with deep “valleys”
globalisation is aboutmaking borders work
where geography mattersmore & more
with increased geographicconcentration of assets,capabilities and wealth
globalisation means morechoices, not less
THE EMERGINGCONCENSUS
the world is flat
it’s a borderless world
where geography mattersless and less
with increased geographicdispersal of assets,capabilities and wealth
where our choices--business, cultural, economic,political, technological, social--are converging
QUESTION: UPSTREAM VALUE ADDED
WHAT INDUSTRIES HAVE A HIGH DEGREE
OF INDUSTRIAL CONCENTRATION IN THE
NORTH ATLANTIC REGION?
WHY?
PHARMACEUTICALS: TRANS-ATLANTIC CONCENTRATION
RANKING AMONG THE FORTUNE GLOBAL 500 COMPANIES, 2007
29.6UKASTRA ZENECA7.
25.9USAABBOTT LABORATORIES8.
24.2USAMERCK9.
22.4USAWYETH10.
45.4UKGLAXO SMITH KLINE3.
48.4USAPFIZER2.
40.3SWITZERLANDROCHE GROUP4.
40.0FRANCESANOFI AVENTIS5.
39.8SWITZERLANDNOVARTIS6.
20.0USABRISTOL-MYERS-SQUIBB11.
18.6USAELI LILLY12.
61.1USAJOHNSON & JONHSON1.
REVENUES(US$ billion)
HQ LOCATIONCOMPANY NAMERANK
Source: Fortune, 2009.
Not one Asian- or BRIC-based pharmaceutical company appearsamong the 500 largest companies
PHARMACEUTICALS: TOP 10 TRADERS
Source: WTO, 2008.
10.
9.
8.
7.
6.
5.
4.
3.
2.
1.
2.3CHINA2.0ISRAEL10.
2.5BRAZIL2.5AUSTRALIA9.
2.8MEXICO2.8INDIA8.
3.2TURKEY2.9
0.6
SINGAPORE
RE-EXPORT
7.
3.9RUSSIA3.3JAPAN6.
5.5AUSTRALIA3.5CANADA5.
7.8CANADA3.8CHINA4.
8.2JAPAN25.1SWITZERLAND3.
39.3USA25.9USA2.
155.9
38.1
EU (25):INTRA
EXTRA-EU
190.9
73.0
EU (25):INTRA
EXTRA-EU
1.
TOP 10 EXPORTERS, 2006(US$ billion)
TOP 10 IMPORTERS, 2006(US$ billion)
PHARMACEUTICALS
AEROSPACE: TOP 10 TRADERS
Source: UNCTAD/WTO, International Trade Centre, 2007.
10.
9.
8.
7.
6.
5.
4.
3.
2.
1.
3.0ITALY1.1NETHERLANDS10.
3.2SPAIN1.4JAPAN9.
3.8SINGAPORE1.5SINGAPORE8.
4.8JAPAN2.8SPAIN7.
5.0INDIA3.3BRAZIL6.
5.3CANADA3.4ITALY5.
6.6CHINA8.0CANADA4.
11.1FRANCE19.3GERMANY3.
16.6USA24.5FRANCE2.
19.4GERMANY49.8USA1.
TOP 10 EXPORTERS, 2005(US$ billion)
TOP 10 IMPORTERS, 2005(US$ billion)
AIRCRAFT & SPACE VEHICLES PLUS ASSOCIATED EQUIPMENT
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*Revenues for defense & space, government information services &
commercial aircraft (including financing), components & subsystems.
2007
Sales, $B*
Source: Annual Reports; Dennis J. Encarnation & Associates, 2008.
How do you explain the continued geographic concentrationin the aerospace industry?
TOP 20 AEROSPACE COMPANIES, 2007
MILITARY SPENDING: TOP 10MILITARY SPENDING
(US$ billion & % of US$1,367 billion, 2006)
1.622.3INDIA10.
1.723.7SOUTH KOREA9.
2.635.7GERMANY7.
22.6307US Alliances*
9.0122CHINA2.
4.459.1RUSSIA3.
4.155.1UK4.
3.345.3FRANCE5.
3.041.1JAPAN6.
1.925.4SAUDI ARABIA8.
47.5%
% GLOBAL
MILITARY
SPENDING
644
MILITARY
BUDGET(US$ billion)
USA1.
COUNTRYRANK
Note: *Multilateral (NATO) and bilateral (Australia, Japan, S. Korea) alliances.
Sources: International Institute for Strategic Studies, 2006; US Department of Defense, 2007.
WEALTH & MILITARY SPENDING, 2007
Source: IMF & World Bank, April 2008; US Department of Defense, 2007.
22INDIA10. 1.8ITALY10.
24SOUTH KOREA9. 1.8BRAZIL9.
8.
7.
6.
5.
4.
3.
2.
1.
25SAUDI ARABIA 2.0FRANCE8.
36GERMANY 2.1RUSSIA7.
41JAPAN 2.1UK6.
45FRANCE 2.8GERMANY5.
55UK 2.8INDIA4.
59RUSSIA 4.3JAPAN3.
122CHINA 7.0CHINA2.
644USA13.8USA1.
307US ALLIANCES14.7EU
1,367WORLD64.9WORLD
2007 GDP AT PPP FX RATES(US$ trillion)
2006-07 MILITARY BUDGETS(US$ billion)
The Geographic Concentration Of Wealth & Of Military Spendingis Highly Correlated--8 Of The Top 10 Are The Same--
Suggesting that Military Security is Essential for Economic Growth
MANUFACTURING
Aerospace
Topics:
1. Two Views of Globalization, Revisited
a. A “Flat” World:
The Rise of Asia-Based Companies &
Asia-Based Operations
b. A “Mountainous” World:
Continued Trans-Atlantic Dominance
2. Aerospace Value Chain
a. Downsteam: Sales & After-Market
b. Midstream: Manufacturing & Systems
Integration
c. Upstream: R&D, Design, Engineering
3. Multi-Tiered Supply Chainsa. Primes: A World of ‘Coopetition’
b. Tier 1: ‘Coopetition’ vs. Specialization
c. Below Tier 1: Asia outside Japan
AEROSPACE VALUE CHAIN
Where do Asian & BRIC-based companies play in thisvalue chain?
Where do they hope to play in the future?
DOWNSTREAM: ASIAN PROMINENCE
Most aerospace products are sold commercially, where the Asia-Pacific region is emerging as the largest geographic market
MIDSTREAM: MANUFACTURING
In marked contrast to the electronics industry, very littleaerospace manufacturing has moved to low-cost countries in
Asia and elsewhere.
MIDSTREAM: SYSTEMS INTEGRATION
Value-Added outside the United States is limited, but growing….
BOEING: GEOGRAPHY OF CONTROL & LOCATION
OFF-SHORE
OU
T-S
OU
RC
EIN
-HO
US
E
ON-SHORE
GEOGRAPHY OF LOCATION
distance
GE
OG
RA
PH
Y O
F C
ON
TR
OL
inte
gra
tio
n
Boeing Commercial &
Defense Products:
Systems Integration
& Final Assembly
Boeing Commercial & Defense
Products before 787:
Subassemblies, Parts & Components
Boeing: 787 Subassemblies,
Parts & Components
UPSTREAM: INDIA AS A CASE STUDY
India hopes to leverage its large market downstream for more work upstream, especially in R&D, Engineering, IT, and Manufacturing
Source: Dennis J. Encarnation & Associates, LLC, 2009.
MANUFACTURING
Aerospace
Topics:
1. Two Views of Globalization, Revisited
a. A “Flat” World:
The Rise of Asia-Based Companies &
Asia-Based Operations
b. A “Mountainous” World:
Continued Trans-Atlantic Dominance
2. Aerospace Value Chain
a. Downsteam: Sales & After-Market
b. Midstream: Manufacturing & Systems
Integration
c. Upstream: R&D, Design, Engineering
3. Multi-Tiered Supply Chainsa. Primes: A World of ‘Coopetition’
b. Tier 1: ‘Coopetition’ vs. Specialization
c. Below Tier 1: Asia outside Japan
A MULTI-TIERED SUPPLY CHAIN
Where do Asian & BRIC-based companies play in thisvalue chain?
Where do they hope to play in the future?
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AEROSPACE: TRANS-ATLANTIC SUPPLY CHAIN
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*Revenues for defense & space, government information services &
commercial aircraft (including financing), components & subsystems.
2007
Sales, $B*
Source: Annual Reports; Dennis J. Encarnation & Associates, 2008.
Only 1 Asian company and only 1 BRIC-based company figures prominently in the global supply chain
TOP 20 AEROSPACE COMPANIES, 2007
GLOBALIZATION THRU LOCAL CONTENT: MHI
Aerospace
Systems
FY2006 Financial Results (FY Ending 3/31/06)
Sales - $26.0B
Operating Profit - $627M
Executive Management
Kazuo Tsukuda, President
Hideaki Omiya, President
Machinery &
Steel
Structures
Ship-Building
& Ocean
Development
Power
Systems
• Defense Aircraft & Aeroengines
• Tactical Fighters
• Helicopters
• Commercial Aircraft Components
• Aircraft Engines
• Guided Weapon Systems
• Space Systems
• Launch Vehicles
• International Space StationOther
2006 Sales – $3.9B
Mass &
Medium-lot
Machinery
2006 Sales – $6.3B 2006 Sales – $2.0B
2006 Sales – $4.8B
2006 Sales – $608M
2006 Sales – $7.1B
Mitsubishi Heavy Industries
Japan’s largest defense contractor for a half century
2006 Preliminary Financial Results
Sales = $15.7B
Op. Profit = $1.1B
Executive Management
Pier F. Guarguaglini, Chairman and CEO
Giorgio Zappa, COO
Chairman & CEO, AleniaCOO, Finmeccanica
2005 Sales = $2.5B
2005 Sales = $1.5B2005 Sales = $961M
2005 Sales = $4.1B
• Agusta Westland (50%)
• Bell Agusta Aerospace Co. (50%)
• GIE ATR (50%)
• Civil Aerostructures
• Modifications
• Military Transport,Training & Combat A/C
• Telecommunications
• Components &subsystems
• Satellites & Services
• Space Mission Mgmt
Aeronautics
TransportationEnergy
• Avionics
• UAVs
• Land & Naval C2
• Radar Systems
Defence
Electronics
GLOBALIZATION THRU LOCAL CONTENT: ALENIA
2005 Sales = $917M
Space
2005 Sales = $3.1B
Helicopters
• Missiles
• Land, Air & NavalWeapons Systems
• Underwater weapons& sonar
2005 Sales = $1.5B
Defence
Systems
Protecting the Home Market
Finmeccanica
GLOBALIZATION THRU LOCAL CONTENT: NORTHROP
Electronic
Systems
2006 Sales=$6.6B2006 Margin=11.3%
2006 Financial Results
Sales - $30.1B
Operating Profit - $2.5B
Executive Management
Ronald Sugar - Chairman & CEO
Aerospace
2006 Sales=$5.6B2006 Margin=9.1%
2006 Sales=$11.3B2006 Margin=8.7%
• Aerospace Sys.
• C4ISR & Naval
Sys.
• Defensive Sys.
• Navigation Sys.
• Gov’t Systems
• Space Sys.
• Air Combat Systems
• Airborne Early
Warning/Electronic
Warfare
• Airborne Ground
Surveillance/Battle
Management
• Civil Space
• Missile & Space
Defense
• Satellite Comm.
• ISR
• Radio Systems
• Technology
Information
Technology
& Services
• Government IT
• Enterprise IT
• Technical Services
• Commercial IT
• C2 & Intelligence
• Missile Systems
• Technical & Mgmt
Svcs
2006 Sales=$5.3B2006 Margin=7.4%
Ships
• Aircraft Carriers
• Surface Combatants
• Amphibious &
Auxiliary
• Submarines
• Commercial & Int’l
• Services
Northrop Grumman
Joint Bid with EADS forUS Tankers,
Trading Market Accessfor Product Offering
• Astrium
• Arianespace (22.9%)
• Satellite Systems
• Ground Stations
• Space Transportation
• Eurofighter (43%)
• Dassault (45.7%)
• Defense Electronics
• MBDA (50%)
• Support, Services,Training
• SecureCommunications
Executive Management
Louis Gallois, Co-CEO
Thomas Enders, Co-CEO To Airbus CEO
• ATR (50%)
• EFW
• SOCATA
• SOGERMA
2006 Sales = $1.6B
2006 Sales = $4.0B2006 Sales = $7.4B
• Military Helicopters
• Civil Helicopters
2006 Sales = $4.8B
2006 Sales = $2.8B
GLOBALIZATION AS REGIONALIZATION: EADS
2006 Financial Results
Sales = $49.6B
Earnings = US$501M (vs. US$3.6B in 2005)
• CASA MilitaryTransports
• Airbus MilitaryCompany (A400M)
Other
Astrium
Defense &
Security
Systems
Military
Transport
Aircraft
Eurocopter
A microcosm of the macro dynamics of EU integration
EADS
Airbus
2006 Sales = $31.6B
Airbus Integrated
Company (80%)
• Commercial Aircraft
2006 Financial Results
Sales = $26.8B
Operating Profit = $2.1B
Executive Management
Dick Olver, Chairman
Mike Turner, CEO
Ian King, CEO
2006 Sales = $5.7B
2006 Sales = $6.2B
Airbus (20%)
• A380 development
• Wing design andtransport
• Wingtips, leadingedges, ailerons,airbrakes production
2006 Sales = $3.4B
2006 Sales = $532
2005 Sales = $5.9B 2006 Sales = $7.8B
• InformationSystems
• Controls
• TechnologyServices
• Information andElectronicSystemsIntegration
• C41SR
Air Systems
• Eurofighter
• JSF
• Nimrod
• Hawk
Sea Systems
• Type 45
• Astute
• UnderwaterWeapons
• Future Carrier
ProgrammesCommercial
Aerospace
Electronics,
Intelligence
& Support
International
Systems &
Partnerships
Customer
Support &
Solutions
HQ & Other
Business
GLOBALIZATION THRU INVESTMENT & JOINT PROGRAMS: BAE
Structure is the servant of strategy
BAE Systems
Land &
Armaments
2006 Sales = $4.1B
• InformationSystems
• Armoredcombatvehicles
• Naval gyros
• Missilelaunchers
• Artillerysystems
• Intelligentmunitions
SOLD
2004 Financial Results
Sales = $24.7B
Operating Profit = $1.9B
Executive Management
Dick Olver, Chairman
Mike Turner, CEO
Chris Geoghegan, COO
Steve Mogford, COO
Mark Ronald, COO
2004 Sales = $5.3B
2004 Sales = $4.1B
Airbus (20%)
• A380 development
• Wing design andtransport
• Wingtips, leadingedges, ailerons,airbrakes production
2004 Sales = $3.5B
2004 Sales = $2.0B
2004 Sales = $5.3B 2004 Sales = $5.0B
• InformationSystems
• Controls
• TechnologyServices
• Information andElectronicSystemsIntegration
Air Systems
• Eurofighter
• JSF
• Nimrod
• Hawk
Sea Systems
• Type 45
• Astute
• UnderwaterWeapons
C4ISR
ProgrammesCommercial
Aerospace
North
America International
Partnerships
Customer
Support &
Solutions
Avionics
GLOBALIZATION AT BAE: US ACQUISITIONS
Structure is the servant of strategy
BAe Systems
REVERSE TREND, GLOBAL TO LOCAL: LOCKHEED
Aeronautics
2005 Sales = $11.7B2005 Margin = 8.5%
2005 Financial Results
Sales = $37.2B
Operating Profit = $3.0B
Executive Management
Robert J. Stevens, Chairman,President & CEO
Space
Systems
2005 Sales = $6.8B2005 Margin = 8.9%
2005 Sales = $10.6B2005 Margin = 10.5%
Information&
TechnologyServices
2005 Sales = $4.0B2005 Margin = 8.8%
• Combat Aircraft
• Air Mobility
• Aeronautical R&D
• Launch Services
• Commercial
Satellites
• Government
Satellites
• Strategic Missiles
• Ground Systems
• Missiles & Fire Control
• Maritime Systems &
Sensors
• Simulation, Training &
Support
• Systems Integration -
Owego
• Transportation &
Security Solutions
• LM Canada
• Federal
Technology Svcs
• Department of
Energy
• Gov’t &
Commercial IT
• Aerospace Svcs
Integrated
Systems
Solutions
2005 Sales = $4.1B2005 Margin = 8.8%
• Management &
Data Systems
• Mission Systems
Electronic
Systems
LockheedMartin
•US Government, 51%
•US Classified, 20%
•Foreign Governments, 19%
•US Commercial, 7%•Foreign Commercial, 3%
Geographic Sales, 2005 (%)Not seeking to become a “global enterprise for aerospace leadership”
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*Revenues for defense & space, government
information services & commercial aircraft
(including financing), components & subsystems.
2003
Sales, $B*
SPECIALIZED TIER 1 SUPPLIERS: GE
A GE-Honeywell merger would have furtherconsolidated the aerospace industry, creating a
new #4 with aspirations for being #1 or #2
GE + Honeywell
RESTRUCTURING TODAY: A FEW TRENDS
Tata no prior defense or aero-
space experience except in IT
By 2011: sole supplier of787 floor beams, & potentialJV partner for Boeing
Mahindra Indian defense contractor,
mainly for combat & supplyvehicles to the Army
partner of choice for BAeSystems as it expandsplatforms into India
Larsen & Toubro Indian defense contractor,
mainly for ships and weaponsto the Navy
potential supplier to Boeing
Entry ofAdjacent Players
Case Study: India
Sovereign funds &state banks
Middle East oil exporters:Mubadala, SAGIA, etc.
Russia: Vneshtorgbank’s5% equity stake in EADS
State-ownedenterprises
Russia: Consolidation ofseveral enterprises in UnitedAviation Corporation (UAC)
India: HAL’s resurgencethru offsets
State Aid, Revisited Exim financing or not to
buyers: airlines
For R&D: GE-GlobalResearch Centre-Munich
The NewNationalism
Case Study: Global
Servicing a largeinstalled base
Commercial: GE-Ae serviceshops
Military: Boeing’s ISS, fromCanada to the Netherlands(to Korea)
New products innew geographiesacross regions
BAe’s acquisition of Sandersin the US defined the futureof aerospace M&A
Finmeccanica’s acquisitionof DRS Technologies in theUS is the largest to date
GE’s acquisition of SmithAerospace in the UKillustrates the reverse trend
Expansion intoAdjacencies
Case: Trans-Atlantic