Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
The investment driversThe investment drivers of of tthe he BBritish ritish Aerospace Aerospace firmsfirms
Prepared by: Ricardo Rojas M
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Objective Objective
Indentify Investment attraction opportunities from the British OEM aerospace companies.
• Global Industry Analysis.
• Supply Chain Analysis.
• British Aerospace Firms Capability Acquisitions.
Content
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Global IndustryGlobal Industry
AnalysisAnalysis
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Aerospace market has been growing. Aerospace market has been growing.
A further growth is expected, which is, however, steady.
Source: Datamonitor, 2008
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
The average technological level has been becoming higher due to more use of composite materials and electronics.
Based on: Esposito, 2004 and AT Kearney 2009
Change in the engine industry
Introduction of new materials, new propulsion
systems and masive use of
electronic instruments
Composite materials and electronics
Technology is expected to become more Technology is expected to become more important as a market success factor.important as a market success factor.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
The higher the technological level (aircraft), the higher the need to vertical integration/collaboration.
Source: Esposito, 2004
Technology level determines the level of necessity Technology level determines the level of necessity of global partnership and sourcing activity.of global partnership and sourcing activity.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
USA
Canada
MexicoMexico
Brazil
Australia
Japan
Korea
Taiwan
ChinaChina
UKSpainSpain
ItalyItaly
GreeceGreece
France
GermanyNetherlands
Denmark NorwayNorway FinlandFinland PolandPoland HungaryHungary Czech RCzech R
AustriaAustria
Europe and the US are the major clusters. But sourcing activities have been spread around the world.
PartnershipPartnershipsaresare becoming localised, while becoming localised, while sourcingsourcing activities are activities are globalized.globalized.
Source: Wixted, 2009
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Certification is compulsory in both markets (e.g. AS9100, AS9003 or AS9120) and regulations are becoming stricter.
Source: Datamonitor, 2008
The Industry The Industry is is driven by two market segmentsdriven by two market segments: : Civil and Defence.Civil and Defence.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Source: Datamonitor, 2008
The dynamic in the civil market appears to be dominated by Boeing and EADS (Airbus).
The aerospace industry is highly concentrated.The aerospace industry is highly concentrated.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
•The aerospace industry is steadily growing .•Technology is expected to become more important as a market success factor.•Technology level determines the level of necessity of global partnership and sourcing activity.•Partnershipsare becoming localised,while sourcing activities are globalized.•The Industry is driven by two market segments.•The aerospace industry is highly concentrated.
Market Analysis.Market Analysis.
• The US defence as main segment market.
• The investment in technology capabilities, expertise and knowledge are the source of competitive advantage.
• Regulation and certification is one of the crucial barriers to entry in this market.
• Rivalry in the market is strong, companies competing intensely for government and commercial contracts.
• Final assembly firms have strong bargaining power with buyers and suppliers.
• The duopolio structure increases the switching cost for buyers and suppliers.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Supply ChainSupply Chain
AnalysisAnalysis
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Aerospace industry Aerospace industry is is affected by global affected by global political political and and economiceconomic factors.factors.
Aerospace demand variability and unpredictability is result of changes in world economy and geopolitics.
Main civil aerospace demand drivers:• Energy• Power Purchasing Parity• Population growth• Wage
Main defence aerospace demand drivers:• Governmental Defence
Expending .
Based on: Phillips, 1999 and Tiwari, 2005.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Products are produced only after their being ordered.
Delivery schedule
BuyerFinal Assembly
Assembly House
Machine Shop
Forging House
Mill
Release delivery schedule
Source type
External Placed Order
Internal Placed Order
Issue PO for machine shop
Issue PO for forging house
Issue PO to mill
Issue PO to mill
Issue PO to mill
Forge parts
Machine parts
Assemble
Source: Bliczo et alt,p 300, 2004
Industry operate a Make to Order system to Industry operate a Make to Order system to manage lmanage lowow volume and volume and high variety production.high variety production.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Airlines
Avionic Avionic SystemsSystems
Weapon Weapon SystemsSystems
Airframe Airframe SystemsSystems
Power Power SystemsSystems
Aircraft Aircraft construction construction
assemblyassembly
FormingForming
ComponentsComponents
Raw material
MaterialMaterial
ToolingTooling
Service and Support Capabilities Service and Support Capabilities Service and Support Capabilities Service and Support Capabilities
AssemblyProduction / Sub assembly
Manufacturing Processes
Suppliers
Goverment
Tier 1 firms are supplied by a few direct companies, which have a system integrator function.
Source: Rojas, 2009
FormingForming
ComponentsComponents
MaterialMaterial
ToolingTooling
FormingForming
ComponentsComponents
MaterialMaterial
ToolingTooling
FormingForming
ComponentsComponents
MaterialMaterial
ToolingTooling
Supply base reduction, partnership and lean Supply base reduction, partnership and lean system are characteristics in the Supply Chain.system are characteristics in the Supply Chain.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Based on: Graham & Almed, 2000
However, it needs high level of base capacity, which is highly costly.
Vertical integration
Outsourcing
40%
60%
Make orbuy decision
100%
Aerospace Demand
Firms capacity
Time
Capacity
Base capacity
Outsourcing and vertical integration can be Outsourcing and vertical integration can be utilised as capacity management strategies.utilised as capacity management strategies.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
The financial barrier is expected to become higher The financial barrier is expected to become higher due to higher level of technology.due to higher level of technology.
Source: Esposito, 2004
The high fixed cost structure promote the transition to a more concentraded industry.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
•Aerospace industry is affected by global political and economic factors.•Industry operate a Make to Order system to manage low volume and high variety production.•Supply base reduction, partnership and lean system are characteristics in the Supply Chain.•Outsourcing and vertical integration can be utilised as capacity management strategies.•The financial barrier is expected to become higher due to higher level of technology.
Supply Chain Analysis.Supply Chain Analysis.
• Suppliershave to diversify capacity and risk by operating in other industries.
• Capacity management is a driver for global sourcing.
• Information and Communication Technology is extremely relevant to coordinate the Supply Chain.
• The bigger supliers (partners) are becoming the predominant figures.
• A few player in tier 1 and tier 2 is a trend in the Supply Chain.
• Entry to the market is most likely to happpen by horizontal integration.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
British Aerospace FirmsBritish Aerospace Firms
Capability AcquisitionsCapability Acquisitions
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
British aerospace firms that gain a new production contract tend to acquire capabilities.
The number of capability acquisition corresponds The number of capability acquisition corresponds to that of orders contracted by the British firms.to that of orders contracted by the British firms.
Source: Rojas, 2009; SBAC,.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Ownership %Mean
In-House OffshoreAcquisition : 94.4% 97.1%Joint Venture: 31.5% 82.8%Extension: 100% 100%
Source: Rojas, 2009
M&A is the main strategy of British aerospace M&A is the main strategy of British aerospace firms to have an access to new capabilities.firms to have an access to new capabilities.
136 capabilities acquisition occurred in the last eleven years, most of which were Mergers and Acquisitions.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Source: Rojas, 2009
The number of firms which is actively investing in The number of firms which is actively investing in new capabilities is limited.new capabilities is limited.
Six companies have acquired 80% of the total acquired capabilities in the last eleven years.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Production of electronics requires new Production of electronics requires new capabilities.capabilities.
In order to be competitive, firms involved in the production of electronics has been acquiring new capabilities.
Source: Rojas, 2009
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Source: Rojas, 2009
Three main capabilities are demanded in the market: Service and Support, production of avionics and components.
Investment in technology, expertise and Investment in technology, expertise and knowledge are source of competitive advantageknowledge are source of competitive advantages.s.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Source: Rojas, 2009
It is expected that this trend continue.
The British firms tend to invest outside of the The British firms tend to invest outside of the country in order to acquire new capabilities.country in order to acquire new capabilities.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Most of the acquisitions have happened in the two Most of the acquisitions have happened in the two global aerospace clusters (Europe and the US).global aerospace clusters (Europe and the US).
The purpose of British firms that acquired new capabilities in the US cluster is mostly to enter in the market or re-locate production.
Source: Rojas, 2009
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Source: Rojas, 2009
The US is the main investment overseas The US is the main investment overseas destination in the production of electronics.destination in the production of electronics.
Although there are emerging low-cost destinations, the technology level is the main determinant of the investment.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
•The number of capability acquisition corresponds to orders contracted by the British firms.•M&A is the main strategy.•The number of firms which is actively investing is limited.•Production of electronics requires new capabilities.•Investment in technology, expertise and knowledge are source of competitive advantages.•The British firms tend to invest outside of the country.•Most of the acquisition have happened in the two global aerospace clusters .•The US is the main investment overseas destination in the production of electronics.
UK Bristish Aerospace capability acquisitionsUK Bristish Aerospace capability acquisitions• Although M&A is the main
strategy to enter in the market, Supplier Management will be required to support the activity (partnership)
• The necessity to gain an access to technology, expertise and knowledge is the main driver of the investment.
• FDI is expected to continue growing in this industry.
• The production re-location demands sites with skilled labour and high technology capabilites.
• Components, avionics and Service and Support (aftermarket) will be main capabilities demanded.
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
AcknowledgementAcknowledgement
Masumi Kinoshita.
Promexico – United Kingdom.
I'd like to express my thanks to them who helped in the making of this project:
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
Appendix A. List of main capabilities and subAppendix A. List of main capabilities and sub--capabilitiescapabilities
Prepared by: MSc, MBA Ricardo Rojas [email protected]
“The Investment drivers of the British Aerospace firms”
1
2 3
4
5
<25% 60%
Others
<25%
30%
Others
Others
25%
<25%
<25%
UGO methodology, a 25% of ownership rule, was used to identify the OEM British aerospace companies and its strategies.
Appendix B. Ultimate Global Owner (UGO) Appendix B. Ultimate Global Owner (UGO) methodologymethodology
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