The aerospace industry is arguably one of the most complex in existence. Thankfully, the University of Iowa’s partnership with Rockwell Collins gives Tippie MBAs a chance to peer through the murky clouds of international regulations and multinational contracts to the heart of what matters in this industry.
Near the end of the fall semester, Dr. David C Wu spoke to the marketing academy on the growing importance of international commercial aerospace partnerships.
The global landscape is changing faster than anyone imagined, and nowhere is this more evident than in business. Partnerships of all kinds are forming across borders, and the motivations among partners are many and varied. Lead parties benefit from reduced risk and reduced recurring costs, as well as enabling the party to begin new programs (growing revenue and profit), and focus more on their core capabilities. Partners have a chance to develop or upgrade their capabilities, earn previously unattainable revenues or profits, and to serve national goals.
Currently, there are three major forms of international partnerships: Risk sharing, Risk and revenue sharing, and Joint venture. Most commercial aerospace relationships are risk-sharing, meaning partners/suppliers are expected to bear the development expenses without relying on large quantity orders, as well as compete for and negotiate recurring pricing and terms. Partners also contribute funds to the aircraft integrator as a “launch contribution,” which goes to the overall aircraft development.
Engine manufacturers, however, prefer risk and revenue sharing partnerships. Essentially the same as risk sharing relationships, here the revenues are shared in equal parts to the risk assumed by each member. There can be a lot of tension in this type of partnership if the members are at different technological levels.
Joint ventures are generally taken on by companies in order to address new market opportunities and to challenge the dominance of a major player. This is only possible by pooling complimentary resources and abilities.
As you might imagine, China is an emerging player in the international aerospace scene, and partnerships are basically the only way to get in the door. Market access is a major consideration for Western organizations operating in China, and China can use this to its best advantage as an element of foreign policy.
The state-owned AVIC and COMAC dominate the industry in China. AVIC (Aviation Industry Corporation of China) is vertically integrated and supplies COMAC (Commercial Aircraft Corporation of China, Ltd.) through a large number of joint ventures throughout its organization.
The list of developing nations with emerging aerospace markets is growing. Even COMAC was formed as recently as 2008, meaning that the market conditions in each country are changing as the situation and environment change. Thanks to Rockwell Collins, Tippie MBAs can be at the forefront of these changes.