Introduction
The Boeing Company was established in 1961 by William Boeing. At the company’s
growing stages, it used to build military planes which were used in World War 1. The company
began to prosper in the early 1920s and 1930s as a result of market expansion due to increased
demand for mail carrying (Mocenco, 2015). The company had the challenge of remaining ahead
in research and experimentation, and the founder had vowed not to let any new improvement in
the aviation industry pass them. The company used vertical integration to work on the challenge
where it manufactured aircraft and also produced engines. The increased monopoly of the
company in the United States Airline led to a government mandate in 1934 which separated the
company into three entities (Mohonty, 2018). In the 1970s and the 1980s, Boeing stopped
manufacturing the entire aircraft by themselves. Instead, the company selected partners and
subcontractors who would design some parts of the plane and then Boeing would assemble these
parts to make the flights. The subcontracting reduced the costs involved in developing and
producing new planes (Mohonty, 2018). Through keen management and coming up with various
strategic decisions, the company has managed to the world’s largest plane maker.
The Embraer is a famous commercial plane maker in Brazil. The company was
established in 1969 as a government-owned corporation. At its early stages, it produced the
Embraer EMB 110 which was a turboprop transport. According to Dias, Teles and Duzert
(2018), the company’s rapid growth was a result of the Brazilian government’s support which
enhanced the company’s increase in its product line in the domestic market. Although Embraer
mostly built military crafts in the 1970s, the planemaker made the Embraer EMB 120 Brasilia
which became one of the highly successful small airliners (Dias et al., 2018). In 1994, the
company was privatized to avoid insolvency, but the government of Brazil retained interests
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through ownership of the golden shares which gives it veto power. In the 1990s, the company
majored in the production of more commercial planes than military crafts (Mohanty, 2018). The
company came up with commercial planes of 70 to 130 seats. Today, the company is known for
manufacturing both military and commercial planes.
Objectives
This paper aims at analyzing the Boeing’s and Embraer’s business models, the strategies
they have used to experience their current success and the kind of strategic model that they used
to reach the joint venture. The paper will also show the other strategic options both Boeing, and
Embraer had and why they selected the current strategic option. Additionally, the strategic risks
that both companies have faced will also be discussed. The paper will propose strategies for both
companies, come up with implementation plans and recommendations.
Analysis
Boeing is dominant in the large commercial jet market while Embraer is popular in the
regional jet market. Both companies have been known to practice differentiation strategy which
has made them successful in the aviation industry (Dais et al., 2018). For example, Boeing
continuously improves its planes where it uses the knowledge base of the previous planes to
improve its current planes. The Boeing and the Embraer Company recently come up with a joint
venture deal where Boeing would acquire eighty percent of Embraer shares (Mohanty, 2018).
The joint venture aims to expand both companies’ market and reduce competition from Airbus
and Bombardier. The companies used industry analysis models to reach the joint venture
strategic decision. Boeing and Embraer used SWOT analysis and Porter’s five forces models to
analyze each other’s external and internal environment. The companies had to evaluate each
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other’s strengths, weaknesses, opportunities, and threats to know whether they stand to benefit
from each other. Additionally, the companies analyzed their competition in the external
environment to guide them in their strategic decision.
SWOT Analysis model
According to Rothaermel (2015), a SWOT analysis is a strategic planning technique which
summarizes significant components in the business’ strategic environment. The elements of this
model are as illustrated below;
The Boeing has a broad knowledge in aircraft design which is classified by continuous
improvement, powerful alliances as a result of the production of planes used all over the world
and have a leadership role in the aircraft industry hence has enormous revenues (Mocenco,
2015). The Boeing Company is faced with the weakness of delaying deliveries either due to
engineering issues or suppliers. This delay problem has resulted in Airbus gaining Boeing’s
market share. The company faces the threat of losing its current market share to existing
competitors especially the Airbus. However, Boeing has opportunities such as the changing trend
in the aircraft industry especially in Asian countries and has resulted in increased demand for
Strengths
SWOT
Threats
Opportunities Weaknesses
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commercial airplanes (Mocenco, 2015). Additionally, the increase in spending of countries in
defense planes has created opportunities for Boeing.
The Embraer Company specializes in the military, commercial and corporate segments in
the aerospace industry. The company has a strong brand name popularly known for product
excellence while lowering costs. Embraer has been ahead of innovation and has recently come
up with a 90-120 seat aircraft to satisfy the demand of the market. Embraer has been faced with a
weakness where the Chinese manufactured regional jet is being favoured than Embraer jet due to
its low prices (Dias et al., 2018). Therefore, Embraer is likely to suffer from a reduced market
share. The company is also expected to face challenges due to the instability of the Brazilian
economy resulting from political issues and corruption scandals (Mohonty, 2018). However, rise
of manufacturing and assembly facilities create opportunities for Embraer as a result of increased
orders.
Porter’s Five Forces
Porter’s five forces are forces known to shape business strategies. These five forces
dramatically affect a business’ profitability (Rothaermel, 2015). The Porter’s five forces are the
threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of new
substitute and rivalry among the existing competitors.
The coming up of new companies in the aerospace industry creates new opportunities for
innovation but puts pressure on Boeing through lower prices, reducing costs and provision of
unique propositions to customers. Additionally, in the aerospace industry, numerous suppliers
provide companies such as Boeing with goods. These suppliers can reduce the earning margins
of Boeing by using their high negotiating power to impose high prices on their products
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(Goehlich & Bebenroth, n.d). Therefore, this higher bargaining power of these suppliers reduces
the overall profitability of the Boeing Company. Similarly, buyers are often demanding, and they
mostly want to purchase quality products by paying minimum prices. Therefore, the smaller the
customer base, the higher their bargaining power which will reduce Boeing overall profitability
because these consumers will demand an increase in discounts and offers (Goehlich &
Bebenroth, n.d). In threats of substitutes, when a new product seeks to meet the needs being
fulfilled by the already existing products, the profitability of the companies offering the existing
products is likely to be hurt. Therefore, the threats of new substitutes will affect Boeing’s
profitability. Lastly, the current rivalry between Boeing and other companies such as Airbus is
very intense (Mohanty, 2018). This intensity in competition is likely to lower products prices
which will affect the long term profitability of the Boeing Company.
In the Embraer manufacturing business threat of new substitutes is very minimal
because of the huge investment needed in purchasing supplies in bulk and delivering large
numbers of airplanes to airlines. Additionally, Embraer has an extensive distribution network
which is difficult to replicate (Goehlich & Bebenroth, n.d). Therefore, to establish a
manufacturing company and build a strong brand in the aerospace industry requires substantial
financial and time investment which acts as barriers of entry. The most difficult challenge that
new competitors have is to prove to the customers that the qualities of their aircraft are superior
to those produced by popularly known brands in the industry. The consumers in the aerospace
industry are influential because they purchase products in bulk. Therefore, these customers
demand the highest offering when paying the minimum price. This high bargaining power of
customers will significantly affect Embraer’s long term profitability (Goehlich & Bebenroth,
n.d). Similarly, the suppliers available in the aerospace industry are very powerful; the costs of
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switching to other suppliers who offer better prices and sometimes unique parts are expensive.
Therefore, these suppliers use the high bargaining power to get maximum pricing for their
products which affects companies such as Embraer’s profit margins (Goehlich & Bebenroth,
n.d). The offering of substitute products by the existing competitors may affect the company’s
competitiveness and may, in the long run, affect its profit margin. Additionally, there exists
intense rivalry among firms such as Embraer and Bombardier. This fierce rivalry will lower
products prices which will affect the long term profitability margins of the Embraer Company
The analyzing of these companies’ SWOT analysis and Porter’s five forces led to the
decision to adopt the joint venture so that they would try to capitalize on their strengths and
minimize weakness, take advantages of the opportunities and come up with ways to deal with
threats. The joint venture between the two companies would result in benefiting both companies
( Dais et al., 2018). However, this strategic action poses several risks. First, there is a possibility
of incompatibility issues. This issue would result from different culture and management styles.
The act of absorbing a company which is in another country poses a challenge due to different
cultures and language of the employees (Mohanty, 2018). Additionally, both Boeing and
Embraer have different management styles. The government mainly controls the Embraer
because it owns golden shares which allow veto power over the company. Therefore, major
strategic decisions in Embraer cannot be made without consent from the government. Therefore,
this will pose a challenge in the integration and cooperation between the two companies
(Mohanty, 2018). However, Boeing and Embraer can overcome these strategic risks through
comprehensive research and detailed analysis of both companies’ aims and objectives. Most
importantly with communication of every business plan to all the involved parties, will ensure
that the joint venture between Boeing and Embraer will be a success.
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Proposed Strategies
The following are some of the strategies that I would recommend to Boeing and Embraer.
Cost leadership strategy
Both companies can pursue this strategy to try and outperform competitors such as Airbus and
Bombardier. Embraer has over the years decided to pursue this strategy, and with continuity, it
can achieve all its goals and objectives (Dias et al., 2018). Boeing should adopt this strategy thus
plan by offering their products and services at high labor and capitalize on their productivity.
This strategy is suitable for these two companies because of their large market share which will
which makes it easy for them to reap economies of scale (Rothaermel, 2015).
The quality leadership strategy
The two companies can benefit from this strategy by establishing a reliable worldwide network
and establishing a dominant position in their markets. Both companies ought to be concerned
with economies of scale, scope, and density (Rothaermel, 2015). Developing a sophisticated
network will offer them a competitive advantage because it is not easy to copy. This strategy
could be used as a barrier for the new entrants who try to compete with these two well
established and integrated companies (Dias et al., 2018). The quality leadership strategy will
enable Boeing and Embraer to build a strong brand with a keen focus on offering quality
products and services to their customers. The implementation of this strategy may remove the
need for Boeing and Embraer to compete on cost and pricing basis.
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The focus strategy
The focus strategy involves concentrating on the needs of particular customer groups or market
(Rothaermel, 2015). The defined niches, in this case, are the production of commercial, military
and space crafts. The Boeing Company may adopt this strategy by focusing on making regional
jets with few seats. The concentration on this market will increase its market share due to the
increased demand in executive planes (Mohanty, 2018). The Embraer Company through the
assistance of Boeing may focus on the niche of producing large commercial planes which would
positively affect its market share and significantly affect the company’s ability to compete with
its main competitor, Bombardier.
Promotional strategy
A promotional strategy is a monitored integrated program of communication which is aimed at
communicating a company’s product and services to prospective consumers and stakeholders
(Rothaermel, 2015). Adapting a good promotion strategy by Boeing and Embraer will create a
buying decision which will build customers’ confidence in the firms and their products. This
promotion strategy will create attention, interest, desire, and action. Attention will be created
when the buyers will be aware of all the products made by both Boeing and Embraer. From
attention, the aircraft's features and benefits create interest in potential customers (Rothaermel,
2015). The customers will then desire the companies’ crafts due to the created desire which
comes from the belief that the companies’ aircraft are superior to those of other players in the
market. From the created desire, promotional activities generate a push for a buying action.
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Strategy implementation plans
Strategy implementation is the process of putting plans into actions (Rothaermel, 2015). For
Boeing and Embraer to succeed, they must implement the recommended strategies. Strategy
implementation is the process where strategic plans are transformed into action and ensures that
such actions are implemented in a way that the strategies and the stated objectives are
accomplished. The following is the recommended action plan for the above-discussed strategies.
The cost leadership strategy
The companies can implement this strategy by lowering their input costs so that they can offer
relatively affordable products to the consumers. The lowering of costs could be through the
formation of strategic alliances with aircraft parts manufacturers who provide quality and
affordable products. The companies should conduct worldwide research to discover countries
which provide quality and affordable factors of production. Both Boeing and Embraer should
focus on image strategy which underlies their core objective of providing low-cost products.
The quality leadership strategy
This strategy can be implemented by building a strong brand image which would concentrate on
the quality of products and services that the companies provide. Boeing and Embraer must
understand their customers’ needs and evaluate the investments and capability requirements to
meet these needs. When the designed products meet and at times exceed the customers’ needs,
the customers are willing to pay, and their loyalty will increase.
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Focus strategy
Boeing and Embraer can implement this strategy by identifying gaps which are not
covered by the competitors, creating superior skills for catering for the identified market gaps,
creating superior efficiency, achieving lower costs and use of innovative and coming up with
creative ways to manage the recognized value chains which are different from those already
existing in the aviation industry.
Promotional strategy
Boeing and Embraer can implement this strategy by stressing on the unique qualities of
their products which sets them apart from the competitors’ products. Boeing and Embraer should
first focus on their target market. After which, the companies should decide on the most
appropriate promotional method. The companies should then decide on the promotional
strategies on the product message. After deciding on the promotional strategies on the product
message, the next step will be deciding on the two promotional strategies based on customers &
intermediaries. These strategies are the pull and push strategy (Rothaermel, 2015). The pull
strategy is where firms choose to advertise to their target market as the only promotional
element. The push strategy is where the firms choose to work directly with channel member to
establish promotional support.
Recommendations
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Boeing and Embraer should focus on research, innovation, and development to remain
ahead in technology. These companies should develop strategies which are aimed at continuous
learning and increasing their ability to innovate. Additionally, Boeing and Embraer should
always aim at being ethical in all their practices and always strive to reduce air pollution. Being
ethical will increase the reputation of the companies and will positively affect their long term
productivity.
Conclusion
In summary, both Boeing and Embraer are popular brands in the aerospace industry. The
Boeing is known for its focus in the production of large commercial planes while Embraer is
famous in making regional jets with less number of seats. Boeing and Embraer use a
differentiation strategy which has managed to place the firms in a competitive position in the
industry. In 2018, both Boeing and Embraer decided to strike a joint venture deal which was
aimed at benefiting both companies. The companies used SWOT and Porter’s five forces as
strategic models. The companies used SWOT analysis to evaluate each other’s strengths,
weaknesses, opportunities, and threats to know whether they stand to benefit from each other.
Porter’s five forces model was used to analyze the companies’ competition in the external
environment to guide them in their strategic decision.
Apart from the joint venture, the companies had other strategic options such as the cost
leadership strategy, quality leadership strategy, focus strategy, and promotional strategy. If these
strategies are well implemented using the discussed implementation plans, then Boeing and
Embraer will increase their current market share and profitability in the market.
References
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Dias, M., Teles, A., & Duzert, Y. (2018). Will Boeing succeed with the Embraer acquisition
operation, despite the Brazilian Federal Government golden share veto. International
Journal of Business and Management Review, 6(2), 55-64.
Embraer Commercial aviation. (2017, March 30). Embraer's History. Retrieved from Embraer
Commercial aviation: https://www.embraercommercialaviation.com/about-us/
Goehlich, R. A., & Bebenroth, R. Strategies in Europe, USA and Case of Space Organization.
Mocenco, D. (2015). Management strategies in the aerospace industry. Particular case: The
Boeing Company. INCAS Bulletin, 7(1), 111.
Mohanty, D. S. (2018). The Boeing-Embraer Deal. Retrieved from Amity Research Centers
Headquarter, Bangalore.: www.amity.edu/casestudies/
Rothaermel, F. T. (2015). Strategic management. McGraw-Hill Education.
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