Professional Documents
Culture Documents
Brazil
problems
serious
unable
macroeconomic
to sustain
procurement & financial support Hyperinflation Sales $700m $177m Workforce 13,000 6,100 Average loss $200m/year
Privatization in 1994
INDUSTRY OVERVIEW
Capital Intensive
Role of Govt. crucial Large investments in R&D
THE COMPANY
PRE- PRIVATIZATION
Ozires Silva first president Strong relationship with government and enjoyed special privileges. Entered 3 segments regional passenger, defense and special purpose. Started exporting to Uruguay, Chile and U.S Secured certification from the U.S Federal aviation administration(FAA) Launched Brazilia in 1985
POST-PRIVATIZATION
Sales plummeted initially Change in senior mgmt Mauricio Botelho proposed a turnaround plan
Workforce reduction Becoming customerfocused Outsourcing non-core services
ERJ 145 was conceived Success of ERJ 145 led to the launch of ERJ 135 and ERJ 140 Began developing 70-110 seaters : ERJ 170 Locus of revenues shifted to US
PORTERS 5 FORCES
THREAT OF NW ENTRANTS
COMPETITIVE RIVALRY
THREAT OF SUBSTITUTES
BARGAINING POWER OF COMPETITIVE RIVALRY CUSTOMERS Competitors: THREAT OF NEW ENTRANTS THREAT OF SUBSTITUTES BARGAINING POWER OF Customers: SUPPLIERS Brazilian Government Boeing (USA) New entrants inhibited due due Substantial price variation (defense) Airbus (Europe) to: to differentiation Suppliers: Corporates such as Continental Bombardier ( Canada) Risk sharing supplier Express and American Eagal Dynamics Dynamics partnerships for joint Served domestic markets and Dynamics High capital Substantial requirement product development exported outside. Large industry size difficult Economies of scale differentiation (weight) Dynamics High industrial growth rate to achieve Limited no of information substitutes Limited buyer Dynamics Strong distribution Substitute productnetwork may be availability Limited and buyer information required low performance inferior Demand for of Customization availability sunk costs purchase High High Involvement Demand for Customization High Involvement purchase
Inbound Logistics
Tax free imported raw material 79% of production costs accounted to external partners
Operations
Matrix Organisation CustomerDriven Extensively outsourced partner network for production Low production and R&D costs
Outbound Logistics
Global Presence and delivery network
Services
Inspection and tests Upgrades Maintenance Service provided by risk sharing partners
BASIS
ERJ 145
CRJ 200
Passenger Space
Design
3abreast seating
Complicated with extra weight, expensive systems lesser $17.6 million More economical with lower fixed costs
4 abreast seating
Commercial aircraft ; maximum efficiency More due to extra tons $21million Less economical
Specially designed for size class Larger risk-sharing partners, vendors Bombardier stretching existing version Airbus, Boeing smaller versions of larger Aircraft higher weight Less profitable for Airbus, Boeing
CAPABILITY BUILDING Existing base of aerospace competence Early support from Brazilian government, air force to build capabilities Identification of core competence in design & system integration Flexibility to top management
DYNAMICS Privatization just in time bet on regional jet market through ERJ145 and variants Risk-sharing partnerships
MANAGERIAL PRACTICES Customer-driven product development Joint development with vendors shift in ownership human capital change of organization structure Work force and productivity; the company drastically cut both work force and wages
PROBLEMS AT HAND
Tensions between Brazil and Canada due to due to dispute between Bombardier and Embraer concerning export financing- WTO issue. French Alliance- go for it or not?
Corporate strategy
PROPOSED SOLUTIONS
Solve the WTO issue as soon as possible as the WTO restriction would hurt the company/Brazil tremendously Fully engage in the French Group proposal- this will help in: Leverage economies of scale Leverage economies of scale Bringing products quicker to market and new product knowledge such as supersonic aircrafts. Build brand beyond European borders (Asian markets) Focus on smaller airlines as the main strength of the company is medium sized aircrafts. Access to other resources and capabilities
Short run
Get large Brazilian defense contracts Long lead time, high complexity but higher margins and profitability Work on capital structure and management of resources
Long run
Focus on Passenger aircrafts- more lucrative due to growing GDP in developing countries and globalization Go beyond military into other sectors- naval and ground defense
THANK YOU