GROUP 05 HARSHITA PREETAM MADDULA AVINASH NEHA GUPTA RASHIKA BINANI SACHIN SOOD SHILPA KEVLANI

HOME COUNTRY :BRAZIL

Brazil, the largest country and economy

in South America Strong ties with Brazilian government Abundance of qualified and cheap labour available 1990-94 World recession

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

Long lead times between development & commercialization

Cyclical nature of the industry Critical role of aeronautics in national defence

THE COMPANY

Technology-base company founded and supported by the Brazilian government

well-known brand in the Brazilian market

4th largest in world got privatized in 1994 presence in both the military and commercial spaces The three aviation business units (passenger, defence and special purpose aircrafts) Company Products: 1971: Xavante 1972: Ipanema 1973:Banderainte 1985: Brasilia Late 1980s: CBA123 1989: bet on ERJ 145 : Variants: ERJ135(37 seats); ERJ140 (44 seats)

THE PRIVATIZATION EFFECT

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

BARGAINING POWER OF SUPPLIERS

COMPETITIVE RIVALRY

BARGAINING POWER OF CUSTOMERS

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

VALUE CHAIN ANALYSIS

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

Marketing & Sales

Market Research Seeking powerful partners

Services
Inspection and tests Upgrades Maintenance Service provided by risk sharing partners

COMPETITIVE DIFFERENCES OF ERJ 145 OVER CRJ 200

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

Cost Prices Direct operating costs

COMPETITIVE ADVANTAGE OF NEW PLANNED RANGE

Clean sheet design unconstrained

Optimization (but $800m development costs)

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

WHAT LED TO THEIR SUCCESS

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?

Defense vs passenger aircrafts- future plans

Costing and financing- capital structure

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