Brief Introduction:

In the 2010 Hurun Rich List, about a 6th of the 2000 Renmibi Chinese billionaires planned on buying
private aircraft. China, with its imploding economy, has a strong demand for personal jets. Jet market
seeking firms list China as one of their ideal and favorable countries with advantages granted to it due to
its location and state of economy currently. With 120% increase in aviation passengers and currently
hosting a fleet of 1500 business jets, and according to Stokes (2009) and Airbus (2017), China is set to
become one of the largest airmarkets and aims to surpass U.S in becoming the world’s largest aviation
market in order of passengers by 2024, as quoted from Cooper,2016.

Industry Scan using Michael Porter’s five forces framework:

In light of the five forces framework the business jet industry would be a highly attractive and viable
option. The rigorous system applied by the Chinese army to regulate the air spaces with a cumbersome
process to submit every schedule beforehand and limited take-off slots availability for business jets
make the threat of new entrants very low. The high capital requirements and slow profit generation also
makes it unattractive for new businesses to enter. In relation to the second principle, there are very few
business jet providing companies namely Dassault Falcon of France, Beech Hawker, Gulfstream of
United States, Cessna, and Learjet of Canada. The giants of traditional airlines such as Embraer, AirBus
and Boeing also continue to venture into the market due to its high prospective development. The larger
companies offer substitute services which are price compatible and yet raise the quality standard,
making it attractive for customers to opt for their products or services. Decade ago while the business
jet service may have seen to be too outlandish of an expenditure even for the rich community, it has
steadily grown on due to deals such as Gulfstream-Minsheng deals, allowing the buyers to take
advantage of financing or leasing. This causes them to fly more and get more from their yuans. The
trend for business jet buying has put China in third place in coming years with 1500 business jets right
after Europe at 4000 and United States at 9,500 jets. With the exploding domestic airline business, with
the number of airports increasing from 111 to 163 and the number of travelers increasing to about
120%, and the Government’s increasing favorability to make concessions for the industry such as listing
some of the military airspaces as business jet airspaces, it makes a viable environment for the
businesses to launch in. So in accordance to the five forces framework the industry is quite attractive
but carrying with it the risk of having established and giant company rivals the industry must constantly
compete in order to outshine the other.

Resource- and capability- based analysis:

With our focal view on unique resources and capabilities of the industry, the success or failure of the
firm depends on their environment which are their own capabilities and internal resources. With the
foreign firms in question, they need to deploy unique and avertible capabilities and resources in order to
ward off their foreign-ness and survive in international markets. With late-mover advantages such as
when the market is less fluid and having capabilities to free ride the first mover investments and having
access to market and customer research or technological investments. While also having to offer better
conveniences such as advanced technologies and take advantage of the intransigence of the first
movers. For instance the current business jet giants such as Cessna Beech Hawker can only
accommodate 8-12 passengers per flight. But since the foray of Boeing, AirBus and Embraer into the
industry, they have the capabilities to offer accommodation for upto 60 passengers. Additionally with
the larger cabins allowing more personal space and airier corridors the customer satisfaction increases
with nominal rates equating those of the traditional corporate jets. This better response to the local
audience and innovative offers the late-movers can outsell their pioneers. Additionally with the
changing cultural norms, the Chinese buyers prefer buying perused jets, as the rich become thrifty and
also counting in the fact that it takes shorter time to buy a pre-registered jet. Conclusively, to cater to
the demands of the Chinese market the corporate jet makers must provide used yet high quality jets at
reasonable price points and equipped with more efficient commodities to compete with the traditional
air-giants of China. Hence in order to survive the corporate jet companies must invest heavily in the
research and innovation side in order to provide rare and hard to imitate services and apply the
economies of scope by aiding similar technologies and creating jet ranges customized for varying
customer needs. Also the foreign jet makers can also combine forces with Chinese partners and reduce
their investment in the research front, have access to Chinese resources such as labor and capital,
additionally they will be able to avoid problems such market demand changes and/or uncalled for
political risks.

Institution based view and requirements to boost the industry in

China:
The rules of the game whether formal (politics, economics and laws) or informal (norms, beliefs, values)
in nature, play an integral role in the success or failure of any industry. They govern the market and the
competition within the market. Let’s take a look at both these prospects:

Formal Institutions:
The Chinese government has already introduced certain concessions to encourage foreign
aviation companies to gain better stronghold in the market. The government should also
encourage the establishment of joint venture local manufacturing and assembly of the
foreign jets with the state-owned aviation companies. Foreign Direct Investment is also
another route through which subsidiaries by foreign companies can be set up in China. With
multiple subsidiaries gaining foothold in the country they can also bring benefits to the host
country including technology advancements and spillovers, capital supply, enhancement of
social conditions and business competitive environment. Moving on the government needs
to introduce policies in order to ensure fair competition between the domestic and foreign
jet makers, so as to refrain one from kicking the other out of the market completely.
Nevertheless, the Chinese airspace is military controlled with a cumbersome and lengthy
process involved discouraging many companies. With high tariff tax also needing lowering,
the Chinese Market can prove to be a promising domain for private jet companies.

Informal institutions:
In addition to the formal rules/institutions the foreign companies also need to deal with
constraints such as having to maintain ties with business players and government officials.
The political ties are the company’s underhand connections with the government as good
relations with the government can facilitate the process of approvals and ensure a better
 chance at survival in the long run. In the Chinese marketplace with unclear formal
institutions, these informal institutions take their place and provide assurance and
constancy to foreign firms. Henceforth, making social ties a key player in determining the
future of the foreign corporate jet companies.

Emerging Corporate Jet Market:

India, a fast emerging economy with an expected GDP growth of 7.4% in the coming years, is a highly
promising region in view of growth of Corporate Jet companies. With the increasing number of
billionaires in the region and the shift towards globalization, the demand for business jets is also
expected to rise steadily. Previously, and in many regions still, constraints such as infrastructure
challenges, service issues and support issues have hindered the rise of these companies. Also formal
institutions can have more flexible policies in order to accommodate and cater to the pent-up demand
of the one million Indians who control around $100-billion in assets of the economy. They can start with
removing the 25% import duty on non-airline aircrafts as well as the tariffs implemented on the
imported aircraft parts. With the lacking infrastructure leading to a shortage of runway and overnight
parking spots available. Yet, there are multiple signs of prospective development of the corporate
aviation companies despite the challenges faced. Reportedly 35 jets were imported from mid-2007 till
end of 2008, with the cohort jumping from 89 aircrafts to 120 by the end of 2009. While Cessna Citation
and Hawker Beechcraft remain the most popular makes with 28 and 30 units respectively, and Airbus
has two in corporate use. In order for the industry to really flourish though, the Indian market would
need to let go of its regressive import taxes, invest in infrastructure, and streamline aircraft permit
processes. Taking such steps could lead to the country boasting a hefty share of new business aircrafts in
the upcoming decade.