Embraer Case Essay
The Embraer E-Jet family is a series of narrow-body medium-range twin-engine jet airliners produced by Brazilian aerospace conglomerate Embraer - Embraer Case Essay introduction. Announced at the Paris Air Show in 1999, and entering production in 2002, the aircraft series has been a commercial success. The aircraft is used by both mainline and regional airlines around the world. Inspired by Santos-Dumont, Embraer is one of the world’s leading aircraft manufacturers, a position achieved through the commitment to full customer satisfaction.
Throughout its 40-year history, Embraer has been involved in all aspects of aviation. In Addition to design, development, manufacturing, sales and technical support for commercial, agricultural and executive aviation, Embraer also offers integrated solutions for defense and security. It has produced more than 5,000 aircraft that operate in 80 countries on five continents, and it is the market leader for commercial jets with up to 120 seats. Embraer manufactures some of the best executive jets in operation, and is now entering a new level in the defense segment.
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Five Forces Intensity of Rivalry low Large businesses have certain inherent advantages over smaller companies. They are usually more established and have greater amounts of funds and resources. Embraer also has more established customers. Hence, they can enjoy more repeat business, which produces higher sales and profit. Another plus is that Embraer’s fast industry growth rate makes it less likely for competitors to feel the need to compete.
Since most modern aircraft were incredibly complex, a worldwide network of approximately 400 subcontractors was required to supply major structures and subassemblies, such as wings and fuselages, to manufacturers, in turn, were supplied yup to 4,000 firms that manufactured components or raw materials. This makes the intensity of rivalry low because there isn’t a need to compete when there is not a lot of competition. Threat of Substitutes-low Several factors determine whether or not there is a threat of substitute products in this particular industry.
First, if the consumer’s switching costs are low, meaning there is little if anything stopping the consumer from purchasing the substitute instead of the industry’s product, then the threat of substitute products is high. In 1995, Embraer entered the commercial jet market with the introduction of its ERJ family. The case states that the ERJ 140 had a seating capacity of 50, 37, and 44 seats respectively. Eventually the 10 to 120 seat market was introduced to compete with Bombardier’s Q-Series turboprop planes that seated 30 to 50 people.
According to Embraer, over the next 20 years there was an expected demand of about 56% totaling to 8,500 units, representing about 175 billion dollars of business. So, the threat of substitutes are low because of high switching costs, Embraer’s ability to differentiate their products, and the limited number of other airline producers. Threat of Entrants low to moderate High capital requirements mean a company must spend a lot of money in order to compete in the market. Again Embraer introduced new innovative ideas to the market which took billions of dollars to insure accuracy.
Weak distribution networks mean goods are more expensive to move around and some goods don’t get to the end customer. Consequently, Embraer has high sunk costs and high sunk costs limits competition. High sunk costs makes it difficult for a competitor to enter a new market, because they have to commit money up front with no guarantee of returns in the end. Along with the high capital requirements, advanced technologies are a big requirement for aircraft producers. Advanced technologies make it difficult for new competitors to enter the market because they have to develop those technologies before effectively competing.
– Bargaining Power of Supplier- low to moderate Embraer has more diverse distribution channels which makes the bargaining power of a single distributer low to moderate. The supplier, stated in the case, were highly competitive which can result in being a plus for producers in price reductions and that makes it easier to have lower switching costs when there is growing competition. Bargaining Power of Customers There is limited information available to the buyers. When buyers have limited information, they are at a disadvantage in negotiations with sellers.
Buyers require special customization to fit the needs of all buyers. When customers require special customizations, they are less likely to switch to producers who have difficulty meeting their demands. With Embraers large customer base and customer loyalty there is less bargaining leverage for buyers. Swot Analysis -cost advantage -High R&D -Innovative -loyal customers -strong brand equity -strong financial position -pricing opportunities -emerging markets and expansion abroad -online -developing markets -takeovers weaknesses -bad communication
-low R&D -risk management -weak supply chain threats -competition -cheaper technology -exchange rate fluctuations -price wars -WTO sanctions Strategic Map Recommendations: Embraer should launch it’s CSeries in order to stay in the lead of their main competitors, Boeing and Airbus. Innovation is key in this industry and both companies are sure to perceive Embarer’s new launch jets as an attack to their jet families. To protect their position, Embarer should merge with Boeing and together both companies can take over the majority of the market share.