The aerospace manufacturing industry today is undergoing a major restructuring as a consequence of the globalization phenomena. There are two major perspectives that are prevalent today in the aerospace manufacturing industry. One is that product managers across the aerospace value chain are facing increasing pressure to make their offering more competitive in the light of increased requirement for lower prices from the end users which are the major airlines. This necessitates them to look for low cost manufacturers from emerging markets and having a supplier base which is spread all around the world. But this also creates problems in the management in terms of the financial and logistics implications it has on the industry players. On the other hand there is a significant growth in the entire value chains being clustered into regions which develop strategic core competence in a particular industry.
This dissertation paper tries to study the impact of Industrial clusters which are defined as “One where several formally independent firms and organizations are located together and do similar things and contribute to the production of similar products” for the aerospace manufacturing industry. This is done in the context of the Singapore aerospace industry cluster. This is done because of the emergence of Singapore in this business. With the aviation sector in Asia pacific region said to be on a high growth path, Singapore is positioning itself as a highly competitive player in the aerospace manufacturing value chain. It already has a market leadership position in the Maintenance, Repair and Overhaul (MRO) business and now seeks to improve its competence in the OEM and component manufacturing space. Aerospace is one of the fastest growing industries in Singapore and has enjoyed strong growth averaging 13% since 1990.
In this context this paper studies and identifies the aerospace industry manufacturing value chain and later identifies the various firms in Singapore which form part of this industry. The paper also tracks the various investments by the Singapore government policy makers like the investment in Seletar Aerospace Park and the investments by major aerospace industry players like Boeing, EADS, Hamilton Sundstrand and Pratt & Whitney in Singapore. The various firms which comprise of the aerospace industry value chain in Singapore are identified and the overall competitive structure of the industry is understood.
The above analysis is later viewed in the context of the reasons for increase in the aerospace manufacturing industry and conclusions are drawn on their impact on the industry and how Singapore as a nation is successfully branding itself as a aerospace industry major. Finally the paper views all the trends and implications derived out of the study to suggest broad guidelines for product managers in high investment and highly research driven industries to follow for successful operations in a globalized environment.
Chapter 1
The value chain described and popularized by Michael Porter is defined as a chain of activities. The products and services of a company pass through this chain of activities and gains value at each stage before it reaches the end user. The value added at each stage is different and businesses utilize the varying scales to charge a premium and thereby make profits. In the value chain, the activities are classified as primary and support. Inbound and outbound logistics along with the functions of operations, marketing, sales and maintenance form part the primary activities while administrative processes like infrastructure management, human resource management, and procurement and information technology form part of the support activities.
The value chain concept can also be extended beyond single organizations. It has been used to describe the entire flow and addition of value at the supply chain and distribution network level allocation of the value that gets added at each stage. Businesses base their strategy by designing to capture the maximum value generated along the chain and thereby exploit the information flowing forwards and backwards to create new business models. According to the Supply Chain Council the six business functions which constitute the value chain are research & development, design of products, processes or services, operations, marketing, customer service and distribution.
In a typical activity, the value addition is done with the use of resources and capabilities which the organization has to inputs turning them into outputs and the value added is the difference between the market value of the outputs and the cost of getting these inputs. A typical value chain analysis consists of the examination of the series of business activities and helps understand the cost position and to identify the company’s/industry’s competitive strengths.
Considering about the firm and or industries resources and capabilities has become much more critical with the inception of globalization, as these organizations and industries have come under enormous pressure to obtain many value creating activities from outside the firm or typical supply industries. In most global industries today, there is a strong demand towards achieving more with fewer resources and at a much faster rate. As a result of this, there has been a multiplication of international strategic alliances between industries and consolidation of resources to make the activities of the value chain much more gainful with larger margins. Analysing the value chains of the industries in the globalized world gives a good perspective of how such consolidation in resources and knowledge has happened and the benefits this provides the industry as a whole.
