Jones, David A
(2006)
Advancing Malaysia’s Aerospace Industry: A Review of Governing Behaviors Required in Overcoming the Barriers in Global Aerospace Supply Chain Integration.
[Dissertation (University of Nottingham only)]
(Unpublished)
Abstract
The global aerospace manufacturing industry is defined by original equipment manufacturers (OEM’s) consisting of major manufacturers of aircraft or aircraft systems as well as their principal and sub-tier suppliers. It is dominated by large manufacturers known as primes supported by system integrators and numerous component, parts and material suppliers. These are focused on meeting the diverse and differing capital equipment needs of these sectors. These supply products and services in direct support of commercial airlines, general aviation, corporate operators and government military airborne support Appendix 1 shows a simplified industry structure. The industry tends to be structured in strategic groups; in the first tier, airframe manufacturers and engine manufacturers; in the second tier, avionics and aircraft system suppliers. Component and assembly producers are within the third tier; parts manufacturers in the fourth tier and material providers in the final level. The industry typically has high mobility barriers at the prime and system integrator level due to technology and process type issues with high barriers to entry due to the industry being highly regulated, the level of technology, the inherent IPR and the significant capital intensity requirements with extended returns on investment. As such the industry has been the subject of much recent and continuing industry consolidation (Figure 2.3.1). The industry has evolved over the past 100 years since the Wright brothers made their maiden flight to achieving a current world turnover in excess of US$250bn (equivalent to 0.26% of global GDP) with 1.2m personnel employed (Society of British Aerospace Companies (SBAC) UK Aerospace Facts and Figures, 2001). The industry carried 1.8bn people in 2005 and 35% of world cargo (Association of Asia Pacific Airlines (AAPA) report, 2005). With reduced operating margins the industry is grappling with demands to reduce cost in an industry where success depends on research and development to create leading edge technology. However, the more recent world growth in both cargo and low cost carriers in the commercial aviation sector, very light jets in the corporate market, diesel engines in the general aviation field and the need for increased surveillance as with the coastguard and use of unmanned airborne vehicles providing one of few new large defence programmes stand out as recent significant changes in creating new market opportunities. To better understand the aerospace industry, this study uses a simple structure-conductperformance approach in the first instance and shows why this approach could not be used in the analysis. In brief, the structure refers to the industry’s competitive environment and its conduct to the firms activities, including innovation (both R&D and marketing innovation), outsourcing and management of the supply chain. The aspect of supply chain management and in particular outsourcing are covered in more detail to better understand the method by which Malaysia can become an important member in the global aerospace supply chain and the extent to which this is achievable by the medium and small enterprises currently engaged in this sector. Its performance refers to welfare implications including profit and efficiency in these areas. This report’s focus is based on recognition by the Malaysian government that in order to progress within the value chain towards higher value added activities, investment is required in both R&D (process and product) as well as marketing and supply chain management (Eighth Malaysia Industry Master Plan, 1996). The objectives of this report are thus to review the aerospace industry structure, review methodologies to enhance innovation both in technology and marketing and to consider mechanisms by which the Malaysian industry can improve its position in the global aerospace market. This theory will then be tested using a semi-structured survey of both Malaysian aerospace industry seniors and their multinational counterparts to make direct comparisons. The report will then seek to identify opportunities for further improvement and make recommendations. It is considered that with the recent growth in the aerospace and aviation industries that this port is timely. As will be demonstrated, the recent and continued growth of these sectors within the Asia Pacific region coupled with the desire for multinationals to become more competitive and move to lower cost sources has provided a unique market opportunity given an effective strategy for future growth. In a study of this nature it is not possible to cover all aspects. Nevertheless, the approach made, through identification of multinational needs, includes strategic changes in the industry within the areas of outsourcing and innovation in an attempt to understand current industry demands and the measures the Malaysian aerospace industry needs to take in meeting such changes.
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