Embraer, a company based in Brazil, has been known as the global leader in regional jets. Its first launching of regional jets has been highly successful and it is planning to delve into the second launching of larger jets. It is looking into ways to become more internationally competitive.
Pankaj Ghemawat; Gustavo A. Herrero; Luiz Felipe Monteiro
Harvard Business Review (701006-PDF-ENG)
July 10, 2000
Case questions answered:
- How has Embraer managed to succeed as a global competitor from within the confines of an emerging economy? Where appropriate, please make some effort to quantify advantages and/or disadvantages Embraer has derived from the Brazilian context.
- To what extent can Embraer’s success be ascribed to the Brazilian government?
- Do you agree with Botelho’s decision to re-emphasize the military business? Does the French alliance make sense?
- What can Embraer do to become more internationally competitive?
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Case answers for Embraer: The Global Leader in Regional Jets
1. How has Embraer managed to succeed as a global competitor from within the confines of an emerging economy? Where appropriate, please make some effort to quantify advantages and/or disadvantages Embraer has derived from the Brazilian context.
A key factor in the success of Embraer is the fact that from the beginning it had great support from the Brazilian government. For example, in the sixties, the Brazilian Military that was in power was very focused on producing researches because they wanted Brazil to become a “Great Power”. They adopted a development approach that favors state intervention in order to support the development of industries, science, and technology.
Following this initiative, they create an aeronautical industry’ hub in a small town near Sao Paulo called San Jose dos Campos. The government set the aeronautical industry as a priority to help the growth of the Brazilian economy.
Embraer and the Brazilian government developed the industry not only for military purposes but also for civilian purposes. Embraer and the government had a special relationship that gave the company privileges such as that federal agencies had to purchase from it rather than competitors, whenever possible. Another privilege was that Embraer would pay no taxes or duty on imported raw materials, parts, and equipment unavailable locally.
Also, the Brazilian corporations could invest 1% of their federal income tax obligations each year in Embraer’s shares. These rules of the government helped Embraer raise an estimated $ 350 million in capital between the years of 1970 and 1985. The Brazilian government created a very profitable environment that made it possible for Embraer to have a competitive advantage and being able to enter markets such as the US market, and therefore being a global competitor.
- Niche: Mid-Sized Regional Jets, Embraer did not try to compete with big players.
- Lighter planes, desired functions, means cost advantages that made able lower costs to customers.
- Switch to customer focus
- Outsourced non-core operations
- Matrix structure: allow flexibility and adaptability
- Re-structuring finance (lower interest rate)
- Not limited sales expanded beyond South America. US market is a very important market.
- A new standard in the development and manufacture
- Human capital. (government subsidies institutes for aeronautical engineers) Support from government
- Relationship with government:
- Tax exceptions
- Preference purchases
- Brazilian corporations could invest 1% of their federal income tax obligations each year in the shares of Embraer
- Country matters. Because it is so big, they need ways to transport