Professional Documents
Culture Documents
Aliance Strategies
Aliance Strategies
Strategic alliances and competitive strategies in the European aerospace industry: the case of BMW
Rolls-Royce GmbH
D.J. Smith,
Article information:
To cite this document:
D.J. Smith, (2003) "Strategic alliances and competitive strategies in the European aerospace industry: the case of BMW
Rolls‐Royce GmbH", European Business Review, Vol. 15 Issue: 4, pp.262-276, https://doi.org/10.1108/09555340310483839
Permanent link to this document:
https://doi.org/10.1108/09555340310483839
Downloaded on: 21 March 2018, At: 00:10 (PT)
References: this document contains references to 56 other documents.
To copy this document: permissions@emeraldinsight.com
The fulltext of this document has been downloaded 4754 times since 2006*
Users who downloaded this article also downloaded:
(2011),"How BMW successfully practices sustainable leadership principles", Strategy & Leadership, Vol. 39 Iss 6 pp.
Downloaded by STIESIA Surabaya At 00:10 21 March 2018 (PT)
Access to this document was granted through an Emerald subscription provided by emerald-srm:617989 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service
information about how to choose which publication to write for and submission guidelines are available for all. Please
visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of
more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online
products and additional customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication
Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation.
would provide the basis of a family of engines objectives identified for the joint venture
covering the 12,000-14,000lb thrust market itself. It includes an examination of the part
segment and designed to replace played by each of the partners. This provides
Rolls-Royce's successful Tay engine. From its an opportunity to examine the role of this
inception, BMW Rolls-Royce GmbH was an strategic alliance in helping the partner
unusual joint venture. organisations implement their competitive
First, BMW Rolls-Royce GmbH is the only strategies. This in turn helps to explain the
aerospace alliance with a partner drawn from reasons behind the announcement in
outside the aerospace industry. Although November 1999 that Rolls-Royce was to buy
BMW began life as a manufacturer of aero out BMW's stake, effectively ending ten years
engines (Monnich, 1991) and was Germany's of joint venture operation, although the joint
leading producer of jet engines in the Second venture continues to function as Rolls-Royce
World War (Kay, 1993), it severed its links Deutschland.
with aerospace in the 1960s and by 1990 its
activities were confined to the automotive
industry. While there have been other Analytical framework
instances of firms using joint ventures to gain
market entry, they have always had existing The scale of the collaborative activity in the
aerospace interests. Second, BMW aerospace industry has resulted in it being the
Downloaded by STIESIA Surabaya At 00:10 21 March 2018 (PT)
Rolls-Royce GmbH was a separate entity, focus of a number of research studies. Many
with a higher degree of independence from its of these have sought to evaluate the
parents than other joint ventures. The performance of international joint ventures in
partners in CFM-International, General aerospace. However, as Dussauge and
Electric of the USA and France's SNECMA, Garrette (1993) point out, these studies have
for instance, are each responsible for generally taken an economic or political
assembling engines produced by the joint perspective, rather than a managerial
venture, while BMW Rolls-Royce GmbH perspective.
established its own purpose-built Studies that have been primarily economic
manufacturing and assembly facilities at (Hartley, 1983, 1988; Mowery, 1988; Martin
Dahlewitz, near Berlin. This led Dussauge and Hartley, 1991, 1995; Hartley and Martin,
and Garrette (1995), in a taxonomy of 1993) have sought to evaluate public policy in
collaborative agreements, to classify BMW terms of the efficient allocation of resources.
Rolls-Royce GmbH in a different category Although some of the studies have included
from other engine joint ventures, termed joint ventures covering civil aerospace, the
``business-based joint ventures''. Finally, focus has generally been on military
BMW Rolls-Royce GmbH is unusual in that programmes, especially those described by
it is the only commercial aero engine joint Muller (1995, p. 176) as, ``alliances imposed
venture where both of the partners are by governments'' rather than commercial
European. All the others have been joint ventures. Evaluation focused on
transatlantic alliances, with the partners economic efficiency, with performance judged
drawn from both sides of the Atlantic. BMW in terms of cost savings, increases in output
Rolls-Royce is unique in being an entirely and the level of exports. The studies have
European joint venture, created by European generally taken the form of quantitative
companies as a commercial venture, without studies and their findings have pointed to
any government involvement. This factor increased market share for European
alone makes it worthy of study. collaborative programmes but at the cost of
This paper reports on a study that aims to longer development times (Martin and
evaluate this example of European Hartley, 1991) and higher production costs
collaboration in the aerospace industry. (Martin and Hartley, 1995) compared to
Unlike other studies of aerospace strategic independent national programmes.
alliances, this study takes a strategic Alongside studies that have sought to make
perspective rather than a policy perspective, an economic evaluation have been those
evaluating performance in terms of the taking a political perspective (Hayward, 1976;
contribution of the joint venture to the long Mowery, 1987; Thornton, 1996; Muller,
term aims of the partners and the specific 1995; McGuire, 1997). Although diverse in
263
Strategic alliances and competitive strategies European Business Review
D.J. Smith Volume 15 . Number 4 . 2003 . 262-276
their aims, they too have generally sought to the joint venture as a leading European
evaluate policies. Among the themes manufacturer of aero engines within two
covered have been economic integration, specific segments of the aero engine market,
trade policy, the role of the state and namely large corporate jets and regional
industrial/competition policy. Again the focus airliners. It was also hoped to secure some
has been less on the operation of individual re-engining applications on older jets.
joint ventures and more on the impact on A simple comparison of BMW Rolls-
policy. They have endeavoured to evaluate Royce's turnover, after almost a decade of
policy decisions, but from a political rather operation, with other European engine
than an economic perspective. makers indicates that this objective was
In contrast to the substantial number of achieved. Table I shows that by 1999, when
studies that have concentrated on economic/ Rolls-Royce took over the joint venture,
political aspects of joint ventures there have BMW Rolls-Royce GmbH had become a
been only a very small number (Dussauge and major European aero engine manufacturer. In
Garrette, 1993, 1994, 1995) that have sought the space of ten years it had grown into a
to evaluate collaborative arrangements from a business with a turnover of nearly US$750m.
strategic management perspective. This is It had overtaken France's Turbomeca, a long-
probably a reflection of the political origins of established manufacturer of small aero
many of the older alliances. Commercial joint engines. The joint venture's progress was all
Downloaded by STIESIA Surabaya At 00:10 21 March 2018 (PT)
ventures are a more recent phenomenon, so the more impressive when one considers that
there are fewer of them and consequently they some of its rivals, such as SNECMA, Volvo
have been subject to less scrutiny. The few Flygmotor and Fiat Avio, manufactured
studies that have been undertaken link aerospace components as well as engines. A
commercial success to the organisational measure of the joint venture's international
structures adopted. success can be gauged by the fact that BMW
This study endeavours to assist in Rolls-Royce GmbH became one of the Top
redressing this imbalance, in particular the 100 aerospace companies in the world in
lack of studies that have taken a strategic 1998, in 75th position measured by turnover,
management perspective. It is based on an rising in the following year to 50th place.
evaluation of one of the newer forms of Furthermore BMW Rolls-Royce GmbH had
alliance, namely a commercial, rather than a only delivered its first engine three years
politically inspired, joint venture. It is also one earlier in 1996.
of a comparatively small number of studies to Thus, by the end of the 1990s, the principal
be based on a single detailed case study rather strategic aim of the joint venture had been
than a quantitative study covering a large achieved. This was a considerable
number of different programmes. achievement, bearing in mind that the
partners anticipated a relatively slow build-up
to full production, given the long-term nature
of the aerospace industry. However evaluating
The performance of the joint venture
a joint venture from a strategic management
Aims and objectives perspective also demands that some of the
Whereas economic and political evaluations more specific objectives be considered.
of joint ventures can take a broad perspective,
exploring issues such as allocative efficiency, Production
evaluations from a strategic management The joint venture's aim of becoming one of
perspective need to be more focused. Where Europe's leading manufacturers of aero
commercial joint ventures such as BMW engines for civil aircraft was to be achieved
Rolls-Royce GmbH are concerned, by means of a new generation of engines
commercial aims provide the primary focus based around the development of a new
for the joint venture's activities. Wider engine core. The BR700 core engine was
economic and political considerations are formally launched on 31 March 1991. It
inevitably of less concern to partners in drew heavily on Rolls-Royce's other engine
commercial joint ventures. programmes (Rupertson, 1998). The new
In the case of BMW Rolls-Royce GmbH, core was run successfully for the first time in
the principal commercial aim was to establish August 1993.
264
Strategic alliances and competitive strategies European Business Review
D.J. Smith Volume 15 . Number 4 . 2003 . 262-276
The entry of the BR710 engine into service in could be used as the basis of a family of new
late 1996 marked the transition of BMW engines had been achieved, and two engines,
Rolls-Royce GmbH from a company that the 14,000lb thrust BR710 and the 18,000lb
developed aero engines to one that thrust BR715, had been designed, developed,
manufactured them. As Figure 1 shows, certificated and put into service.
Downloaded by STIESIA Surabaya At 00:10 21 March 2018 (PT)
265
Strategic alliances and competitive strategies European Business Review
D.J. Smith Volume 15 . Number 4 . 2003 . 262-276
Hence BMW Rolls-Royce GmbH had market with only 700 engines being sold in
achieved one third of its targeted sales the corporate jet market. In reality the split
within a comparatively short space of time was the other way round with the corporate
and was well on target to achieve the sales jet sector taking two-thirds of BMW
total planned for 2010. Rolls-Royce GmbH's sales. This pattern
Not only was the level of total engine orders reflected greater than expected success in the
strong, the joint venture had by 1999 notched corporate jet sector and disappointing results
up these sales on four different aircraft in the regional jet market. BMW Rolls-Royce
applications. These included the GmbH's success in corporate jets came early.
Gulfstream V corporate jet, the Global Having the BR710 engine selected by both of
Express corporate jet, the Boeing 717-200
Downloaded by STIESIA Surabaya At 00:10 21 March 2018 (PT)
However, BMW Rolls-Royce GmbH did introduction of a 50-seat regional jet, the
achieve one re-engining success and it came CRJ100/200, a derivative of the company's
from an unlikely source, the defence sector. successful Challenger 601 business jet
When in 1997 the UK's Ministry of Defence originally designed by Bill Lear (Phillips et al.,
decided to upgrade the Royal Navy's 1994, p. 124), the originator of the Learjet.
maritime patrol aircraft, the Nimrod, BMW Bombardier's new regional jet, was followed
Rolls-Royce GmbH won an order for 88 by similar offerings from Embraer and
BR710 engines (BMW, 1998, p. 91) as part Fairchild-Dornier. Like Bombardier's
of a re-engining programme. regional jet they too were derivatives of
existing models. Both were derivatives not of
The regional jet market business jets but turboprop-powered regional
By the time Rolls-Royce came to buy out airliners. All three designs, while powered by
BMW's share in November 1999, the joint turbofan engines, because of their small size,
venture had enjoyed only limited success in utilized engines much smaller than those
the regional jet market. When the joint offered by BMW Rolls-Royce GmbH. Both
venture was founded in 1990 there were the CRJ100/200 and the Embraer ERJ 145
strong signs of the potential for the regional proved highly popular. By the end of the
airliner market. Regional airline traffic in the 1990s Bombardier had orders for 730
USA had grown fourfold during the 1980s in CRJ100/200s, of which 417 were in service
Downloaded by STIESIA Surabaya At 00:10 21 March 2018 (PT)
the aftermath of de-regulation (Hanlon, and Embraer had orders for 737 ERJ 145s, of
1999). A particular feature of the growth was which 286 were in service (Flight International,
the spread of alliances and partnerships 2000b). As Figure 2 shows, the regional
between major US airlines and smaller airliner market shifted dramatically from
regional airlines. These alliances, some of turboprop- to turbofan-powered aircraft,
which took the form of franchising causing what many described as a ``rush for
arrangements, were designed to consolidate jets''.
traffic feed and extend networks. By 1990 a Meanwhile the larger 100-seat regional
similar trend was beginning in Europe with airliner designs proposed in the late 1980s
regional airlines expanding more rapidly than failed to materialize. One by one the projects
the airline industry as a whole. However, the were cancelled. Then in 1996 Fokker, the
regional airliner market was still dominated, aircraft manufacturer that had pioneered the
as Figure 2 makes plain, by more fuel-efficient regional jet with its F28 back in the 1970s and
if less comfortable small turboprop powered been a major customer for the BR700's
aircraft. This domination reflected the fact predecessor, the Rolls-Royce Tay engine,
that the 30-50-seat segment of the market was ceased trading. At this point the market for
almost exclusively the preserve of turboprop engines of the BR715's thrust rating looked
aircraft. What is more, a number of new bleak. BMW Rolls-Royce GmbH found its
turboprop aircraft appeared in the 1980s claim to the regional jet market squeezed from
powered by new turboprop engines that three directions, despite the fact that the
produced a marked improvement in overall market grew rapidly in the 1990s. The
performance (Bonaccorsi and Giuri, 2000). A demise of most of the 100-seat regional jet
number of jet-powered regional airliners in designs proposed in the late 1980s, combined
the 100-seat market segment had been with the departure of Fokker, one of
proposed, including Daimler-Benz Rolls-Royce's biggest customers for the Tay
AeÂrospace's Regioliner, the Aerospatiale/ engine, deprived the joint venture of a
Alenia AI(R) 70 and the Fokker 70. All were number of potential airframe applications. At
European offerings and there were a number the same time the market for small turbofan
of Asian proposals at this time as well. Under engines expanded dramatically as new 50-seat
the circumstances the prospects for 100-seat regional jets appeared. One of the main
regional jets looked promising and the BR715 beneficiaries was General Electric with its
engine was targeted at this market segment. CF34 engine. Having established a firm
During the 1990s, the regional aircraft bridgehead, the manufacturers of these small
market underwent what Bonaccorsi and Giuri regional jets were then able to trade up and
(2000, p. 857) describe as a ``radical change''. enter the 70-seat market segment.
The catalyst for this change was Bombardier's Bombardier's CRJ700 modelm which was
267
Strategic alliances and competitive strategies European Business Review
D.J. Smith Volume 15 . Number 4 . 2003 . 262-276
launched in the late 1990s, was a stretched shut out of the market for regional jets in the
version of its earlier CRJ100/200 design. 70-seat category.
Fairchild-Dornier and Embraer came up with
entirely new designs. As General Electric Competitors
developed more powerful versions of the It was three years after the establishment of
CF34 engine, manufacturers like Bombardier BMW Rolls-Royce GmbH that MTU of
opted for manufacturers they knew and Germany and SNECMA of France and their
worked with previously. Unfortunately respective US partners came together to form
up-rating engines tends to be a more a rival engine consortium. ``Project Blue''
attractive proposition than de-rating them, so (Pletschacher and Kanebo, 1993, p. 24) was
BMW Rolls-Royce GmbH effectively missed announced to the world at the Paris Air Show
out on the ``rush to jets'' that occurred in the in 1993. Like BMW Rolls-Royce GmbH,
regional airliner market in the 1990s. Project Blue aimed to develop an engine
The joint venture was only able to achieve family in the 12,000-23,000lb thrust range.
one regional jet application, the MD-95, later The four companies felt that the potential of
re-designated as the Boeing 717. Although this market segment was too great to be left to
this was a single-sourcing application, by the
end of the 1990s sales of the Boeing 717, Table III Orders/deliveries for the Boeing 717/MD-95
which entered service with AirTran Airways Airline Delivered On order Total
in September 1999, proved disappointing. Aerolineas Baleares 4 0 4
Table III shows that by 2001 total sales of the AirTran Airways 22 28 50
Boeing 717 came to 150. By comparison Bangkok Airways 2 0 2
Bombardier's CRJ700, which had yet to enter Bavaria Leasing 5 0 5
service, had orders for 222 aircraft by May Hawaiian Airlines 4 9 13
2000 (Dixon, 2000). This was a reflection of Impulse Airlines 8 0 8
the popularity of smaller jets. Reluctant to Olympic Aviation 3 0 3
incur the cost of a new variant and worried Pembroke Capital 6 21 21
that the development of a second version Turkmenistan Airlines 0 3 3
would hit sales of its 100-seat model, Boeing TWA 20 30 50
did not develop a 70-seat variant. As a result 63 91 154
Source: Norris et al. (2001)
BMW Rolls-Royce GmbH was effectively
268
Strategic alliances and competitive strategies European Business Review
D.J. Smith Volume 15 . Number 4 . 2003 . 262-276
BMW Rolls-Royce GmbH (Mecham, 1993, (Lewis, 2002). This was a most inauspicious
p. 49). However, they planned to develop an start for a major new engine programme.
engine towards the top of this thrust range The same could not be said of the fourth
first, since BMW Rolls-Royce GmbH had engine to rival BMW Rolls-Royce GmbH's
initially focused on the lower end. BR700, General Electric's CF34 engine. This
Unfortunately, the partners were unable to engine pre-dated BMW Rolls-Royce GmbH
agree on the detail of the engine specification by some 20 years and at the time of the launch
and within a year the consortium had of the joint venture was not a competitor. The
collapsed. CF34 was a commercial derivative of the
Unable to agree on the best path to develop military TF34 engine developed by General
a competitor engine that would rival BMW Electric in the late 1960s to power the
Rolls-Royce GmbH's offerings, members of Fairchild-Republic A10 Thunderbolt fighter-
the ``Gang of Four'' (Pletschacher and bomber. Much smaller than either of the
Kanebo, 1993, p. 24), who had set up Project BR700 engines, the commercial CF34 engine
Blue, tried again. was developed from the military TF34 in the
France's SNECMA joined forces with Pratt 1980s and found applications on medium-
& Whitney's small engine subsidiary Pratt & sized corporate jets. However, in the late
Whitney of Canada. In April 1996 they 1990s the CF34 emerged as a rival to the
announced plans to develop a new 12,000- BR700 when General Electric successfully
Downloaded by STIESIA Surabaya At 00:10 21 March 2018 (PT)
16,000lb thrust engine, the SPW14, that developed much more powerful versions, first
would compete with the smaller of the two of 13,000lb thrust and then 18,000lb thrust.
BMW Rolls-Royce GmbH engines, the It became a serious competitor for the BR710
engine as the manufacturers of small regional
BR710. The SPW14 was to be based on the
jets developed larger 70-90-seat models. As
core of SNECMA's M88 military engine.
the leading manufacturers of regional jets of
Although it won the technical evaluation for
this size, including Bombardier and Embraer,
the AI(R)70 regional jet, the project was
opted for the high thrust versions of General
shelved. Plans for a stretched SPW14 were
Electric's engine, the CF34 found a ready
announced in March 1999, with the thrust
market and sales soared.
rating extended to 20,000lb. Despite the fact
that this expanded the number of potential
applications, by the end of the 1990s the joint
venture remained stillborn as it lacked a Competitive strategies of the partners
launch airframe.
Although one of the features of BMW
Meanwhile, in 1997 Pratt & Whitney
Rolls-Royce GmbH is that it was an equity
announced plans to go it alone in developing
joint venture and therefore independent of its
a rival to the BR700, with the launch of an
parents, the evaluation of the performance of
entirely new engine, the PW6000 (Donaghue, the joint venture has to take account of the
1998). With a thrust rating of 15,000- partners and their motives in setting it up.
20,000lb, the PW6000 scored an early Establishing BMW Rolls-Royce GmbH was a
success when in September 1998 it was major step for both of the partner companies.
designated the launch engine for the new It formed an important element in each
Airbus regional airliner, the 100-seat A318. company's competitive strategy. Hence
However, Pratt & Whitney was not able to evaluation of the joint venture needs to
secure single sourcing on the A318. CFM- consider the contribution that it made to the
International with a de-rated version of its competitive strategies of each partner.
highly successful CFM56 engine became an
alternative supplier when Air France ordered BMW AG
15 CFM56-powered A318s in July 1999 At the time the joint venture was established
(Lewis, 1999). Nor was this Pratt & in 1990, BMW was an independent specialist
Whitney's only problem with the PW6000. car manufacturer focused on a specific market
Technical problems with the engine meant niche ± executive saloons (Noble, 1992). It
that, instead of the projected entry into was one of five smaller specialist car
service date of the PW6000-powered A318 manufacturers in Europe (Womack et al.,
being 2003, this had to be put back a year 1990) alongside Mercedes, Volvo, Saab and
269
Strategic alliances and competitive strategies European Business Review
D.J. Smith Volume 15 . Number 4 . 2003 . 262-276
Jaguar. Although in third place in terms of was unusual. Its strategy had been to focus on
output among Germany's automotive the automotive sector rather than diversifying.
manufacturers, behind Daimler-Benz and By 1990, BMW had reached an awkward
VW, BMW was highly profitable. Positioned size (Allison and Barnes, 1993). Its sales had
between the full range car manufacturers grown steadily during the 1980s. By 1990 it
(Noble, 1992) and the craftsmen-built output had a turnover of DM27 billion and was
of the luxury saloon manufacturers (Kay, producing half a million cars per year.
1999), BMW successfully matched the Although still substantially smaller than the
organisation's distinctive capabilities ± full range producers, such as Fiat and Renault
German engineering and technical expertise, (Table IV), it was large for a specialist
to the market opportunities presented by high manufacturer producing cars for a specific
performance saloon cars. In the process market niche. Although pursuing its market
BMW had become a world-leading, highly
niche on a global basis helped, it was in
valued brand. In Kay's (1999, p. 18) words
danger of becoming a victim of its own
``BMW proved to be one of the great success
success. Sales growth reduced the exclusivity
stories in modern business history''.
sought by buyers in this market segment and
In 1990 BMW differed markedly from most
associated with the BMW brand.
other car manufacturers. Not only was it
Consequently diversification into aerospace
much more focused in the sense that its
through a strategic alliance with the UK's
Downloaded by STIESIA Surabaya At 00:10 21 March 2018 (PT)
the technical performance of the engine was exercising its option to buy the remainder in
satisfactory and overall sales were on target. January 2000. In 1998 Daimler-Benz,
Why then did BMW withdraw from the manufacturers of Mercedes cars, merged with
joint venture in 1999? The answer lies not in Chrysler of the USA and finally in 1999 Ford
BMW's aero engine activities but rather in its of the USA bought Volvo's car division for $5
car division. Four years after establishing the billion. In the course of a decade the executive
joint venture with Rolls-Royce, BMW car market segment was transformed.
announced much bolder plans when in 1994 Independent specialist manufacturers of
it bought the UK car manufacturer Rover. executive cars disappeared, unable to sustain
Despite early promise, this venture became the $1 billion costs associated with developing
mired in crisis when, as Table V shows, Rover a new model. Instead, they became part of
sales fell sharply in the first half of 1999. volume car manufacturers whose competitive
The drop in sales was attributed to the high strategy was to cease selling executive cars
value of the pound and changes in Rover's under a generic name, in favour of buying or
product range. The effect was a sharp decline building an executive car brand. In the
in Rover's market share to 4.6 per cent. These process they stood to benefit from economies
troubles were widely reported in the press and of scope.
led to the departure of BMW's chief executive BMW was at the centre of this strategic
Bernd Pischetsreider and his deputy change. It acquired a volume car business that
Downloaded by STIESIA Surabaya At 00:10 21 March 2018 (PT)
Wolfgang Reitzle. The company was forced to included three major UK plants and it
devote all its efforts to turning Rover around. established manufacturing facilities in the
Under these circumstances, it was perhaps USA. Faced with such dramatic strategic
not surprising that BMW chose to focus its change, it chose to focus on its core business.
efforts on its core business and turn its In opting to focus, BMW was not alone. A
investment in aero engines into a more liquid clear trend of the 1990s was a move away
form. from diversification by the leading car makers.
There were other factors beside this In 1990 Ford sold its Ford Aerospace division
immediate short-term crisis that led BMW to to Loral, which was in turn purchased by
Lockheed-Martin in 1996. General Motors of
focus on its core business. The car industry,
the USA, sold its Allison aero engine division
especially the sector inhabited by BMW, was
in 1993 and then in 1996 sold its Hughes
very different at the end of the 1990s from
Electronics division to Raytheon. Similarly,
what it had been at the start of the decade.
US car maker Chrysler sold its Gulfstream
Whereas there had been five European firms
aerospace business in 1990, when ``an
in the specialist executive car market segment
anticipated synergism between the companies
at the start of the decade, none remained as
never materialised'' (Phillips et al., 1994,
independent producers by the end of the
p. 225). Similarly in Europe, British
decade. Having taken over Rover, BMW
Aerospace and Saab sold their car businesses
doubled in size in output terms and moved
in the early 1990s in order to concentrate on
into the volume car sector. UK-owned Jaguar
aerospace. The drive to focus was not driven
was bought by Ford of the USA in 1990. In
by car makers failing to make a success of
the same year General Motors of the USA
aerospace. Ford Aerospace, for instance, had
bought a 50 per cent stake in Sweden's Saab,
been consistently profitable (Hayward, 1994).
Table V Output of BMW Group 1998-1999 However, the harsher environment for
defence contractors that prevailed in the years
January-June January-June Percentage
after the ending of the Cold War caused car
Date 1999 1998 change
makers like General Motors, Ford and
Cars 562,952 630,491 ±10.7 Chrysler to re-evaluate their strategy and exit
BMW 381,689 350,596 +8.9 from the aerospace business.
Rover 87,459 173,376 ±49.6 Hence, by the end of the 1990s the car
Land-Rover 83,511 89,813 ±7.0 industry environment, especially the executive
Mini 5,093 8,692 ±41.4 car segment, looked very different from a
MG 5,201 8,104 ±35.1 decade earlier. When combined with BMW's
Motor cycles 42,660 36,138 +18.0
problems with its Rover division and BMW
Aero engines 71 51 +39.2
Rolls-Royce GmbH's relatively slow progress
271
Strategic alliances and competitive strategies European Business Review
D.J. Smith Volume 15 . Number 4 . 2003 . 262-276
aero engine manufacturers in the world with developed as part of the International Aero
the capability to design, develop and Engines joint venture was about to enter
manufacture a range of military and civil service, but was not projected to break even
aero engines (Hayward, 1989). It had only until 2001 (Birch, 1998). The company had
recently returned to the private sector, launched its biggest and most expensive
having been floated in May 1987 as part of engine, the Trent, two years earlier in 1988
the Thatcher administration's privatisation (Walters, 1998). Not only was the Trent
programme. absorbing a great deal of money for research
After the financial disaster in the early and development, it was several years away
1970s, that had seen the company taken into from entering service, let alone contributing
public ownership and its car division sold to to profitability.
Vickers, it had made significant progress Unlike its US counterparts, Rolls-Royce
during the 1980s. Not only had its sales risen was not a diversified industrial group. It had
steadily (Table VI), but it had returned to begun to diversify, having moved into power
profit. A major factor had been a drive for generation through the acquisition of
improved productivity which had seen the Northern Engineering Industries in 1989,
company lose 26,000 jobs in six years but was still heavily dependent on
(Hayward, 1989). It had also reduced its aerospace. This made it vulnerable to the
dependence on its biggest customer, the UK cyclical nature of the aerospace industry
government. The proportion of civil engines that led to strong fluctuations in sales. This
that made up the company's output rose was normally mitigated by military sales
steadily (Table VI). Its share of the market for which were more stable, but the ending of
civil engines, which had averaged 13 per cent the Cold War brought this into question.
in the late 1970s and early 1980s (Hayward, However, Rolls-Royce's biggest weakness
1989), had risen to 20 per cent by 1990. This was the narrowness of its product range. In
1980 the company was able to offer engines
Table VI Rolls-Royce distribution of turnover 1982-1987 for just four civil aircraft applications
Year Civil Military Other Total (Rolls-Royce 1997, p. 8). This put
1982 520 742 231 1,493 Rolls-Royce at a serious disadvantage. First,
1983 388 706 137 1,331 it meant that there were some market
1984 446 735 228 1,409 segments in which Rolls-Royce simply did
1985 577 735 289 1,601 not compete. This made the company
1986 757 740 305 1,802 vulnerable because a downturn in the
1987 943 820 286 2,059 segments where it was represented could
not be offset against segments where
Source: Hayward (1989)
demand remained healthy. Second, since
272
Strategic alliances and competitive strategies European Business Review
D.J. Smith Volume 15 . Number 4 . 2003 . 262-276
strategy that was to alter both the company had been made since the inception of BMW
and the way in which it did business. The Rolls-Royce GmbH can be gauged from the
company set the ambitious goal of a fact that the increase in airframe
30 per cent share of the world-wide civil applications represented ``a five-fold
turbofan market. In view of the company's
increase compared to the position at the
modest share of the market at this time
start of the 1990s'' (Rolls-Royce, 2000,
and the dominant position of Pratt &
p. 10). BMW Rolls-Royce GmbH was
Whitney, this was a particularly ambitious
responsible for four of the additional
goal.
In order to meet its long0term goal, airframe applications.
Rolls-Royce's competitive strategy from the Improvements in market share were
early 1980s onwards was ``to broaden its civil reflected in a big increase in engine
aero engine product range'' (Pugh, 2001, production during the course of the 1990s.
p. 325). A broader product range not only Table VII shows that over the course of the
increased the number of market segments in 1990s output of civil aero engines rose
which the company could compete, it also steadily. Output rose especially rapidly after
provided scope for ``making technology 1996 when the first BMW Rolls-Royce
transferable between engines'' (Pugh, 2001, GmbH engines went into service. Although
p. 324). the growth in output was brought about by a
As part of this strategy Rolls-Royce number of factors, including the build-up of
developed a number of derivative engines. Trent engine production and growth in small
These utilized the core of an existing engine
engine production, BMW Rolls-Royce
adapted, often using new technologies
GmbH was clearly an important contributor.
developed for other engines, to meet the
needs of a new market segment. Examples
of this derivative approach included the 535 Table VII Rolls-Royce annual civil aero engine output
engine which entered service in 1983, a 1994-1999
de-rated version of the larger RB-211 and Year Output
the Tay which entered service in 1987,
1994 407
based on the core of the Spey engine of the
1995 405
early 1960s. While the derivative approach
1996 424
enabled Rolls-Royce to extend its product
1997 625
portfolio for a much reduced outlay 1998 911
compared to completely new engine 1999 1,089
designs, it had its limitations. Consequently
in the late 1980s Rolls-Royce utilized Source: Rolls-Royce (2000)
273
Strategic alliances and competitive strategies European Business Review
D.J. Smith Volume 15 . Number 4 . 2003 . 262-276
objective was simple enough. The partners, industry over the course of the 1990s,
BMW and Rolls-Royce, set out to produce a especially those associated with the
family of advanced turbofan engines, based competitive strategies of most of the leading
on an entirely new engine core, that would car makers, have meant that BMW has
compete in the 14,000-22,000lb thrust
chosen to focus on its automotive interests.
segment of the market. As for Rolls-Royce, it has clearly benefited
Though straightforward, this was an
greatly from the collaboration. It now has a
ambitious target for two reasons. First, new
much broader product portfolio than a
engines, especially those that are new
decade ago. The company has achieved its
designs, take a very long time to develop.
long-term goal of a one-third share of the
Many have taken nearly ten years to get
commercial jet engine market and it has
them into full-scale production. Over such a
overtaken its long-time rival Pratt &
long time scale market conditions can
Whitney, moving up into second place
change dramatically. Second, the market for
among the world's leading aero engine
the new engine was far from clear. None of
producers. The alliance with BMW played
the aircraft, for which the BR700 engine was
an important part in the company's
intended, was yet in service. The prospects
improved performance.
for the regional airliner market especially
Thus from the perspective of both the
were far from clear, with a number of
partners and the joint venture itself, an
aircraft proposed, but not actually launched
evaluation of BMW Rolls-Royce GmbH
as committed programmes.
really has to conclude that it performed well
Against this background, BMW Rolls-
and was remarkably successful over the
Royce GmbH would appear to have
decade or so of its existence.
performed remarkably well. The new engine
core that formed the basis of both the BR700
engines was a technical success. Unlike many
engine programmes, especially those that are References
new rather than derivative designs (Gunston, Allison, R. and Barnes, I. (1993), ``BMW: niche marketing
1989), both BR700 engines encountered few in a global economy'', in Preston, J. (Ed.),
technical problems and exceeded their International Business: Text & Cases, Pitman,
performance targets in service. Similarly, sales London.
were encouraging and are currently on target Birch, D. (1998), ``International thrust'', Air International,
Vol. 54 No. 6, pp. 367-9.
to meet the long-term level of sales projected
BMW (1998), BMW Annual Report 1997, BMW AG,
for 2010. Munich.
One aspect of the strategic alliance's BMW (1999), BMW Annual Report 1998, BMW AG,
performance qualifies the picture of strong Munich.
274
Strategic alliances and competitive strategies European Business Review
D.J. Smith Volume 15 . Number 4 . 2003 . 262-276
Bonaccorsi, A. and Giuri, P. (2000), ``When shake-out Hayward, K. (1994), The World Aerospace Industry:
doesn't occur: the evolution of the turboprop engine Collaboration and Competition, Duckworth, London.
industry'', Research Policy, Vol. 29, pp. 847-70. Hegert, M. and Morris, D. (1988), ``Trends in international
Dixon, T. (2000), ``Setting the standard: Bombardier's collaborative agreements'', Columbia Journal of
regional jet'', Airliner World, August, pp. 62-9. World Business. Vol. 22, pp. 15-21.
Donoghue, J.A. (1998), ``Cheap is good'', Air Transport Kay, J. (1993), Foundations of Corporate Success, Oxford
World, August, pp. 50-8. University Press, Oxford.
Dussauge, P. and Garrette, B. (1993), ``Industrial alliances Kay, J. (1999), ``A takeover that missed the mark'',
in aerospace and defence: an empirical study of Financial Times, 18 February, p. 18.
strategic and organisational patterns'', Defence Kinnear, I. (1986), ``Tay certificated and soon to enter
Economics, Vol. 4, pp. 45-62. service', The Rolls-Royce Magazine, September,
Dussauge, P. and Garrette, B. (1994), ``Alliances pp. 20-24.
industrielles dans les secteurs de l'aeÂrospatiale et Kingsley-Jones, M. (2001a), ``Airframers: no pain in
de la deÂfense'', in Noel, A. (Ed.), Perspectives en prospect as cycle gently touches bottom'', Flight
Management StrateÂgique, Vol. I, 1992/1993, CETAI, International, 2-8 January, p. 28.
HEC Montreal. Kingsley-Jones, M. (2001b), ``BR715 offered for MD80'',
Dussauge, P. and Garrette, B. (1995), ``Determinants of Flight International, 24-30 July, p. 10.
success in industrial strategic alliances: evidence Lewis, P. (1999), ``CFMI scoops second slot on A318'',
from the global aerospace industry'', Journal of Flight International, 21-27 July, p. 4.
International Business Studies, Vol. 26 No. 3, Lewis, P. (2002), ``CFM56 takes pole position on A318'',
pp. 505-30. Flight International, 22-28 January, p. 5.
Dussauge, P. and Garrette, B. (1999), Cooperative McGuire, S. (1997), Airbus Industrie: Conflict and
Downloaded by STIESIA Surabaya At 00:10 21 March 2018 (PT)
Strategy: Competing Successfully through Strategic Cooperation in US-EC Trade Relations, Macmillan,
Alliances, John Wiley & Sons, Chichester. Basingstoke.
European Commission (1997), The European Aerospace Martin, S. and Hartley, K. (1991), ``European collaboration
Industry, European Commission, Brussels. in aerospace: recent trends and future prospects'',
Flight International (1992), ``Aerospace top 100'', European Research, Vol. 2 Part 6, November,
Flight International, 19-25 August, pp. 31-57. pp. 14-19.
Flight International (2000a), ``Aerospace top 100'', Martin, S. and Hartley, K. (1995), ``European collaboration
Flight International, 18-24 July, pp. 43-65. in civil aerospace: success or failure?'', Journal of
Flight International (2000b), ``Regional jet survey'', Common Market Studies, Vol. 32 No. 2, pp. 275-91.
Flight International, 24-30 October, pp. 43-66. Mecham, M. (1993), ``Engine makers collaborate on new
GAMA (2001), Shipment Report Year End 1997-2000, small jet family'', Aviation Week and Space
7 February, General Aviation Manufacturers Technology, 21 June, pp. 49-50.
Association, Washington, DC. Monnich, H. (1991), The BMW Story: A Company in its
Glaister, K.W. and Buckley, P.J. (1994), ``UK international Time, Sidgewick and Jackson, London.
joint ventures: an analysis of patterns of activity and Mowery, D.C. (1987), Alliance Politics and Economics:
distribution'', British Journal of Management, Vol 5 Multinational Joint Ventures in Commercial Aircraft,
No. 1, pp. 33-52. Ballinger, Cambridge, MA
Gomes-Casseres, B. (1996), The Alliance Revolution: The Mowery, D.C. (1988), ``Joint ventures in the US
New Shape of Business Rivalry, Harvard University commercial aircraft industry'', in Mowery, D.C. (Ed.),
Press, Cambridge, MA. International Collaborative Ventures in US
Gunston, B (1989), Rolls-Royce Aero-Engines, Patrick Manufacturing, Ballinger, Cambridge, MA.
Stephens Ltd, Sparkford. Muller, P. (1995), ``Aerospace companies and the state in
Hanlon, P. (1999), Global Airlines: Competition in a Europe'', in Hayward, J. (Ed.), Industrial Enterprise
Transnational Industry, 2nd ed., Butterworth- and European Integration: From National to
Heinemann, Oxford. International Champions in Western Europe, Oxford
Hartley, K. (1983), NATO Arms Collaboration: A Study in University Press, Oxford.
Economics and Politics, Allen and Unwin, London. Noble, D. (1992), ``Industry dynamics in Europe: the motor
Hartley, K. (1988), ``Aerospace: the political economy of industry'', in Young, S. and Hamill, J. (Eds), Europe
an industry'', in de Jong, H.W. (Ed.), The Structure of and the Multinationals: Issues and Responses for
European Industry, 2nd ed., Kluwer Academic Press, the 1990s, Edward Elgar, Aldershot.
Dordrecht.. Norris, G., Kingsley-Jones, M. and Doyle, A. (2001),
Hartley, K. and Martin, S. (1990), ``Collaborative projects: ``Climbing the learning curve'', Flight International,
international collaboration in aerospace'', Science 5-11 June, pp. 42-8
and Public Policy, Vol. 17 No. 3, pp. 143-51. Phillips, A., Phillips, A.M. and Phillips, T.R. (1994), BizJets:
Hartley, K. and Martin, S. (1993), ``Evaluating Technology and Market Structure in the Corporate
collaborative programmes'', Defence Economics, Jet Aircraft Industry, Kluwer, Dordrecht.
Vol. 4 No. 2, pp. 195-211. Pletschacher, P. and Kanebo, S.W. (1993), ``Project Blue
Hayward, K (1976), ``Politics and European aerospace may launch JT8D successor'', Aviation Week and
collaboration: the A300 Airbus'', Journal of Common Space Technology, 8 November, p. 24.
Market Studies, Vol. 14, pp. 354-67. Pugh, P. (2001), The Magic of a Name, The Rolls-Royce
Hayward, K. (1989), The British Aircraft Industry, Story Part Two: The Power behind the Jets, Icon
Manchester University Press, Manchester. Books, Duxford, Cambridge.
275
Strategic alliances and competitive strategies European Business Review
D.J. Smith Volume 15 . Number 4 . 2003 . 262-276
Rolls-Royce (1997), Annual Report 1996, Rolls-Royce plc, Walters, B. (1998), ``Rolls' biggest fan'', Air International,
London. Vol. 56 No. 2, pp. 115-18.
Rolls-Royce (2000), Annual Report 1999, Rolls-Royce plc, Womack, J.P., Jones, D.T. and Roos, D. (1990), The
London. Machine that Changed the World, Rawson
Rupertson, F. (1998), ``Gulfstream V'', Air International, Associates, New York, NY.
Vol. 55 No. 4, pp. 221-7.
Thornton, D.W. (1996), Airbus Industrie: The Politics of an
International Industrial Collaboration, St Martins
Press, New York, NY. Further reading
Very, P., Berthelier, M. and Calori, R. (1993), ``A note on
the world automobile industry'', in Johnson, G. and Hayward, K. (1986), International Collaboration in Civil
Scholes, K. (Eds), Exploring Corporate Strategy, Aerospace, Pinter, London.
3rd ed., Prentice-Hall, Englewood Cliffs, NJ, Moorman, R.W. (1997), ``Fan watch'', Air Transport World,
pp. 558-70. No. 5, pp. 31-42.
Downloaded by STIESIA Surabaya At 00:10 21 March 2018 (PT)
276
This article has been cited by: