I.

Culture

Summarize the three major guidelines for success in cross-cultural settings

& provide your insights as future Manager. State it your own words.

GUIDELINE 1: Acquire factual knowledge about the other culture and try to
speak the language.

GUIDELINE 2: Avoid cultural bias

GUIDELINE 3: Develop cross-cultural skills.

II. Government Intervention:

Airbus Versus Boeing

Going into the Dubai Airshow in late 2017, aircraft producer Boeing held a
healthy lead over its rival, Airbus, with more than 600 confirmed orders for
commercial aircraft, compared to 300 for Air-bus. At the Airshow, Boeing
got an additional order for 225 aircraft from Flydubai corporation, and
Airbus announced new orders for 430 planes from U.S. investors.
Historically, Boeing (www.boeing.com), McDonnell Douglas, and other U.S.
firms had dominated the global aircraft industry. Founded in 1916 in Seattle,
Boeing had many years to develop the critical mass necessary to become the
world’s leading aerospace manufacturer. During World War II and the Cold
War years, Boeing received many lucrative contracts from the U.S.
Department of Defense. Manufacturing commercial aircraft is complex and
capital-intensive, and requires a skilled workforce. No single country in
Europe possessed the means to launch an aircraft company capable of
challenging Boeing. Then, in 1970, the governments of France, Germany,
Spain, and the United Kingdom joined forces to create Airbus S.A.S.
(www.airbus.com). Heavily subsidized by the four-country alliance, Airbus
soon became the world’s number-two civil aircraft manufacturer. After
launching the A300 and the A320, Air-bus captured roughly one-third of the
global commercial aircraft market and has surpassed Boeing in new aircraft
orders in most years since 2000.

Government Support for Airbus Most nations in Europe emphasize

democratic socialism in which government plays a significant role in guiding
national economic affairs. Accordingly, Airbus has benefited enormously
from government support. The firm has received tens of billions of euros of
subsidies and soft loans from the four founding country government and the
European Union (EU). Airbus must repay the loans only if it achieves
profitability. Government aid has financed, in whole or part, every major
Airbus aircraft model. European governments have forgiven Airbus’s debt,
financed R&D for civil aircraft projects, and provided infrastructure and huge
equity infusions. Airbus is based in Toulouse, France, but has R&D and
production operations scattered throughout Europe. European governments
justify their financial aid to Airbus on several grounds. First, Airbus R&D
activities result in valuable modern technologies. Second, Airbus provides
jobs to more than 75,000 skilled and semiskilled Europeans. Third, its value-
chain activities attract massive amounts of capital into Europe. Finally,
Airbus generates enormous tax revenues.

Complaints About Unfair Government Intervention Boeing and the U.S.

government have long complained about the massive subsidies and soft
loans that have financed Airbus’s birth and ongoing success. The outcry
became louder in the 2000s when Airbus surpassed Boeing in annual sales,
becoming the world’s leading commercial aircraft manufacturer. Boeing
argues that Airbus never would have gotten this far without government
support. The U.S. government has brought several complaints to the

World Trade Organization (WTO). Among these are charges that EU states
provided billions of dollars in subsidies and soft loans to Airbus. The U.S.
alleged that financial aid for the A350, A380, and earlier Airbus aircraft
qualified as subsidies under WTO rules and that the subsidies constitute
unfair international trade. WTO rules prohibit subsidies to firms or industries
from governments or other public bodies.

In 2012, the WTO ruled that EU aid to Airbus had caused Boeing to lose
market share in Asia and other markets. EU officials argued that government
subsidies to Airbus were permissible and that it was up to individual EU
countries to decide whether to pro-vide them. The WTO also ruled that
Boeing received more than $5 billion in U.S. government subsidies in the
development of the 787 Dreamliner. In 2016, the WTO ruled that the
Airbus’s A350 jet, which competes directly with the Dreamliner, could not
have been developed without substantial subsidies. After fighting Airbus for
12 years in court, the ruling handed a giant victory to Boeing.

Government Support for Boeing The EU argues that the U.S. government
has indirectly subsidized Boeing through massive defense contracts paid by
tax dollars. The U.S. government gave Boeing more than $23 billion in
indirect government subsidies through R&D funding and other support from
the Pentagon and NASA. Boeing uses knowledge acquired from such
projects to produce civilian aircraft. The U.S. state of Washington, Boeing’s
main manufacturing and assembly location, has given the firm tax breaks,
infrastructure support, and other incentives totaling billions of dollars. The
EU also filed a case at the WTO on Boeing’s relations with Japanese business
partners. Boeing entered an alliance with Japan’s Mitsubishi, Kawasaki, and
Fuji to build the 787 Dreamliner. The Japanese firms provided billions in soft
loans, repayable only if the aircraft is commercially successful.

New Jets and Alliances

Boeing and Airbus remain fierce competitors. Airbus’s introduction of the

A380, an innovative jet with a long upper deck and a spacious cabin, was
soon followed by Boeing’s launch of the 787 Dreamliner, an innovative and
fuel-efficient jet. Development costs of the A380 exceeded $21 billion, partly
funded by European governments. The competition provoked new
complaints about subsidies and unfair competition. In 2017 Airbus acquired
a majority stake in Bombardier’s C-Series, 100-seat aircraft, which signaled
Airbus’s entry into the small jet segment long dominated by Bombardier and
Brazil’s Embraer. Responding to the Airbus-Bombardier alliance, the U.S.
Department of Commerce announced punitive measures, including possible
tariffs. The move prompted various European governments to threaten
countermeasures. Airbus opened an aircraft production plant in Mobile,
Alabama in 2015, after receiving more than $150 million in subsidies from
the southern U.S. city and state, and was producing about one aircraft per
week there by 2017. Airbus developed the new plant partly in response to
U.S. government efforts to impose steep tariffs on imports of small jet
aircraft. In response, Airbus announced plans to establish production of the
Bombardier C-Series at its Alabama facility. The new plant helped Airbus
avoid the tariffs, and also created numerous high-paying jobs in the United
States. Boeing earlier had received as incentive package from Alabama
worth about $150 million when it opened a rocket production facility in
Decatur, Alabama.

New Threats on the Horizon

In 2017, state-owned enterprises of both China and Russia announced

formation of the China-Russia Commercial Aircraft International
Corporation. The firm aims to develop aircraft that can compete with the
most advanced Boeing and Airbus jets. Another Chinese state-owned
enterprise, China Commercial Aircraft Company, began producing
commercial aircraft in 2017. The company already has received hundreds of
aircraft orders, mainly from Chinese firms. Airbus and Boeing must develop
strategies and competitive advantages to combat rivals from China and
Russia.

Case Questions
1. Where do you stand? Are EU subsidies and soft loans to Airbus fair?
Why or why not? What advantages does Airbus gain from financial
support from the EU governments? Are complaints about EU
subsidies fair in light of Europe’s his-tory of democratic socialism?
2. Do U.S. military contracts with Boeing amount to subsidies? Do such
payments give Boeing unfair advantages? Justify your answer.
3. Assuming that Airbus cannot compete without subsidies and loans, is
it likely that the EU will discontinue its financial sup-port of Airbus?
Is it in the EU’s interests to continue supporting Airbus? Justify your
answer.