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N14512 MSc International Management University of the West of England

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University of the West of England

N14512 MSc International Management University of the West of England

1. Why are corporate jet makers are so eager to enter China
China is one of the ideal and favorable countries that give the jet market seeking firms
the location specific advantages because China has strong demand for personal jets,
vast territory for flying, large population and the ease of legal system on business
aviation (Peng, 2017). According to Stokes (2009) and Airbus (2017), China, with a
gleaming confidence, is emerging as a global commercial aviation player and has been
one of the largest air travel market in the world. It sets to overtake the U.S. to become
the world’s largest aviation market by passenger by 2024 (Cooper, 2016).
(1) Location and Population
The first reason the foreign jet makers is hungry to enter in China is the land areas and
number of population in China. According to Peng (2017), China has a vast territory
which is the third largest in the world, just after Russia and Canada and high population.
Large territory and population means greater scope for corporate jets for business
travels.
(2) Strong demand and increasing number of billionaires
Moreover, the exploding market demand for domestic air travel gives a positive signal to
foreign jet makers. It has shown through the increase in the number of regional airports
from 111 in 2005 to 163 in 2013 and a high climb in the number of passengers flying
regional routes by 120% over the past years (Lei, 2016). According to Panibratov
(2017), these increases form the solid underpinnings for increased demand for jets.
Moreover, the soaring corporate and private wealth in China has led to their growing
demand for private luxurious jets (Whyte, 2012; Alcock, 2012). Some market research
has revealed that the China has a huge number of millionaires and billionaires and 1/6
of the rich plan to buy corporate and private jets (Zhu and Liu, 2017; Shambaugh, 2016;
Haft, 2015). In the China’s annual rich list, the country has the most dollar billionaires,
surpassing the US (584 dollar billionaires ahead of 535 dollar billionaires in the US)
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despite its economic slowdown, falling stock market and corruption crackdown (BBC
news, 2016; Frank, 2016). These potential customers play a key role for foreign jet
makers to enter in China. It is predicted that the number of jets will increase to 5000 by
2020 (Davies, 2017).
(3) Legal system and infrastructure investment
Combined with the increasing demand from Chinese wealthy people, Chinese
government has offered a glimmer of hope in term of legal system and its investment
towards business aviation. Beijing’s latest five year plan has called for the development
of this industry (Patti, 2012). Some chunks of military’s air space are conceded to leave
space for business jets (Peng, 2017). It is shown by the regulators’ effort to relax
restrictions on the use of low altitude airspace across the country. According to Haft
(2015), this regulatory reform of lower altitude General Aviation (GA) airspace is
promoting the pace of the industry growth. Moreover, China’s Civil Aviation
Administration of China has abolished the rule stating that Chinese business jet buyers
need an approval which often takes around four to six months (Davies, 2017). This
move of the government has driven to stimulate the jet purchases in China. Last but not
least, Chinese government officials plan to devote significant resources and invest 11.9
billion dollar on aviation infrastructure including new facilities for GA such as roads, rail
lines, energy pipelines and power stations (NBAA, 2015). GA has become one of the
main directions in China’s policy and the government is encouraging more investment in
this industry (Horton, 2016).
(4) Culture
There is an increase in number of wealthy people seeking ways to show off their social
status by purchasing luxurious houses, sports cars or private jets (Kapferer and Bastien,
2012). The rich in China, following the same trend, have a tendency of purchasing the
biggest size and longest range jets to make impression to their friends. They regarded
the business jets as their status symbols to flaunt to their world about their fortunes and
social standing while efficiency and convenience are just incidental (Ying, 2016).
Previously, rich Chinese buyers disregard the age of jets or its record. However, they
are now more rational in recognizing many benefits of the business jets, including
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flexibility, safety, convenience, comfort and advanced technology that can meet their
personal and business needs. The perception of jet is now that of business facilitator
(Ying, 2016). Those factors combined mean the Chinese market full of potential and it
gives considerable opportunities to foreign investors in private jet industry of the
country.
2. In institution based view, what needs to be done to enhance the prospects
of this industry in China
From the institution based view, it is believed that success or failures of firms are
determined by the institutions or rules of the game including formal rules (laws,
economics and politics) and informal rules (values, norms and beliefs) that govern the
competition of the country (Peng, 2017; Peng et al., 2008). Since the Chinese business
sellers still face challenging bureaucratic hurdles to their aircrafts, limited airport
infrastructure and restrictions on access to airways (Alcock, 2012). Therefore, to
enhance the prospects of jet industry, it is important that Chinese formal and informal
institutions should be the favorable conditions for foreign firms to enter into the market.
However, it is also necessary for the government to ensure the fair competition between
Chinese domestic jet makers and foreign competitors.
(1) Formal institutions
The way that the China treats foreign entrants the same as they treat indigenous
Chinese firms will attract numerous outside firms as well as boost the potential odds for
their success. According to Panibratov (2017), it is expected that Chinese government
should open up further for foreign investors. Chinese government should encourage
more the foreign producers of corporate jets to establish manufacturing and assembly
joint venture with the state-owned aviation corporations (Crane et al., 2014; Levine,
2015). The idea behind this is to lead to technological transfer. Joint venture is often
regarded as an effective tool for foreign firms attempting to gain access to Chinese
market (low cost, high quality labor) as well as for Chinese aviation industry leaders to
trade market access for technology transfer. For example, the US-based Cessna- the
world’s biggest maker of business jets by volume has launched a joint venture with

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N14512 MSc International Management University of the West of England

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