Anjum Pervez Word Count: 2,177

Student Number: 06009205

Boeing’s Expansion into Thailand

Asia’s economic boom, Thailand’s export-driven economy and its ever-increasing popularity as an
international tourist nation has kept the sky filled with aircraft from every corner of the globe (Seline, 1998).

Boeing - operating in the global market, supplying aviation equipment and maintenance worldwide (Boeing
Homepage, 2008).

Introduction

The target country for expansion is Thailand. There is currently no local production of either aircraft or
aircraft spare parts in Thailand. The entire market demand is based on imports (Air Traffic Management,
2008). Therefore, my proposition is to set up a manufacturing plant in Thailand, which will allow the
company to take advantage of the domestic market demand and other prospective buyers. The analysis is
broken down into sections; covering each important aspect of the intended economic strategy. Finally a
contingency plan is considered as a failsafe option.

Economic Strengths

In 2006 alone, the Asia-Pacific route registered an increase to 978.29 million passengers, jumping 10.3%
from the previous year and 22.28% of the global total. That same year, a total of 42.8 million passengers
were serviced by Bangkok’s Don Muang and Suvarnabhumi airports (Air Traffic Management, 2008).
Bangkok recently climbed up the list to 15th in the 2006 global rankings, measuring the world’s busiest
airports in terms of passenger throughput. The city already ranks within the top twenty locations in the
world for cargo traffic, which is now 1.18 million tonnes (Reed Business Information, 2006).

Thailand’s GDP is rising at an average of 5% per annum since 2001, and similar levels of growth are
projected for the near future (Table 2: Appendix) (Business Monitor International, 2007).

Moreover, there is a highly skilled, educated and motivated workforce with 96% of the country’s population
fully literate (Table 2: Appendix) (Business Monitor International, 2007).

There is a world-class infrastructure consisting of 7 international airports, 8 deep-sea ports, rail and road
lines linking every province and modern telecommunications (Business Monitor International, 2008a).

The Signatory of free trade agreements, which includes the ASEAN Free trade area, has allowed access to
a market valued at US$700 billion (Economic Policy, 2008).
Anjum Pervez Word Count: 2,177
Student Number: 06009205

Ranked by the United Nations as one of the top 3 locations in Asia for FDI; by the World Bank as among
the top 20 in the world for ease of doing business; and in the Grant Thornton International Business Report
as the 6th best location in the world for executive opportunities (Economic Policy, 2008).

Market Data

According to statistics from the Thai Customs Department, imported products dominate the Thai aircraft
and parts market. Imported products include commercial and military aircraft, helicopters, parts,
communication equipment and avionics. The quantity of import products each year varies based on
procurements of large commercial aircraft, and both the government and the military budgets. Although it is
non-cyclical, normal import volume of aircraft and parts to Thailand without major aircraft procurements is
about $800 a year. However, import records show totals of $1.29 billion in 2005 and $1.07 billion in 2006,
with an expected annual market growth of 3% (Table 1: Appendix) (Customs Department, 2008).

Thailand exports a relatively high volume of aircraft and parts. These exports are re-exports of aircraft for
overseas maintenance/repair, as well as exports of locally manufactured parts used for aircraft
communication along with other electronic equipment. Thailand is a hub of several electronic and electrical
component manufacturers whose products are integral parts of onboard avionics and communication
equipment. Most of these components are considered re-export equipment for overseas aircraft and parts
manufacturers (Table 1: Appendix) (Customs Department, 2008).

A full breakdown of the type of products that Boeing will be offering is available in the Appendix (Table 3:
Appendix).

Market Demand

The aircraft and parts industry in Thailand is relatively small with captive groups of buyers including
commercial airlines, Thai military and government agencies, and general aviation purchasers. In terms of
market demand, Thailand lacks sufficient aircraft manufacturing industry to support local demand.
Therefore, it has to rely on imported equipment including aircraft, communication equipment, avionics, and
parts used in maintaining and servicing aircraft (Wongkeeratikul, 2008). Nonetheless, the Thai military, in
particular the Royal Thai Air Force (RTAF) and the Royal Thai Army’s aviation division, have limited repair
services and engine overhaul capabilities, mostly serving their own aircraft fleets (Department of Civil
Aviation, 2008). For the purpose of this operation, the Boeing Company will focus on the two major market
segments for aircraft and aircraft parts in Thailand, hence allowing them to maximise profit potential and
ensuring that all the possible channels of revenue are being occupied.
Anjum Pervez Word Count: 2,177
Student Number: 06009205
Civilian & Commercial Market

A handful of commercial airlines operate in Thailand. These airlines operate all major types of aircraft but
mainly use Boeing and Airbus. The routes covered are domestic, regional and international destinations.
Their aircraft are serviced by in-house maintenance and technical service centres, which provide minor
repair and routine maintenance checks for certain – not all - types of aircraft and engines. Occasionally,
major repair and overhaul work is handled overseas by manufacturer-approved service stations (Air Traffic
Management, 2008).

Thai Government and Military Market

The Thai military’s demand for aircraft and parts is stimulated by the country’s need for national security,
Thai airspace security, and balanced military power among neighbouring countries. The Royal Thai Air
Force is the major user and buyer of both aircraft and parts. The RTAF is the second largest operator of
aircraft in Thailand, after Thai Airways. It operates several types of military and training aircraft. However,
the RTAF has limited purchasing power as its source of funding relies on the government budget. For the
2007 fiscal year, budget appropriation for the RTAF was set at 21.44 billion baht or approximately $612
million. Most of this budget was used for the maintenance and service of existing aircraft fleets rather than
the procurement of new aircraft (Ministry of Defence, 2008).

According to this data, it would seem that there is a market for the aviation industry in Thailand. Not only
being able to service major repairs and overhaul work on commercial airlines, but reducing the cost of
Aircraft fleets, giving the military the opportunity to spend more of their budget on new aircrafts rather than
just repairing the old.

Market Entry

‘By and large, governments in Asia prefer foreign firms to manufacture locally, or at least to assemble
imported parts and components within the country’
(Lasserre and Schutte, 1999, p. 146).

In terms of procurement practice, the international open-bid is widely used for aircraft procurements in
Thailand. It is always advisable that foreign manufacturers and/or suppliers partner with a sound local
agent or representative in order to obtain necessary market information, advise on market practices, and
assistance in dealing with buyers and users. This is more of a requirement when dealing with
military/government buyers than with commercial buyers. The procurement process of the
military/government is quite procedural and bureaucratic (Business Monitor International, 2008b).
Anjum Pervez Word Count: 2,177
Student Number: 06009205
With regards to the import tariff imposed by the Thai Customs Department, the tariff for aircraft and parts is
5% of the cost, insurance and freight (CIF) price. Import tariff rates are established, maintained and
updated by the Thai Customs Department. For American aerospace companies, such as Boeing,
interested in expanding their aircraft and parts business in Thailand, the best approach is to make direct
contact with the buying authority (Business Monitor International, 2008b).

Boeing will gain a competitive advantage by focusing on the following: price, quality, financing terms and
after-sales service. Buyers seem to place great emphasis on price and quality, given that they are mostly
government-owned agencies with limited budgets (Walsh, 2006).

Competition is fierce whenever there is a large procurement project for new aircraft where manufacturers
are competing to win. International bidding competition is common practice in this market for most of the
cases. The counter trade or barter trade requirements, which were once obstacles to U.S. exporters, are
no longer applied. In Thailand, buyers prefer placing orders directly with manufacturers/suppliers for
procurement of replacement parts and supplies (Business Monitor International, 2008b).

Local Partnership

Partnerships with firms in the Asia-Pacific region can assist western companies in reducing production
costs and increasing their market share by giving them easier access to markets that are usually
prohibitively difficult to enter independently (Walsh, 2006).

Joint Venture

Western companies, when seeking joint ventures in the Asia-Pacific, will look for partners that will benefit
them in not just political, legal and economic terms, but also consider social and cultural factors. Some
firms will decline offers from potentially lucrative markets if they are unable to find an appropriate associate.
Companies will usually assess the reliability of a potential associate prior to them entering the joint venture.
This strategy is likely to be adopted in the event of Boeing having to carry out their contingency proposal as
discussed later (Walsh, 2006).

Finance

Financial resources could be allocated using planning and budgeting, with projects and plans being
incorporated at the operational level while those within the upper echelons of Boeing can deal with the
decisions that need to be made. Market data, sales projections, cash flow and profitability analysis could all
be used to support proposals and evoke confidence from Boeing’s top management. By providing high
quality information, profitability forecasts, details of the payback period, plus due consideration for the
Anjum Pervez Word Count: 2,177
Student Number: 06009205
profiles and reputations of relevant Boeing managers, then a project would be more likely to be accepted
(Atrill, 2003).

In this case, the operation will be financed by the company itself. Boeing is the world’s leading aircraft
manufacturer in terms of revenue, orders and deliveries. Moreover, it is the second largest aerospace and
defence contractor. Boeing is the largest exporter in the US and its stock is a component of the DOW
Jones industrial average. The company sells and leases aircraft acquired through trade, lease returns and
purchase on the secondary market (Boeing Homepage, 2008). The business venture will be covered by the
retained earnings previously generated by the company. In 2007, Boeing reported a retained earnings
figure of roughly $20 billion. This will be utilised in order to expand Boeing’s overseas operations in
Thailand. The resources could be used to establish a manufacturing plant for assembly purposes, therefore
increasing efficiency and satisfying local demand by enabling Boeing to gain the monopoly (Annual
Accounts, 2007).

Contingency Plan

Situated in the heart of Asia, the fastest growing economic region of the world, Thailand is strategically
located to become a hub for the aerospace industry. The International Air Transport Association (IATA) has
forecast that about half of the world’s air traffic will be within the Asia-Pacific region by the year 2010. In
March 2007, the Boeing Company forecast a market for the Asia-Pacific region of about 7,200 new
aeroplanes worth $770 billion over the next 20 years (Air Traffic Management, 2008). Boeing’s current
market outlook indicates that the Asia-Pacific region is projected to surpass all other areas of the world for
at least the next few years in terms of the aircraft industry (Air Traffic Management, 2008). The Asia-Pacific
is also expected to excel in terms of traffic growth, which will undoubtedly cause the demand for
maintenance work to increase (Reed Business Information, 2006).

Thailand has a solid and advanced infrastructure in place for providing aircraft repair services, including the
overhaul of aircraft engines (Air Traffic Management, 2008). An added attraction for investment in the
aerospace maintenance sector is Thailand’s status as one of the world’s major hubs for the electronics
industry, which opens significant opportunities for cluster development of avionics and communication
equipment (Reed Business Information, 2006).

For servicing aircraft engines, there is nowhere better than Thai Airway’s Bangkok facility. The facility is
one of the largest aircraft maintenance centres in Southeast Asia, and maintains a staff of more than four
thousand who operate a state of the art facilities area of 170,000 square meters and who offer superior
engine maintenance, engine overhaul and component repairs. Thailand’s aircraft maintenance facilities
operate with an eye to excellence and safety, and to meeting international standards (Department of Civil
Aviation, 2008). Boeing being a respected company in the aviation industry, it seems to lend itself well to
Anjum Pervez Word Count: 2,177
Student Number: 06009205
Thai Airways as they will aim to attain similar status within aircraft maintenance circles. It is thought that
from this partnership, both companies will see benefits for shareholders and employees alike.

With the market expanding for 747 freighter conversions (Customs Department, 2008), market access to
Thailand and other countries in the region will increase for Boeing. An increase in replacement and
incremental orders for new aeroplanes could be seen as well due to converted aircraft being replaced to
allow for future growth and existing traffic. The joint venture is thought to be progressive in terms of aircraft
heavy-maintenance and modification, but it also reinforces the relationships between those who are Boeing
customers as well as Thai Airways partners. In this sense, it strengthens international relations for the
company and helps Boeing cement its reputation as a global company. Therefore, not only can both
companies benefit by expanding the range of services offered to customers, but the partnership provides
each company a chance to enhance their reputation, profit potential, industrial capabilities and market
options.

Conclusion

In the above discussion many economic factors have been considered. On balance these factors show
Thailand to be a profitable region in which to invest. From this perspective it seems prudent for Boeing to
enter the Asia-Pacific market here. Also Market data suggests that the region is heavily reliant on certain
imports and services which Boeing can provide, whilst my proposed market entry strategy appears to be
sound given the attitudes to joint ventures and local partnerships.
Given the reputation and success of Boeing in other areas of the world, together with their financing
capabilities, the company should feel confident in executing such an expansion plan with the added
comfort of knowing there is also a reliable contingency plan to compliment their entry mode.
Anjum Pervez Word Count: 2,177
Student Number: 06009205
References
Air Traffic Management.(2008). Key Publishing Ltd. Vol. 17, Issue 2, p. 17.

Atrill, P. (2003). Financial Management for non-specialists. 3rd ed. Harlow: FT Prentice Hall.

Blois, K. J. (1997). Business to business relationships in Thailand, Oxford – Templeton College

Boeing, Annual Accounts 2007. [Online]

Retrieved on 20 November 2008 from http://www.boeing.com/

Boeing Homepage 2008 [Online]

Retrieved on 14 November 2008 from http://www.boeing.com/

Business Monitor International (2007). Opportunities in Asia’s High Growth Commercial Vehicles Market.

Business Monitor International (2008a). Macroeconomic Forecast, Thailand Defence & Security Report. pp.
32-34.

Business Monitor International (2008b). Southeast Asia Monitor. Risk Summary: Thailand. Vol. 1, Vol. 19,
Issue 1, p. 2.

Customs Department (Thailand) [Online]

Retrieved on 18 November 2008 from http://www.customs.go.th/Customs-Eng/indexEng.jsp

Department of Civil Aviation (Thailand) [Online]

Retrieved on 20 November 2008 from http://www.aviation.go.th

Economic Policy, Country Report, Thailand (2008). Monthly Review; May 2008. EIU: Economist
Intelligence Unit, pp. 11-13.

Lasserre, P & Schutte, H. (1999). Strategies for Asia Pacific. Macmillan Press Ltd. pp. 146–148.

Ministry of Defence (Thailand) [Online]

Retrieved on 22 November 2008 from www.mod.go.th/eng_mod/index.html

Ramstetter, E & Sjoholm, F. (ed) (2006). Multinational Corporations in Indonesia and Thailand: Wages,
Productivity and Exports, Basingstoke – Palgrave Macmillan

Reed Business Information (2006). Marketing Push to Increase Thai Trade, Issue 1760, p. 44.

Seline, C. (ed) (1998). The Business Guide to Thailand, Butterworth-Heainemann Asia

Walsh, J. (ed) (2006). The Globalisation of Executives and Economies: Lessons from Thailand, Oxford:
Chandos

Wongkeeratikul, A. et al. (2008). Modelling and Management of Airplane Phenomena on TV Broadcasting

Signal.2008, IEEE Publishing, Vol. 54, Issue 2, pp. 173-181.
Anjum Pervez Word Count: 2,177
Student Number: 06009205
Appendix

Table 1: Market Size for Aircraft and Parts (US$M)

2005 2006 2007 Projected Annual
Growth Rate
Import Market 1,298.11 1,072.36 1,220.79 3.00%
Local Production - - - 3.00%
Re-Exports 1,127.75 1,384.35 1,293.74 3.00%
Total Market 1,2,98.11 1,072.36 1,220.79 3.00%
Imports from US 96.99 77.19 89.70 3.00%
Exchange Rate 37 36 35 35
(Baht/US$)
(Air Traffic Management, 2008)

Table 2: Thailand – Economic Activity

2005 2006 2007 2008 2009f 2010f 2011f 2012f
Nominal GDP, 7,095. 7,830. 8,485. 9,362. 10,097. 10,752. 11,477. 12,354.9
THBbn 6 3 2 5 3 4 1
Nominal GDP, US$bn 176.41 206.96 246.03 292.08 297.40 304.63 312.94 322.80
Real GDP growth, % 4.5 5.0 4.8 4.8 5.5 5.6 5.3 4.9
change y-o-y
GDP per capita, US$ 2800 3262 3851 4541 4594 4678 4778 4903
Population, mn 63 63.44 63.88 64.32 64.73 65.13 65.49 65.84
Industrial production 9.1 7.4 8.2 8.9 7.2 5.6 5.6 -
index, % y-o-y, ave
Unemployment, % of 1.9 1.5 1.4 1.2 1.3 1.4 1.5 1.6
labour force, eop
(Business Monitor International, 2008a)

Table 3: Aircraft Parts and Components

Description Imports Exports US$M
US$M
Laminated safety glass for vehicles and aircraft, etc. 2.96 25.22
Parts of non-powered & powered aircraft, etc. 209.51 1,120.25
Aircraft launching gear and parts; deck arrestors - 0.92
Seats of a kind used for aircraft 7.57 0.06
Aircraft engines (spark-ignition/rotary int cmbus 2.33 237.55
Parts for aircraft engines (sp-ign, rot or comp) 0.32 1.23
Insulating wiring sets for vehicles, ships & aircraft 27.43 337.68
(Air Traffic Management, 2008)