Page 1


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

Table of Contents 1. France

2

1.1 Country Overview

2

1.2 PEST Analysis 1.2.1 Political

3 3

1.2.2 Economic

3

1.2.3 Social

4

1.2.4 Technological

5

1.3 Country Competitiveness Analysis 1.3.1 The Global Competitiveness Report 2019

5 7

1.3.2 French Competitiveness - Summary

8

2. The Aerospace Industry

9

2.1 Overview

9

2.2 The aerospace industry in France

12

2.3 Competing Clusters 2.3.1 U.S. and the Pacific Northwest Aerospace Cluster

13 13

2.3.2 Germany and the BavAIRia Aerospace Cluster

14

2.3.3 China and CASC (China Aerospace Science and Technology Corporation)

15

3. Aerospace Valley

16

3.1. Cluster overview 3.1.1 Main indicators

16 17

3.2 Description of activities

19

3.3 Key players and Institutions 3.3.1 Cluster Map

21 22

4. Cluster Diamond

23

4.1 Factor conditions

23

4.2 Firm strategy, structure and rivalry

25

4.3 Related and supporting industries

26

4.4 Demand conditions

27

5. Strategic issues facing the country and the cluster 6. Policy recommendations 7. References

28 30 33

Personal data of the authors protected by law. For more information please send your request to: marcin.czarnecki.sgh@gmail.com.

1


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

1. France 1.1 Country Overview France is a highly developed and recognized country with a prosperous, well-protected economy. Located in the Western Europe, its size of 551,695 km2 (5th in Europe) 1, population of 64.8 M people (3rd)2 and nominal GDP of $2.7 trillion (3rd)3makes it one of the main players on the continent. République française has a unitary semi-presidential government system, with Emmanuel Macron as the current head of state, and is divided into 18 administrative regions and 101 departments. France has a wide variety of topographical sets and natural landscapes, and boasts rich history, with world-renowned culture, food and lifestyle. French present deep patriotism being closely-knit to their tradition, language and products. French GDP per capita amounts to $41,761 (22nd in the world), GDP per capita PPP – $47,223 (26th)4 and its HDI is evaluated as “very high” as well – 0.901 (24th)5. Its GDP %growth rate was 1.4% and 1.3% in 2017 and 2018 respectively 6 which makes it a stable and already developed market.

1

FrenchNational Geographic Institutedata, which includes bodies of water.

2 "Demography – Population at the beginning of the month – Metropolian France". Insee. 2019.

3 7th in the world;"World Economic Outlook Database, October 2019". IMF.org.International Monetary Fund.

4 "World Economic Outlook Database, October 2019". IMF.org.International Monetary Fund. 5

"2016 Human Development Report". United Nations Development Programme. 2017. 1.2% average 10-year annual growth; https://tradingeconomics.com/france/gdp

6

2


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

1.2 PEST Analysis 1.2.1 Political Metropolitan France is a democratically established state, and the second most influential member of the European Union (following Germany). The political landscape is more or less stable – the main ruling parties are usually Socialists and Republicans, however recent elections were won by right-wing, Eurosceptic movement En marche!. The country is a member of various prominent international organisations, main of which are: EU, NATO, WTO, WHO, G7, OECD and La Francophonie. On the negative side, France is broadly known for its high formalism and bureaucracy, although in the Ease of Doing Business 2018 Ranking occupies moderately good 32ndplace (an average from the previous years)7. 1.2.2 Economic As of 2019 France was ranked as the EU's 2nd largest economy and the world's 7th largest (10th largest and by PPP)8. It boasts a considerable number of small and medium enterprises (protected by various laws), but also substantial influence of large corporations (e.g. Orange, Carrefour, Sanofi, Auchan), many of them state-owned. France has a top-notch value proposition for art, culture and fashion, with many worldwide-recognised luxury brands (e.g. Louis Vuitton, Christian Dior), high-quality cosmetics (e.g. L’Oreal, Chanel), locally diverse and renowned food (e.g. croissants, baguettes), very developed transportation and financial industries, and strong tourism industry (the biggest holiday destination in the world) 9. Main clusters in terms of the export value are Business Services, A&D, Automotive, Hospitality and Tourism, and Automotive.

7 8

https://tradingeconomics.com/france/ease-of-doing-business "GDP, PPP (current international $)". The World Bank Group.

9 "UNWTO Tourism Highlights: 2019 Edition | World Tourism Organization".

3


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

Figure 1. France exports By Cluster (2016) Source: https://www.isc.hbs.edu/competitiveness-economic-development/research-and-applications/Pages/iccp.aspx

France is the 6th largest export economy in the world and the 14th most complex according to the Economic Complexity Index (ECI)10. In 2017, France exported $516B and imported $595B, resulting in a negative trade balance of $78.6B. France’ credit rating is between AA and AAA with a stable outlook11, concerning the high GDP, huge market reliance and low unemployment rate, too (8.5% as of July 2019). 1.2.3 Social French population is becoming racially mixed, accepting hundreds of thousands to millions of immigrants from the former West-African, South-Eastern Asian and American colonies since around 196012. The migration rate is positive also because of substantial work immigration (incl. from Europe) and large numbers of political migrants and refugees. They are attracted by high variety of possible jobs and one of the most generous social welfare

10

https://oec.world/en/profile/country/fra/

11

Moody’s, S&P, Fitch. 12 The year of them becoming independent.

4


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

systems. The fertility rate declined slightly to 1.93 children per woman13, below the replacement rate of 2.1, however population keeps growing 0.5% per year14 because of immigration. Like many developed nations, France's population is aging; the average age is 42.6 years, while close to a fifth of French people are 65 or over. 1.2.4 Technological The flagship French technology-advanced industries are related to various types of transportation, which will be further described in the Country Competitiveness Analysis. Another well-developed industry is the pharmaceutical and medical one (with a long list of international corporations like Servier or Sanofi), whose production and development is closely-knit to the technology sector. France is also known for its large pool of startups, often subsidized by the government. Technological development of the country is stronglysupported by the education system – high-quality primary and secondary education goes together with globally-renowned universities and polytechnics (the best of which called Grandes-Ecoles) that produce qualified engineers and entrepreneurs. 1.3 Country Competitiveness Analysis In this section some factors that impact the country's competitiveness are analysed. A table summarizing these points is presented at the end of the section as a conclusion. Culture and Lifestyle: The nation is characterized as having one of the most sophisticated tastes across the world, creating half of the most popular luxurious brands in the world. High diversity, in terms of both culture and lifestyle, adds up to a richer pool of possible needs. What is more, the country is one of the top in terms of GDP per capita, HDI and GINI indexes

13

14

Max Roser (2014),"Total Fertility Rate around the world over the last centuries",Our World in Data,Gapminder Foundation "WDI – Home". World Bank.

5


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

15

. Taking into account the substantial size of the domestic and EU market as well as high

population density, the country makes for a perfect place for good-quality mass services. The main drawback could be relatively strong technological conservatism, especially among the older generation. Many French are late adopters, still paying by cheques instead of their telephones and still preferring a taxi to Taxify. Renowned Industries: The most prominent industries, apart from the Aerospace and Defense industry, would be the ones dedicated to transportation. A huge state-owned train company, SNCF (Société nationale des chemins de fer français), boasting the famous highspeed TGV, reaches neighbouring countries too and is the third biggest such company in Europe16. Car companies (Renault, Peugeot, Citroen) are widely recognized around the world and influence different automobile areas – from motorsports (Renault – Formula 117, Citroen – WEC, etc.) to luxury vehicles (e.g. special models of Peugeot). All the aforementioned corporations operate from France and build offices and facilities in different parts of the country. Worth-mentioning is also a developed financial system with huge banks (e.g. Société Générale, BNP Paribas), insurance companies (e.g. AXA, CNP Assurances) and other financial corporations (e.g. Crédit Agricole). Innovation and Policies: France is a prominent innovation hub (especially Paris), with many startups, often supported by big state-owned enterprises. They could be more active though, if the bureaucracy - known across the world for its “reputation” - was not overdeveloped. French also counts with a very stable legal system, low corruption, and high levels of protectionism and social welfare. Thanks to their creative culture, technological

15 Having one of the smallest differences between the rich and poor – 20thplace;"Gini coefficient of equivalised disposable income – EUSILC survey". ec.europa.eu/eurostat.Eurostat. 16

After Deutsche Bahn and its Russian equivalent.

17 https://www.formula1.com/en/teams/Renault.html

6


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

development and short, 35-hours work week French are one of the most productive nations in Europe. What is more, they are broadly educated and well-specialised. 1.3.1 The Global Competitiveness Report 2019 In the Global Competitiveness Index 4.0 2019 ranking the country is placed 15th (with Singapore and the US as the leaders), boasting highly-ranked “Human Capital” and “Enabling Environment” areas. Healthcare system is ranked 7th in the world, while Infrastructure, Innovation capability and Market size are placed 9th. Strengths as well include macroeconomic stability (a nearly perfect score of 99.8). Much room for improvement is to be done in the “Markets” section, with Labour and Product market as the main pitfalls. Other weak point from the corporation standpoint is Technology governance, only 42nd globally. The country scores relatively low on measures of entrepreneurial risks (55th), management culture (42nd) and company agility (30th). In addition, France, like Germany and the United States, must boost ICT technology adoption (28th). Here, France is 20 points behind global leader Korea and lags behind China (18 th) and Russia (22nd) as well.

7


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

Figure 2. France Competitiveness Overview Source: The Global Competitiveness Report 2019, World Economic Forum, 2019

1.3.2 French Competitiveness - Summary Culture and Lifestyle

Innovation and Policies

The Global Competitiveness Report 2019

per Strong automobile High subsidies for capita, high HDI and and rail transport environmental low GINI indexes industries endeavours

15th place overall in the Global Competitiveness Index

65M people market Developed in the core of the EU transportation infrastructure

Broad education with a large number of elite, specialized universities

High

Renowned Industries

GDP

Developed startup hub

8


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France US$

Sophisticated, varied demand

Already developed High-quality product aircraft and market spacecraft base

Very high productivity

Rich tradition; Stable and influential Low corruption, high cultural and ethnical financial sector trust in public diversity institutions

High-level healthcare, infrastructure and innovation

Widespread technological conservatism

Strict identity protection, fertile patent area

Short, 35-hours work week

Overprotective labour market

Old, social labour market and moderately antiquated product market

Giant social welfare paired with high taxes

Moderate technology adoption and low-risk attitude

Table 1. France's Competitiveness Analysis

2. The Aerospace Industry 2.1 Overview The aerospace industry was born in the beginning of the 20th century, when the first aircrafts were invented18. At the First World War, airplanes were already being used for military purposes, leading to an intense development of industry, with technological advances being implemented at an incredible pace. The first commercial flights for civilians were introduced in the end of the 50's, revolutionizing the industry. The Cold War and the Space Race also had an essential role in the development of the aerospace industry: by the time

18

https://www.vault.com/industries-professions/industries/aerospace/background

9


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

man reached the moon, it was one of the largest and most rapidly developing industries in the world. Recently, the development of unmanned aerial vehicles (UAVs), also called drones, has proven to be a new trend that might once again shake up the industry. According to the United Nations’ International Standard Industrial Classification (ISIC)19, the aerospace sector (Class 3530) comprises the manufacture of aircraft and spacecraft, which includes the manufacturing of non-space items (such as passenger and military aeroplanes, helicopters, gliders, balloons, drones, etc.), space items (including spacecraft, spacecraft launch vehicles, satellites, planetary probes, orbital stations and shuttles), their parts and accessories, used in civil or military applications. Even though the aerospace industry is one of the most important in the world, its size is hard to estimate, because numbers are reported by local industry associations and the abrangemcy of the definition of the industry may vary. According to an analysis conducted by the AeroDynamic Advisory and Teal Group Corp in 201820, globally, the aerospace industry could be worth around US$838 billion. The top five countries in size of their aerospace industries are the U.S., France, China, UK and Germany. The U.S. are also the biggest exporters with 41% of global market share, followed by France with 15%, and Germany with 12%21.

19

https://www.oecd-ilibrary.org/docserver/9789264040847-3en.pdf?expires=1573570908&id=id&accname=guest&checksum=0F0C14C5E98 7CF97D1DCDFAB78C7172F

20

21

https://aerodynamicadvisory.com/wp-content/uploads/2018/07/AeroDynamic-Teal_Global-Aerospace-Industry_16July2018.pdf

http://www.worldstopexports.com/aerospace-exports-by-country/

10


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

Figure 3. Global Aerospace Industry Distribution Source: https://aerodynamicadvisory.com/wp-content/uploads/2018/07/AeroDynamic-Teal_Global-Aerospace-Industry_16July2018.pdf

Although being incredibly developed, the revenues of the aerospace industry are highly concentrated in big conglomerates. The top 20 global A&D companies reported combined revenues of US$502.3 billion in 2017, representing a year-over-year increase of 2.1%22. Boeing, from the Pacific Northwest Aerospace Cluster in the US, occupies the first position, followed by Airbus in the second. 7 out of the Top 10 companies in A&D are from the US, 2 from France (Airbus and Safran at 9th position), and 1 from the UK (Bae Systems at 10th position). Two of the main sectors that have been impulsing the growth of the aerospace industry are commercial aircrafts and defence.

22

https://www2.deloitte.com/tr/en/pages/manufacturing/articles/2018-global-a-and-d-outlook.html

11


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

According to a study published by Deloitte (2019B)23, the commercial aircraft sector has been consistently growing, with an expected increase of 4.8% in revenues in 2018. The biggest aircraft manufacturers, Airbus and Boeing, both have indicated production rate increases in 2018 and 2019. The number of annual passengers rose from about 2.5 billion in 2008 to more than 4.0 billion in 2017, and is expected to continuously grow impulsed specially by the increasing share of middle class population in Asia-Pacific. With the growth in the demand, the key challenges the commercial aircrafts sector needs to consider include strengthening the supply chain and use of new and advanced technologies to become more efficient and produce more efficient aircrafts. In 2018, global defense sector revenues are expected to grow 3.6% as global tensions persist and affected countries plan to improve their defense posture. Deloitte estimates global defense spending is anticipated to grow about 3% over the 2017–2022 period, crossing US$2 trillion by 2022. 2.2 The aerospace industry in France Reported revenue for the French aerospace and defense industry approached ₏65.4 billion in 2018, with an increase of 1.2% over 2017, and the civil sector represents 77% of the total revenues. The aerospace and defense industry exported approximately 85% of its consolidated turnover, its main trading partners are Germany, the United States and China 24. The five biggest aircraft manufacturers cover almost all of the French market: Airbus (large

commercial aircraft),

Airbus Helicopters

(formerly Eurocopter,

light-to-heavy

helicopters), Dassault Aviation (high-end business jets), ATR (passenger and cargo 23 24

https://www2.deloitte.com/content/dam/Deloitte/us/Documents/manufacturing/us-mfg-2018-global-a-and-d-sector-outlook.pdf

https://www.export.gov/article?id=France-Civil-Aircraft-and-Aviation-AIR

12


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

turboprop aircraft for regional transport, an Airbus JV with Italian firm Leonardo), and Daher (SOCATA light aircraft and business turboprops). With the exception of Daher and Dassault, these manufacturers are all part of the same parent company, Airbus Group. Created in 2000 and called EADS until 2014, this consortium dominates the civil aviation market in France. In the next few years, several factors that will prove crucial for the French A&D industry. France benefits from international air traffic growth, as from rising military expenditures. The trend in the euro/dollar exchange rate, the industrial strategy of aircraft manufacturers, significant industrial innovation efforts, the cost of aircraft produced in France, the efficiency of French production means, and government-backed initiatives are all advantages of the french aerospace industry. However, foreign competition and globalized production are putting pressure on prices driven by aircraft manufacturers. 2.3 Competing Clusters 2.3.1 U.S. and the Pacific Northwest Aerospace Cluster The U.S. aerospace industry is the largest in the world, with an estimated turnover of around US$408 billion in 201725. The industry's main strengths are skilled and educated workforce, extensive distribution systems, diverse offerings, and strong support at the local and national level for policy and promotion. The U.S. aerospace industry directly employs around 509,000 workers in technical jobs across the nation and more than 700,000 workers in related fields26. The U.S. is home to the world’s first and largest aerospace cluster, located in Washington State, in the northwest of the country. It's foundation dates back to 1916 in Seattle. Today,

25 26

https://aerodynamicadvisory.com/wp-content/uploads/2018/07/AeroDynamic-Teal_Global-Aerospace-Industry_16July2018.pdf

https://www.selectusa.gov/aerospace-industry-united-states

13


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

the cluster employs more than 132,500 people working in more than 1,350 establishments, and generates over US$76 billion in revenues. The main company of the cluster is Boeing, that alone employs over 80.000 workers. Other companies big and small serve every segment of aerospace: commercial and military jets, unmanned systems, space age rockets, etc. Apart from being the leader in global aerospace exports, the cluster is also a vital link in the global supply chain for aircraft manufacturers around the world, such as Airbus. The cluster also counts with the Pacific Northwest Aerospace Alliance, a non profit organization formed by the companies with the mission to promote the growth and global competitiveness of the Pacific Northwest Aerospace Cluster27. Furthermore, the University of Washington (Seattle) has become one of the leading public research universities in support of new aerospace technologies. 2.3.2 Germany and the BavAIRia Aerospace Cluster The aerospace history of Germany dates back to the beginning of the 20th century, when the country was among the world leaders in the development and manufacturing of civil and military aircrafts. The implications of World War I and II, when the constraints imposed by the Allied Powers over Germany aimed at limiting the latter’s offensive capability, made it shift the focus of its military industry from artillery to the development of rocket technology. Germany's defeat in war forced it to transfer it's cutting edge technologies to the Allies, impulsing the future development of American and French aerospace capabilities. Today, Germany puts constant and significant effort into the aerospace sector. The national industry is widely characterised by its cluster organisation, with a focus over the

27

https://www.pnaa.net/about-pnaa/about-the-cluster

14


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

upstream activities: Germany hosts some of the most important aerospace clusters in the European Aerospace Cluster Partnership (EACP) and in the international landscape. The German region of Bavaria has been one of the main international aerospace hubs for over a century, representing a primary pole of research and innovation. The BavAIRia Aerospace Cluster industries, science, research, and technical training capabilities have made Bavaria assume a leading competitive role on a global level28. Around 38,000 engineers, technicians, and commercial aviation industry specialists work in 280 members, and generate an annual turnover of €10 billion. Its areas of specialization include the construction of military aircraft, flight propulsion systems, helicopters, and the associated subsystems, components and parts as well as the provision of large components and systems for major civil aircraft manufacturers worldwide29. 2.3.3 China and CASC (China Aerospace Science and Technology Corporation) China’s aerospace industry is growing at an incredible pace. Its commercial aviation sector is expected to be the world’s largest (by passengers) by 2024, surpassing the United States. The country has entered commercial aircraft manufacturing to meet domestic as well as global demand for aircraft, putting a pressure on aircraft manufacturers for lower prices, with high market share aspirations in the next 10 years. Furthermore, China’s defense budget was the second largest globally in 2017, at US$192.5 billion. For 2018, the country is aiming at an 8.1% growth in defense budget, making it one of the largest in the world.

28

29

https://www.bavairia.net/en/location-bavaria/ https://www.academia.edu/33388664/AEROSPACE_CLUSTERS_Worlds_Best_Practice_and_Future_Perspectives

15


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

CASC (China Aerospace Science and Technology Corporation), one of the Fortune Global 500 firms, is a large state-owned enterprise group with its own independent intellectual properties, outstanding innovative capabilities, and strong core competitiveness30. It has had revenues of US$37.7 billion in 2018, growing 10.1% year over year. Because of the communist characteristics of China's economy, the cluster development doesn't happen organically, however China's recent investments in the aerospace sector poses a threat to France and the Aerospace Valley, especially in the commercial aircraft sector. The corporation works as a cluster coordination, having 8 large R&D and production complexes, 11 specialized companies, 13 listed companies and a number of directly affiliated units, and employs 179.788 professionals. CASC activities involve research, design, manufacture, test and launch of space products such as launch vehicle, satellite, manned spaceship, cargo spaceship, deep space explorer and space station as well as strategic and tactical missile systems. Its R&D and industrial facilities are mainly located in Beijing, Shanghai, Tianjin, Xi'an, Chengdu, Hong Kong and Shenzhen

31

.

3. Aerospace Valley 3.1. Cluster overview Aerospace Valley in Toulouse is a cluster made up of aerospace engineering companies, research centers, education centers and institutions which operates in the industry fields of Aeronautics, Space and Embedded Systems. It was created in 2005, after a few years in which a group of aeronautic producers, suppliers and businessmen cooperated in a nonprofit association to boost cooperation and innovation within the sectors. Being located in the regions of the Midi-PyrĂŠnĂŠes and Aquitaine in southwest France, it is a bi-regional 30

31

https://fortune.com/global500/2019/china-aerospace-science-technology/ http://english.spacechina.com/n16421/n17138/n17229/index.html

16


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

association mostly concentrated around the cities of Bordeaux and Toulouse (Headquarters), positioning itself as the largest Aerospace cluster in Europe.

Figure 4. Aerospace Valley Location Source: http://histoiregeo34.canalblog.com/archives/2013/01/23/26227261.html

3.1.1 Main indicators The Aerospace cluster is the most significant innovative competitiveness cluster in France, and it is also defined pole de compétitivité, which, to respect to clusters, is first of all technology-oriented, focuses also on the facilitation of public investments and fiscal regulations, and it is aimed at stimulating innovation, synergy and cooperation between industries and members, starting from education, research and training activities. This kind of cluster organization was part of the new industrial policy in French 32. The cluster’s motto is “Le collectif qui rend compétitif”, which emphasizes the importance of joint and combined collaborations. It now counts over than 869 members, industry- and academia-related, where

32

https://www.aerospace-valley.com/en/page/about-us-0

17


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

574 are Small Medium Enterprises, and overall 1500 business establishments 33. The Aerospace Valley so far has created 129,000 direct jobs, which represents around one third of the French aerospace workforce, and more of the 50% considering just the space segment. Similarly, 13,000 students and 8,500 researchers and scientists are actively involved in the Aerospace Valley territory

34

, thus representing 45% of French national R&D

potential in the aerospace sector. From 2005, 1070 projects have been presented and labelled by the cluster. Its total budget up to 2015 was of €725 million, 307 millions of which were government funds, so it is noticeable that there is a significant participation of the government in the cluster protection and development35. Up to October 2016, Aerospace Valley has obtained funding for 474 R&D projects with an accumulated value of €1.1 billions covering most scientific and technical fields related to the sectors of aerospace. As of March 2017, 947 R&D projects were approved by the internal Aerospace Valley Committee, and 505 projects finally financed thanks to the participation of more than 1850 people. The total value of all financed projects is of 1.23B€, in which the private funding accounts for 715M€ and public funding 508M€ (40% via FUI, 32% of which for SMEs). All in all, R&D financing comes for the 60% from private funds (members) and for the 40% from public institutions, such as State, Regions, Metropoles 36.

33

https://www.aerospace-valley.com

34http://www.eacp-aero.eu/fileadmin/user_upload/EACP/mitglieder/AerospaceValley_FR/Presentation/AerospaceValley-September2017.pdf

35 36

https://www.aerospacemanufacturinganddesign.com/article/amd0415-aerospace-valley-france-infographic/

http://www.eacp-aero.eu/members/aerospace-valley.html

18


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

3.2 Description of activities At the core of the cluster activities, training, research, R&D cooperation project are found as the main drivers. It also provides the fundamental services such as access to public support, private funding, facilitation of cooperation both at a members-level and on a crosssectoral dimension, in which trend-scouting has a leading role. Therefore synergy, collaborative development and innovation are the key-factors of the cluster’s success, also in order to hedge the risk of unstable business. As part of the strategy, the Aerospace Valley has a very developed internal organization made of Strategic Activities Areas, which allows a very smart and specific allocation of resources and assets. Its product portfolio indeed ranges from aviation (civil, regional, business, military), turbo-engines, cockpits, land gear equipments, aero-structures, satellites, launchers, propulsion and atmospheric re-entry, space services to automotive and railway electronics. The Aerospace Valley has also launched projects for the construction of infrastructures essential for the evolution of the organization, such as industrial zones and training centers. It aims at stimulating employment by fostering local and regional competencies in technical and economic areas. The association has 7 collèges, that is electoral bodies, which include, beyond the already mentioned research centers and universities, Small and Medium Enterprises, Large enterprises, education and training centers, public collectivities, economical development structures, financial organizations, and professional organizations and associated partners. The Aerospace cluster first of all is committed in supporting entrepreneurship; in 2013 it indeed opened the ESA Business Incubation Centre Sud France, which offers start-up,

19


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

technical and business support and advice for the creation of new innovative companies. It includes the French Space Agency (CNES), the two aerospace clusters (Aerospace Valley and Safe) and six support structures, among other initiatives. Furthermore, since the very beginning, the cluster has been always active at a European level. The cluster is a major actor in the European Aerospace Cluster Partnership, in which it signs agreements with several countries and forges linkages in various fields of interventions, from health to agriculture and technology.37 Broadly, the Aerospace Valley strategy at the European level has three major directions: provision of information and help to members in order to expand their participation in EU Research and Innovation; provision of specific support to SMEs for them to take part in H2020 / COSME projects; development of European inter-clustering activities, including for diversification issues38. The cluster has a dedicated project management area called Les Boosters d’Innovation, and very innovative initiatives and projects peculiarly dedicate to innovation strategies to take place. The Aerospace cluster is also committed in organising events, such as biannual showcases, shows, forums and talks. 3.3 Key players and Institutions The cluster involves 869 companies and it is composed by three different main kinds of activities (filères in French): Aeronautics, Space and Embedded System. For the Aeronautics filière the key player is Airbus, which is at the core of the Aerospace Valley, with headquarters and assembly line based in Toulouse. Looking at it globally it is indeed one of the largest aircraft manufacturers in the world, and from 2019 it is the first

37

38

https://www.endr.eu/organisation/aerospace-valley https://www.aerospace-valley.com/en/page/strategy-0

20


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

biggest airplane company in the world, as at the beginning of the year it overtook, in terms of aircraft sales, its main competitor, Boeing. Airbus is indeed important for not only its final assembly lines of some aircrafts and conception, but also for the development of a European military aircraft (A400M). Airbus Defence & Space (with two separated facilities in Toulouse and Bordeaux) is a leader also for the Space activities, being a specialist of launchers and orbital infrastructure, satellites and spatial system. To mention few other key-players, Dassault aviation is another key actor in the cluster, which is a world leader in building business aircrafts and high-performance military airplanes. The Safran Group instead comprehends companies world-leaders in designing and fabrication of landing gears system, low-power gas turbines, and helicopter gas turbines. The Safran group also collaborates with Airbus in the Space framework for solid propellant propulsion in ballistic missiles and spatial launchers. Saft, instead, leads the market of batteries for aircrafts and space applications. In the Embedded Systems area instead we found members who are dedicated to maintenance and equipments of aircrafts, drones, helicopters, among others. When it comes to research centers a prominent role is clearly held by the CNES, the French national spatial agency. Its Research & Development counts overall 17 research institutes. The association is proud to have involved two internationally recognized and prestigious aerospace engineering school such as ENAC - Ecole Nationale de l’Aviation Civile and ISAE - Institut supÊrieur de l'aÊronautique et de l'espace, with specific training programs, ranging from masters courses, diplomas and doctoral programs. Test centers and industrial plants are also managed by the Ministry of Defense.

21


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

3.3.1 Cluster Map The following diagram shows a map of the key players and activities in the Aerospace Valley Cluster.

Figure 5. Cluster Map

22


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

4. Cluster Diamond

Figure 6. Porter's Diamond Analysis - Aerospace Valley 4.1 Factor conditions France is generally not well endowed with natural resources 39, relying on imports of production inputs. Nevertheless, limited amounts of both energy resources (petroleum and natural gas) and metals (gold and tungsten) are available in geographical proximity of the

39

https://www.britannica.com/place/France/Resources-and-power

23


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

Aerospace Valley . Due to their moderate size, the deposits most likely didn’t play a decisive role, contributing only some extra flexibility. Nowadays, with the general decline of natural resource exploitation in entire France, this aspect is of no importance regarding cluster development. Additionally, France’s advanced transportation industry provides an efficient way to source any necessary materials. Aerospace valley currently supports 124 000 manufacturing jobs (a third of the entire sector in the country)40 with the aim to increase this number by a further 40 000-45 000 by the end of 202541. Many positions require strong qualifications, which are delivered by numerous training facilities and educational programmes (from secondary through Master’s to doctoral level) available in what’s called the “Aerospace Campus”. Top French aviation schools (grandes écoles: ISAE and ENAC) and numerous other research institutes group more than 8500 researchers, facilitating a strong ground for innovation and human capital development.

Previous research outlined some deficiencies in access to capital42 and the need to improve was most likely realized by cluster management - in 2014 a new initiative was launched, aimed at providing support to SMEs (~575 companies out of >800 cluster members in total) in commercializing their innovative products. Additionally, the cluster makes efforts to connect new and existing entrepreneurs to private funding (individual investors, VC, etc).43 Aside from extensive R&D setup, the cluster is also well-equipped with testing facilities, such as the one located in Tarbes, which primarily focuses on aircraft dismantling. Others, including at least 6 plants run by the French Ministry of Defense, provide the means to test a

40 https://www.aerospace-valley.com/en/page/about-us-0 41 https://www.aerospace-valley.com/en 42https://www.isc.hbs.edu/resources/courses/moc-course-at-harvard/Documents/pdf/student-projects/France_Aerospace_2013.pdf

43

https://www.clustercollaboration.eu/cluster-organisations/aerospace-valley

24


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

wide array of new technologies and designs. Additionally, there is a variety of companies offering equipment, design and subcontracting as well as engineering and IT, supporting the operations of large and small players.44 4.2 Firm strategy, structure and rivalry Dr. Thilo Schoenfeld, Deputy Director International Affairs mentioned the dependence on the success of Airbus as the major weakness of Aerospace Valley in an interview in 2015. 45 Vigorous competition in an industry such as large civil aircraft is difficult to achieve, which is further complicated by government support for numerous research initiatives. In total more than 470 projects were finalized with total value exceeding €1.2 billion with 40% of that amount provided by the state - adding some national context to the rivalry between Boeing and Airbus (France and Germany’s reported stake in the company amounting to 11%).46 Recent development in the space segment, including the planned NewSpace Factory 47 may introduce new potential buyers, at least in some areas. Authors of the previous report point out other notable factors: the geographical dispersion of the Airbus’ supply chain across Western Europe facilitates additional tensions. Despite moderate success in overcoming resistance of some stakeholders to reorganise the process as well as some technological advantages that arose from this organizational challenge, the overhead in logistics costs as well as limited competition in some segments remain potential areas for future improvement. This issue is further complicated by the large backlog in

44 45

Aerospace Valley brochure, https://www.aerospace-valley.com/sites/default/files/documents/av-plaq-uk-bd-3005-3-bat.pdf

Aeronáutica Andaluza #35 [March 2015],

http://helicecluster.com/sites/helicecluster.com/files/pdf/aeronautica_35_web.pdf 46 Hepher Tim, Kar-Gupta Sudip [July 3, 2017] Airbus unveils leaner structure and sales shake-up, https://www.reuters.com/article/us-airbus-reorganisation/airbus-unveils-leaner-structure-and-sales-shake-up-idUSKBN19O0HW 47 https://www.aerospace-valley.com/en/node/17746

25


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

production (8 years in 2015, according to the interview), which reduces the incentives to design new aircraft, relaxing competitive pressure. On the positive side, the cluster grouped about 45% of French aerospace research. Other initiatives, such as Booster NOVA - a hybrid of space and big data technologies - or FabSpace 2.0, utilising geodata to develop data-driven innovations clearly indicate that the cluster community identifies and follows global trends, seeking areas where their expertise can be applied with maximum efficiency.48 Finally, an ESA Business Incubation Centre was established in 2013, offering start-up support and technical expertise to the creation of innovative companies. This responds to the tendency towards risk-aversion that used to be observed among A&D companies, threatening their competitiveness in the long term. 4.3 Related and supporting industries Aerospace Valley boasts a wide network of sophisticated, specialised suppliers. The three major domains are: aeronautics, space and embedded systems, but simultaneously joint activities in 8 fields are promoted in order to spawn new ideas. World-renowned companies such as Ratier Figeac and Goodrich (both UTC group), Continental, Saft, LatÊcoère, Liebherr Aerospace, Nexeya Group, Safran Landing Systems, and Rockwell Collins work in close proximity to aircraft assembly lines. A wide array of supplementary services can be outsourced locally, allowing companies to focus on their specific area of expertise. Aside from natural extensions into related fields such as space and embedded systems, the cluster gained additional momentum with the Booster NOVA initiative, which attempts to leverage capabilities and information in seemingly unrelated fields, such as agriculture, smart cities and blue growth. In view of the challenges regarding profitability, described in the

48

https://www.clustercollaboration.eu/cluster-organisations/aerospace-valley

26


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

previous research this activity presents an opportunity to capture higher margins in largely innovative markets. The initiative plays a particularly important role as incentives grow for many low-tier subcontractors to relocate on grounds of increasing labor costs. Strong transportation industry played a major role in cluster development and to this day constitutes an important supporting factor. In the initial phase, it enabled companies to source raw materials from distant suppliers and now entire components can be effectively imported, which is of particular value because of the diverse supply chain Airbus has. Retaining this advantage is vital to secure the key competencies located in Aerospace Valley as labor-intensive activities will be moved overseas. 4.4 Demand conditions Local demand represents only a minor portion of the total order book for major constituents of the Aerospace Valley.49 Nevertheless, companies retain access to new market trends and demand sophistication remains high because of the desire to improve fuel efficiency and comply with tightening safety and environmental standards. The pressure may be further elevated by the government by means of introducing stringent norms and encouraging sustainable technologies, which can be crucial for the airlines business in the long-term competition against other modes of transport. The issue is only becoming more pressing as global resources of fossil fuels are less and less profitable to exploit. Recently, global tensions boosted overall military spending and NATO pressure resulted in France’s commitment to increase the defence budget by 40% until 2022, resulting in extra money to be earned on-site (Deloitte, 2019B).

49

Airbus ‘Orders & Deliveries’ report, https://www.airbus.com/aircraft/market/orders-deliveries.html

27


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

Also, in view of the quick growth among Asian airlines, Airbus already decided to open new plants closer to newly emerging customers: one in China and another in the US. Especially Asian locations may pose a threat as they are able to combine significant buyers with low-cost labor, which may play an important role for lower-tier suppliers. For that reason, development of new solutions should be prioritized to ensure that Toulouse remains an innovation centre for the A&D industry. Since many A&D executives mention their reliance on joint ventures and demand-driven models, deeply integrating their suppliers and outsourced partners, clusters such as the Aerospace Valley still represent a thriving environment. Partnerships with other aerospacerelated clusters and institutions in Europe and around the world such as EACP (European Aerospace Cluster Partnership) present a chance to mitigate risks connected with decreasing prospects of single-country projects, particularly in the defence sector. Creating bonds between countries helps identify new trends and organise large-scale undertakings. The extension into space-related sector offers some interesting opportunities with regard to demand. Locating an important research centre in close proximity should secure a source of long-term demand for advanced technologies and products. Such facilities naturally tend to operate in a more concentrated fashion than airlines due to the constraints imposed by access to necessary equipment and facilities. Thus, nursing the success of the space domain might be crucial for the long-term perspective of Aerospace Valley.

5. Strategic issues facing the country and the cluster France's A&D industry is growing, although not as fast as its competitors'. It has had an increase in revenues of only 1.2% in 2018 over 2017, while the top 20 companies in this industry have grown 2.1% on average, and the commercial aircraft segment, which

28


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

represents 77% of France's revenues, has grown 4.8% globally in the same period. France has been suffering with foreign competition and globalized production, that are are putting pressure on prices driven by aircraft manufacturers. This competition is coming mainly from China, a country that has invested heavily in the development of its A&D industry, with the objectives to develop strategic capabilities for the government, especially in the defense segment, meet the growing local demand for commercial aircrafts, and compete in the global market. China's government has made high investments in research and development and new production plants, which combined with local factor conditions like cheap labor, has allowed China to produce cheaper yet modern commercial aircrafts, creating a strong competitive advantage in this segment. The Deputy Director International Affairs mentioned in an interview that Airbus’ major role constitutes one of the key challenges for the future of Aerospace Valley. Having large players on board is definitely an asset, providing soft power as well as allowing broad initiatives to take place, but at the same time diminishes competitive pressure and threatens long-term stability, making the entire cluster dependent on the fate of a single company. Fostering global relationships with other firms and clusters as well as supporting new initiatives may be crucial to retain competitiveness. A&D remains a sector strongly intertwined with the government through substantial military engagements (17% of revenues came from Defense & Space segment in 2018) 50. The influence manifests itself not only via orders, but also through substantial funding spent on research projects (40% of total funding came from government sources as of March 2017). While the army will definitely remain an important actor in the aerospace scene, civil market still dominates and the needs may not necessarily overlap. Allowing for greater 50 Airbus

2018 financial results

29


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

independence in choosing the topics should ensure that R&D programs are best-aligned with current and potential market needs. Finally, a dispersed supply chain is a distinguishing characteristic of Airbus, leaving its footprint on the entire cluster. The current state of affairs results from company origins: the merger of multiple aerospace manufacturers from Germany, France and Spain. Despite notable expertise in supply chain management and modular product design, the company recently faced significant delays related to their suppliers’ inability to ramp up production. Efficient procurement remains essential to securing an optimal position on the cost side of the production process in the aerospace industry.

6. Policy recommendations The tendency to relocate labor-intensive production on the account of cost advantages is natural and shouldn’t pose a threat to the competitiveness of the cluster. Similarly, Airbus and other companies establishing new plants in order to gain access to fast-growing markets represent no vital threat to the competitiveness of Aerospace Valley. In fact, it can be an advantage - a chance to reach out to new sources of sophisticated demand, provided that key design centres remain located around Toulouse, grouping activities with largest value added. Wherever relevant, competencies in automation or other measures to lower production cost should be seeked to reinforce the local supply chain. For the highly standardised tasks, logistics support and infrastructure should be extended and improved to make sure that cluster members can efficiently source labor-intensive parts of their business. Those measures will enable retaining key competencies in southern France and benefitting from the strong research base present on site.

30


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

As for the dominant position Airbus enjoys at the moment, we suggest multiple measures to attempt mitigating the potential negative consequences. First of all, diversifying industries might prove beneficial, also due to the relocation of low-tier supporting activities in aeroplane sector. First steps have already been undertaken with the establishment of the Space domain as well as the newly-launched Data Analytics activities. In a similar fashion, military segment could be expanded due to the optimistic forecast regarding market growth and the opportunity to create some pressure for innovative solutions in cooperation with the government. On the other side, supporting SMEs and nurturing new enterprises shall provide a reasonable counterweight for the few major players. This can take the form or providing funds, especially at early stages, as well as connections to companies and clusters in more remote locations to expose firms to new trends in demand and help them diversify their revenue streams. Finally, government support may prove valuable in many undertakings, especially when competition with China is taken into account. It isn’t only the defence industry where the state can set new standards and in this way drive future innovations - the same can occur in civil aircraft, as in many societies ecological issues become increasingly popular. Such a scheme, involving goal setting instead of detailed decisions about funding for individual project may prove notably more efficient from the competitiveness perspective. Government support, including financial subsidies, is not uncommon, whether we look at an established player like US or an aspiring challenger like China. The role is best fulfilled, however, when states deliver material information they access as well as money, but leave the decision-making process within the business. A.

Diversify revenue sources, focusing on other segments, in order to reduce cluster's dependency on the commercial aircraft segment, that is suffering high pressure for

31


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

price reduction. Segments that could be explored are for example defence and military, that has grown steadily and keeps showing good prospects for the upcoming years, space, that is already a strong segment in the cluster and data analysis, that doesn't require production capabilities. B.

Focus on key, innovative competences, improve transportation to allow sourcing of low-level components;

C.

Keep subsidizing SMEs, nurture linkages with other clusters, especially in Europe to provide natural field for cooperation, help commercialize products abroad

D.

Reformulate the support so that companies may direct research towards the most promising/profitable topics, even if gov’t participation is to be retained, its impact should be minimized

E.

Promote collaboration between clusters to give rise to new partnerships (including startups / SMEs), encourage this bottom-up approach as an alternative to the topdown Airbus structure;

F.

Encourage by any means a horizontal structure of the cluster, rather than mostly and highly dependent on Airbus;

G.

Strengthen the supply chain within the cluster, lowering external dependance.

32


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

7. References Aerospace Background. Vault, Retrieved from www.vault.com/industriesprofessions/industries/aerospace/background AeroDynamic Advisory & Teal Group (2018, Jul 16th), The Global Aerospace Industry. Retrieved from https://aerodynamicadvisory.com/wp-content/uploads/2018/07/AeroDynamic-Teal_Global-Aero space-Industry_16July2018.pdf Aeronáutica Andaluza #35 (2015, Mar). Retrieved http://helicecluster.com/sites/helicecluster.com/files/pdf/aeronautica_35_web.pdf

from

Aerospace Manufactoring & Design (2015, Apr 24th). France’s Aerospace Valley. Retrieved from https://www.aerospacemanufacturinganddesign.com/article/amd0415-aerospace-valley-france -infographic/ Aerospace Valley (2017, Sep). Pôle de Compétitivité. Retrieved from http://www.eacpaero.eu/fileadmin/user_upload/EACP/mitglieder/AerospaceValley_FR/Present ation/AerospaceValley-September2017.pdf Aerospace Valley (2019, Jul 10th). Rapport D’Activité 2018-2019. https://www.aerospace-valley.com/sites/default/files/documents/avrapportactivitecc81s201819 .pdf

Retrieved

from

Aerospace Valley (2019). Institutional website. Retrieved from https://www.aerospace-valley.com/en Aerospace Valley brochure. Retrieved from https://www.aerospacevalley.com/sites/default/files/documents/av-plaq-uk-bd-3005-3-bat.pdf BavAIRia (2019). Location Bavaria. Retrieved from https://www.bavairia.net/en/location-bavaria/ Bawa J., Cillero E.i., Konialian M., Martin J.N. & Ruiz-Taboada H. (2013). Aerospace Cluster in the Toulouse Region. Retrieved from https://www.isc.hbs.edu/resources/courses/moc-course-atharvard/Documents/pdf/student-proj ects/France_Aerospace_2013.pdf CASC (2018). Company Profile. Retrieved from http://english.spacechina.com/n16421/n17138/n17229/index.html Deloitte (2019A). 2018 Global aerospace and defense industry outlook. Retrieved from https://www2.deloitte.com/tr/en/pages/manufacturing/articles/2018-global-a-and-d-outlook.html Deloitte (2019B). On a solid profitable Growth Path - 2018 global A&D industry outlook. Retrieved From 33


Microeconomics of Competitiveness

The Aerospace Valley in Southwest France

US$

https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Manufacturing/gxmanufact uring-2018-global-ad-outlook.pdf EACP (2019). Aerospace Valley. Retrieved from http://www.eacp-aero.eu/members/aerospacevalley.html Encyclopedia Britannica (2019). Resources and Power. Retrieved from https://www.britannica.com/place/France/Resources-and-power ENDR (2019). Aerospace Valley. Retrieved from ttps://www.endr.eu/organisation/aerospace-valley European Cluster Collaboration Platform (2019). Aerospace Valley. Retrieved from https://www.clustercollaboration.eu/cluster-organisations/aerospace-valley Fortune 500 Ranking (2019). China Aerospace Science & Technology. Retrieved from https://fortune.com/global500/2019/china-aerospace-science-technology/ Hepher T. & Kar-Gupta S. (2017Jul 3rd). Airbus unveils leaner structure and sales shake-up. Retrieved from https://www.reuters.com/article/us-airbus-reorganisation/airbus-unveils-leanerstructure-and-sa les-shake-up-idUSKBN19O0HW OECD (2007). Overview of the aerospace sector: background. The Space Economy at a Glance 2007. Retrieved from https://doi.org/10.1787/9789264040847-3-en. Pacific Northwest Aerospace Alliance (2019). About PNAA. Retrieved https://www.pnaa.net/about-pnaa/about-the-cluster

From

Paone, M. & Sasanelli, N. (2016). Aerospace Clusters - World’s Best Practice and Future Perspectives. Retrieved from https://www.academia.edu/33388664/AEROSPACE_CLUSTERS_Worlds_Best_Practice_and _Future_Perspectives SelectUSA (2019). Aerospace Spotlight - The Aerospace Industry in the United States. Retrieved from https://www.selectusa.gov/aerospace-industry-united-states U.S. Department of Commerce’s International Trade Administration (2019, May 8th). France - Civil Aircraft and Aviation (AIR). Retrieved from https://www.export.gov/article?id=France-CivilAircraft-and-Aviation-AIR Workman, D. (2019, May 28th). Aerospace Exports by Country. World's Top Exporters. Retrieved from http://www.worldstopexports.com/aerospace-exports-by-country/

34

Profile for Marcin Czarnecki

[CEMS] The Aerospace Valley in Southwest France  

[CEMS] The Aerospace Valley in Southwest France  

Advertisement