1. What are the dynamics of competition in the commercial aircraft industry?

a. The high cost of product development leads to a high break-even point.

Initially in the aircraft industry, projects required much less time and money to develop each project. As time progressed as well as technology, the costs and demands on the aircraft system increased. Before the 1980’s within the commercial aircraft industry, there were a number of large manufactures including Boeing, McDonnell Douglas, Airbus and Lockheed. Boeing’s decision to bet the entire company on the wide bodied 747 decimated all other American commercial aircraft competition. The 747 became in so much demand that it dwarfed McDonnell Douglas into a merger with Boeing and caused Lockheed to exit the commercial aircraft industry all together. As the 777 did not require a bet on the entire company, many previous projects did and would not see a profit until years after production.

As previously shown, a single product in this case, an aircraft within the aviation industry, demands so much principal for a loan that it can in one way bankrupt the company or on the other hand destroy the competition and secure a place in the market. Consequently the break-even point is attained only after years of selling, thus requiring many successes over a long duration before profit is attained.

b. The reliance on outsourcing helps to reduce risks.

Twelve international companies located in ten countries and eighteen U.S. companies helped manufacture the 777. As it would have been a challenge in itself to coordinate all the different design teams throughout the world, the risk was also distributed. Having a widespread construction effort in more countries each with their own national means of production helped circulate cost as well as risk. Additionally, Boeing used global subcontracting as a marketing tool