In recent years, China has emerged as the world’s fastest growing economy. Everyday multinational companies (MNC’s) are looking to, in some way or another, expand into the Chinese market; whether it is through product expansion, joint ventures, or acquisitions, it seems every MNC is trying to enter into China. Recently, Cessna Aircraft Company is one of those that have made the leap into China.
By establishing two joint ventures, Cessna has expanded its reach and product line into the Chinese markets, and it is through this already established relationship that we see an obvious opportunity. Through the procurement of a partnership with Cessna and by utilizing their already established expertise in China, pursuing the opportunity to open and establish a Flight Training School within China is an endeavor that has the potential to capitalize on a growing need within the country’s borders.
Service Export On November 27th, 2012 Cessna Aircraft Company announced that they have entered into a joint venture relationship with China Aviation Industry General Aircraft Co. to assemble and sell their popular Caravan Turbo Prop aircraft (McMillin). Earlier in November Cessna also announced its plans to assemble and sell the popular Citation XLS business jet within China (McMillin). Aviation within China is booming and there is an extreme need for pilots.
Due to China’s current lack of pilots and flight training schools, the country is being forced to look outside the county for established/certified pilots to fill the void (IAPA). The Chinese government expects an annual increase in the nation’s civil aviation fleet of 11 percent each year through 2015 (IAPA). With that, the National Business Aviation Administration estimates that approximately 15,000 new professional pilots will be required within China by 2015 (NBAA).
It is with this growing need for pilots, that China is currently relying on foreign pilots to meet their demand. With many companies within the domestic aviation industry experiencing layoffs and cutbacks, many pilots have to look anywhere they can to find work, and many are finding that work in China. According to the Civil Aviation Administration of China (CAAC), foreign pilots account for up to 6 percent of all commercially licensed pilots, and at some airlines 20 percent of captains come from other countries (IAPA).
Roger Whyte, a resident Asia business aviation expert and special counsel to NBAA states, “The Chinese have an interest in building the [business aviation] infrastructure and in getting it right, there is no formal training program or career path that exists in China to develop pilots for business aviation” (NBAA). Understanding the growing need for new pilots within China and how the country is currently seeking pilots from outside the country, it is easy to see that there is ample opportunity to open and establish a certified flight training school within their borders.
By seeking a joint venture with Cessna Aircraft Company, we will have an opportunity to utilize the expertise that they have already established to not only gain access within the Chinese market, but also have an opportunity to utilize a distinguished worldwide brand and aviation leader as a partner. By having the name Cessna Aircraft Company behind us, it will greatly assist with bringing in new customers and will also bring a sense of ease and comfort to those that are at first apprehensive about pursing a pilot’s license.
The Flight School that we are planning to establish and operate will offer the two standard pilots licenses: the recreational pilot’s certificate and the private pilot’s certificate. Both of which will be taught through a Certified Flight Instructor (CFI). In order to pursue a private pilots certificate (which will allow the opportunity for a student to seek out a professional pilots career), they will first have to fulfill the requirements for the recreational certificate. Each of the two certificates, or licenses, will begin with course work known as Ground School.
With Ground School, the student will first learn the ins and outs of operating the aircraft and what exactly the various controls, gauges, and general knowledge are on the aircraft itself. For the beginning and general first flight portion of the training, we plan to operate optimal learning aircraft in the Cessna single engine Skyhawk-172 and Cessna Skycatcher-162’s. Once the students have become comfortable in their abilities, and the instructors have recommended the transition, they will then be able to move on to larger single engine aircraft in the Cessna Skylane-182 and Stationair-206.
By having this range of aircraft at our disposal, this will allow for the beginner pilot to become familiar with a range of aircraft that possess not only different cabin and engine sizes, but also various gauges and navigation equipment. This will ultimately benefit those that are looking to pursue aviation as a career, which is our overall hope for each student that attends our flight school. With China moving from a developing to a developed country and having an estimated GDP growth of 6. % per year over the next 20 years, aviation connectivity will be critical, as China increases its share of world trade from 10% to 15% and the country is prioritizing investment in airports and air navigation infrastructure (Samy). With the country expanding its reach internationally and continuing to grow economically, their airline industry accounted for half of the global aviation industry in 2011 at $4 billion (Samy). Currently there are plans to have 230 new airports at the end of 2015, up from 182 in 2011, and expand or rebuild around 100 existing airports (Samy).
The points discussed above are clear evidence of the growing aviation sector within China and the extreme lack of pilots within the country, which means that establishing a flight school should be a seamless task, especially with having the backing and partnership of a worldwide aviation leader in Cessna. With China recognizing their plight and the fact that they are backed into a corner and furiously attempting to dig themselves out by building and expanding airports, finding a location should not prove to be a problem.
Since Cessna has an established relationship within the borders in both Shenyang and Shijiazhuang, both of those locations are set for possible building points. Both locations are final assembly stations, so both require flight testing once those aircraft are built. This will mean that both locations are required, or going to be required, to have access to fully operating airports. With that in mind, either location will prove to be a viable option. But based on the general location of the two cities, we fill that the Shijiazhuang location will be a better fit for the need that we are looking to fill.
Shijiazhuang is located closer to Beijing then Shenyang is, and also has a higher population that we feel we can capitalize upon. Demographic, Economic, and Trade Conditions China has the largest population in the world, and it is the second largest country by land area, with a very diverse landscape. Governed by the Communist Party of China, they have become the world’s fastest growing major economy. China is also the world’s second largest economy by both nominal GDP and purchasing power parity.
China’s importance as a major world economic player is very apparent when considering all of these facts. The recent economic reform has opened China’s market to the outside world and improved the standard of living of the Chinese consumer. They have gradually rebuilt a new economic system by lessening the government’s control of the economy, allowing some aspects of a market economy and encouraging foreign investment. As a result, China’s economy grew at an average annual rate of 10% from 1990-2001; this was among the highest growth rates in the world.
Additionally, Goldman Sachs predicted that by 2027 the Chinese economy will exceed that of the U. S. (Nye 143). Demographics China is the world’s most populous country with a population of more than 1. 3 billion. They have a broad mix of ethnic groups, including Zhuang, Manchu, Hui, Miao, and Buyi, though the majority is Han Chinese. Similarly, there are a variety of dialects and minority languages, while Mandarin and Cantonese are two of the most widely used languages in China. Although there is no official religion, Daoism (Taoism) and Buddhism are the most commonly practiced.
China’s literacy rate is 92%, which represents the percentage of the population age 15 or older that can read and write. The average time spent in school is 12 years, from primary to post-secondary education. Almost 50% of the population is between ages 25 and 54. However, China’s distribution of family income, as measured by the Gini index, was 47. 4 in 2012, which means that they struggle with fairly unequal income distribution (“East and Southeast…”). The boost of national wealth and the consequential increase in individual’s income has led to steady changes in Chinese consumer patterns.
The increase in disposable income, which has nearly tripled from 1985 to 1992, has awakened people’s desires for consumption and material pleasure. China, as the world’s most populous country, has become the largest potential consumer market on multinational companies’ blueprints for global expansion. Chinese consumers save notably large shares of their income each year. This stems partially from a cultural bias towards saving, in a country whose credit card holders usually don’t even maintain a balance on them.
Household savings accounts in China rose over 150% from 2000 to 2006, spurred by a faster rate of growth in per capita urban household income over consumer spending (Kalish 14). Due to their propensity to save, even in times of economic uncertainty, Chinese consumers have enough savings to maintain their spending power, and can feel comfortable dipping into their savings to do so. This results in a faster recovery in China’s domestic economy, as well as the potential for Chinese consumers to put their purchasing power to use buying more products and services with their disposable income.
Not only does China’s population represent a large consumer base, but they are also a large labor force. Along with the world’s largest population, China also has the largest labor force, at over 795 million. This is broken down into 34. 8% working in agriculture, 29. 5% working in industry, and 35. 7% working in services (“East and Southeast…”). Economics Though it was illegal for private firms in China to participate in foreign investing before 2003, outward direct investment (ODI) has been growing every year, by 1. % from 2010 to 2011 alone, as private companies continue to increase their involvement (“Chinese Private…”). With the recent economic reform, China’s strictly controlled government policy has relaxed, lowering barriers to foreign investment for individual projects by allowing larger venture amounts and improving approval procedures in the process. Not only in spite of the recent financial crisis, but in part because of it, growth for China’s ODI has been possible, and the country became the 5th largest global investor in 2010 (“Chinese Private…”).
In 2012, China had $1. 3 trillion of direct foreign investment in the country, and $502 billion of direct foreign investment abroad. Their investments total to nearly 50% of GDP, which gains them the rank of 2nd in the world. Corporations’ involvement in international investing has obviously helped make this possible, but the Chinese government’s participation in global financing is also a factor. At the opposite end of the spectrum from the U. S. , China has had major balance of payment surpluses for many years.
That includes more than $2 trillion of foreign exchange reserves, which can be put to use furthering their strategic economic goals. Additionally, China’s total GDP is the third highest in the world at more than $12 trillion, with GDP real growth rate of 7. 8%. One way China is already partly exerting its financial influence is through state-controlled bank lending to developing countries. The China Development Bank is used as one such tool tasked with “alleviating bottlenecks in the supply of raw materials for the Chinese economy,” (Perkowski 1).
By helping producers find financing in difficult economic times, China is putting their spare change to use and also ensuring the availability of resources to meet their needs. China maintains its currency, the renminbi (RMB), by pegging it to the U. S. dollar, but has started loosening this since the adoption of the exchange rate formation mechanism reform in 2005. The graph below, from Oanda. com, depicts the exchange rate between the dollar and the RMB since this reform; there has been slow, but steady appreciation of the RMB.
The Chinese government prefers this tactic because it allows them to maintain a stable economy for their continuing growth and development. This is accomplished in part because keeping the RMB undervalued (though the extent of undervaluation is arguable) allows the power of Chinese exporters to be higher, which accounts for a large portion of China’s GDP. Additionally, due to the government’s policy of domestic development, this is growing their foreign investment practices and imports of goods and services in return.
This helps domestic Chinese corporations and consumers, while also stimulating the global economy. In addition to the exchange rate changes, China’s currency was also subject to a 2. 6% inflation rate in 2012. After having negative real interest rates for well over half of the past ten years, and low positive rates for the remainder of that time, China’s real interest rate rose a little more into the positive after their Consumer Price Index showed a lowering inflation rate in February of 2012 (Xianrong).
Since real interest rates provide the expected returns after allowing for inflation, this is a very important development considering China’s high level of foreign direct investment. (Borst) (Borst) Trade A permanent member of the United Nations Security Council, China is also a member of the WTO, ASEAN, APEC, BRIC, Shanghai Cooperation Organization, and G-20 (“China”). They also have free trade agreements with Australia, Chile, Costa Rica, Japan, New Zealand, Pakistan, Peru, Singapore, and South Korea, and economic partnership agreements with Hong Kong and Macau (“China’s Free Trade…”).
As important as all of these trade agreements have been to China’s growth and economic success, their acceptance and participation in the World Trade Organization has probably been the most important factor in their global economic involvement. China was accepted into the World Trade Organization in November 2001, which was a huge step forward for trade liberalization and growth as a global market participant. Their entry was dependent on several commitments the Chinese government made on trade and investment policies that have subsequently opened their economy to foreign firms.
For the most part, these commitments involve lifting or significantly reducing tariffs and foreign ownership limitations (Luthans 230). China is the world’s largest exporter and second largest importer of goods. They are incredibly dependent on exports for their continuing growth and success. Their exports amount to over $2 trillion, with their top five export partners being the U. S. , Hong Kong, Japan, South Korea, and Germany, which account for almost 50% of exports. On the other side, China has imports of over $1. 8 trillion, 36% of which are from Japan, South Korea, U.
S. , Germany, and Australia (“East and Southeast…”). When considering all of the demographic, economic, and trade conditions discussed above, it becomes clear that China is a country growing both demographically and economically. With favorable current trade conditions, and trade regulations that are becoming increasingly more beneficial for businesses both at home and abroad, it’s evident that China is a smart choice for international expansion and development. Development Level and the Infrastructure China is one of the biggest countries, and when compared to the U.
S. it is just a tad bit smaller than us. They have become one of the world leaders in the gross value of industrial output and it includes: mining and ore processing, iron; machine building; armament; petroleum; cement transportation equipment, including automobiles, cars and aircraft( Hagner). As of right now, China is still one of the main countries that have an underdeveloped aviation industry. Even if it’s like this, they have still been seeing a growth rate of twenty one percent since the late 1990’s, which shows improvement. In light of China’s GDP growth of over 10% for the past three decades, the following three factors have greatly contributed to GA development in China: demand for aerial work, private sector involvement, and civil aviation development,” (Export. gov, 3). The healthy GA (short for General Aviation) sector of China is necessary to protect sustainable development, which includes the availability of critical infrastructure and human- resources, including pilots, mechanics, and inspectors.
There is over fifty-percent of China’s GA airplanes that are made overseas, by either Cessna or Hawker-Beechcraft, which makes keeping up with them quite complex (Export. gov, 4). Most of the aircraft that are made in the China Aviation Industry Corporation are piston engines. But it is highly unfortunate that the situation they are in now creates a high unit maintenance and operation cost, cycle of low demand, low profit margins, and higher prices for fees related to services and small fleets (Export. gov, 6).
Unfortunately, China is lacking in the financial area and has poor working conditions which results in only ten GA pilot training schools and an average of just fifty pilots per each school (Export. gov, 4). It just so happens that a lot of GA pilots are aviation enthusiasts or military veterans. When comparing the U. S. to China, the cost in training a pilot is more expensive. The airspace in China is controlled mainly by their Chinese military and this contributes to the difficult struggle of expanding airspace (CIA). One of the main changes occurring in China is the opening of their distribution rights.
When China entered the WTO, most of the distribution restrictions were on providing proprietary operations to different third parties. But, what is occurring today in China is that their distribution system is somewhere along the line between a free market system and a rigid planned structure (Hagner). Regulatory Market Entry Considerations With the growth of emerging markets in China, it is easy to see why we chose this country for our specific product. There is enormous potential for general aviation products to succeed both in the short-term and long-term. China’s commercial airline traffic is now 2nd largest in the world, creating a demand for 2,500 new pilots per year. Forecasts estimate a shortage of 800-1000 pilots per year over the next 10 years for existing airlines alone” (Silk Wings Aviation). China is undergoing an extreme pilot shortage, and the current training capacity for pilots is so underdeveloped that they are forced to train overseas. Our product, with the help of Cessna’s joint venture expertise, can bring pilot training to China to help revolutionize their ability to train pilots and stop the shortage. Of course, this is not an easy feat.
For some foreign companies with little international experience, China may not be a viable option because of the rapidly changing demographics and strict legal environment. But for companies that value taking risk in order to succeed, China can be a great choice for global growth strategies. The key to performing well in the Chinese market is to understand the government policies and market entry limitations that China presents to companies. China joined the WTO (World Trade Organization) in 2001 to help liberalize their trade environment, but some industries still remain heavily regulated.
China’s economy has been growing swiftly, and with growth comes more regulations and laws that companies must conform to. “Government regulations can very often impact significantly on the timeline and costs of market entry, and companies are advised to examine the implications of such regulations prior to committing to the market” (Hedley, p. 5). This sentence explains the importance of researching and understanding the regulatory environment before entering a country, which is something that we believe we have performed very well.
We see an opportunity in aircraft pilot training, and we are using a joint venture to achieve our objective. Speaking of joint ventures, there are advantages and disadvantages to using joint ventures that are specific to China. Among the advantages are, “Mandatory for some industries, opportunity to utilize existing sales networks and customer base, access to partner’s existing resources, production facility, and a lower cost base” (Hedley, p. 6). The key advantage that will help us with our product is the access to partner’s existing resources.
We believe that Cessna’s reputation and expertise, as well as quality aircraft, will benefit us in entering China’s aggressive legal environment. China charges tariffs on most imports, mainly ad valorem. But mentioned earlier, these rates have gone down considerably since China joined the WTO. “Import tariff rates are divided into six categories: general rates, most-favored-nation rates, agreement rates, preferential rates, tariff rate quota rates and provisional rates. As a member of the WTO, imports from the United States are assessed at the most-favored-nation rate” (OTEXA).
As a most-favored-nation (or MFN), the United States receives lower tariff rates, or higher tariff quotas when importing goods to China. Import Licenses are a requirement for foreign goods in China. “The importation of certain goods requires an import license. Generally speaking, applications for import licenses are submitted to MOFCOM or its authorized local offices” (Canadian Trade Commissioner Service). Companies seeking to trade or import with China must register with the Ministry of Commerce (MOFCOM) before receiving authorization or import licenses. Licenses are not transferable. No fees, charges, deposits or advance payments are required for the issuance of licenses” (OTEXA). There are a few import restrictions that China has in place that can limit or contain the importation of some items. The following are restricted commodities, “used garments; used publications with licentious content; radioactive or harmful industrial waste; junk cars, used automobiles or components; seeds, seedlings, fertilizers, feed, additives, or antibiotics used in the cultivation or breeding of any export commodity” (OTEXA).
As one can see, we should run into no problems with limitation for aircraft or any training related necessity when doing business with China. Along with aggressive market entry regulations, China also has strict acceptance standards. Any foreign product entering China must meet a certain set of requirements and undergo a series of professional inspections. There are various types of standards in China, including national standards, professional standards, local standards, enterprise standards and product-specific standards. Products without a Qualified Certificate and proper PASS test reports in meeting the requirements of mandatory national GB standards and specified professional standards, or with an unsatisfactory test results, may be rejected by China customs authorities” (OTEXA). It is also a requirement to receive the China Compulsory Certification (CCC) mark, China’s national safety and quality mark, before importing or selling in the Chinese market. Legal Considerations Civil law is used in China while common law is used in the U. S. The main difference in the two involves the contract drafting.
Civil law, which is the older of the two, comes from the Romans, which gave us the legal system, the Code Napoleon, and the German Civil Code (China Hearsay). Common law grew out of individual court decisions which are precedents and it binds subsequent decisions of lower courts. Business overseas can already be tough, but if the two countries have different legal systems it can be a continuous exercise in frustration from the initial agreement stage to dispute resolution (China Hearsay). It also makes things difficult for China to go to the U. S. because of lengthy, complicated commercial agreements and startlingly high legal fees.
China has legal considerations mainly involving patent, trademark, and copyright laws. Unlike patents and trademarks, copyrights don’t have to be registered with the Chinese bureau. China has maintained one of the world’s largest trademark registries with a total of about 4. 48 million valid trademark registrations as of 2010(Shoukang). There has been a national trademark registration introduced and it is called voluntary registration, which has registered trademarks and right to exclusive use of them under protection, while others that weren’t registered were not (Shoukang).
It states that, “Under Article 18 of the current Trademark Law, a foreigner or foreign company that wishes to apply for trademark registration of other trademark matters in China should do so through a government-approved qualified agency” (Shoukang). However, the patent law was revamped in 2008; it sets out stricter patent application and strengthens patent protection by raising fines for counterfeiters, clarifying the legal process and strengthening administrative powers to investigate patent violations.
China has played a huge role in the WTO, even if they had to make changes before they were allowed into the organization and could become a member. Some of the changes that they had to make were tariff reductions, open markets, and industrial policies. The People’s Republic of China levies a wide range of taxes, including income taxes, turnover taxes, taxes on real estate and several others. Some taxes that wholly foreign-owned enterprises, joint ventures, and foreign invested commercial enterprises are concerned with include: corporate, withholding, value-added, business and consumption.
Joint ventures also play a key role with China’s foreign partners. Equity joint ventures are between Chinese and foreign partners, where the profits and losses are distributed between the parties in proportion to their respective equity interests. Cooperative joint venture or contractual are very flexible, where Chinese and foreign investors have more contractual freedom to structure cooperation (Shoukang). Government Assistance The political system in China has gone through different stages. It started with a series of dynasties around 1766 BC.
It went through an imperial system until 1911, when the Chinese revolution occurred. In 1912, the Republic of China was established. However, in 1949, after the end of the Chinese Civil War, the Communist Party took control of mainland China. And in 1949, the People’s Republic of China, commonly known in the West as “Communist China” or “Red China” was started. The history of government structure in China has evolved. Today, China’s leading political institutions are directed by different parties. The Communist Party dominates state and society in China.
The People’s Liberation Army is a paramilitary force. The State Council is responsible for implementation of policies and daily administration of the country. The National People’s Congress (NPC) oversees the State Council, as well as four other institutions: the Presidency, the Supreme People’s Court, the public prosecutors’ office, and the military. However, it is controlled by the Communist Party. NPC roles are approving all budgets, agency reports, and personnel appointments. The NPC’s most significant power is its ability to initiate and shape legislation.
The current political system is also composed of the People’s Political Consultative Conferences (PPCCs), the Chinese People’s Political Consultative Conference (CPPCC) National Committee and eight minor political parties called “democratic parties” (Lawrence and Martin 4). China’s Leading Political Institutions (Lawrence and Martin 3) Although the legislature seems well organized, government decisions do not occur as stated on paper. As an example, the constitution gives the NPC many rights, like amending the constitution, supervising its enforcement, and enacting law.
However, the Communist Party takes control of everything and the only real function of the NPC is to ratify the Party’s decisions (Lawrence and Martin). According to the 2013 Index of Economic Freedom, “China’s regulatory system is vulnerable to political influence and Communist Party derivatives. The party’s ultimate authority throughout the economic system undermines the rule of law and respect for contracts” (China). Learning a little about the Chinese government is important for U. S companies. China is the only Communist Party led country in the G-20 countries.
As the political system widely differs in China, awareness of how the government could dictate business activities is necessary. Many U. S firms have suffered from the lack of continuity of policies. The enforcement policies, decisions, regulations, and laws, are usually not done as stated in the constitution. According to Andrew Giholm, Shanghai-based political and security risk analyst for global risk consultancy, contract frustration is a key issue for companies in China. “Enforcing a contract in China can be difficult. Even enforcing a favorable court ruling can be problematic when dealing with certain sectors or with state-owned parties.
Companies tend to think twice before entering into a dispute or legal action over a contract if it has a long-term interest” in China (Collins). In addition, courts in big cities like Beijing and Shanghai tend to provide fairer treatment to companies in comparison to smaller cities. Therefore, doing business in China comes with challenging operations. Furthermore, corruption in China is quite widespread. Expensive gifts are likely to be exchanged for favors. Also, bribery is used in order to get special treatment, faster service or even to get a contract signed. Those actions are against U. S. aws, particularly against the Foreign Corrupt Practices Act. As an example of corruption in China, BBB News wrote an article discussing the magnitude of this problem. “Chinese Officials stole $120 billion, fled mainly to the U. S between mid-1990s and 2008. The stolen funds were covered up by disguising them as business transactions and by establishing private companies to receive the money transfers” (Chinese Officials). So, when entering China, foreign companies must be prepared to deal with corruption. However, looking at it from a different perspective, China is no more corrupt than most of the emerging countries.
According to the corruption perception index conducted by Transparency International, China is ranked the 80th country in world, with the least amount of its perceived corruption coming from its public sector. In comparison with the BRIC countries, China is not the biggest problem. Brazil was ranked 69th, but India was ranked 94th and Russia 133rd (Corruption 2). Sino-American relations The United States and China are the two biggest economies in the world. For that reason, it is inevitable that they trade. However, their relationship is merely for business. Although they are not enemies, they are not allies either.
The trade between the two countries can be traced back awhile. In 1784, after the American War for independence was over, the U. S sent ships to China in search for new markets. Around 1800, the U. S supported an “Open Door Policy” that allowed China to engage in foreign investment and trade. However, in 1882, conflicts between the two countries arose. The U. S passed the Chinese Exclusion Act, which restricted Chinese immigration. Later, in 1949, Americans and Chinese fought against each other in the Korean War. Even today, there are many topics that both countries do not agree on. They disagree on the value of the Chinese currency.
They disagree on human rights. China remains a dictatorship under the Communist party and the government still decides how many children families are allowed to have. Intellectual property is not respected in China, and the U. S has complained many times about IP infringement. Despite the tension between the two countries, transactions have been growing at a fast pace. According to US foreign trade statistics, China overtook Mexico as its second-largest trading partner. After China joined the WTO in 2001, its foreign trade increased dramatically, as the average tariff on manufactured goods went down around 15%. From 2001 to 2010, China’s export rose nearly 6 times to roughly $1. 57 trillion” (Miller). Today, China plays an important role in the WTO, as the third most active participant in the WTO’s dispute settlement process. China’s government has been taking some steps to encourage foreign investors. The benefits given are generally in the form of tax relief, including value added tax, customs and income tax benefits. According to the Worldwide-tax website, some of the tax benefits are: * “Corporate tax of 15% Benefit of “2 + 3 years” which means an exemption from tax for the first two years and tax at the rate of 12. 5% for the next three years. * For certain projects in basic infrastructure, environment protection and energy there is a “3+3” year tax holiday. * Under certain terms enterprises investing in integrated circuits production can get a “5+5” year tax holiday” (China Foreign). Among the Asian-Pacific countries, China has become more important, while the U. S. has lost some of its power. Although it still plays a big role in trading and FDI inflow from ASEAN countries, China has taken some of its business.
One of the biggest reasons for China’s growing importance among Asian countries is due to trade agreements. The ASEAN-China Free Trade Agreement (ACFTA) was signed in 2002 and is the largest FTA in Asia, and it also the biggest trade population. In addition, an agreement between ASEAN-China called “Early Harvest Plan (EHP),” cut tariffs on more than 7,000 products (Guerrero 4). China has made significant progress toward a market-oriented economy. Since it joined the WTO, trade tariffs went down and its economy has opened internationally. But China still poses many challenges to US companies.
The lack of continuity, corruption, lack of intellectual property protection, weak view on human rights, and unfair business gimmicks, like the devaluation of its currency, must be taken into consideration when entering its market. Target Market, Marketing Mix and Marketing Strategy As with any flight school, the target market that we are going to look to reach will be made up of aviation enthusiasts. With Aviation expanding at such a high rate within China, we feel that finding interested students/customers will not be a difficult task.
The age range that we specifically intend to target ranges from 16 years and older; having a beginning age of 16 years old is based upon the standard minimum age requirements based upon those spelled out by Aircraft Owners and Pilots Association (AOPA). With the hopes of bringing as many 16 to 18 years olds as we can, we hope to get the flight training “bug” implanted, and that way those that join up with us will spread the word to friends, family, acquaintances, which will in turn bring in more customers as well as assist with ultimately fulfilling a growing need within China.
By bringing the customers in young, we hope to eventually plant the seed that will assist in reaching the final goal of leading the students toward a future in professional aviation. For the marketing mix, we intend to obtain and utilize the products listed below… * 162 Skycatcher (2) * 172 Skyhawk (1) * 182 Skylane (2) * 206 Stationair (1) Since brand new aircraft can get way too costly, each of the aircraft noted above can be bought used for a price ranging in price of $29,000. 00 to approximately $175,000. 00 (Trade a Plane).
The general pricing structure we intend to utilize for our flight school will be based upon that of the Cessna Flying Club’s pricing, which is outlined below. The Cessna Flying Club is located in Wichita, KS. Membership Deposit: Employee Membership| $250. 00| Family Membership| $350. 00| Monthly Membership Dues: $24. 50/month per person Aircraft Rental Rates*(including fuel): Model 162 | $50. 75/hr| Model 172 | $65. 00/hr| Model 182 | $93. 25/hr| Model 206 | $135. 00/hr| | | *Posted aircraft rental rates do not include applicable sales tax. Scheduling Fee: Hourly (up to 7 hours max per reservation)| $3. 00/hour|
Extended: 1st ;amp; 2nd consecutive days| $21. 00/day| Extended: 3rd-7th consecutive days| $3. 00/day| Extended: 8th ;amp; 9th consecutive days| $21. 00/day| Extended: 10th-14th consecutive days| $3. 00/day| Extended: 15th ;amp; 16th consecutive days| $21. 00/day| Dual Instruction, Pre- and Post-Flight Briefing: $30. 00/hr Promotional tools we intend to utilize will include that of the local airport within Shijiazhuang where we intend to open our school, as well as taking out advertisements within area papers, radio, and aviation magazines. Another type of support we intend to take advantage of is that of the Cessna brand name.
With having a well-established name like Cessna’s behind us, it will allow us to hit the ground running, as Cessna aircraft have long been the staple for upcoming aviation enthusiasts, and many pilots get their start on the various Cessna aircraft models. The other aspect we can capitalize upon by having Cessna behind us will be that of having a sense of comfort and safety, only a well rooted company like Cessna can bring with them. Knowing that our company will have the backing of Cessna will allow for us to compete heavily within the flight training market in China.
Marketing Plan Training services will be provided on a year-long basis, though more business will likely be conducted between spring and fall. This probable limitation will be due to harsher, more difficult winter weather conditions that could impact flying ability and/or frequency, as Shijiazhuang is located in Northern China. The terms of sales will include cash, credit cards, or credit terms such as pay-as-you-go. Credit will be offered as a payment option because of the higher expense rates aircraft training represents, as outlined in the pricing levels discussed above.
Since credit terms are naturally higher risk, credit approvals, including credit checks and credit rate verification, will be performed on all customers wishing to utilize this option. Additionally, there will be a late payment policy, whereby any payments received after the first day of the month following the month service was performed will have 2% interest applied to the balance due, and late balances greater than $50 will have an additional $25 charge applied. Budgeted projections for the first three years of operations are presented below in the form of Pro Forma financial statements.
Pro Forma Income Statements (Budgeted Projections) – Years 1 through 3 (Presented in U. S. $)| | Total Y1| Y2| Y3| Membership Fees| | $58,800| $88,200| $147,000| Aircraft Rental Fees| | 17,675| 26,513| 44,188| Scheduling Fees| | 13,800| 20,700| 34,500| Total Sales| | 90,275| 135,413| 225,688| Cost of Services Sold| | 5,000| 6,000| 8,000| Gross Profit| | 85,275| 129,413| 217,688| | | | | | Fuel Expense | | 20,000| 28,000| 40,000| Aircraft Maintenance| | 5,000| 7,000| 12,000| Salaries| | 32,000| 35,000| 75,000| Advertising Expense| | 1,000| 500| 500|
Licensing Fees| | 1,000| 1,200| 1,500| Depreciation Expense| | 0| 5,000| 5,000| Misc. Expense| | 500| 400| 600| Total SG ;amp; A Expense| | 59,500| 77,100| 134,600| Operating Profit| | 25,775| 52,313| 83,088| | | | | | Interest Expense| | 1,175| 808| 633| Earnings Before Taxes| | 24,600| 51,505| 82,455| Income Taxes| | 4,920| 11,301| 17,491| Net Income| | 19,680| $40,204| $64,964| | | | | | Pro Forma Balance Sheets (Budgeted Projections) – Years 1 Through 3 (Presented in U. S. $)| | Total Y1| | Y2| Y3| Cash| | $150,000| | $175,000| $225,000|
Accounts Receivable| | 13,541| | 20,312| 33,853| Total Current Assets| | 163,541| | 195,312| 258,853| | | | | | | Airplanes| | | | | | Skycatchers| | 60,000| | 60,000| 60,000| Skyhawk| | 40,000| | 40,000| 40,000| Skylanes| | 100,000| | 100,000| 100,000| Stationair| | 100,000| | 100,000| 100,000| Accum. Depreciation| | (0)| | (5,000)| (10,000)| Total Non-curr. Assets| | 300,000| | 295,000| 290,000| Total Assets| | $463,541| | $490,312| $548,853| | | | | | | Accounts Payable| | 750| | 750| 1,000| Total Curr. Liabilities| | 750| | 750| 1,000| | | | | | |
Notes Payable| | 300,000| | 275,000| 250,000| Total Liabilities| | 300,750| | 275,750| 251,000| | | | | | | Retained Earnings| | 62,791| | 114,562| 147,853| Other Equity| | 100,000| | 100,000| 150,000| Total Liab. ;amp; Equity| | $463,541| | $490,312| $548,853| | | | | | | Pro Forma Cash Flow Statements (Budgeted Projections) – Years 1 through 3 (Presented in U. S. $)| Total Y1| Y2| Y3| Operating Profit| 25,775| 52,313| 83,088| Funds From Opers. | 25,775| 52,313| 83,088| Working Capital Invest. | 300,000| 0| 0| Cash Flow From Opers. | 325,775| $52,313| $83,088| | | | Non Op Inc. (after tax)| 11,787| 1,788| 19,638| Investor(s)| 100,000| 0| 50,000| Net Cash Flow| $213,988| $50,525| $13,450| Conclusion Based upon the information discussed above, it is evident that there is a major business niche within China that can be met by introducing a new Flight School. With aviation growing at record rates, trained professional pilots being in short supply, and home grown aviation enthusiasts as well as trained pilots being hard to come by, we will fill that niche by building and establishing a new Flight School in China. With these opportunities resent in the market, the economy being in a prime position for investment, and few legal, regulatory, or governmental issues to be concerned with due to the nature of the industry itself and our partnership with Cessna, we believe that our market plan will be successful. This will be an endeavor that will pay off financially on the business side, as well as be beneficial for the country of China as a whole. With all the information that has been brought forward, we feel that this is a project that should be sought after, and we intend to move forward with these plans.
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