From 2018, the world business jet industry market size has grown significantly. The market size is expected to expand even further in the coming years with the increasing global activity in various industries. The market itself is highly competitive, and few companies realize significant growth in market shares. However, this can be considered an opportunity for an organization such as the Public Investment Fund of Saudi Arabia (PIF) to invest in the sector, and for the organization with a strategic business models, growth can be realized over the coming years. Hyundai Corporation seems to be a good candidate for a joint venture that will enable PIF to access the business jet market by leveraging the strategic advantages associated with each of the organizations. While PIF has adequate financial strength to attain the capital requirements for investment in the business jet market, Hyundai Corporation has the corresponding technical skills to achieve the development needs for the business jet markets. A joint venture between the two companies will therefore be effective in advancing into the business jet market. Such a joint venture will also result in incremental profitability for both companies.
Over the last few years, the market size for business jets has increased significantly. As at 2018, the market size was values at 27.54 billion USD, with CAGR projects of more than 3.41% in the coming years (Fortune Business Insights 2). The markets have expanded as a result of growth in various business sectors and continuous wealth creation in different mature market segments. The observed growth in other market sectors has driven the penetration of the aviation sector into economies that were previously underserved such as those in the developing countries. New technologies have also resulted in advanced aircraft models, which are expected to further fuel the growth of the aviation sector across the globe. Emerging economies are particularly expected to exhibit increased demand for new business jets due to the convergence of growth towards mature market levels (Fortune Business Insights 3). Because of this, the already existing industry players introduce new business models such as those characterized by fractional ownership, which gives customers the opportunity to own business jets (Fortune Business Insights par. 5). As such, increasing numbers of customers who own business jets heighten the splitting of demand, and also contributes to the opportunity for customers to choose suppliers from among the existing manufacturers.
The proposal for PIF to engage in a joint-venture targeting business jet manufacturing with Hyundai Corporation, is based on the observation that the two companies have a good opportunity to pursue advanced technological methods to develop high-tech business jets that are increasingly becoming the target of buyers across the world. Advanced technology application is characterized by high cost and high risks, which would be realized only on condition that the developers have sufficient financial and technological capabilities. Hyundai has strong technical capabilities, as well as research and development prowess, which can be instrumental in customizing the new technologies to the customer needs. PIF on the other hand, has sufficient finances to support research and development of those new technologies. A joint-venture between the two therefore, will give them both an opportunity to pursue their objectives in technological development.
In the coming years, it is projected that the influx of start-ups into the business jet industry will continue to influence the expansion of new market shares. According to Fortune Business Insights, the market for business jets is characterized by strong competition, and the few players that currently exist have acquired sizable market shares (par. 6). However, the new entrants are increasingly influencing the market positively, especially with regards to the development of light jets. Additionally, an increasing demand for business jets has been caused by the increasing commercialization of urban air mobility, which is used for travel within and across cities. The political environment is also increasingly taking advantage of the expansion of the business jets market. Public authorities, armed forces and various business entities are also increasingly using business jets for various operations including travel, parcel and cargo deliveries and evacuation of casualties from disaster environments. All these are indications of the expanding opportunities, which are bound to increase the total market shares for business jets, and in which some new entrants into the industry are already taking advantage. With the competencies and strengths characterizing both PIF and Hyundai Corporation, the two companies, through a joint venture, stand a significant chance of earning a large percentage of the market shares owned by the new entrants, as well as the expansion that is initiated by the increasing demand.
The introduction of new jet models is also becoming popular alongside the increasing demand and market shares. According to Fortune Business Insights, many new aircraft models have been introduced simultaneously into the market over the last few years, with new and clean streamlined designs, which have also increased the demand for both private and business jets (par. 3-4). Renowned manufacturers such as Bombardier, Cessna and Gulfstream have also developed a wide range of business jets that have different capabilities and new features, and people like them (Fortune Business Insights 11). This indicates that with the joint venture between PIF and Hyundai Corporation, the parties do not need to be concerned about their individual capabilities and whether the business jets they produce would be acceptable in the market. With sufficient innovation, research and development, the companies can produce business jets that would be competitive even when placed side to side with those of the larger players, in that even those large players in the industry are bringing new products with diverse features into the market. The decision to engage in a joint venture therefore, would be based on the confidence and assurance of fair competition and probable success.
The two companies have significant differences and these differences can constitute their diversity and subsequent potential for success. By examining the different organizational cultures and structures, it will be possible to expand the capabilities of the joint venture by leveraging the strengths attributed to both cultures. The organizational values of the two organization also constitute an interesting factor in feasibility of the joint venture between them, due to their focus on growth and investment diversification.
Why the Joint-Venture would Benefit PIF
The Public Investment Fund of Saudi Arabia was developed in 1971 by loyal decree no. M/24. The fund has been instrumental over the years in the pursuit of economic development by virtue of its role in the Saudi Arabian economy. PIF has contributed towards the establishment of many large companies in the country, and also provided significant financial support to other projects of economic importance in Saudi Arabia. Furthermore, it is currently recognized as one of the largest sovereign wealth funds across the world, and is dedicated to developing a wide portfolio of investments through long term opportunities both at the domestic and international levels. As such, the economic role played by PIF has been undergoing fast and innovative growth through various strategies as part of the broader national efforts to attain economic transformation and thus achieve sustainable change in Saudi Arabia. Additionally, it is also used as the vehicle for driving economic expansion through the expansion of the international assets portfolio of the country, and also through the establishment of strategic partnerships for the realization of business objectives. So far, PIF has made significant impact not only towards the achievement of Saudi Arabian Vision 2030 objectives but also in the maximization of sustainable returns in the country through partnerships.
Based on this background, proposing that PIF should consider a joint venture with Hyundai Corporation would not be going beyond the scope of the corporation. Various attributes of the said joint venture make it befitting of engagement within the scope of the PIF mandates. First, the venture would help in the realization of economic development. With increasing demand for business jets as explained, it is expected that this venture will result in the realization of significant returns on investment, which will have a positive impact on the Saudi Arabian GDP. As PIF has been used as the investment vehicle for the government of Saudi Arabia, it is expected that the government would prefer to use PIF in the proposed venture as well. It is thus expected that the same kind of success that has been experienced with other ventures in which PIF is involved, will also characterize the proposed joint venture.
Secondly, PIF is recognized for its investment in many companies and also in providing support to other projects of economic importance. Additionally, it is dedicated to involvement in a wide range of domestic and international investment portfolios. This proposed venture is just another industry, and an opportunity for PIF to expand the range of portfolios within which it has created wealth. The joint-venture also has the potential to be of both domestic and international impact, since Saudi Arabia is recognized as a global hub for tourism and business, and is also likely to benefit from the business jets. Internationally, Hyundai already has significant presence across the world, and is capable of opening opportunities for PIF to also be visible and impactful in other countries across the world. This thus would mean that the joint-venture would not only help PIF achieve its mandate of domestic and international investment in a wide array of portfolios, but will also enhance its connectedness and visibility.
Third, PIF has in the past established strategic partnerships with other companies and investors. This simply means that the proposal to be involved in a joint-venture with Hyundai Corporation is not unrealistic and is feasible on the part of PIF. The experiences gained through the past strategic partnerships can be borrowed to help PIF and Hyundai Corporation in coming up with ways to effectively leverage the individual competencies of the two companies, and thus realizing productivity and profitability through the joint venture. Additionally, the history of strategic partnership with other entities also confirms the flexibility in the company, which is a core requirement for innovation and technological advancement, both of which characterize the industry targeted by the joint venture. It is thus expected that through the joint-venture, both PIF and Hyundai Corporation will be able to realize the maximization of sustainable returns as is the objective of PIF.
Agreeing to the proposed joint venture will also be aligned to PIF’s vision, which is to be a global investment powerhouse; to develop opportunities and new sectors that would be impactful towards shaping the global economy; and to drive the economic transformation of Saudi Arabia. Since the business jets market is an expanding market and is expected to undergo significant growth in emerging economies, the joint-venture would give PIF the opportunity to partially attain its vision by being impactful, developing new sectors that shape the global economy in travel and trade and realizing economic benefits as a result of investment in the sector.
Hyundai Corporation as a Suitable Candidate
Hyundai Corporation has been in business since 1976, having been initially established as an import-export trading company affiliated to the Hyundai group. The company has since grown significantly, realizing its growth potential in various parts of the world. The company has businesses affiliated with various industries including the steel industry, automobile industry, electrical equipment, construction, and chemical industries (Hyundai Corporation par. 1-2). With over 40 international business networks, the company has been able to effectively etch its niche as a supporter of global innovativeness with intelligence, finance and trading techniques as its core competencies. Presently, Hyundai Corporation collaborates with various companies in the automobile industry sector including Hyundai Motor Company and Kia Motors, the former of which is also part of the Hyundai Group (Hyundai Corporation par. 4). Through such partnerships, Hyundai Corporation has been able to engage in domestic and foreign trading in automobiles and with special vehicle manufacturers, and has sufficiently improved its brand reputation in the global automobile industry. Additionally, the company has managed to develop new business opportunities through overseas motor vehicle assembly construction and operation projects (Hyundai Corporation par. 3). It has been actively involved with international finance institutions to provide long and short term financing in order to increase motor vehicle sales across the world (Hyundai Corporation par. 5). The company also continues to seek new business opportunities to increase its recognition in the global markets through participation in other activities such as joint ventures with other reliable automobile companies.
The history of Hyundai Corporation and its activities make it a suitable candidate for the joint venture for PIF for business jets. First, the company already operates in multiple businesses across various industries, in which the automobile industry constitutes a large percentage of its operations. It also has strong strategic partnerships with other companies in the same industry. As such, it is deductible that Hyundai Corporation has developed sufficient skills based on its industrial diversity, which can be applied in the proposed joint venture. Additionally, the company also has sufficient capacity for skills sharing with other organizations such as those with whom it partners in the delivery of services in the automobile industry. Both of these aspects will be beneficial for the venture and will subsequently result in profitability for PIF.
Besides the technical skills capacity, Hyundai Corporation is also a good candidate for the joint venture because it would be aligned to the company’s business objectives and goals. As mentioned, Hyundai Corporation has interests in international partnerships as evidenced in its over 40 global networks. With the joint venture with PIF, the company will be expanding its global network and will thus be steered towards the achievement of its business objectives. The company has also been in partnership with other businesses and financial organizations in the past, hence has the experience required in the development of strategic partnerships such as the joint venture. In its efforts to create new business opportunities for increased brand recognition, the company will therefore use this proposed joint venture as a factor that would contribute to the global recognition of both PIF and Hyundai as desired by both organizations.
The joint-venture between PIF and Hyundai Corporation promises to result in various strengths and core competencies. First, both organizations exhibit significant strength in governance and strategic partnership. Such strength is expected to result in effective communication, strong strategic planning capabilities, significant contribution from each of the parties, and sufficient leadership support across both sides. All these characteristics are required if any business venture is to succeed, and with the growing opportunities in the business jet market shares, these factors will contribute to increased brand recognition and effective acquisition of market shares.
Besides the strong governance, both companies have their individual competencies, values and visions. However, in terms of the proposed joint-venture, the pursuits of both organizations namely, global recognition and opening new business opportunities are aligned, hence the positive impact of the joint-venture will be felt by both organizations. The financial capability and technical skills from FIP and Hyundai Corporation, respectively, will contribute to effective management of the venture and the development of high quality and customer centred business jets. Thus, the companies will have managed to leverage their combined competencies to enhance their global recognition and contribute to new business opportunities.
Additionally, both companies should find it necessary to invest jointly into the business markets. This is because the growth prospects associated with the industry promise economic growth to potential investors. Growing demand for new model business jets across the world should be sufficient motivation for the joint-venture, based on the realization that the venture will attain global visibility using the Hyundai Corporation platform that is currently strongly recognized in the automobile industry. Since both organizations have economic support and growth as part of their core objectives, they should be interested in the joint-venture.
The opportunities for market growth in the business jets market indicate the support of the industry for new entrants into the market. The diverse competencies of PIF and Hyundai Corporation make the two companies suitable potential partners for a joint-venture that would facilitate the development of business jets for the market. PIF has strong financial capabilities while Hyundai Corporation has strong technical capabilities. Both companies also have organizational visions that are aligned to the development of global reputation through strategic partnerships and investment, and the creation of new business opportunities through innovation. The joint-venture will provide an opportunity for PIF to realize the organizational vision alongside Hyundai Corporation, in addition to attaining economic value. Both organizations can thus pool together their resources with FIP and Hyundai Corporation contributing financial resources and technical competencies, respectively. Both organizations have also confirmed their intention to diversify portfolio investments across several industries, with Hyundai Corporation having actual investments in the automobile, electrical, steel and chemical industries among others. Hence, the business jets opportunity will help in diversifying their investment portfolios even further. PIF should therefore purpose to propose a joint venture to Hyundai Corporation for the benefits and impacts associated with it.
Fortune Business Insights. Business Jet Market Size, Share & Industry Analysis. Fortune Business Insights. www.fortunebusinessinsights.com/industry-reports/business-jet-market-101585. Accessed on 25 April 2020.
Hyundai Corporation. Company Overview. www.hyundaicorp.com/en/company/overview/. Accessed on 25 April 2020.
PIF. About PIF. www.pif.gov.sa/en/Pages/About-PIF.aspx. Accessed on 25 April 2020.