Rolls Royce Competing in Changing Environment

Introduction

The turn of 20th century witnessed an astonishing companionship between two innovative minds of the moment. Henry Royce, a successful engineer and Charles Rolls, owner of one of the UK’s first motor car dealerships, agreed to sell motor cars under their name. At that moment, a new company was born: Rolls-Royce (The history of Rolls-Royce, n.d.). Rolls Royce has not only made luxurious cars, but it is also a major British manufacturer of aircraft engines, marine propulsion system and power-generation systems (Amir, n.d.). Rolls Royce is a multinational company with customers in 135 countries and manufacturing facilities in 14 countries. It employs around 40,000 people in various markets and has about 56,000 aero engines with 300 airlines, 2,400 corporate and utility operators and supplies more than 100 armed forces (Business Case Studies LLP, n.d.). Their engines are used from business jets to modern airlines and over the years they have redefined the way of doing business which establishes them as one of the most powerful brands in the world.

Rolls Royce is a market leader in defense aero engines for military transport and patrol aircraft and has strong positions in other sectors. They mainly operate within two distinct market sectors which are the new engine sales to the two new manufacturers such as Airbus industry and Boeing, as well as engine parts sales to airlines that service and maintain aircraft (Business Case Studies LLP, n.d.). The main competitors include GE, Pratt & Whitney and Safran in the aircraft industry. GE is their main competitor in supplying engines in the widebody sector. Rolls Royce is the current market leader in the wide-body aircraft segment and they are strong, efficient and globally competitive when it comes to their game (Stefan, 2017).

Challenges in the market place

The aero engine market has only a limited number of buyers and they need to satisfy both their present and suture needs. In today’s competitive world Rolls Royce customers look for a much more complete service (Business Case Studies LLP, n.d.). The key element in this challenging market is relationship marketing where Rolls Royce and its staff have learned to develop activities and service which helps them to build good relationship with customers. Customers always expect higher level services such as the shipping of parts, after care service and total customer care. When total customer care service is provided along with efficient products, occasional customers become regular customers, eventually becoming loyal towards the company till the end (Business Case Studies LLP, n.d.).

Rolls Royce, credited as being the most active of the big engine manufacturers in pushing maintenance contracts onto its customers (Derber,2017). Mostly the widebody engines sold by Rolls Royce is serviced via a ‘TotalCare’ contract which were introduced in the mid-1990s (Derber, 2017). Under this deal Rolls assumes accountability for most aspects of the engine maintenance and the customer pays a dollar rate per engine flight hour, thus incentivizing the manufacturer to make its engines as reliable as possible. When such concept was first introduced, it created an irregularity in the industry, but it was mainly rewarded when its engines broke down (Derber, 2017). When an engine need to go for servicing it will usually go to a maintenance shop stated in the customer's 'TotalCare' contract, and this will usually be at the nearest site to the customer's main base.

Porter’ Five Competitive Forces

Michael Porter observed five forces that have an important effect on a firm’s profitability in its industry. Five force analysis gives a better understanding of the degree of competition within the business setting which help the company to develop a better understanding of the environment so that business opportunities could be analyzed (Business Case Studies LLP, n.d.).

Threats of New Entrants

New entrants in the business markets brings innovation, new ways of doing of things which can force Rolls Royce to adopt low pricing strategy and providing new value propositions to customers. Rolls Royce must manage all these challenges and build effective barriers to safeguard its competitive edge. Rolls Royce tackled such threats through introducing innovative products and services in the market which not only brought new customers but also gave old customers a reason to stay. New entrants found it difficult when established firms such as Rolls Royce kept on redefining standards by spending more money on research and development or by building economies of scale so that it can lower fixed cost per unit. This in turn reduced the opportunity of profits for new companies thus discouraging new players in the market (Rolls- Royce Holdings…..., n.d.).

Bargaining Power of Suppliers

The suppliers in the aero-engine manufacturer have limited power since there are many suppliers in the industry. The power of many smaller companies reduced due to manufacturers adopting dual sourcing strategies, using a range of alternative sources of supply (Business Case Studies LLP, n.d.). Building an efficient supply chain with multiple suppliers can help in the long run. Rolls Royce experimented with different product designs using different product materials so that if prices go up of one raw material then the company can shift to another company. They also approached this certain power of suppliers with developing dedicated suppliers whose businesses depended upon their firm (Rolls- Royce Holdings…..., n.d.).

Bargaining Power of Buyers

Buyers often demand a lot and in this industry the number of buyers is comparatively low. The smaller and power the customer base is the higher the bargaining power of customers which can put pressure on Rolls Royce’s profitability (Rolls- Royce