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This continues act as a barrier to entry for aerospace manufacturers located throughout Asia, specifically China, who are looking to capitalize on increased government spending on defense. The costs associated with hiring, retaining employees and funding security clearances for employees in this industry makes recruitment and retention critical. As a result of all these factors combined the barriers to entry are exceptionally high in the global military aerospace products manufacturing industry.
Contrary to the significant power aerospace manufacturers have over suppliers, buyers in this industry dominate accounting and costing standards, procedures and systems; prototype development, product validation and testing; product quality levels and pricing. The competitive strength of Lockheed is exemplified in their ability to keep the F-22 Program moving forward despite many delays attributable to design changes and cost reductions as defined by Congress over the life of the program (Browning, Heath, 2009). Buyers also can define audit procedures and initiate inspections and audits at any time during the project, which leads manufacturers in this industry to invest heavily in enterprise compliance and quality management (ECQM) systems, software and processes.
In addition to all of these factors, buyers can redefine the production processes used to actually produce each version of the system, subassembly or vehicle they are acquiring (Johansen, Comstock, Winroth, 2005). Adherence to military standard (MIL-STD) specifications across all components, subassemblies and modules of any project are increasingly being audited for ethical oversight as well. When all of these factors are taken together, it is apparent how much influence buyers have in this industry and will continue to over time.
Assessing Competitive Rivalry
Lockheed Martin is the market share leader of the global military aerospace products manufacturing industry with 17.8% market share. Their closest competitor, EADS N.V. with 13.8% market share and Boeing with 10.8% both compete in the three core markets of defense and intelligence, homeland security, and systems and information technology. Figure 1 provides a graphical representation of market shares globally for 2008.
Figure 1: 2008 Global Military Aerospace Products Mfg. Market Shares
Lockheed Martin Corporation
European Aeronautic Defence and Space Company EADS N.V.
The Boeing Company
BAE SYSTEMS plc
Source: Lockheed Martin, Investor Relations (2009)
Lockheed Martin has been able to consistently gain market share in a relatively flat growth global market, projected to grow at 1.5% to 2% per year, by concentrating on its core strengths. These include its focus on portfolio-based management of its businesses (Gurgur, Morley, 2008) the ability to manage supply chains (Myers, Cheung, 2008) and managing order backlogs well including the F-22 Program (Browning, Heath, 2009). As a result of these strengths at managing internal processes and programs, Lockheed Martin has attained global market leadership.
Opportunities for Lockheed Martin include the integration of recent acquisitions that have been targeted to increase the company's integration capabilities in electronic systems. These companies include Aculight Tenix/RLM. In total Lockheed Martin has made 22 acquisitions since 2003, spending just over $3B to support its four core businesses. Additional opportunities including global spending on space business initiatives and defense spending in the U.S. also show significant potential over the long-term. The threats of higher environmental costs and adherence to government contracts and regulation including spending on ECQM-based audit requirements and ethics oversight are threats to the company's profitability today as well.
EADS N.V. is the second leading manufacturer globally and also has significant strength in their product portfolio and management processes and systems. This strength has been attributed with the company having strong inorganic growth from existing systems and projects and for also having global operations that provide for a diversified revenue base. As with Lockheed Martin, this company has significant upside potential to the growth in global aerospace and defense spending, and also has strong growth potential throughout the Middle East, a region of the world the company has a strong presence in. As with all competitors in this industry, they are facing liquidity challenges as the recession is draining cash from many manufacturers. Being squeezed by the continual increases in compliance and quality management and audits from their many global clients who are governments is a threat to profitability over the long-term. There is also the threat of intense market competition and market access in the U.S., which dictates companies must have American-based technologies that cannot be exported to ensure nationals security. In conclusion, competitive rivalry is very high in this industry as manufacturers face rising costs due to inflationary pressures on the one hand, and the need to continually invest in new approaches to compliance and ethics-based transaction reporting on the other. The costs of competing for global projects continue to increase as each country has specific compliance and quality management requirements as well. All of these factors combine lead an oligopolistic market structure being maintained globally with intensive investments in R&D, supplier development, compliance, quality management and project management being critical to growth.
Appendix a: Lockheed Martin Segmentation Analysis
Lockheed Martin Business Segment Analysis
Information Systems & Global Services
Integrated Systems & Solutions
Information Systems & Global Services
Integrated Systems & Solutions
Appendix B: Lockheed Martin Financial Ratio Analysis
Lockheed Martin Corp. Financial Ratio Analysis
ROA % (Net)
ROE % (Net)
ROI % (Operating)
EBITDA Margin %
Calculated Tax Rate %
Revenue per Employee
Net Current Assets % TA
LT Debt to Equity
Total Debt to Equity
Total Asset Turnover
Accounts Payable Turnover
Accrued Expenses Turnover
Property Plant & Equip Turnover
Cash & Equivalents Turnover
Cash Flow per Share
Book Value per Share
Browning, T., & Heath, R.. (2009). Reconceptualizing the effects of lean on production costs with evidence from the…[continue]
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