The company conducts research and development on several programs such as on-site warfare testing, and laboratory research for the next generation aircrafts. The company also conducts R&D on the application of new technologies to build aircraft and submarines as well as implementing effective R&D on mechanical and electrical system for the new equipment.
Despite the competitive strategic advantages that the company is enjoying, there are external environment affecting the business operations of Huntington Ingalls.
External Environment affecting the Operations of Huntington Ingalls
This section uses STEEPL model to analyze the external environments that the company is operating. STEEPL abbreviation refers to Socio-cultural, Technological, Environmental Factors, Economical, Political and Legal. Major operation of Huntington Ingalls is conducted in the United States and the Economical, Political and Legal and the Socio-cultural aspects of the country affect the operation of the company.
Socio-cultural of the United States is one of external factors that affect the business operations of Ingalls. Data from the U.S. Census Bureau (2011) reveal the U.S. population reached approximately 312 million in 2011. Despite the country large population, the country is experiencing rapid aging population. The data from the U.S. census reveals that half of the U.S. population was more than 35.3 years old in the year 2000, which ultimately increased to 36.7% in 2009. Thus, the issue may translate to the slower economic growth and labor shortage in the United States. Since Huntington Ingalls depends on the highly skilled and experience workforce for shipbuilding, the increase in the number of people reaching the old age may affect the company ability to source for the required skilled personnel. Moreover, the United States continues to face student underperformance despite the country impressive educational system. Half of 120 million workers in the U.S. do not have post-secondary educational certificates, which may affect the country economic growth. Thus, Huntington Ingalls may face the problem of labor shortage in the future, if the attitude of Americans towards post-secondary education does not improve.
The government finance is also increasingly under pressure with increase in the number of people relying on social security payments. The issue may lead the government to decline the expenditure on shipbuilding and this may have impact on the revenue of Huntington Ingalls.
Huntington Ingalls operates in the economy where there is high technological superiority. Innovation and Technology is the cornerstone of the U.S. economic development because the United States homes one-third of global world engineers and scientists. The country continues to focus on R&D and expenditures on R&D is approximately one-third of the global R&D expenditures. Typically, continuous investment on R&D has assisted the United States to retain its technological superiority. The country technological superiority has assisted Huntington Ingalls to design and build high quality and superior ships for the U.S. government. The company also uses ICT (Information Communication Technology) as a driving force in shipbuilding. The company uses ICT to design high quality ship that could satisfy customer unique requirements.
More importantly, the technological environment that the company is operating inspires the Huntington Ingalls to focus on R&D to deliver high quality products for its customer. The company fosters on innovative product development through research and development. Since the core operations of Huntington Ingalls is to design and develop the U.S. Navy nuclear aircraft carriers, the company conducts R&D as part of the business operations and the company has been able to use technological innovation to enhance competitive advantages.
In 2011, the company spent approximately $24 million on R&D. Typically, the company is aware that application of new technologies is the focal point of ship building, thus, the company facilitates R&D efforts in relation to the government program. The company has conducted extensive research to conduct on-site warfare system testing, laboratory and training research. The current challenges that the company may face in the future is the problem of acute shortage of scientist and technologists to form the pool of its competent workforce. Report from Datamonitor (2011) reveals that there has been a gradual decline in the number of students enrolling for mathematics and physical sciences in all the colleges and universities in the United States. Since mathematics and physical sciences is the cornerstone of technological development, Huntington Ingalls may face challenges in recruiting competent engineers to build high quality ships for the U.S. government.
The United States implements strong policy and legislative framework for the environmental protection. Through well-established institutions, the government initiated different statutes for the preservation of biodiversity. The EPA (Environmental Protection Agency) is a leading agent that mandates the protection of environment. Different environmental legislations initiated by the U.S. government have affected the operations of Huntington Ingalls. Clean Air Act is one of the environmental legislations that the government uses to protect the environment. With various environmental legislation promulgated by the government, Huntington Ingalls is influenced by the unforeseen environmental costs that affect the company business operations. To abide by the environmental standard during its operations, the company incurs operating and capital costs to comply with the environmental laws and regulations. The nature of shipbuilding operations involves the use of various hazardous materials that could cause environmental pollution. Thus, the company needs to treat the discharge materials as being applicable to various regulations. Thus, the company will always need to comply with the environmental regulation to avoid fine, and compliance with various environmental regulations will place a cost burden on the company.
The major operations of Huntington Ingalls are in the United States and the company major business operations are with the United States government. Thus, the states of the economy of the United States contribute to the level of business operations of Huntington Ingalls. Since the end of the Second World War, the United States has dominated the global economic affairs. The country economic supremacy has made the Unite States to be the largest economic in the world with GDP (Gross Domestic Product) reached $14.59 trillion in 2010. (the World Bank, 2012). Despite the economic boom that the country has enjoyed for several decades, the country recorded the decline in the growth rate in 2009 because of economic recession. During this period, the United States economy contracted by 2.6% making the government to introduce the stimulus package to revive the economy. In addition to the $188 billion stimulus package introduced by the Bush Administration, Obama administration also initiated a $787 billion stimulus package under the American Recovery and Reinvestment Act of 2009. The expansion recovery program made the economy to recover in 2010 with the growth rate of 2.8%.
Thus, the level of the U.S. economy affects the company financial performances. Based on the U.S. level of the economy, the sale growth of Huntington Ingalls declined by 1.7% in 2009 since this was the period the United States experienced recession. The improvement in country economy in 2010 led Huntington Ingalls to record 6.8% increase in the sales growth. Since the United Stated government is the major customer of the Huntington Ingalls, the state of the economy of the United States affects the company financial performances. For example, the company net income shrank from a gain of $135 million in 2010 to the loss of $94 million in 2011 despite the increase in the company revenue from 2009 to 2011.
The government formulates different policies that affect the operations of business organizations in the United States. The government makes laws related to taxation and internal control laws, environmental laws and other laws that may affect the company operations. The government also makes policies on the military expenditures. Since the end of the Second World War, the United States government has increased the expenditure on the military armaments. Thus, Huntington Ingalls has been able to win several shipbuilding contracts from the U.S. Navy because of the increase in the government expenditures on defense. However, there has been recent public criticism on the U.S. government intervention on the internal affairs of other states making the government to consider reducing the expenditure on defense. Hynson, (2011) argues that the increased criticisms on the government military interventionism on other countries may force the government to cut its military spending. The issue will affect the business operations of Huntington Ingalls. For example, Obama proposes a plan to cut $400 billion on military spending.
The Porter's 5 Forces Model is used to enhance greater understanding on the competitive position of Huntington Ingalls within the industry.
Porter's Five Forces Model
Porter's 5 Forces Model is a powerful tool to analyze a company competitive position within the industry. Porter (2008) forces model is a framework by which businesses form strategy within the industry, and the model determines the attractiveness of a market, the overall industry profitability and competitive intensity within the industry. ( Porter, 1979). Thus, the report uses Porter's 5 Forces analysis to determine Huntington Ingalls competitive position within the industry.
Threat of New Entrants
Huntington Ingalls operates within the Aerospace and Defense Products & Services industry, and a new firm…