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Aries HelicopterIt is a USA based company.It manufacture medium to heavy dutyhelicopters for industrial utility and military

usesProducts are AH-76,AH-53,AH-60AH-61- It is a rescue utility helicopter, used worldwide

in rescue mission

- It could land on water and lift medium to heavyloads- It has worldwide demand- Service intensive product

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CompetitorsDomestic

- Boeing Vertal- Hughes Helicopter- Bell Helicopter

International- Several European competitors- Aerospace of France- MBB of West Germany- Augusta of Italy- Smythe Aircraft Ltd. Of Great Britain

Core Competencies of Aries- High quality product- Ten year advantage in technology over all these competitors

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Market Potential for AH-61European CountriesSouth American countries

AustraliaMarket entry difficulties- Govt. refuse to allow Aries Product

- Some refused to buy American madeproduct- Prefer to buy their own domestic product

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Entry Into Foreign MarketsFour ways based on Risk-Reward ratio- Exporting directly, less risk- Licensing another company- Joint-venture with other company- Established manufacturing facilities, high risk

Aries signed licensing contract for AH-61with Smythe Aircraft Ltd in July 1979 forduration of 10 years and can extend further5 years

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Some main Clause of AgreementLicensing fee $20 million and royalties of $80,000 peraircraft manufacturedAll technology support to Smythe for research anddesign of AH-61 by Aries HelicopterAny improvement done by Smythe in product, thensame has to reciprocate and allow Aries to add intheir own productExclusive selling rights to Smythe in Great Britain andoutlying territories which under GB control

In rest of Europe and Globe, Smythe will competewith other licensing partner of Aries and Arieshelicopter itself Smythe restricted from selling in Australia

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The ProblemSmythe Aircraft term AH-61 as O CEAN KING Aries losing its market identity as the realmanufacture of AH-61Aries sale slowly decliningSmythe has cost advantage, they charge $750,000whereas Aries charging $950,000Some technological improvement done by Smytheand same has not been reciprocate to Aries ( Breachof contract)Aries has not taken any action against Smythe andthis in turn motivate Smythe and they startedtargeting Australia market which is having hugepotential (again violate of agreement clause)

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Aries Helicopters ResponseAries dont want to do anything drastic to jeopardize therelationship and at the same time could not take abuse ininternational marketOption Available to Aries Helicopters- Compete with Smythe Aircraft

- Wait until the license agreement expired- Withdraw the license in worldwide territory- Threaten to Smythe Aircraft Ltd

Aries decide to threaten the Smythe and brought to negotiationsunder following guidelines- To limit worldwide territory- Increase in royalties and spare parts cost- To limit the description of aircraft

Smythe refused to negotiate and backed by British government

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Q .1 AnsNo,They adequately not assess the potential of Foreign market. Otherwise instead of going in licensing contract, they would have chosen joint venture mode for AH-61, because it is only product which is having huge demand in internationalmarket. They havent studied market characteristics.

They found some of the difficulties to enter in foreign market:1. Some govt. refuse to allow Aries Product in their country.2. Some refused to buy American made product.3. Prefer to buy their own domestic product.4. It is Service intensive product.To overcome these trade barrier they decided to give license to some of thedomestic country in that market. If they had asses the market demandthoroughly then they opted for joint venture mode to cater these internationalmarket demand.They would have planned that AH-61 is getting obsolete in USA market but stillhaving huge demand in international market and cost is increasing tomanufactured same in USA. So accordingly they would have planned.

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Q .2Advantage in International Market:1. High quality product2. Ten year advantage in technology over

competitors3. Market leaderDisadvantages in International Market:1. Cost is more compare to competitors

2. Foreign Govt. refuse to allow Aries Product3. Some refused to buy American madeproduct

4. Prefer to buy their own domestic product

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Q .3AnsNo,Broadly they consider following option:

- Exporting directly, less risk- Licensing another company- Joint-venture with other company- Established manufacturing facilities, high risk

But not fully consider because from their

action it seems that they chose low risk, lowreturn easiest way to enter in internationalmarket i.e licensing another company.

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Q .4Compete directly with SmytheWithdraw the license worldwide

Filed the case in USA, get USA lawbacking as well as USA Govt. andthen force Smythe come fornegotiation or ask to pay penalties

according to contractIncrease price of Spare PartsRelease upgraded product in Market

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Q .5Keep eye on partner movement and accordingly craft own strategyDont give complete technology to the competitorsA license contract should include these basic element- Product and territorial coverage- Length of contract

- Quality control- Grantback and cross-licensing- Royalty rate and structure- Choice of currency- Choice of lawPlanning, license selection, compensation choices, ongoing relationship, contractspecification and organization of the licensing functionMarket long terms and shortAll mode of entryRegulate as per contractShould not hold same mode of entry