Take off and Crash: Lessons from the Diverging Fates of the Brazilian and Argentine Aircraft Industries

Abstract

What are the factors that allow for success or failure of developing countries' attempts to enter high-tech sectors? We make a initial attempt to answer that question through a comparative study of success and failure in manufacturing aircraft. Aircraft production is one of the key industries in the world today, as reflected in the intense Boeing-Airbus rivalry. It is also one of the most cyclical, technologically-sophisticated, and capital-intensive industries, and therefore an unlikely place for a developing country to compete. But almost from the birth of modern commercial aircraft manufacturing, Argentina's Fábrica Militar de Aviones (FMA) was at the forefront of production. Brazil's aircraft industry was tiny in comparison at that time. Yet, by the 1990s, Brazil's Embraer had become the world's third largest aircraft manufacturer, while the Argentine aircraft industry has virtually disappeared. We examine the history of each company to explain the differences in trajectories and their fates. Our analysis demonstrates that an evolutionary but consistent partnership between state and firm, one attuned to both the exigencies of sectoral development and to changes in the nature of global markets, is necessary for success.

The evolutionary patterns of political economy: Examples from Latin American history

“…His industrialization plans, based on seizing assets of agriculture and cashing in credits earned from exports during World Wars I and II, were highly symbolic of a sense of nationalism that, along with the equally illusory efforts at redistribution through cursory wage increases, are at the symbolic core of affection for Peronism. Perón attempted to develop independent auto, aerospace, metal, and a wide variety of other industries, with varying degrees of ineptitude and corruption (Hira and de Oliveira 2007). For example, the auto industry was tied to US-based Kaiser and the oil company, YPF, signed an exclusive contract with Standard Oil that gave it monopoly status and excluded labor rights (Alexander 1979, p. 102).…”

Evolution stages of aircraft manufacturing firms

“…By 1931, FAdeA jumped to an inventive development phase (1931‐1934) where it started designing and manufacturing its own aircraft. The efforts toward domestic designs were abandoned by 1935 due to technical arguments within military's Aeronautical Service regarding whether or not to continue assembling or licensing or designing their own planes . These arguments led the company back to a base production stage (1935‐1942), characterized by the production of planes from foreign producers under license agreements.…”

“…After 1955, with the military coup that removed the President from power, there was a significant divestment in domestic production, and the company fall back to a base production stage (1955‐1965). The policy instability in combination with a growing macroeconomic crisis led to the abandonment of domestic designs in favour of the assembly of planes under license . Afterward, the company jumped back to inventive development (1966–1994) marked by a reinvestment in the domestic production of aircraft, including the IA‐58 Pucará and the IA‐63 Pampa produced mainly for the Argentine Air Force.…”

“…For example, both Argentina and Indonesia have tried to domestically produce airplanes and both struggled to achieve commercial success. A number of factors led to these difficulties: dearth of consistent long‐term state support, export impediments, infrastructural constraints, and quality and reliability problems . An understanding of how aeronautics firms have succeeded (and failed) is important and can help in guiding policy for seeding and successfully developing aircraft production industries.…”

Social Network Theory and Management of the Sub-supply Network in Complex Sectors

“…In supporting the outcome of the interviews, reference was also made to the outcome of research carried-out on the same subject matter in the aerospace sector (Hira and De Oliveira, 2007;Achon and Klassen, 2007;Green et al, 2005;Bales et al, 2004;Esposito, 1996;Badaracco, 1991;Allen, 2000;Izzo, 2009). …”