International Marketing Cases

Prof. Julio Cerviño

Case: Sikorsky Helicopters

Universidad Carlos III de Madrid

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Introduction:
In November of 1985, William Lance, an executive in the
international marketing department of Sikorsky Helicopter, was
trying to resolve a problem that had arisen with a licensing
agreement between Sikorsky Helicopter and Westland Aircraft
Ltd. Of Great Britain. The British company was consistently
competing with and winning contracts from Sikorsky Helicopter
for the AH-61, a rescue/utility helicopter used in many countries
around the world. Sikorsky Helicopter had licensed Westland
Aircraft Ltd. To build the AH-61 for exclusive selling rights in
Great Britain and limited rights for other countries in Western
Europe. As it turned out, the British made AH-61 was almost
identical to the American-made AH-61, except for price. Lance
now wondered what to do; their company´s licensee was now a
formidable opponent that was consuming as much as 40 percent
of Sikorsky Helicopter´s expected AH-61 sales in Western
Europe.
Product Line
Sikorsky Helicopters
The Sikorsky product line included medium-to heavy-duty
Sikorsky Helicopter was a division of All Tech Industries. AllTech helicopters for industry/utility as well as military uses. The
began in the early 1940s as the United Aerospace Corporation product line was constantly changing because of rapid
and originally consisted of three other companies besides expansion in Helicopter technology and because of increased
Sikorstky Helicopter. One company was a jet engine awareness of the capabilities of the helicopter in rescue, military,
manufacturer, the other two were high-tech systems and industrial uses. Sikorsky built a sleek executive helicopter,
manufacturers for the aeronautical industry. In the early 1970s, the AH-76, aimed at big business and offshore oil drilling
United Aerospace Corp. diversified its interests by acquiring markets.
several firms, including an air conditioning manufacturer and an
industrial/residential elevator firm. All these companies joined to
form AllTech Industries.

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Another entry was the AH-53, which was a heavy-lift helicopter Sikorsky Helicopters also had several European competitors that
that could be adapted to many uses in all area of the military. would have to be dealt with if Sikorsky expected to have a
Another model, the AH-60, was a medium-weight, extremely profitable international business: Aerospatiale of France, MBB of
versatile helicopter: it was an excellent weapons platform for the Germany, Augusta of Italy, and Westland Aircraft Ltd. Of Great
military and its excellent performance characteristics far Britain.
exceeded those of other current utility helicopters. Then there
was the AH-61. This helicopter was specially designed for
rescue missions. The AH-61 could land on water and lift medium
to heavy loads for quite a distance. The AH-61´s superior rescue
mission capabilities increased the world-wide demand for such a
high-quality product with such high-tech instrumentation.

Realizing that a good profit could be made in the international

market, Sikorsky began investigating how to enter this market.

Competition

Sikorsky Helicopter had several domestic competitors in the

helicopter market, including Boing Vertal, Hughes Helicopter,
and their closest competitor, Bell Helicopter. Although the
Sikorsky helicopters clearly were more expensive than those of
their competitors, Sikorsky was still the market leader by a fairly
comfortable margin. Most of the competitor´s helicopters were
light-duty, relatively cheaply built products that really couldn´t
compete with Sikorsky´s high-quality products. The competitors
were doing well, however, because they had found their own
market niches in light-duty helicopters.

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 Competition (continued)

Sikorsky had roughly a ten-year advantage in technology over all

of these companies, which led the Sikorsky executives to
conclude that a profitable market probably existed in European
countries as well as in South American countries and Australia.
The main problem was how to break into these foreign markets.
In many cases, the governments of these countries refused to
allow Sikorsky´s products to be sold. They cited many reasons,
such as taking jobs away from their own helicopter
manufacturers and taking money from their economies. Some
countries simply refused to buy American-made products (Made
in USA). They did not want to be identified with American
products and would rather buy their own domestically produced
product even if it was inferior. There were only a few of the
market-entry difficulties that Sikorsky Helicopter encountered.

Entry into Foreign Markets

Sikorsky Helicopter had several market-entry technique options.

They could use straight exporting, which required the least
amount of risk but was not amenable to most foreign
governments. They could license another company in a foreign
country to build their helicopters and receive royalties on product
made, as well as a fee for the technology to make them.
Sikorsky could enter into a joint venture with one or more other
companies in foreign countries, which would open up many
foreign markets to them, but at a much higher risk and
investments. Finally, they could establish manufacturing facilities
in foreign countries, which was the highest risk alternative and
usually was not easily accessible. Sikorsky Helicopter opted to
license foreign companies to build their products.

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The circumstances surrounding the licensing contract between Sikorsky Helicopter and the foreign company that Sikorsky chose to deal
with (i.e., Westland Aircraft Ltd) will be reviewed before the actual terms of the agreement. As mentioned, a ten-year differential in
technology existed between Sikorsky Helicopter and its European competitors. The production base of the AH-61, or the current number of
contracts for each AH-61, was beginning to wane in the domestic market. Production was slowly declining because of the decreased
demand, which meant that the actual cost of each AH-61 was more expensive for Sikorsky Helicopter.

From all indications, AH-61 was nearing the end of its product life cycle in the domestic market because of the industry´s great strides in
technology. The market for the AH-61 in Europe and in other foreign countries, however, was just beginning to catch on. The demand was
increasing just as Westland Aircraft´s production base was expanding, which meant that each aircraft cost Westland less than it cost
Sikorsky Helicopter to produce.

The Licensing Contract

The licensing agreement between Sikorsky

Helicopter and Westland Aircraft Ltd. Was
signed in July 1979. It would enable Westland
to manufacture the AH-61 until July 1989, a
period of ten years. At that time, if everything
was running smoothly, Westland had the option
of continuing the agreement for another five
years. At the end of those five years, the
contract would be reevaluated. .

The licensing fee was approximately $20

million and included all the technology involved
in the research and design of the AH-61 and
any technology that would or could improve on
the AH-61.

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Westland, in turn, promised to reciprocate and allow Sikorsky This was all fine and well except that Sikorsky was slowly losing
Helicopter to have any future technical improvements that they its market identity as the real manufacturer of the AH-61 – a loss
could make as they built the aircraft. In addition to the fee, that was not clearly understood until Sikorsky´s waning
Sikorsky Helicopter would collect royalties of $80.000 per aircraft production base and Westland´s rising production base caused a
manufactured. The agreement also included specific areas in discrepancy in the price of the two versions of the AH-61. At the
which the British firm would be allowed to sell their aircraft. time Sikorsky´s sales began to decline because Westland´s
Westland Aircraft Ltd. Would, of course, have the selling right in product was cheaper. This new twist in sales occurred late in
Great Britain where there was an established need for such 1983. Sikorsky´s executives began to look into the problem,
aircraft and a need for jobs to manufacture such aircraft. They never really thinking it would amount to much. The British
would also have exclusive selling rights in all outlying territories version of the AH-61 was running around $750.000 as compared
that were under British control. As for the rest of Europe and the with Sikorsky´s $950.000. With such a difference in price, one
globe, Westland would have to compete with other foreign could easily see the start of a major problem. Aside from the
companies that Sikorsky had license agreement with and price discrepancy, other factors were interfering with the smooth
Sikorsky Helicopter itself. There were a few exceptions, running of Sikorsky´s and Westland`s license agreement.
however, where Sikorsky Helicopter had exclusive rights and Westland Aircraft began to develop some of their own technical
Westland Aircraft Ltd. Was restricted from selling. One of these improvements for the helicopter´s on-board electrical systems.
areas was Australia. New sensors and computer components made the Ocean King
superior to the Sikorsky AH-61.
The problem
According to the licensing contract, Westland was supposed to
In the late 1970s and early 1980s everything went well between provide Sikorsky with these improvements to allow Sikorsky to
Westland and Sikorsky. Westland´s production base was just keep its aircraft up to date. Westland did not make these
starting up, so that Sikorsky could compete with Westland´s improvements known to Sikorsky. Concomitantly, Sikorsky was
costs through exporting. The aircraft´s reputation grew, and soon much more concerned with the technology of their new
there was quite a demand in the international market place. The helicopter line rather than with that of an aircraft whose product
Westland version of the AH-61 was selling well outside of Great life cycle was near its end. Westland Aircraft was now getting 60
Britain as well as domestically. The Westland Aircraft people percent of its sales in markets other than its own. In addition,
soon coined the term Ocean King for their version of the AH-61, Westland Aircraft executives were sure they could make
because it was selling so well. The name caught on quickly and handsome profits in Australia, a territory that was off limits under
stuck so tenaciously in international circles that even Sikorsky´ the licensing agreement. Westland Aircraft knew that but at the
AH-61 was now labelled the Ocean King. same time realized that Sikorsky Helicopter took no action when
Westland Improved the Ocean King without either consulting or
providing Sikorsky with the new technical improvements.

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Westland Aircraft decided to take the chance and begin selling If Westland could be brought to negotiations, Sikorsky could
the Ocean King in Australia. The British government, establish guideline that would maximize revenue and profit. One
incidentally, was also forcing Westland into this maneuver by guideline would be to limit worldwide sales territory to specific
threatening to nationalize the firm if it did not sell the helicopter to countries with an option to negotiate additional countries on a
Australia. Westland wanted to keep its independence and case-by-case basis. A second guideline would be an increase in
needed the sales to do so. In 1985, Westland Aircraft Ltd began the royalties per aircraft from $ 80.000 to $125.000 and an
selling their Ocean King helicopters to the Australian increase in spare parts cost. The last guideline would be to limit
government. the description of the aircraft to what is now being built. In other
words, no more technical improvements could be made on the
Sikorsky Helicopter´s Response Ocean King now being sold. Although Lance could only wait for
Westland Aircraft´s response to the threat of withdrawal of its
Sikorsky executive Lance was now faced with two counts of worldwide license, Lance had a good idea that Westland would
breach of contract by Westland Aircraft Ltd. With regards to the come around..
AH-61 helicopter. He wondered what to do. He did not want to
do anything drastic to jeopardize the relationship built up over Two weeks later, Sikorsky helicopter received Westland
the years between Sikorsky and Westland, since this relationship Aircraft´s response, and it was negative. Backed by the British
was a long-term and profitable one. At the same time, Sikorsky government in their endeavors, Westland simply refused to
Helicopter could not take such abuse in the international negotiate. This was no small blow for Lance, who, together with
marketplace. Something must be done. his special committee, had failed to deal effectively with a
formidable opponent. Lance now had to devise a new course of
Lance had several options: compete with Westland Aircraft, actions. He and his committee must decide what it ought to do to
which was sure to be costly for Sikorsky; wait four more years straighten the matter with Westland Aircraft.
until the license agreement expired, which would cost Sikorsky a
considerable amount of sales but would be not as costly as
competing directly; or withdraw the license in worldwide territory,
which would end any Sikorsky-Westland business dealings.
Lance and a special board of executives assembled to assess
the situation finally decided to threaten Westland Aircraft Ltd.
With withdrawal of the license in the hope that this action would
force Westland into renegotiating the contract.

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Questions / Discussion Outline Preguntas del Caso:

1. Did Sikorsky adequately assess the potential of foreign 1. ¿Evaluó adecuadamente Sikorsky el potencial de los
markets and develop their plans accordingly? mercados extranjeros y desarrolló sus planes acorde a este
2. What advantages and disadvantages does Sikorsky face in potencial?
the international market? 2. ¿Qué ventajas y desventajas enfrenta Sikorsky en el
3. Did Sikorsky fully consider all of the market entry strategies mercado internacional?
available to them? 3. ¿Consideró Sikorsky todas las estrategias y opciones de
4. What should Sikorsky do about Westland? Should it plan to entrada a los mercados internacionales a disposición de la
take legal actions against the British Company? What other empresa? ¿Cuál o cuáles podrían haber sido las más
options? adecuadas?
5. What lessons should Sikorsky learn from this experience? 4. ¿Qué debería hacer Sikorsky respecto a Westland?
¿Debería adoptar acciones legales contra la empresa
británica? ¿Qué otras opciones podría implementar?
5. ¿Qué lecciones debería aprender Sikorsky de esta
experiencia?

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