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Will C919 take over the Chinese aviation industry: a discussion on network effects

In understanding the networks effect on a product’s success, we have learned that a product will only become successful when at the product’s current price and network effects, there is an unfulfilled demand for the product because the product has surpassed its tipping point. Because of this, the demand of the product would continue to grow until it reaches a stable equilibrium, which usually consists of the majority of the population using the product. As a result, finding strategies to shift the tipping point by creating a popular image of a product is crucial in launching a new product successfully in the market. To see how some of these strategies are played out in reality, consider the recent launch of the China’s first large passenger jet, the C919, by Comac Corporation.

The C919 is seen as a way to break the duopoly of Airbus and Boeing as the dominant aircraft suppliers in the world. In order to satisfy the growing air-travel demand in China, the C919 is meant to offer a cheaper alternative for airlines to increase its existing fleet. In addition, C919 is superior in technology to the existing aircrafts in the market. Despite this, its journey of breaking into the market is not as simple as reducing the tipping point through price cutting or drumming up its market share through a massive marketing campaign. Unlike consumer products, the buyers in the market for aircrafts generally consists of airline companies, which makes it much more difficult if an airline has already committed into leasing or buying of aircrafts to be delivered in the coming years. Within China, Airbus and Boeing have already been building up its industrial footprint by establishing completion-and-delivery centers, which operates as another hurdle for Comac to leap over: whether the company can offer enough after-product service to its customers. In addition, Airbus and Boeing are both considering to incorporate “advanced composite materials” to in their new aircrafts to combat against the new competitor. Since Comac only has one readily available final product, it is still in the stage of taking orders from its potential customers, which means it is also competing against time to deliver the better product before Airbus and Boeing do. Comac also lacks a key aspect that determines its fate of success, an operational track record and safety certification from regulators. While many factors suggest that the C919 lack the popularity to succeed among global airlines, Comac can leverage upon its massive connection within the Chinese aviation industry. In fact, it has already secured over 500 orders from Chinese domestic airlines. Like Xiaomi, the smartphone that tops even Apple’s legendary iPhone in terms of market share in China, Comac may be able to find its sweet spot by taking over the Chinese aviation industry. Time will tell.

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November 2015