1. BUSINESS ECONOMICS Class 1 12 November, 2009

2. Market Structures  Monopoly – One price offer  Duopoly – Two price offers  Oligopoly – Few price offers  Perfect Competition – Many price offers

3. Monopoly  Monopoly (single seller) - exists when a specific individual or an enterprise has sufficient control over a particular product/service to determine significantly the terms on which other individuals shall have access to it.  Lack of economic competition  Monopsony – single buyer  Formed by force, by law, naturally, integration  Regulated in India by MRTP Act  Examples: Indian Railways, Armed Forces

4. Imperfect Competition  More than one seller or buyer  Control of price is not determined by the market  Duopoly, Oligopoly, Cartel  Examples: Oil companies  The Rule of Three (Sheth & Sisodia)  Game Theory and Prisoner’s dilemma

5. Perfect Competition  Infinite Buyers/Infinite Sellers – Infinite consumers with the willingness and ability to buy the product at a certain price, Infinite producers with the willingness and ability to supply the product at a certain price.  Zero Entry/Exit Barriers – It is relatively easy to enter or exit as a business in a perfectly competitive market.  Perfect Information - Prices and quality of products are assumed to be known to all consumers and producers.  Transactions are Costless - Buyers and sellers incur no costs in making an exchange.  Firms Aim to Maximize Profits - Firms aim to sell where marginal costs meet marginal revenue, where they generate the most profit.  Homogeneous Products – The characteristics of any given market good or service do not vary across suppliers.

6. BUSINESS ECONOMICS Project Work 12 November, 2009

7. Force Projection * Assumption: All 3 Air Forces retire their pre-1980 aircrafts by 2015

8. MoD Initiatives EquipmentAgencyStatus Airframe design (CF-C) ADA, Bangalore Completed Turbofan Engine GTRE, Bangalore ‘Kaveri’ failed to meet thrust requirements; imports from GE or EuroJet considered RadarLRDE, Bangalore Co-developed with Elta, Israel Fly-by-wire FCS NAL, Bangalore Completed with help from Infosys and Airbus Electronic Warfare DARE, Bangalore ‘Mayavi’ EW co-developed with Elisra, Israel WeaponsDRDO, Bangalore Astra BVR, Russian missiles 7 aircrafts built Over 1000 test flights completed 40 aircrafts ordered by IAF, 6 by IN Mk1 of ‘Tejas’ to be inducted by 2010 Mk2 development to continue Indigenous development - LCA

9. IAF initiatives  Upgrade existing aircrafts  MiG-27 upgrade by HAL completed  MiG-29 being upgraded by UAC, Russia with Zhuk PESA radar  Mirage 2000 being upgraded by Thales & Dassault, France  Sukhoi 30MKI to be fitted with BrahMos CM, Novator missile and AESA radar

10. Planning ahead for 2020 and Beyond  5 th Gen Fighter Aircraft  Joint development with UAC, Russia (50% share)  Based on Russia’s T-50 project (twin- engine heavy fighter)  Stealth features (internal weapons, RAM-coated composite skin, S-duct inlet, reduced RCS)  First test flight of Russian version in 2010  Medium MRCA Tender  Global Competition – 6 Bids  $12bn budget for 126 aircrafts  Technology transfer/ Offset  AESA radar, modern weapons  RFP released in August 2007  Technical evaluation completed in May 2009. Field trials in progress

11. M-MRCA Technical Bid MakerEngineRadarTWRSpeedCostWeapons Eurofighter, UK, Germany, Italy, Spain 2x EJ200 (90 kN) Captor-E (new) 1.18Mach 2.3$120mn7tn Dassault, France 2x M88 (75 kN) RBE-2AA (u/d) 1.13Mach 1.8$80mn9.5tn Boeing, USA 2x GE414 (98 kN) APG-79 (mature) 0.93Mach 1.8$60mn8tn UAC, Russia 2x RD33MK (88 kN) Zhuk-AE (u/d) 1.10Mach 2.2$40mn7tn Lockheed- Martin, USA 1x GE110 (144 kN) APG-80 (mature) 1.09Mach 2.0$50mn6.5tn Saab, Sweden 1x GE414 (98 kN) Raven (u/d) 1.06Mach 2.0$50mn6tn

12. Competitive Offers Year TestedUsersValue-addition 1994-20034 partners, Austria, Saudi Arabia Closest to 5G aircraft. Invitation to India for a partnership in the EF program. 1986-2000FranceFull ToT and help with ‘Kaveri’ engine. Involved in the Mirage upgrades. 1996-2001USA, AustraliaMost advanced radar and weapons. Only offers partial ToT. Local partnership with HAL, Tata, L&T, BEL established. 2007-presentNone.Built on the MiG-29 platform. Offers full ToT and co-development of AESA radar. Strategic partner. 1990sUAEPartial ToT. Last version of the F-16. Opportunity for MRO facilities for largest operating fighter aircraft. 1990sSweden, Czech, RSA, Hungary, Thailand Similar to India’s own LCA. Dependency on foreign suppliers for engine and radar.

13. Political Decision  Strategic relationship  Help in indigenous LCA project  Reliability of imported supplies  Benefits to local industry  Transparency in the award of contract  Opposition in the Parliament  War and defense planning  Total Cost of Operation

14. International relations  Russia – old and reliable ally since the Soviet era, has supplied majority of India’s aircrafts, warships, submarines, tanks and small arms. A former super- power, now an emerging economy with veto power.  USA – Strategic partnership with India post 9/11, has supplied transport aircrafts, civilian nuclear reactor and helicopters. Global power with allies in Europe and Asia.  Europe – Increasing trade relations; has supplied trainer and fighter aircrafts. Neutral stand on world affairs.

15. Group Work  IAF Team (2 Groups)  Conduct technical & financial evaluation.  Recommend best-suited aircraft for the Air Force.  Qualify and short-list 2 winners.  Ministry of Defense (2 Groups)  Evaluate the political and diplomatic relations with vendor countries.  Select the contractor best suited to meet long-term strategic needs. Critical Creative Thinking Inquiry/ investigation Analysis Environment Stakeholder Solution Evaluation of Alternative Parameters Execution Recommendation Justification of Choice