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Bigelow Aerospace is a space technology company based in North Las Vegas. The company is pioneering the development of expandable space vessels. The company was founded in 1998, by Robert Bigelow – and operations are funded, largely by the Budget Suites Hotel of America, which is owned by Bigelow (Bigelow, 2011). As of 2010, the founder had injected USD 180 million into the project.
The founder, together with his staffs, is working towards the development of configurable, flexible space habitats. This paper explores the business issues facing Bigelow Aerospace in different areas: tariffs, exchange rates, quotas, local laws and customs, marketing, and copyrights. The paper also presents possible solutions to the issues identified (Bigelow, 2011).
The business issues facing Bigelow Aerospace
According to Anonymous (2011), EIAST (Emirates Institution for Advanced Science and Technology) has partnered with Bigelow Aerospace to develop a future-looking human spaceflight initiative for the Middle East. EIAST is the organization that initiated the DubaiSat project. The two partners plan to establish the project in Dubai and the UAE, bringing into existence research and development institution (Anonymous, 2011, p. 1-3).
The center will present the potential of exploring business, space-related projects and advanced biotechnology. The deal between the two institutions is part of the UAE’s strategy, towards reinforcing space capacity, through working on the DubaiSat project as using projects like DubaiSat-1 (Anonymous, 2011). The New programs are expected to enhance business applications across the region (M. Gold, personal interview, June 2009).
The director general of EIAST, Mansoori informed Satellite Today that plans of installing other satellites were in waiting. He said that the EIAST anticipated initiating DubaiSat-2 in 2012, which would be followed by the launch of DubaiSat-3 (Anonymous, 2011).
Among the business issues facing Bigelow Aerospace is the issue of taxation due to business across the US national borders. In the particular case of a partnership with the EIAST, with the plans of launching operations in the UAE and Dubai, they face the issue of the application of tax treaties, in their current case, where it is not clear whether the partnership is allowed to enjoy treaty benefits (Seevers, 2002).
The business issue gets deeper as the states involved are different, in the tax treatment of partnerships. For instance, a classification conflict is likely to face the partnership, which may result in double non-taxation or double taxation (Rhoades, 2008). There is also an issue of the application of tax treaties in the context of the business between Bigelow Aerospace and EIAST (Seevers, 2002).
The business issues to be explored during and after the progress of the project include the tax regimes to be applied to the partnership, whether the projects can be taxed on the basis of the domestic laws of the US, and rules to be applied by the UAE and America – when classifying foreign and domestic organizations for taxation purposes. There is also an issue of the application of tax treaties to the international partnership (Seevers, 2002).
A possible solution to the taxation issue facing the business of Bigelow Aerospace, while executing partnerships with EIAST of the UAE, includes that proposed by Latham & Watkins (2011). Latham & Watkins (2011, p. 4-5) points out that it is safer and more effective for a foreigner – without the intention of physically settling at the UAE – to enter into an agency with a locally owned institution in the UAE.
In the current case, Bigelow Aerospace can enter into a commercial agency relationship with EIAST, in executing operations of importing technology and their IT products to the U.S. Bigelow Aerospace should also consider registering the contract with the Ministry for Economy and Commerce, so they can benefit from the protections offered under the commercial Agency laws of the UAE (“Federal Legislation, No. 18 of 1981, and amendment by No. 14 of 1988 as well as that by No 2 of 2010” (Latham & Watkins, 2011, p. 4).
The protections to be enjoyed by Bigelow include exclusivity, which is the right to import technology and their expertise and commissions, which is the right to the commissions realized from the deal – whether by the principal or other agents. They will also benefit from protection, in the area of contractual termination as the provisions guide that the principal can only terminate the deal for material reasons, which are acceptable before the Commercial Agencies Committee (Latham & Watkins, 2011, p. 4-5).
From the side of the US, Bigelow Aerospace could approach the issue, on the basis that partnerships are treated as entities – during the determination of the timing, amount, and the character of the income items of the business (Seevers, 2002). There is a business issue of the regulations guarding exportation and the importation of goods and services into the UAE.
Bigelow Aerospace is likely to face low tariff rates, during the execution of contract with EIAST due to the fact that the UAE is a member of the WTO (World Trade Organization) and free trade establishments at the GCC. For instance, import duty of the aerospace items will only be taxed outside the free zones, depending on the nature of the imported technology equipment (Latham & Watkins, 2011, p. 5).
As a solution to the import duty issue, Bigelow Aerospace could concentrate dealings at the free zones, so as to reduce the tax burden to be borne while operating at the UAE (Latham & Watkins, 2011, p. 5). Following the precaution of concentrating operations at free zones, they will also increase the exemptions on their partnership, depending on the majority level owned by GCC nationals as well as the free zone identity.
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In the area of taxation, there is no income or federal corporate tax levied on UAE businesses, except in the areas of banking services and oil trading (Latham & Watkins, 2011, p. 5). Bigelow Aerospace will also encounter the issue of laws, including those on employment. Employment law in the UAE is governed by federal legislation, imposing minimum requirements for the employment of juveniles, public holidays and vacations, working hours, safety standards, employee records and employment termination (M. Gold, personal interview, June 2009).
In this area, Bigelow Aerospace should ensure that their partnership with EIAST is executed in line with the employment laws of the UAE, so as to avoid any issues that may result from non-adherence. Bigelow Aerospace will also encounter the business issue of projecting intellectual property, as well as patents (Bigelow aerospace, 2013). The UAE legislation recognizes intellectual property rights, in a manner similar to that of the US, UK and European systems.
The UAE is also a member of conventions like the PCT (Patent Cooperation Treaty) Madrid Convention, TRIPS and WTO (Bigelow aerospace, 2013; Bigelow aerospace, 2013b). The solution to this issue is that Bigelow should register patents with the UAE Federal ministry of economy (Latham & Watkins, 2011, p. 7). The company’s patents should also be protected under UAE’s industrial property law, so as to make them enforceable.
As a result, any parties copying the Bigelow’s patents may face imprisonment or pay heavy fines, depending on the level of patent breach (Bigelow aerospace, 2013a). Terrill (1999) points out that the “International Outer Space Treaty of 1967,” guides the operations of companies engaging in space exploration (UN, 2002).
This implies the business issue that – in the case of a space liability – during their ordinary business of exploration Bigelow Aerospace will be liable for the damage caused by their space objects, and will be required to control the objects at all times (Rhoades, 2008; UN, 2002). In their business with organizations like IAST, Space X and NASA, there is the business issue that Bigelow will be liable for any liability caused by their space vessels and will be faced with the constant challenge of managing the vessels (Writers, 2012; Matthews, 2013; Bigelow aerospace, 2013a).
The solution to the issue is that Bigelow Aerospace and partners will have to invest in the development of employees, so as to ensure that the oversight of vessels is at best (Terrill, 1999). The development of the teams involved in the engineering of the vessels of Bigelow and partners should be developed, to ensure that the risk of causing problems in space will be lower (Terrill, 1999).
According to Holmes (2011), Bigelow aerospace has been expanding business, to new areas, like the gulf region. An example of these expansion deals is the deal made between the company and EIAST, which sought to develop new-generation space flight vessels and programs (Bigelow, 2011). The expansion was a strategic move on the part of the UAE as it is the first deal they made with the countries of the Middle East.
Therefore, the deal, on own, presented the opportunity for the expansion of the program and services of space flight in the gulf region. However, as Holmes (2011) notes, the pace of the programs will also depend on the speed of the congress, in giving funding for commercial crew development, during the financial years 2011 and 2012. This aspect brings into light, another business issue facing Bigelow Aerospace.
The issues include the challenges of meeting environmental performance standards while at the same time ensuring that their accounts are not affected – to the level that they do not realize the anticipated profits or project plans (NASA, N.D). For instance, in the case of Bigelow Aerospace, the funding from the congress, which is supposed to run the crew program as well as enable involved companies deploy their hardware (Holmes, 2011).
Still, under the issue of funding, there is a concern over the channeling of funds towards environmental performance standards, which are increasing from time to time (AECOM, N.D). Still, in the area of funding, for instance, the funding by the congress – which is necessary before the launch of the UAE projects of 2011 and 2012, there was a continued uncertainty regarding the funding of the critical programs, for fear that they would impair the implementation of capital projects.
For that reason, investing in aeronautical programs is not viewed as a priority, as opposed to the projects in the line of construction, engineering and the development of national resources (AECOM, N.D). Therefore, Bigelow Aerospace faces the risk of minimal or late funding, which is likely to affect their program schedules, whether the delays are caused by the national funding of the home country (US) or that of the destination country of business, for instance the UAE (Holmes, 2011).
Hutchet-Bourdon and Korinek (2011, p. 14) discuss that trade surpluses and deficits may be attributed to variations in exchange rates. The impact of these variations on trade is unbounded as the balances could be depicted through a review of imports and exports of the UAE to the US, which may mark a considerable loss in the balance of payments (Ball, 2010).
As a result, exchange volatility affects the business of Bigelow Aerospace as the funding channeled towards space projects, for instance those at UAE will depend on the availability of funds – which is a function of exports and imports (Huchet-Bourdon and Korinek, 2011). As a result, the changes in the value of the different currencies are likely to delay the funding of projects, or delay of others.
The solution that Bigelow Aerospace could develop for this business issue would be the strategic sourcing of funds and the sourcing of resources to be used during their projects in the target countries. For instance, the volatility of currencies affects prices of imported supplies, which is likely to increase project budgets.
Another solution to the issue, which is available to Bigelow Aerospace, is the development of a strategy of purchasing all required inputs during times of less currency volatility so they can be used later, during project execution (Bigelow, 2011).
Quotas is a business issue that Bigelow deals with during execution of international programs – including the development of DubaiSat-2 and 3 in partnership with EIAST, include the restrictions of quotas. Quotas are the limitations on the quantity of a product that can be allowed into the target country (Ball, 2010).
However, the situation is favorable in this area, for the company, when it is investing in the UAE as there are no Quota limitations (Latham & Watkins, 2011). At target markets where this limitation will affect the business of Bigelow, the company should focus on sourcing the inputs required for the project locally as opposed to importing the inputs. Through this strategy, the company will not lack the inputs and at the same time, will have promoted the economic development of the target country (Seevers, 2002).
Bigelow Aerospace is a space technology corporation pioneering the development of expandable space vessels. The company was founded in 1998 and is funded largely by the founder. The business issues facing Bigelow Aerospace include taxation, which is stiffer at certain countries, than others like the UAE, where the company is already doing business.
The possible solution to the issue is investing through domestic agencies or investing at free zones in the UAE. There is an issue of the regulations guarding importation. This issue can be solved through investing in countries that require less import duty. Bigelow faces other business issues related to laws, including employment laws; the cumbersome funding of governments, which could be substituted with other channels of funding.
There is the issue of exchange rates, which is likely to limit the capacity of importation and export, which is a significant source for the funding channeled into space projects. The solutions to the problem of exchange rate volatility include the development of input sourcing mechanisms that collect all required inputs as the company plans space projects. In conclusion, these business issues are likely to affect the business of Bigelow Aerospace to a large extent, in case they are not addressed in a timely manner.
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