Boeing is trapped between a groundswell of \u201cAmerica-first\u201d manufacturing sentiment at home, and a fiercely competitive environment in China\u2014its largest growth market for commercial jets. How the aerospace juggernaut handles this politically charged opportunity will determine the company\u2019s growth prospects in the years to come.<\/p>\n
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The aerospace and defense sector is the crown jewel of American trade, accounting for nearly 10 percent of total US exports. [1] Last year alone, Boeing commercial jet sales generated $65 billion in revenue and employed nearly 60,000 employees. [2] Though Boeing over time developed a global supply chain, until recently it manufactured all of its commercial jetliners on US soil. This changed, however, in 2015, when Boeing announced plans to open a facility in China to finish and deliver its single-aisle 737 jets, as part of a $38 billion 300-plane order from Chinese companies. [3] This decision prompted an immediate backlash from then-Republican presidential front-runner Donald Trump, who blasted the aerospace juggernaut for \u201ctaking a tremendous number of jobs away from the United States.\u201d [4]<\/p>\n
This criticism belies the fact that Boeing is pursuing a twenty-year $1 trillion commercial jet opportunity in China against the backdrop of a number of policy and competitive challenges. First, in summer 2015 Congress refused to reauthorize the US Export-Import Bank\u2014an FDR-era program that helped American manufacturers export goods by subsidizing financing. At the time, Boeing was the largest beneficiary of this program, as one of the nation\u2019s largest exporters. Second, Boeing felt significant competitive pressure from Airbus, which had opened a manufacturing facility in Tianjin, China in 2008, and already had plans to open a second factory. [5] Third, and most crucially, China\u2019s State Council\u2014its highest body of state administration\u2014unveiled Made in China 2025<\/em>, an initiative aimed at transforming ten strategic industries into global leaders. Aerospace was name a top priority. [6]<\/p>\n China is no stranger to succeeding in engineering-based innovation in advanced industries. In 2008, the Ministry of Railways launched a nationwide effort akin to the Apollo space program to build a new generation of high-speed trains. McKinsey estimates that China has accounted for 86 percent of global growth in the market since then. Success was largely driven by key technology transfers from overseas partners, joint ventures between government-sponsored enterprises and foreign firms, and the heavy use of advanced foreign suppliers. [7]<\/p>\n Indeed, China has already begun to replicate this playbook in the commercial aerospace industry. In 2008, the State Council created the Commercial Aircraft Corporation of China (Comac)\u2014a State-owned aerospace manufacturer. [8] Merely nine years later, Comac responded to Boeing\u2019s 737 with its very own C919\u2014a single-aisle commercial jet. The C919 flew its maiden flight in May 2017, and is expected to commence delivery in 2020. [9] This was largely made possible by tapping into the experience of Airbus and Boeing\u2019s key suppliers, including US-based General Electric and Honeywell. [10] However, Comac\u2019s ambitions do not stop at single-aisle jetliners. Just two weeks after the C919\u2019s maiden flight, Comac and Russia\u2019s state-sponsored aerospace entity established their very own joint-venture aimed at developing a new twin-aisle airliner to compete with Boeing\u2019s 787 Dreamliner. [11]<\/p>\n The backlash Boeing faced in 2015, upon announcement of its new factory in China, failed to credit the firm for responding to an increasingly tenuous competitive environment. In actuality, the crucial question to answer is whether opening one factory in China is enough. Interestingly, we can look to China\u2019s miraculous development of its high-speed rail industry for strategic guidance for non-Chinese companies. In 1998, Canadian rail equipment manufacturer, Bombardier, was the last foreign company to tap into China\u2019s railway market. However, it deftly co-founded Bombardier China\u2014a joint venture between Bombardier and China\u2019s China\u2019s rail-related state-owned entity, CRRC. [12] Though this arrangement entailed technology sharing, and enabled CRRC to now account for 41 percent of the global market for high-speed train deliveries, it enabled Bombardier to tap into the Chinese market more effectively than any other western player. [13] If Boeing wants to achieve measurable and sustainable success in China, it should look to Bombardier\u2019s strategy for guidance.<\/p>\n At this point, Boeing\u2019s management team must determine whether its current China strategy is sufficient to capture the $1 trillion commercial jet opportunity. Between headwinds from US government policy and fierce competition from Airbus, Comac, and Russian aerospace entities, Boeing must decide whether it ought to forge deeper ties with Comac, or whether taking Bombardier\u2019s approach would be a Pyrrhic victory. Moreover, if Boeing chooses to partner closely with Comac, it must consider the potential political blowback at home from unions and politicians alike.<\/p>\n <\/p>\n (Word Count: 760)<\/p>\n <\/p>\n [1] Reuters, \u201cChina to spend over $1 trillion on planes over next 20 years: Boeing,\u201d September 6, 2017, http:\/\/www.reuters.com\/article\/us-china-aviation-boeing\/china-to-spend-over-1-trillion-on-planes-over-next-20-years-boeing-idUSKCN1BH0T2, accessed November 2017.<\/p>\n [2] \u201cBoeing Overview,\u201d Boeing, 2017, http:\/\/www.boeing.com\/resources\/boeingdotcom\/company\/general_info\/pdf\/boeing_overview.pdf, p. 5, accessed November 2017.<\/p>\n [3] Johnsson, Julie, \u201cBoeing Lands $38 Billion Jet Order From Chinese Airlines,\u201d Bloomberg, September 23, 2015, https:\/\/www.bloomberg.com\/news\/articles\/2015-09-23\/china-signs-deal-to-buy-300-boeing-aircraft-xinhua-reports, accessed November 2017.<\/p>\n [4] McLeod, Harriet, \u201cTrump slams Boeing over plans for new China facility,\u201d Reuters, September 23, 2015, http:\/\/www.reuters.com\/article\/us-usa-election-trump-boeing\/trump-slams-boeing-over-plans-for-new-china-facility-idUSKCN0RN2BG20150923, accessed November 2017.<\/p>\n [5] Yglesias, Matthew, \u201cHow China is playing Boeing against Airbus to build its own airplane industry,\u201d Vox, September 24, 2015, https:\/\/www.vox.com\/2015\/9\/24\/9389767\/boeing-china-deal, accessed November 2017.<\/p>\n [6] Kennedy, Scott, \u201cMade in China 2025,\u201d Center for Strategic & International Studies, June 1, 2015, https:\/\/www.csis.org\/analysis\/made-china-2025, accessed November 2017.<\/p>\n [7] Woetzel Jonathan, et al, \u201cGauging the strength of Chinese innovation,\u201d McKinsey Global Institute, October 2015, https:\/\/www.mckinsey.com\/business-functions\/strategy-and-corporate-finance\/our-insights\/gauging-the-strength-of-chinese-innovation, accessed November 2017.<\/p>\n [8] \u201cThe Chinese Aerospace Industry: A Background Paper,\u201d Royal Aeronautical Society, July 2013, https:\/\/www.aerosociety.com\/Assets\/Docs\/Publications\/DiscussionPapers\/ChineseAerospaceIndustryDiscussionPaper.pdf, p. 7, accessed November 2017.<\/p>\n [9] Goh, Brenda, \u201cChina’s COMAC says C919 jet completed second test flight,\u201d Reuters, September 28, 2017, https:\/\/www.reuters.com\/article\/us-china-aviation-comac\/chinas-comac-says-c919-jet-completed-second-test-flight-idUSKCN1C30H3, accessed November 2017.<\/p>\n [10] \u201cChina\u2019s New Plane Will Be Helped Aloft by U.S. Technology,\u201d Bloomberg, May 4, 2017, https:\/\/www.bloomberg.com\/news\/articles\/2017-05-04\/china-s-first-jet-to-rival-boeing-is-helped-by-u-s-technology, accessed November 2017.<\/p>\n [11] \u201cChina and Russia are teaming up to take on Airbus and Boeing.,\u201d CNNMoney, May 23, 2017, http:\/\/money.cnn.com\/2017\/05\/23\/news\/companies\/china-russia-airplane-partnership\/index.html, accessed November 2017.<\/p>\n [12] Nan, Hao, \u201cBombardier to bridge cooperation in China,\u201d China Daily, December 5, 2015, http:\/\/www.chinadaily.com.cn\/cndy\/2015-12\/05\/content_22633703.htm, accessed November 2017.<\/p>\n [13] Woetzel Jonathan, et al, \u201cThe China Effect on Global Innovation,\u201d McKinsey Global Institute, October 2015, http:\/\/www.mckinseychina.com\/wp-content\/uploads\/sites\/4\/2015\/07\/mckinsey-china-effect-on-global-innovation-2015.pdf, accessed November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":" Boeing is trapped between a groundswell of \u201cAmerica-first\u201d manufacturing sentiment at home, and a fiercely competitive environment in China\u2014its largest growth market for commercial jets. How the aerospace juggernaut handles this politically charged opportunity will determine the company\u2019s growth prospects […]<\/p>\n","protected":false},"author":9630,"featured_media":26626,"comment_status":"open","ping_status":"closed","template":"","categories":[285,1900,1287,944,154,161,3744],"class_list":["post-26562","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-aerospace","category-airbus","category-boeing","category-bombardier","category-china","category-manufacturing","category-manufacturing-jobs","hck-taxonomy-organization-boeing","hck-taxonomy-industry-aerospace","hck-taxonomy-country-china"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\n