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Contents
Introduction
Background of Boeing and Airbus in China
Analysis
References
Introduction
China became a member of World Trade Organization in December 11, 2001and is currently the world’s largest trader (excluding intra-EU trade) with exports and imports totalling US$2.21 trillion and US$ 1.95 trillion respectively in 2013 (WTO). Additionally, the country is an observer to the Plurilateral Agreement on Government Procurement (GPA) and also an observer to the Plurilateral Agreement on Trade in Civil Aircraft (WTO, 2014).
According to Wang H., Li S., and Wang Q. (2013), China opened its doors to Foreign Direct Investments in the late 1970s and has recorded significant economic growth. The Foreign Direct Investors (FDI’s) took advantage of China’s comparative advantages which included but not limited to skilled and unskilled labor force, the human capital-intensive as well as technology intensive products which is attributable to the accumulation of physical and human capital policies which are geared towards adoption of advanced technologies. The authors state that most specifically, the Chinese Government set up the China’s Free Trade Zone (FTZ) which is a specialized economic area for bonded operations and international trade. The Shangai Waigaoqiao FTZ was established in June 1990 through granting exemptions from customs duties on both imported and exported goods; value added taxes and relaxed customs and control of foreign exchange (Liu, 2004).
Background of Boeing and Airbus in China
Boeing and Airbus are established companies in China. Boeing introduced its aircrafts into the Chinese Market in 1972 when the then President of the US Richard Nixon made a historic visit to China. Boeing specializes in the 737, 747, 767, 777 and 787 Dreamliner commercial aircrafts (Boeing, 2015). The assembly plant of Airbus which is located in Tianjin, China for the production of the A320 series airliners was opened in 2009. Airbus specializes in manufacture of A320, A330, A340 and A350 airliner series (Airbus, 2015). Both of these companies are big names in aircraft industry and the aircrafts manufactured by these companies’ flies into international borders. Boeing is the world's largest aerospace company; it is also the leading manufacturer of commercial jetliners and defense, space and security systems (Boeing, 2015). On the other hand, Airbus is the world’s leading commercial aircraft manufacturer (Airbus, 2015).
The airline industry in China is a growing industry with an increasing demand for passenger commercial aircrafts. There has been an increase in the domestic traffic as well as international air traffic in China. Both Boeing and Airbus have realized that Chinese market is an important market in terms of volume and value. Over the past two decades, The People’s Republic of China has invested billions of RMB in domestic and international air travel capability. Today, almost every major city in China has a new airport. Currently, there are an estimated 1,400 commercial planes in China, of them approximately 800 Boeing, 470 Airbus, and 130 other (Embraer, Bombardier, CRJ, etc.). It explains that Boeing and Airbus are competitors in Chinese market. At China’s current economic growth rate, land area and population size, the Chinese Government’s latest 5 Year Strategic Plan expresses the Government’s commitment to grow the commercial airspace sector and plans to invest an excess of US$ 9 billion. Boeing predicts that China will become the world’s largest manufacturing center within the next two decadesand the country will spend approximately US$ 870 billion to purchase a total of 6,020 new passenger planes to meet the passenger traffic demand which is estimated to increase by 6.9% and air cargo traffic also increasing by 6.7% annually, 65% of this increase is projected to be within China with passenger traffic increasing 6.9 percent and air cargo traffic increasing 6.7 percent annually. The majority of the growth, approximately 65 percent, will be within China(Boeing, n.d.).
Both Boeing and Airbus realize this fact and the focus of both the companies is to increase the market share in the Chinese market. The objective of this paper is to perform an in-depth analysis of the specific components of Boeing’s and Airbus’ strategies in China, making clear comparisons, and detailing which components are similar and which ones are divergent.
Analysisof an in-depth analysis of the specific components of Boeing’s and Airbus strategies in China.
Both Boeing and Airbus have been able to get a good hold of Chinese market. One of the advantages with these companies is that the local manufacturer of China is not certified to sell aircrafts in International market. Therefore both these companies have been able to generate a good market share in China. As far as the market in terms of volume is considered, Boeing has a larger volume that Airbus. However the difference between Boeing and Airbus is reducing as Airbus is making progress in Chinese market (Ricart, 2011). The similarities and dissimilarities in the business model of Boeing and Airbus in China can be discussed under the following parameters:
Timeline: Airbus took a major decision to open its final assembly line in Europe. The company decided that it would open its assembly line in Tianjin. This decision had a great impact on the market of Airbus in China. The company was able increase its market share after this decision. As per the website of Airbus (
“Airbus has seen tremendous growth in the nation, with over 1,100 of the company’s aircraft in operation with Chinese airlines as of January 2015”.
Global trading models:
As far as the trading models are concerned, both the companies have somewhat the same trading model to handle their operations in China. According to Braddon (2014), Competition amongst these two companies has been very stiff and they have competed in various aspects including technologies by introducing various product ranges geared towards outperforming the rival and also through outsourcing of their aircraft components of the aircraft production in countries which are of strategic importance to each company that enables them to expand their competitive advantage. These companies have always focused to increase their growth rate with mergers and acquisitions. As a result, these two companies have been able to establish a duopoly in international market in aircraft business. China is considered as an important foreign market for both the firms. Both the companies have focused to create China a hub that would be used to cater for the Asian market (Carbaugh, 2011). It can be said that the global trading models of these two companies are on similar lines.
Local government and legal system interactions: The management of both the companies realizes that they would not be able to develop and grow unless and until they have the support of local government. Both the companies shave focused to develop good relationship with Chinese countries. Airbus also has a tie up with Chinese government to create employment opportunities in China. With respect to local government and legal system interactions, it can be said that Airbus is slightly better placed than Boeing.
Local incentives: Both Boeing and Airbus have been able to take the benefits of government policies in order have a better grip of Chinese market. In the last decade or so, Chinese government has developed a lot of good policies for foreign companies to come and establish their manufacturing base in China. It can be said that both the companies are on similar lines to take advantage of local incentives.
Management of cultural differences: There exists a fundamental cultural difference in the culture of Airbus, Boeing and Chinese manufacturers. The culture of Airbus and Boeing also differs to some extent as there exists' a difference between European way of working (Airbus) and American way of working (Boeing). In terms of cultural differences, it can be said that Boeing has been able to manage its cultural differences well in China.
Partnering, duties and taxes and Trade agreements: One thing that is fundamental to the success of both the companies is the way they have partnered with other firms and the way they have focused on mergers and acquisitions. With respect to partnering both the firms are on similar lines and both rely heavily on partnering. Both Boeing and Airbus are large firms and these companies have been able to manage their taxes in a way that benefits could be realized. Both the companies are determined to have the required trade agreement with government of China. Airbus has an effective trade agreement with government of China that provides certain tax benefits to the company (Ibsen, 2009). Both the companies have been able to establish good trade agreements with Chinese counterparts.
Currency, finance and negotiations with Chinese air carriers:
The success in this sector in China is mainly attributable to China’s capacity to maintain low production costs which has attracted FDI. By investing in the manufacturing market in China, the Foreign Direct Investor must factor in potentially higher transportation costs, supply chain management complexities and a possible disruption risks. However, in spite of these risks and cost elements, the actual manufacturing cost of aircraft structures is approximately 20-25% lower compared to the West which is attributable to labor costs which are 3-5 times lower (Braddon 2014).When Boeing and Airbus started their operations in China, they were considered as a threat to local carriers. The emergence of Comac, Chinese state owned air carrier manufacturing passenger commercial aircraft poses a big threat to both Boeing and Airbus for market share due to its capacity to compete on the same level with the two manufacturers as far as quality is concerned. Comac plans to make its first customer delivery of the C919 single-aisle 168 seater commercial jets in 2018 and the C919 competes directly with Boeing’s 737 series (Braddon 2014). With respect to negotiation, it can be said that both the companies have been able to develop good negotiation strategies that have helped these companies to have better relationship with Chinese counterparts, government and society.
References
Airbus (2015). Welcome to the world of Airbus. [Online]. Available at: (Accessed: February 17, 2015)
Boeing (2015). Boeing in brief.[Online]. Available at: (Accessed: February 17. 2015).
Boeing (n.d.). Boeing in China Backgrounder.[Online]. Available at: (Accessed: February 17. 2015).
Braddon, D. (2014) “China sets its sights on breaking the Boeing-Airbus duopoly” [Online]. Available at: (Accessed: February 18, 2015).
Casadesus-Masanell, R. & Ricart, J. E. (2011). How to design a winning business model.Harvard Business Review,89(1/2), 100-107.
Ibsen, A. Z. (2009). The politics of airplane production: The emergence of two technological frames in the competition between Boeing and Airbus.Technology in Society,31(4), 342-349.
Liu, W. (2004), 'China's free trade zones: A study of their economic effects', China Report, 40, 4, p. 431-444, Scopus®, EBSCOhost. (Viewed: February 18, 2015).
Olienyk, J. & Carbaugh, R. J. (2011). Boeing and Airbus: Duopoly in Jeopardy?.Global Economy Journal,11(1).
Wang, H.,Li, S.Wang, Q. (2013) "China's ten years in the WTO: review and perspectives", Journal of Chinese Economic and Foreign Trade Studies, Vol. 6 Iss: 2, pp.53 – 69
WTO (2014) Trade Policy Review: China [Online]. Available at: (Accessed: February 18, 2015).Bottom of Form