Boeing rolls the dice in China with 737 ‘finishing plant’
Will the airline giant be able to resist the lure of the massive China market even though the venture could backfire?
More foreign companies in China are realizing the deck is stacked against them. And a trade conflict with the US is brewing.
But Boeing, America’s premier aerospace company, is undeterred. It is setting up a ‘finishing plant’ for 737’s near Shanghai this year.
Getting a cut of an estimated $1.1 trillion demand for over 7,000 aircraft in the Chinese market over the next 20 years is alluring for any company.
Jumping into the PRC is, of course, risky – given the Chinese track record for stealing or strong-arming technology, lack of an honest legal system and discrimination against foreign companies – especially successful ones.
But it’s even riskier for Boeing. The PRC sorely wants into the commercial airliner market.
China has done well with military aircraft, and already bought a chunk of America’s general aviation industry and its technology.
But building reliable commercial airliners to compete with Boeing and Airbus is tough. It’s one key industry the Chinese haven’t mastered.
So Boeing’s move into China puts it squarely in the crosshairs of PRC industrial policy – and on Chinese turf.
No doubt Boeing gave the China decision much thought. But it would not be the first company entering the PRC market with high hopes – that didn’t pan out.
The company’s major shareholders might ask (or re-ask) a few questions of Boeing management. The US Government might attend the meeting too – given that Boeing is a major defense contractor.
The first question: It seems the CIA can’t even keep its secrets in China. Can Boeing? Setting up operations in China is giving away home-field advantage – and that matters when technology is in play.
Boeing, of course, knows to protect its technology. But the Chinese Communist Party has an army of hackers – and successful ones. They scoured the US Office of Personnel Management records, looted a major Japanese manufacturing company of its technology, and stole F-35 technology – to name a few successes.
Why is Boeing so sure it’s safe?
Even if Boeing makes it tough for hackers, there’s still human spying – which China excels at – and the PRC has targeted Boeing over the years. This won’t stop and it’s quite possible Boeing’s local employees in China could receive offers they can’t refuse.
Boeing hopefully puts as much effort into protecting technology as it did in creating it.
Next, shareholders might ask if Boeing is creating its own competition?
Boeing may only be providing ‘old’ technology or relatively simple ‘finishing work’. But Chinese industrial and technological advances aren’t always linear. Chinese entities have shown impressive ability to ‘leap over stages’, to use their expression.
What happens when the PRC government suggests that more than just ‘finishing work’ is desired?
How far will Boeing go to accommodate? Will Boeing allow more complex operations in China – and even more technology transfer? It’s unlikely the Chinese will accept just ‘finishing work’ in the long term.
And what happens if Boeing is pressured, as was IBM a couple years ago, to allow review of product source code – “just for security purposes of course.” IBM caved. What’s Boeing’s plan if this demand comes?
What about Boeing’s Chinese joint venture partner?
Besides allowing access to Boeing’s business and information there are always diverging interests. The partner ultimately wants to put Boeing out of business – and the Chinese government does too. Plenty of companies have come to grief via a joint venture. Why is Boeing so confident?
It’s wise to recall the Chinese expression: “You die, I live” – rather than the CCP’s cliché’ ‘win-win’.
And the Chinese government is pushing all foreign firms to allow CCP cells inside their companies – with an implicit role in company management. How will Boeing finesse this – without ‘violating the interests of the State?’
Then there’s CCP capriciousness. The PRC government can always find something Boeing has done – as Marriott hotels recently did – that offends all 1.4 billion Chinese people – or ‘undermines the socialist system.’ What’s Boeing’s plan if this happens?
Or is Boeing thinking ‘China needs us so much,’ or our connections to powerful people are so strong that Boeing will be left alone? All companies believe that, at first.
Remember, business and international politics intertwine in the China market. Boeing has major defense business – and also supplies US allies such as Japan and South Korea.
What’s Boeing’s plan when the PRC government suggests its defense work with Japan is unhelpful for the company’s sales efforts in the PRC? And it can have either one or the other.
Now the US sees the PRC as an adversary – even though China has viewed America that way for years.
How does Boeing balance its commercial interests with its duty as an American company and as a major defense contractor? It’s hard to straddle the fence forever. What’s Boeing’s strategy here? Are there red lines for the company?
The China market is understandably attractive for Boeing. And there may indeed be reasons to set up in China. But it takes discipline. That’s often easier said than done – as enough money can vaporize principles.
In the China market, things have a way of turning out differently than one expects. Ask Motorola, Microsoft, Google, and Apple.
Boeing should ask itself (repeatedly) why its experience will be different.