Source: Eturbonews
During the past ten years, Boeing and Airbus have experienced cutthroat competition as they vied for orders against each other. In an effort to gain an advantage over Boeing, Airbus extended its agreement to produce planes in China, which is world’s fastest growing airplane market. While this cooperation between seems beneficial to both China and Airbus, Airbus is overly short sight-sighted and may end up on the loosing end.
Creating a SWOT analysis for Airbus, I realized that its strengths lie in advanced technology and production methods, which can only be rivaled by Boeing. In addition, it weaknesses lie in its high manufacturing costs, resulting from Airbus’ labour and manufacturing base, which is mainly located in Europe. For Airbus, producing their planes in China allows them to decrease costs slightly, but more importantly make their planes more politically appealing for Chinese customers. For China, Airbus’ manufacturing presence is a secure source of airplanes in times of dispute with Western powers. More significant, however, is transfer of know how from Airbus to Chinese engineers and technicians.
Given China’s efforts in aerospace development, it is inevitable that they will be able to produce their own airplanes one day. However, by providing China with its technology, Airbus is diminishing its main competitive advantage. Given China’s low cost of labour, China would also be exploit Airbus’ weakness and eventually steal market share away from them. I believe it was prudent for Airbus to build a factory in China, since China would buy their planes anyway, as shown by China’s continued orders of Boeing airplanes, which are all produced in the US. I believe Airbus needs to re-evaluate its strategy using an alternatives graph, and determine whether the cost of developing planes in China outweighs the benefits.
References:
http://www.reuters.com/article/2014/03/26/us-france-china-airbus-idUSBREA2P1HZ20140326
http://www.airbus.com/company/worldwide-presence/airbus-in-china/