- Boeing’s February deal with Air India is the largest in civil aviation history, but also comes as India seeks to boost its profile as a defense manufacturer.
- Last week, US Commerce Secretary Gina Raimondo visited India to strengthen ties with the Asian nation.
- India’s dream of becoming the “new factory of the world” to compete with the United States’ geopolitical rival China will not come without mounting difficulties, as daunting bureaucracy, lagging infrastructure and red rape labyrinthine have all historically hampered the efforts of foreign multinationals to market.
A model of Boeing Co. 777 at the company’s stand during Aero India 2023 at Air Force Station Yelahanka in Bangalore, India on Tuesday, February 14, 2023.
Bloomberg | Bloomberg | Getty Images
The ties between American companies and India as a manufacturing and supply chain partner are deepening. Boeing’s recent deal with Air India is a prime example, a record deal announced last month for the US aerospace company to supply India’s largest airline with 220 aircraft worth around $34 billion, the largest purchase in the history of civil aviation.
The deal is Boeing’s third-biggest sale of all time by dollar value, and its European rival is also in on it. Air India’s monstrous order of 470 planes includes 250 Airbus passenger jets in addition to 190 737 Max jets, 20 of Boeing’s 787s and 10 of its 777Xs.
It will be a test not only for business, but also for the South Asian economic giant which is doing its utmost to attract foreign companies with the aim of becoming a global manufacturing center as Western companies seek to reduce their dependence on respect to China, the de facto factory of the world.
Last week, US Commerce Secretary Gina Raimondo visited India to strengthen ties with the Asian nation.
The deal with Boeing is indicative of the broader trend of global manufacturers, including Apple, Samsung and Nokia, to ramp up manufacturing in India. The deal could bolster Boeing’s plans to expand its Indian supply chain and boost local manufacturing.
“As a company with more than seven decades of presence in India, Boeing continues to support the development of indigenous aerospace and defense capabilities in the country,” wrote Dave Schulte, regional director of commercial aircraft marketing. for Boeing’s Asia-Pacific and India region. an email. “India has many opportunities to offer, and our growth along with an increase in supplier partnerships demonstrates our efforts to move towards an Aatmanirbhar Bharat (Self Reliant India).”
The growth of the Indian aviation industry will create new opportunities for local sourcing, skills and service support, he added.
India has aggressively promoted itself as an Asian alternative to Chinese manufacturing. As early as 2014, she launched the “Make in India” campaign to raise India’s profile as a global manufacturing hub and encourage multinational companies to produce in India. However, raising the manufacturing sector to 25% of GDP, a key objective of the initiative, has proven elusive.
More recently, the Atmanirbhar Bharat campaign that Boeing’s Schulte referred to launched in 2020.
“Being a global manufacturing hub is a stated policy goal of the Indian government,” says Amitendu Palit, an economist specializing in international trade and investment at the National University of Singapore. “Global developments that have created a move away from China in some major markets, such as smartphones and semiconductors, are clearly areas where India expects to benefit by introducing major segments of blockchains. supply.”
Obstacles to becoming the new factory of the world
India’s dream of becoming the world’s new factory will have to overcome long-standing obstacles. A formidable bureaucracy, lagging infrastructure and labyrinthine red rape have forced many foreign companies to flee India or shut down their local operations. Lack of skilled labor and innovation, poor production quality and reluctance to adopt rapidly changing technology are also seen as obstacles.
Invest India representatives declined to comment.
In a recent interview with local Indian media, Brendan Nelson, president of Boeing International, said India is a key part of the aircraft manufacturer’s supply chain ecosystem and the company plans to expand significantly. its Indian footprint.
Boeing currently has 5,000 employees and 300 suppliers in its supply chain in India. Those numbers could increase significantly as its supplier base in India expands, providing further support to Boeing’s international supply chain.
“These suppliers are an integral part of our global supply base and manufacture and export systems and components for some of Boeing’s most advanced products from India to the world,” Schulte wrote.
At the recently concluded Aero India 2023, Boeing announced investments in setting up the Global Support Center and Logistics Center in India, which will also help support Boeing customers locally faster and more efficiently.
Boeing has a long-standing partnership with Air India and the Tata Group. The two operate a joint venture in India called Tata Boeing Aerospace Limited (TBAL), which is closely aligned with India’s push towards self-reliance, co-developing integrated aerospace and defense systems for India and other countries.
The company’s Hyderabad-based manufacturing facility recently rolled out the first batch of complex vertical fin structures for the 737 family of aircraft. The vertical fins were manufactured by Xi’an Aircraft Industry in China.
Problems between Boeing and Air India
The partners have their internal problems to solve. Boeing, from the 737 Max to the Dreamliner, faced inventory issues and production delays, leading to a surprise loss in its final quarter. Indebted Air India is in the midst of an ambitious turnaround plan under its new owner, TATA Group, the Indian conglomerate that took over ownership of the government-owned flag carrier in 2021.
This is in addition to the hurdles foreign companies can expect to face in accelerating India as a manufacturing and supply chain partner.
Apple may be on track to manufacture 25% of iPhones in India, compared to around 5% to 7% of Apple products currently, but not without growing pains. A recent report by the FT claimed that Apple was running into problems in its first foray into India-based manufacturing with shoddy products.
“Aligning national standards with global quality standards is an ongoing process,” said Palit, who says the process will improve as more multinational organizations bring their global suppliers to India, “ the same way they did for automobiles”.
“India will take two to three years to learn the ropes in these advanced fields, but they will get there,” says Vivek Wadhwa, a Silicon Valley-based entrepreneur and academic who just returned from a trip to India. where he met with Prime Minister Narendra Modi and Tata Group CEO Ratan Tata.
The advantages that China has built over the years in terms of scale and speed of production will be difficult for India to replicate any time soon. China also enjoys regional support that India cannot recreate. “A neighborhood” of industrially complementary and capable countries, including Taiwan, Hong Kong, Japan, Korea and Southeast Asia, is a notable advantage, Palit said. For India, “the neighboring South Asian region remains industrially underdeveloped, except for some sectors like clothing,” he said.
India’s GDP will exceed China’s
Regional industrial growth could be key to realizing India’s aspirations to become a global manufacturing hub, and India’s potential is undeniable. The International Monetary Fund’s forecast for India’s GDP growth stands at 6.1%, far exceeding China’s 4.4% rise in 2023. Additionally, India is expected to outpace the Germany and Japan to become the world’s third-largest economy over the next decade, and become a $10 trillion economy by 2035, according to a report by the Center for Economics and Business Research.
But to be able to tap into the local consumer market effectively, foreign companies need strong relationships in place through local manufacturing to ultimately benefit the consumer side.
“A key requirement for foreign companies to succeed in India, especially in manufacturing, is having capable local partners,” Palit said. “Licensing agreements can be successfully turned into joint ventures with the eventual goal of building in India.”
This is exactly the strategy that Apple and Boeing, among many others, have adopted in India. By setting up manufacturing plants and producing for global markets, these companies were able to reach a sweet spot: cheaper manufacturing and an abundance of middle-class, upwardly mobile consumers to sell their products and services to. .
“It’s only a matter of time before tensions with China escalate to the point that companies are forced to outsource manufacturing,” Wadhwa said. “India is the best alternative.”
The effort is as crucial for Boeing as it is for any company hoping to tap into India’s booming but underserved aviation market. As a revitalized Air India aims for the top spot in regional aviation and battles rivals in the Middle East to win back travelers on long-haul international routes, India could increasingly become a vital part of the map. of Boeing’s global manufacturing and its path to profitability.
“India will become the world’s third largest commercial aviation market in the next 10 years and will receive over 90% of all aircraft delivered to South Asia in the next 20 years,” Schulte said. “The Air India order can have a ripple effect across the economy, supporting job creation and improving economic growth.”