The Role of Foreign Firms in the Development of China’s Commercial Aviation Manufacturing Industry
The aviation industry requires advanced, high-quality products that are produced at the minimum possible cost. Simply having cheap labor available is in most cases not sufficient to be competitive. The technolo-gies for the most advanced products, such as turbine blades, compos-ite materials, and complete integrated systems, are closely held by the companies that developed them. Designs and production technologies for other types of products may be more widely available or easier to develop, but here, the key is being able to produce them with sufficient precision, quality, and efficiency to be competitive.
Foreign firms have played an important role in the development of China’s capabilities in these areas. The most basic role is simply pro-viding a market for the products of China’s aviation manufacturers. This gives them an opportunity to acquire the knowledge that comes from repeatedly manufacturing the same product (often referred to as “learning by doing”) and from being forced to continuously improve quality and cost-efficiency in order to remain competitive, while being reimbursed for the cost of acquiring these skills (i.e., by selling their products to the foreign firms). If the price received exceeds manufac-turing and delivery costs, any remaining profits can be reinvested in acquiring the capability to produce new products or in improving the quality or production efficiency of existing products. In some cases, the foreign purchaser may also provide more direct assistance in manufac-turing technology or quality control.
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Manufacturing and R&D joint ventures provide additional opportunities for Chinese firms to learn. In a manufacturing joint ven-ture, the foreign partner typically supplies the production design and management expertise, while the Chinese partner provides the facil-ity and labor. Thus, the Chinese partner has an opportunity to learn how to efficiently produce a line of products it was previously unable to produce. The drawback of manufacturing joint ventures is that they are often effectively controlled by the foreign partner, which limits the Chinese partner’s ability to steer the venture toward product areas that are of interest to the Chinese parent (or to use the product to supply clients in China’s defense sector).
An R&D joint venture provides an opportunity for the Chinese partner to learn not only how to produce a specific line of products, but also how to design and develop entirely new lines of products. Thus, from the perspective of the Chinese partner, R&D joint ventures provide the greatest opportunity to assist the growth of its production capabilities.
Foreign firms can also assist the development of China’s avia-tion manufacturing capabilities by being acquired by Chinese avia-tion companies. The acquiring Chinese firm theoretically has access to all of the foreign firm’s manufacturing technology and R&D capabili-ties. However, transferring these capabilities to the Chinese parent may present practical challenges, including technology export restrictions in the home country of the foreign firm.
　
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