The Feared 'Made in China' of Airbus

[Menydh]

The Feared 'Made in China' of Airbus

El Mundo
October 19, 2006

In the middle of a process of personnel reduction, the European consortium plans to build an assembly plant for they A320 planes --of which the Chinese government will buy 170 units-- in China.


If the directive executives of Airbus get their way, the planes of the aeronautical company could soon have the stamp "Made in China" next to their serial number. Up until now, Western multinational companies had used the Asian giant to build anything from television sets to automobiles, through slippers or toys. Airbus, with this announcement that they will build an assembly plant in China, has decided to take the idea one step farther in one of the more risky wagers in the history of the company.

The decision to build the assembly plant of A320 planes in the coastal city of Tianjin comes as part of an agreement reached this week by French President Jacques Chirac, to obtain a purchase of up to 170 units of the European plane --the biggest purchase in the history of the Chinese airlines.

What on paper looks like a big deal --Airbus receives a purchase demand which would allow it to revitalize the business, and China decreases in this way the costs of renewing its fleet-- has started to provoke harsh critiques inside and outside the European company. Will Airbus be able to maintain the quality of the¡r manufacturing in China, which is known for manufacturing at low costs and without the existing controls in Europe? Will Beijing copy this technology to create its own aeronautical industry, which is one of the declared targets of the Chinese government? How many jobs in Europe will it cost the delocalization of the production?

The new chief executive and president of Airbus, Louis Gallois, has assured that the Chinese government represents a "long-term strategical cooperation which will benefit both parts". The company workers, however, fear that the new plant will add new job losses to the 10,000 already planned for the readjustment after problems in the development and deliver of the super-jumbo A380.

The company has stopped renewing its contracts in nearly all of its departments. The Spanish employees in plants like the one that Airbus has in Puerto Real (Cádiz) have been among the first affected by this reduction and they started a series of protests last friday, blocking a local road to remind of "the uncertainty" in which they live about their future.

The new plant of Airbus in China could start operating in 2009 and it will be --with nearly one thousand jobs-- the thrid biggest plant of Airbus after Hamburg (Germany) and Toulouse (France).

The European company controls a 29% of the market sales share in China, which is clearly dominated by its main competitor, Boeing, which has the remaining 71%. Once up and running, the Tianjin plant will allow Airbus to put cheaper planes in the local market by reducing the costs of production, working close to the Chinese companies and getting closer to its potential customers.

A report made public this week by Boeing assured that the Chinese airlines will invest in the coming two decades up to 222,746 million euros in the purchase of some 3,000 planes.

The battle for this market has started. To Gallois, the agreement signed with China place Airbus in a perfect position to fight for a cake which is often cut and alloted by the Chinese dictatorship bearing in mind the geopolitical interests and its diplomatic relations more than purely commercial or technical factors.

The Tianjin project, however, "is plenty of risks" according to sources close to the plans of Airbus and quoted by the Wall Street Journal. The necessary investment to put the new installations to work, the training of the workers and the initial operating costs make it unlikely that the benefits of the delocalization will be felt in the short or middle terms. The European consortium has no guarantees that it will have a soft landing in China.

[Alcide]

It must be of low quality, like all what China makes

[Menydh]

The technology will not be Chinese but European. The problem here is not as much the low quality of the 'made in China' label mark, but the trends of delocalisation of the industry throughout Europe and also the accessability of European technology to the Chinese.

There is an increased trend in the European industry for delocalisation and relocalisation outside Europe, with the subsequent job losses throughout Europe. Profits maximisation and competitivity call for a reduction in production costs. Under such scenario, it is not possible to cut wages in Europe to the levels of wages in emerging countries. The costs of living (inflation) makes it simply impossible.

To solve this endemic problem (inflation), governments throughout Europe would have to implement drastic policies on consumer prices so that lower salaries allowed employees to meet the costs of living.

But in a Liberal and materialist society like the one in which we live this is called state interventionism and, despite secularist trends, these are heretical views of the market economy.

So, the solution for the European industry lies in dismantling the plants and factories in Europe, leaving tens of thousands of workers in Europe on the cold, and taking those jobs to emerging countries (or, depending on the nature of the industry, countries under development) where state intervention is not anathema and where their low costs of production will help them to compete in the international markets and further to maximize profits.

Now, another question here is what is left for Europe's workers. Or, if you prefer, what will Europe produce in the future. Financial commodities? Innovation? The latter could even be an escape if terms on knowledge gains were not as short as they are. But the secrets of new technologies do not last long these days. See as an example the mass (and cheap) production of computer components in countries like Taiwan, China, Singapore, Korea or India.

Other sectors like Agriculture have already been largely sacrificed to industry in the past and still they are being sacrificed today. EU policies have granted unlimited exports exempt of import tariffs (or with low tariffs) to agricultural products from third countries in order to obtain export deals for EU industry production. This has rendered food production in Europe a non viable sector.

As a consequence, people throughout Europe have abandoned the lands which no longer allow them to earn a minimum decent living and they've flooding the industry. But now the industry is going somewhere else. We don't produce food nor will we produce the commodities to buy the food in the future if these trends continue. For Europe the title for this nightmare should be "Globalisation - The Sequel".

For one given item produced in Europe, if you buy it in China or India and import it into Europe with the costs of thousands of miles transport and import duties, you will still be able to sell it at a more competitive price than the item produced in Europe and still make a larger profit.

So industry is left with no other option but producing at the same costs as in those countries, which can only be done by producing in those countries.

But that's still only the tip of the iceberg, big as it is. The Industry is not only taking the jobs there, but the technology too. Time passes swiftly and, as it does, those countries gain the knowledge of the European technology and production methods and become able to make their own production independent of the European Industry and to compete on a one to one basis with European technology and prodution quality methods.

There is still much cheap quality 'made in China' and 'made in India' products in the markets. But increasingly you may see items made in those countries and which are undistinguishable from those made in Europe.

In the long term, they will be producing both cheap and good quality. What will then be left in Europe?

Look at this news item that I posted on January 2005: "Car Industry an Endangered Species in Europe"

[Menydh]

Oh, dear! I must have forgotten that protectionism and interventionism are Fascism. Shame on me!