From Apple to Boeing, India is being tested as the new China

  • 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 traveled to India to strengthen ties with the Asian nation.
  • India’s dream of becoming the “new factory of the world” to compete with America’s geopolitical rival China will not be without growing pains, as formidable bureaucracy, lagging infrastructure and labyrinthine red rape have all dogged foreign multinational efforts in the market historically.

A model of the Boeing Co. 777 at the company’s stand during Aero India 2023 at Air Force Station Yelahanka in Bengaluru, India, Tuesday, Feb. 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-breaking deal announced last month for the US aerospace company to supply India’s largest airline with 220 aircraft worth approximately $34 billion, the largest purchase in civil aviation history.

The deal is Boeing’s third-largest sale ever in dollar terms, and its European rival is also in on the deal. The monstrous 470-plane Air India order includes 250 Airbus passenger planes in addition to 190 737 Max planes, 20 of Boeing’s 787 and 10 of its 777X.

It will be a test not only for the companies but also for the South Asian economic giant, which is reaching out to attract foreign companies in a bid to become a global manufacturing hub as Western companies look to relax their reliance on China , the de facto factory of the world.

Last week, US Commerce Secretary Gina Raimondo traveled to India to strengthen ties with the Asian nation.

The Boeing deal is indicative of the broader trend among global manufacturers, including Apple, Samsung and Nokia, to accelerate production in India. The deal could bolster Boeing’s plans to expand its Indian supply chain and boost local production.

“As a company with over 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 managing director of commercial aircraft marketing for Boeing’s Asia Pacific region 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 progress towards an Aatmanirbhar Bharat (Independent India).”

The growth of the Indian aerospace industry will create additional opportunities for local procurement, skills and service support, he added.

India has aggressively positioned itself as an Asian alternative to Chinese manufacturing. As far back as 2014, it launched the “Make in India” campaign to raise India’s profile as a global manufacturing hub and encourage multinational companies to manufacture in India. However, increasing production to 25% of GDP, a key target of the initiative, has proved impossible.

More recently, the Atmanirbhar Bharat campaign that Boeing’s Schulte mentioned was launched in 2020.

“Being a global manufacturing center is a stated policy goal of the government of India,” said Amitendu Palit, an economist specializing in international trade and investment at the National University of Singapore. “Global developments that have created a shift away from China in some major markets such as smartphones and semiconductors are clearly areas where India expects to benefit by bringing in large segments of supply chains.”

Obstacles to becoming the world’s new factory

India’s dream of becoming the world’s new factory will have to overcome longstanding obstacles. A formidable bureaucracy, lagging infrastructure and labyrinthine red rape have forced many foreign companies to either shun India or shut down their local operations. Lack of skilled labor and innovation, poor production quality and a reluctance to use rapidly developing 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 that India was an important part of the aircraft maker’s supply chain ecosystem and that the company planned to expand its Indian footprint significantly.

Boeing currently has 5,000 employees and 300 suppliers in its supply chain in India. These numbers could increase meaningfully 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 establishing the Global Support Center and Logistics Center in India, which will also help support Boeing’s customers locally faster and more efficiently.

Boeing has had a long-standing partnership with Air India and the Tata Group. The two run a joint venture in India called Tata Boeing Aerospace Limited (TBAL), which is closely aligned with India’s push for self-reliance, developing integrated systems in space and defense for India and other nations.

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 are made by Xi’an Aircraft Industry in China.

Boeing, Air India question

The partners have their internal problems to work through. Boeing, from the 737 Max to the Dreamliner, has run into inventory issues and production delays, resulting in a surprise loss in its most recent quarter. Debt-ridden Air India is in the middle of an ambitious turnaround plan under its new owner, the TATA Group, the Indian conglomerate that regained ownership of the state-owned national carrier in 2021.

That’s on top of the hurdles foreign companies can expect to face in India’s rise as a manufacturing and supply chain partner.

Apple could be on its way to 25% of iPhones being made in India, up from around 5%-7% of Apple products currently, though not without growing pains. A recent FT report claimed that Apple is running into problems with its first foray into India-based manufacturing with poor quality of products.

“Aligning domestic standards with global quality benchmarks is an ongoing process,” said Palit, who claims the process will improve as more multinationals bring their global suppliers to India, “similar to the way they did for cars.”

“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 recently returned from a trip to India where he met with Prime Minister Narendra Modi and Ratan Tata, CEO of the Tata Group.

The advantages that China has built up over the years in scale and production speed will be difficult for India to reproduce in the near future. China also benefits from regional support that India cannot replicate. “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, “its neighboring South Asian region remains industrially underdeveloped, except for some sectors such as garments,” he said.

India’s GDP surpasses China’s

Regional industrial growth can be critical to realizing India’s ambitions to grow into a global manufacturing hub, and India’s potential is undeniable. The International Monetary Fund’s forecast for India’s GDP growth is 6.1%, well above China’s 4.4% increase in 2023. Further, India is expected to leapfrog 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 from the Center for Economics and Business Research.

However, in order to effectively exploit the local consumer market, foreign companies need strong relationships in place through local production to ultimately benefit from the consumer side.

“An essential condition for foreign companies to succeed in India, especially manufacturing, is to have capable local partners,” Palit said. “Licensing arrangements can be successfully upgraded to joint ventures with the ultimate goal of building in India.”

This is exactly the strategy that Apple and Boeing, among many others, have taken in India. By establishing factories and producing for global markets, these companies have been able to achieve a sweet spot: cheaper manufacturing and an abundance of middle-class, upwardly mobile consumers to sell their products and services to.

“It is only a matter of time before tensions with China escalate to the point that companies will be forced to move production out,” Wadhwa said. “India is the best alternative.”

This effort is as crucial to Boeing as it is to any company hoping to capture India’s burgeoning but underserved aerospace market. With a revitalized Air India gunning for the top spot in regional aviation and going toe-to-toe with its Middle Eastern rivals to win back flyers on long-haul international routes, India could increasingly become a critical component of Boeing’s global manufacturing map and its path to profitability .

“India will become the world’s third largest commercial aviation market over the next 10 years and will receive more than 90% of all aircraft delivered to South Asia over the next 20 years,” Schulte said. “The Air India order can enable a ripple effect throughout the economy, supporting job creation and enhanced economic growth.”

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