Globalization pressures: Lessons from the US aircraft industry

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January 20, 2014


By Robert McCutcheon, Partner, US Industrial Products Sector Leader; Scott Thompson, Partner, US Aerospace and Defense Leader; and Gardner Carrick, Vice President, Strategic Initiatives, Manufacturing Institute


As the nation’s largest net exporter of manufactured goods, the US commercial aircraft industry is no stranger to globalization pressures – and opportunities. Yet, as demand for aircraft pivots to other parts of the world, notably Asia, the Middle East and Latin America, US companies are increasingly encountering a cocktail of new pressures that come with global expansion: enlisting talent, protecting intellectual property, competing against emerging local players, to name a few. In our recent report, Aviation’s Second Golden Age: Can the US aircraft industry maintain leadership? PwC looked closely at what the industry is – and should consider – doing to thrive globally.

For any industry, can blockbuster global demand for its product be a double-edged sword? Sometimes. Just consider the enormous demand for commercial aircraft. That’s good for established players, but that’s also a shot in the arm for emerging players to gain footing. Take the 35,000 new aircraft that industry leaders predict will be needed to satiate demand globally over the next two decades – with much of that growth coming from Asia. Emerging aircraft manufacturing industries such as those in China, Canada, Brazil, Russia, and Japan are all planning to grab a larger share of the global commercial aviation industry. Then consider the fact that China alone plans to build 100 airports in the next two years, with most of these airports used for domestic travel. In the United States, Denver International Airport is the newest major large-hub airport in the country. It was built one-quarter of a century ago.

As part of our report, we spoke with industry leaders about the key issues that will determine whether US manufacturers can maintain their lead in the industry in the face of such growth and demand. Several issues came to the fore:

US companies are seeing enormous opportunities to partner with foreign firms in the hopes of gaining market shares in new regions. US manufacturers across the supply chain – from makers of engines to electronics and communications systems to airframe parts – have already made quick strides to partner with emerging aviation manufacturers, but this looks to be simply the beginning of a much more globalized industry. Partnering with emerging aircraft manufacturers could mean entry or expansion in growing local markets. It could also mean building up manufacturing and technology capabilities for foreign partners with ambitions to corner their domestic markets with their own aircraft (and ultimately penetrate foreign markets as well). The industrial policies of Russia and China may, for example, also lead to strong preferences to use indigenous suppliers, as their aviation manufacturing capabilities mature throughout the supply-chain ecosystem.

Expansion in global markets also carries risks, including intellectual property protection and human resources issues such as talent recruitment, training, and retention, which is particularly difficult in some of these markets. Companies with supply chains expanding overseas also face new questions surrounding the soundness of offshoring; indeed, some companies are reconsidering the advantages of reshoring back to the United States for a host of reasons.

But one point is abundantly clear: that no matter how much global demand may exist, US manufacturers will benefit only as much as they are able to up their game on many fronts – essentially getting their own houses in order to ensure success elsewhere. This expansion begs the larger question: How prepared is the United States to enter a new era of competition? And, in some ways, it’s a wake-up call to our schools, governments, and companies, as they seek to work in tandem to innovate in ways that keep US manufacturing competitive.

In what ways is your company adapting to best capitalize on strong global demand for your products—and at the same time best cope with stronger global competition for new markets?

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