Study: Foreign Partners Wary of Technology Theft in China

AIN Air Transport Perspective » April 7, 2014
Comac expects to gain certification of the ARJ21 next year, but a Rand study cites uncertainties about whether it will ever enter service.
April 4, 2014, 8:44 AM

Managers of foreign aerospace companies with joint-venture operations in China uniformly worry about the theft of their intellectual property, according to a Rand study issued on April 4. They believe that staying ahead of emerging Chinese competitors requires constant technological innovation, it added.

The study, “The Effectiveness of China’s Industrial Policies in Commercial Aviation Manufacturing,” lists 13 U.S. and European companies that have established joint ventures in China to provide modules for the Commercial Aircraft Corporation of China (Comac) C919 narrowbody airliner, and 23 that participate in partnerships to build the ARJ21 regional jet. Rand researchers identified six reasons foreign companies engage in the Chinese aircraft manufacturing business: to provide support to Chinese customers; benefit from a competitive source of parts; generate sales to Chinese airlines; encourage Chinese aircraft purchases by purchasing Chinese components; participate in the C919 program; and elevate their company’s image with the government.

“In some instances, (foreign) suppliers were skeptical that the C919 will be produced in any number,” wrote the researchers. But company managers they interviewed “noted that maintaining cordial relationships with Chinese government officials is important for operating in China,” according to the report. “Bidding to participate in the C919 program was seen as an important indicator of the company’s commitment to China.” The researchers interviewed a “Chinese industry insider” who said that although the troubled ARJ21 will likely gain airworthiness certification, it might never enter commercial service.

China’s own commercial aviation industry more than doubled its sales between 2005 and 2010, according to the study, which cites the “China Civil Aviation Industry Statistics Yearbook” as its source for revenue figures. The industry remained domestically focused. In 2010 it generated $16 billion in sales, of which 13 percent came from exports. It employed 254,844 workers, just 20,454 more than in 2005.

Sharp wage increases have “severely eroded” the profits Chinese suppliers make, leading them to seek renegotiated contracts with foreign partners. “A number of foreign companies engaged in manufacturing commercial aviation components informed us that Chinese suppliers have turned to them with requests to renegotiate prices,” the researchers said. Aviation Industry Corporation of China, the country’s largest manufacturer of aviation components, “was once willing to cover losses incurred by subsidiaries. [B]ut it is no longer willing or no longer has the resources to do so,” they added.

At the same time, foreign companies remain vigilant to protecting their intellectual property. “All had developed strategies and programs to safeguard their intellectual property and technologies,” the study said. “The most common strategy for protecting technologies is to manufacture key components outside China; the joint venture then imports the component for final assembly. In the case of less sophisticated components, some companies ensure that none of their Chinese employees knows all the steps involved in manufacturing the product.”

Strict aircraft and component certification requirements by the U.S. Federal Aviation Administration and European Aviation Safety Agency prevent foreign manufacturers from losing their manufacturing expertise to Chinese partner companies. However, the study warns that “certification is not a permanent barrier to entry for competitors.” Foreign company managers recognize that they must constantly innovate to maintain a competitive edge, the researchers said.

FILED UNDER: 
Share this...

Please Register

In order to leave comments you will now need to be a registered user. This change in policy is to protect our site from an increased number of spam comments. Additionally, in the near future you will be able to better manage your AIN subscriptions via this registration system. If you already have an account, click here to log in. Otherwise, click here to register.

 
X