India Back In Global Chain

The Tata-Boeing deal to supply a critical part used in the next-generation Boeing-787 Dreamliner shows that India has a chance to become a key member of the global manufacturing network, once again. Given India's long history of participation in the global world, this comes as no surprise. As Nayan Chanda points out, if Tata can meet the challenge of the production, its reputation will continue to soar, which may lead to new opportunities. – YaleGlobal

India Back In Global Chain

The Tata-Boeing deal is the latest in India’s history of participating in the global supply-chain network
Nayan Chanda
Wednesday, February 20, 2008

India, once a crucial link in the ancient global supply chain, has a new opportunity to join the most advanced global manufacturing network. The recent deal between Boeing and Tatas’ wholly-owned subsidiary, TAL Manufacturing Solutions, to supply a critical part used in the next-generation Boeing-787 Dreamliner, tells a bigger story. Scrambling to prevent further slippage in production schedules caused by supplier delays, Boeing’s choice of Tata grants the group recognition as a world-class engineering power. The deal also highlights the competitive environment of global manufacturing in which Tatas’ technological and managerial skills will be tested. Because of Boeing’s offset obligation that requires it to spend a percentage of the contract value in India sourcing goods and services from Indian companies, it may look for more such deals.

Ever since Boeing unveiled plans for its state-of-the-art B-787, it has been a runaway seller. Even before its construction or maiden flight, Boeing has chalked up a record order of 855 planes at some $160 million apiece. In a time of growing environmental concerns and rising fuel costs, the aircraft promises 20 per cent fuel economy, quieter engines and less pollution by using composite material and efficient design. Boeing also achieved economy by its ambitious outsourcing of design and manufacture. Nearly 60 per cent of the aircraft will be built by partners in Japan, France and Italy, and subcontractors. Boeing even converted 747 jumbo jets to create a monster called ‘Dreamlifter’ to ferry the huge fuselage and wings from suppliers to assembly points in the US.

Thanks to the efficiency of the global supply chain, Boeing claims that a small team of engineers in Everett in Washington will be able to put together one 787 in just three days. Boeing’s outsourcing strategy allowed it to spread risk by having partners invest in building component manufacturing facilities, and pick up the tab for design while inducing countries with a stake in the 787 to place orders. Its prime partner, Japan, placed the first order for 50 aircraft. India has ordered 27. The prospect of selling billions of dollars worth of military aircraft to India cannot be far from Boeing’s calculation.

However, in December last year, an embarrassed Boeing announced a second delay in its scheduled launch, pushing back delivery dates by almost a year to early 2009. The company blamed the failure on late delivery and sub-standard work on the part of some suppliers. Mike Bair, the recently removed head of the 787 programme, admitted misjudging the ability of some of the suppliers. “Some of these guys we won’t use again,” he said. One such partner might well be the Israeli supplier of Boeing’s American partner Vought Aircraft Industries, which were contracted to produce floor beams — the same components that Boeing has now ordered from Tata.

Boeing’s latest deal in India draws Tata into its exclusive club of 787 manufacturers. The late induction is predicated on the company’s reputation for world-class management and innovation. A key new feature of the 787 is its light but tough fuselage and wings made mostly of carbon fibre-reinforced composites instead of aluminum. Tata will be making its first major foray into the aerospace industry by manufacturing floor beams using titanium and composite materials. If Tata can meet the challenge of the complex, high-precision production and the tight deadline, it will not only burnish its reputation as industry leader but open up other opportunities. Experience in manufacturing light composite materials could eventually help Tata develop lighter, safer, and more eco-friendly automobiles.

The Tata-Boeing deal is only the latest in India’s long history of participating in global supply-chain manufacturing. Centuries ago Arab traders also came to India to commission the building of ships using India’s ample supply of hard wood and coconut coir. African ivory was shipped to India for carving into jewellery and icons that were exported to Europe, as were sheets of bronze and copper for making utensils and objets d’art by India’s famed craftspeople. The scale of production then was minuscule and the turnaround time stretchable. The supply chain was small, and as the prime manufacturing country that once accounted for 24 per cent of the world’s GDP, India held sway. After a long hiatus, India again has a shot at playing a key role in an emerging high-tech global production system.

Nayan Chanda is Director of Publications at the Yale Center for the Study of Globalization and Editor of YaleGlobal Online.

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