Scratching Their Itch n I am scratching their

“Scratching Their Itch” n “I am scratching their itch, ” “I have to create some jobs in those countries to get those markets. But what we are trying to do in the net equation is to protect the jobs here. But, overall, it’s a tougher problem as I look down the future. Will I have a lot of US suppliers or will I have more international suppliers? I don’t know the answer, but it’s clear that the US suppliers don’t bring me any market. ” (pg. 129) — Lawrence W. Clarkson, Boeing’s Senior VP for Planning and International Development. 2

Key Issues 3 n Trading domestic jobs for increased revenues n Comparative advantage vs. Government-corporate interests n Market leverage or is it blackmailing? n Global system: free trade & open markets or market-access regime? n Risks of sharing technological know-how and hedging tools

Trading Domestic Jobs for Increased Revenues n “It’s shameful, a lot of this technology was basically paid for by us taxpayers through the defense work and then Boeing turns around and gives it away to another country. …” (pg. 125) — June Moen, 15 yr. employee 4 n 1950 s –Boeing 707 was 100 percent assembled in N. America and built for U. S. Air Force n Boeing 727 and 737 were 2 and 10 percent foreign content n Early 1980 s – Boeing 767 reached 15 percent foreign content n 1994 – “Triple Seven” reached 30 percent foreign content (21 percent Japanese-made)

Trading Domestic Jobs For Increased Revenues n “We are flying into the side of a mountain, if we continue trading away our finest jobs and industrial secrets, we are headed for certain disaster. ” (pg. 127) — George Kouprias, IAM President n The Boeing Company’s response to union claims: u The company strategy was to do whatever was necessary in a difficult situation to win new sales and defend market share and yes, to hang on to as many American jobs as possible. But that meant sharing the work with the customers. 5

Comparative Advantage vs. Government-Corporate Interests n “The fulcrum for these negotiations is not the traditional economic question of comparative advantage…but the particular ambitions of both companies and nations. ” (pg. 122) n 6 “Boeing was telling Canada to start playing by the rules-not free-market rules but the rules of market access. ” (pg. 132)

Comparative Advantage vs. Government-Corporate Interests n “The heart of the problem is this: all of the trade agreements are based on the premise of comparative advantage and pretend that what you make and the structure of global production doesn’t matter. In the real world, it does matter. ” (pg. 141) — n 7 Clyde V. Prestowitz, President of the Economic Strategy Institute “In the mid-1980 s, Mc. Donnell Douglas agreed to provide an assembly plant for China: Shanghai Aviation would set up a line to assemble two dozen MD-80 s, airliners designated for the Chinese market, with most of their content manufactured in the United States. Despite the company’s original promise five of those aircraft were sold back into the U. S. market. ” (pg. 126)

Market Leverage or Is It Blackmailing? n 8 “In poorer countries companies have the leverage to set the terms for their investments and to extract special benefits. But the bargaining power shifts to the governments if they control access to a “hot market” like China or India…” (pg. 123)

Market Leverage or Is It Blackmailing? n “There was no neutral authority with the power to enforce the rules, to make nations and firms observe them, regardless of the economic consequences. ” (pg. 139) n “The best jobs would continue to be shipped out of America by leading multinationals until the federal government itself took a stand against the erosion. That would require Washington to confront American’s own multinationals and ask hard questions about their globalizing strategies. ” (pg. 142) —George Kourpias, IAM president 9

Global System: Free Trade & Open Markets or Market-Access Regime? n According to Greider, “Overall, the global system is more accurately described as a market-access regime, despite the familiar rhetoric about free trade and open markets. ” (pg. 123) n WHY? u Eliminate competitors — Boeing’s price discounting u Share a “piece of the pie” $$$ — Boeing in Canada — Fuji Heavy Industries and Kawasaki helping Boeing competitors — Motorola in Australia (blackmail or economic development) 10

Global System: Free Trade & Open Markets or Market-Access Regime? n Fear of exclusion in a particular market u “The market-access bargaining tool had become standard behavior because the stakes were so high for both parties, companies and nations, sellers and buyers. And both sides expected to benefit from the bargaining, both as partners and rivals. Once such political relationships were established in a sector, the likely loser was the firm that refused to play. ” (pg. 138) n Why are the rules of GATT ignored? u “Well, what are the rules? ” “Part of the problem is that, to some degree, the rules are mythology. ” (pg. 138) — Lawrence Clarkson, Boeing Senior VP 11

Global System: Free Trade & Open Markets or Market-Access Regime? n Dean Thornton of Boeing compared the trade rules to the speed limit on highways…”a good thing to have in place, even if many drivers violated it. ” (pg. 139) n Lack of “highway cop” u Creation of WTO — WTO act as police but face destruction if US withdraws 12

Risks of Sharing Technological Know-How n Either way the fundamental objective was the same: regulation of the marketplace in behalf of domestic interests, companies and workers. a) Allowed market entry in exchange for acquiring new production. b) Limited market entry in order to protect older producers from competing goods. 13

Risks of Sharing Technological Know-How n 14 “You have to keep a tit for tat if you expect to keep selling airplanes, ” said a Boeing middle manager. Boeing’s Everett plant showed the idea of international manufacturing. The challenge was not to build a simple airplane, but to bring in parts from hundreds of sources, foreign and domestic. u Ireland – nose landing-gear doors u Italy – outboard wind flaps u Korea – wingtip u Japan - fuselage u Australia – rudders u Brazil – dorsal fins u Canada and France – main landing gears u UK – flight computers

Risks of Sharing Technological Know-How 15 n Possibility that multinationals are helping to create their future competition. n Developing nations, of course, want this ability to overcome their weaknesses and technologically advance. “Their goal is to become world-class producers themselves – to get out from under the domination of a handful of industrial states. ”

Risks of Sharing Technological Know-How 16 n International Association of Machinists and Aerospace Workers (IAM) President George Kourpias: “We are flying into the side of a mountain. If we continue trading away our finest jobs and industrial secrets, we are headed for certain disaster. ” (pg. 127) u Boeing had a solution by winning new sales and defending market share. This meant to share the work with its customers. n “Why should Americans have all the fun (and profit) when everyone, from German bankers to Korean rice farmers, now traveled by jetliner? ”

Hedging Tools n Competition rising in Asia, so Boeing had to come up with some strategies. u Discounted prices by 10% u Took Mc. Donnell Douglas’ major customer, Sweden’s SAS, hoping that Mc. Donnell would go bankrupt and leaving Boeing as the only American producer. 17 n Trains in Korea n Radiator caps in India n Modern telephones in China n Research & Development facilities in Australia

Hedging Tools n 18 If a new government-back “Asian Airbus” should develop in the future, Boeing was sure to be a part of the action. If China or Japan decided to make their own aircraft, Boeing hoped to be its partner. Although the production may be in Asia, Boeing hoped to bring in design and management expertise.

Questions 19 n As jobs are increasingly departing the United States to foreign nations, what kind of regulations or controls can the United States government impose on domestic firms or should it even intervene? n Do you really believe the global trading system is a market-access regime instead of a free-market system? n Is the United States at risk of losing competitive edge to emerging markets with its top industrial technologies?

Notes 20 n http: //www. nytimes. com n http: //online. wsj. com/public/us n http: //news. ft. com n http: //www. boeing. com/news n Amazon. com: Books: "Rich Nation, Strong Army": National Security and the Technological Transformation of Japan n http: //www. aviationnow. com/awst n http: //www. sciencedirect. com/science/journal/10490078 n Amazon. com: Books: The Trap n Amazon. com: Books: Managing the World Economy: The Consequences of Corporate Alliances n Amazon. com: Books: Looking at the Sun: The Rise of the New East Asian Economic and Political System