THE RELENTLESS PURSUIT OF GUANXI
So far this year, Boeing Co. salesman Lee Hsiung-Fei has made four trips to the remote southwestern Chinese city of Kunming to cultivate tiny Yunnan Airlines. He has gotten to know everyone from line mechanics to pilots. And when Yunnan Air took delivery of its first 767-300 in August, Lee didn't stop with the customary banquet in Kunming. When some 20 Yunnan pilots, engineers, and managers flew to Seattle to take delivery, Lee took them sightseeing in the Pacific Northwest, shopping in Seattle, and hosted them in his home. ``It's important to get to know the airline at every level, down to the foot soldiers,'' says Lee.
With a fleet of 11 planes, Yunnan is hardly the glamour customer of global aviation. But thanks largely to the smothering attention of Lee and his colleagues, Yunnan, like most of China's 32 airlines, has been loyal to Boeing. The Seattle giant is determined to keep it that way. With plans to spend $100 billion on some 800 aircraft over the next 15 years, China is the linchpin in the no-holds-barred battle between Boeing and Europe's Airbus Industrie to dominate Asia, which is expected to account for 40% of world aircraft sales over the next decade.
While Boeing's global market share is about 60%, in Asia, it's closer to 70%. And since suffering some serious setbacks in 1994, when Airbus snared big orders from such key customers as Cathay Pacific Airways Ltd. and Singapore Airlines Ltd., Boeing has been on a roll. It has scored multibillion-dollar orders not only from Hong Kong-based Cathay and Singapore but also from the flag carriers of Indonesia, Malaysia, Thailand, the Philippines, South Korea, and the three airlines of Japan. Of the 281 long-haul 777s sold worldwide since 1990, Asia has purchased 148.
HEATING UP. A key reason is Boeing CEO Philip M. Condit's decision to give customers a say in the 777's design. Asian airlines were behind major decisions, such as making the plane longer and wider than first planned, and trifling ones, such as developing a toilet seat that closes silently. The 777-300, a stretch version with more than 400 seats that costs 10% less to operate than a 747-400, was made expressly at the request of Asian carriers. ``Phil Condit has done a terrific job of getting Boeing to focus on costs and involving the customer at every stage of development,'' says Cathay Pacific Managing Director Rod I. Eddingtion. ``This absolutely made a difference'' in Cathay's decision to buy 777s. The 460- and 550-seat derivatives of the 747 that Boeing is now developing also grew out of demand from Asian carriers.
Across Asia, however, Airbus is turning up the heat. In April, it struck two key deals in China, where its market share had been minuscule. First came a $1.5 billion order for 30 jets, signed by Prime Minister Li Peng during a state visit to France. Then, Beijing announced that it would team up with a European consortium that includes Airbus partners to build 100-seat aircraft, a project that Boeing had bid on.
Meanwhile, Beijing postponed purchases of up to $3.5 billion in Boeing planes, partly to retaliate against Washington's tough stance on trade and China's menacing war games in the Taiwan Straits. The delay signals that unless relations improve, U.S. industry will pay. And no matter how solid Boeing's support may be among China's airlines, the government is not about to allow one manufacturer to monopolize its industry. Larry S. Dickenson, Boeing's vice-president for Asia sales, calls the bilateral tensions ``a windfall for Airbus.''
But there are also signs that Airbus is closing the loyalty gap. Things started improving in 1994, when it opened a Beijing office and beefed up its Chinese marketing and technical-services staff. The company now has 92 employees on the mainland, half of them Chinese, with orders to visit every airline at least monthly. Next year, it will open a $50 million parts-distribution and training center in Beijing. Rolf Rue, president of Airbus Industrie Beijing, confidently predicts that Airbus will land up to 40% of China's new orders.
In April, Airbus also scored a landmark deal by selling three A320s to Guangzhou-based China Southern Airlines, the mainland's most ambitious regional airline. China Southern is a key Boeing customer, the first mainland carrier to order 777s.
``OUT OF TOUCH?'' Boeing executives are convinced that China Southern bought the Airbus planes under orders from Beijing. Last year, they claim, the carrier decided to purchase 35 737-300s, but the government wouldn't sign off on it. Airbus says China Southern simply decided that the A320 was a better plane. ``Boeing's complaining merely demonstrates how out of touch they are with their customers,'' says Rue. China Southern declined to comment.
In any case, it will be enormously difficult to unseat Boeing, which is unrivaled among multinationals at building guanxi, or relationships, in China. Ever since Boeing sold China its first 707s in the early 1970s, its sales reps have kept up ties with far-flung aviation officials, pilots, and mechanics. Over the past two years, Boeing has invested $150 million to beef up sales, maintenance, and training operations across China. It has opened a headquarters in Beijing with about 50 customer service staff and is setting up a huge parts-distribution center outside Beijing's Capital Airport. The company has been helping China develop a modern air-traffic-control network, has donated flight simulators worth $25 million to training colleges, and has helped numerous airlines set up maintenance departments, computerized parts-inventory control, safety programs, financial management, and even in-flight training programs. Since 1993, Boeing has taken more than 1,000 mainland mechanics and pilots to the U.S. for training. Last year alone, it hosted 3,500 Chinese visitors in Seattle.
Beijing has made its appreciation clear. In one meeting, Chinese economic czar Zhu Rongji assured Ronald B. Woodard, president of Boeing's Commercial Airplane Group, that the company ``will enjoy a long and prosperous future in China.'' But Chinese leaders have also made it clear that Airbus will be playing a larger role. That should guarantee that Boeing's future in Asia will also be marked by long and vicious competition.
By Pete Engardio in Hong Kong, with Dexter Roberts in Beijing
Updated June 14, 1997 by bwwebmaster
Copyright 1996, Bloomberg L.P.