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OM in the News: Airbus Over Alabama

July 9, 2012

When you are teaching global location analysis in Chapter 8, what better way to start a discussion than Airbus’ decision this week to open a new $600 million facility in Mobile, Alabama. The Wall Street Journal (July 3, 2012) reports that the European jet maker’s US facility will  turn out 40- 50 A320 jetliners yearly by 2018, with about 1,000 full-time employees. (State officials say they expect each job to produce at least 4 more in the local economy). Airbus now assembles A320s at plants in Germany, France and China.

Even without the global politics of airline manufacturing, the economic incentives for Airbus to build more plants in France are difficult. With a headcount of 1,000, the new plant  surpasses France’s various thresholds for taking on a welter of worker “protections” and the burden of union bureaucracies. But it’s worth noting that Airbus didn’t just pick the U.S. over France, Germany, or China. It chose Alabama over the rest of the U.S.  Not least, it’s that Alabama is one of 23 right-to-work states, which means workers are free to decide if they want to join a union. That not only makes that labor market markedly freer than France, but also struggling states across the U.S.. Airbus, of course, isn’t the first foreign enterprise to notice Alabama. The state also hosts Mercedes, Toyota, and other auto production facilities.

Alabama is also offering Airbus over $100 million in tax breaks and other incentives such as job training and infrastructure improvements.  Jets are sold worldwide in dollars and since  Airbus’ planes are manufactured with most costs in Euros, US manufacturing will help hedge against currency gyrations. ( Here is a 3 minute WSJ video on the subject).

Discussion questions:

1. Why is Airbus starting production in the US?

2. How was Alabama able to lure the company?

2 Comments leave one →
  1. Hector Lopez permalink
    July 9, 2012 4:28 pm

    This decision reminds us that a site selection goes far away to low direct labor costs and heavy manufacturing conglomerates. Multifactor considerations for global organizations, including a quality work force, technological productivity in manufacturing, and a preference for scattered manufacturing place on their commercial regions need also be considered.

  2. July 9, 2012 5:46 pm

    Thanks for the feedback, Hector. I hope your semester is going well at Universidad Nacional de Mexico .

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