It would be easy—but wrong—to conclude from recent events in the aerospace industry that its globalization efforts have gone too far. To be sure, both Boeing and Airbus have discovered, in developing their new aircraft, that involving suppliers from around the world creates complex management, coordination, and design integration challenges. Nonetheless, McKinsey research indicates that the industry’s globalization remains in its infancy. China, India, and Russia are likely to emerge as significant players over the next two decades, a development that will give Western companies major short-term cost-reduction opportunities that they must capture.

Over the longer term, however, these changes could promote the emergence of new players representing a novel form of competition for today’s incumbents. In addition, further specialization in design, manufacturing, and assembly is likely among both suppliers and existing original-equipment manufacturers (OEMs)—such as Airbus, Boeing, and Bombardier—in areas where they have unique value to add or a compelling cost edge. Specialization will go hand in hand with more extensive collaboration, placing a premium on an organization’s coordination and integration capabilities.

These conclusions are drawn from scenario-based modeling of the industry’s future. The modeling was rooted in an analysis of the current capabilities of about 120 suppliers...