Int. J. Technological Learning, Innovation and Development, Vol. 2, Nos. 1/2, 2009 7
Copyright © 2009 Inderscience Enterprises Ltd.
Globalisation of the automotive industry: main
features and trends
Timothy J. Sturgeon
Industrial Performance Center (IPC),
MIT, 292 Main Street (E38-104),
Cambridge, MA 02139, USA
E-mail: sturgeon@mit.edu
Olga Memedovic*
United Nations Industrial Development Organization,
Vienna International Centre,
A-1440 Vienna, Austria
E-mail: O.Memedovic@unido.org
*Corresponding Author
Johannes Van Biesebroeck
Department of Economics, University of Toronto,
150 St. George Street,
Toronto, Ontario M5S 3G7,Canada
E-mail: jovb@chass.utoronto.ca
Gary Gereffi
Department of Sociology,
Duke University,
Durham, NC 27708-0088, USA
E-mail: ggere@soc.duke.edu
Abstract: This paper lays out the main features of the global automotive
industry and identifies several important trends. A boom in developing country
sales and production has not yet overshadowed the importance of existing
markets in developed regions. Regional integration is very strong at an
operational level, yet the industry has recently developed a set of global-scale
value chain linkages, and retains national and local elements as well. The paper
highlights how global, regional, national and local value chains are nested to
create a pattern of global integration that is distinctive to the industry. We use
global value chain analysis to help explain the limits of build-to-order in the
industry, the role of regional and global suppliers, the shifting geography of
production and how the characteristics of value chain linkages in the industry
favour tight integration and regional production. We describe how industry
concentration focuses power in the hands of a few large lead firms and discuss
the implications of this for value chain governance and the geography of
production.
Keywords: globalisation; automotive industry; vehicle assembly and parts;
GVC; global value chains.
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T.J. Sturgeon et al.
Reference to this paper should be made as follows: Sturgeon, T.J., Memedovic,
O., Biesebroeck, J.V., Gereffi, G. (2009) ‘Globalisation of the automotive
industry: main features and trends’, Int. J. Technological Learning, Innovation
and Development, Vol. 2, Nos. 1/2, pp.7-24.
Biographical notes: Timothy J. Sturgeon is a Senior Research Affiliate at
the Industrial Performance Center (IPC) at the Massachusetts Institute
of Technology (MIT). He has a PhD in economic geography from U.C.
Berkeley, and is Co-Organizer of the Global Value Chains Initiative
(www.globalvaluechains.org). Tim served as Executive Director of the IPC’s
Globalization Study, and Globalization Research Director for the International
Motor Vehicle Program at the Center for Technology, Policy and Industrial
Development. His papers have appeared in international peer-reviewed
journals including Industrial and Corporate Change, Review of International
Political Economy, Journal of East Asian Studies, and Journal of Economic
Geography, and as chapters in edited volumes, the most recent being, ‘From
commodity chains to value chains, interdisciplinary theory building in an age of
globalization’, in Jennifer Bair (Ed.): Frontiers of Commodity Chain Research,
Stanford University Press, forthcoming, October 2008.
Johannes Van Biesebroeck is an Associate Professor of Economics at the
University of Toronto and a Faculty Research Fellow at the National Bureau of
Economic Research. His work on the automobile industry has been supported
with grants by the Social Science and Humanities Research Council, the
Canadian Foundation for Innovation, and the Ontario Innovation Trust and for
his current research on supply chains he is a Network Researcher of AUTO21,
the Canadian Network of Centers of Excellence, and of the International Motor
Vehicle Program in Boston. He has served as a consultant on the automotive
industry for Industry Canada and International Trade Canada, most recently
investigating the potential impact of the Free Trade Agreement with South
Korea. His papers on the automotive industry have appeared in international
refereed journals like the Review of Economic Studies, the Journal of Applied
Econometrics, Assembly Automation, and the Economic and Social Review.
Gary Gereffi is a Professor of Sociology and Director of the Center on
Globalization, Governance & Competitiveness at Duke University
(http://www.cggc.duke.edu/), where he teaches courses in economic sociology,
globalisation and comparative development, and international competitiveness.
He received his BA degree from the University of Notre Dame and his PhD
degree from Yale University. He has published six books and numerous articles
on business–government relations in various parts of the world. His books
include: Commodity Chains and Global Capitalism (Praeger Publishers, 1994);
The Value of Value Chains: Spreading the Gains from Globalisation (special
issue of the IDS Bulletin, Vol. 32, No. 3, July 2001); and Free Trade and
Uneven Development: The North American Apparel Industry after NAFTA
(Temple University Press, 2002) and The New Offshoring of Jobs and Global
Development (International Institute of Labor Studies, 2006).
The views expressed herein are those of the author and do not necessarily reflect the
views of the United Nations Industrial Development Organization.
1 Introduction
There are some features that the automotive industry shares with other globalised
industries such as electronics, apparel and consumer goods and several that set it apart.
The first common feature is that in all of these industries, including automotive, Foreign
Globalisation of the automotive industry 9
Direct Investment (FDI), global production and cross-border trade have accelerated
dramatically since the late 1980s. Real and potential market growth and a huge surplus
of low-cost but skilled labour in countries like Brazil, China and India have attracted
large FDI flows to supply local markets and to export back to developed countries. The
emergence of such global sourcing patterns has been facilitated and encouraged by trade
and investment liberalisation through World Trade Organization (WTO) agreements.
The second common feature is increased outsourcing and the bundling of more value
chain activities in supplier firms. As a result, developed country suppliers have increased
their own involvement in FDI and trade, while developing country suppliers have
increased their capabilities. The largest suppliers, all based in developed countries, have
become ‘global suppliers’, with multinational operations and an ability to provide goods
and services to a wide range of lead firms (Sturgeon and Lester, 2004).
The automotive industry is distinctive because of its extremely concentrated firm
structure: a small number of giant companies exert an extraordinary amount of power
over smaller firms. Eleven lead firms from three countries, Japan, Germany and the USA,
dominate production in the main markets. The global scope of both lead firms and the
largest suppliers was enhanced by a wave of mergers and acquisitions, and equity-based
alliances in the 1990s. Lead firm concentration, though not as extreme as in some
industries, such as commercial aircraft, has blunted efforts to establish the sort of
industry-level technical and business process standards that prevail in less concentrated
industries.
A second distinctive feature specific to the automotive industry is that final vehicle
assembly, and by extension, parts production, has largely been kept close to end markets
because of political sensitivities (discussed further in the text). Market saturation, high
levels of motorisation and the tendency for automakers to ‘build where they sell’ have
also encouraged the dispersion of final assembly, which now takes place in many more
countries, than it did 30 years ago.
A third distinctive feature is its strong regional structure. Although the automotive
industry has become more integrated globally since the mid-1980s, it has also developed
strong regional-scale patterns of integration. In contrast, other important high-volume,
consumer-oriented manufacturing industries, like apparel and electronics, have developed
global-scale patterns of integration.
1
A fourth distinctive feature of the automotive industry is that there are few fully
generic parts or subsystems that can be used in a wide variety of end products without
extensive customisation. Parts and sub-systems tend to be specific to particular vehicle
models in contrast to memory chips and microprocessors in the electronics industry and
to fabric and thread in the apparel industry. The absence of open, industry-wide standards
undermines value chain modularity and ties suppliers to lead firms, limiting economies of
scale in production and economies of scope in design. Suppliers are often the sole source
for specific parts or module variants. This creates the need for close collaboration, raises
the costs for suppliers that serve multiple customers and concentrates most design work
into a few geographic clusters, typically near the headquarters of lead firms. Because
value chain modularity is limited, linkages between lead firms and suppliers tend to be
relational or captive in character.
A greater degree of global integration in the automotive industry has developed at the
level of design, as global firms have sought to leverage design efforts across products
sold in multiple end markets. The work of vehicle design and development continues to
be concentrated in, or near, the headquarters of lead firms. In addition, suppliers of parts
have taken on a larger role in design and have established their own design centres close
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T.J. Sturgeon et al.
to their major customers to facilitate collaboration. Because centrally designed vehicles
are tailored to local markets and parts are manufactured in multiple regions to the degree
possible, design activities and buyer–supplier relationships typically span multiple
production regions. This has resulted in local, national and regional value chains in
the automotive industry being ‘nested’ within the global organisational structures and
business relationships of the largest firms, as shown in Figure 1.
Figure 1 The nested geographic and organizational structure of the automotive industry
Source: Sturgeon; Van Biesebroeck and Gereffi (2007)
2 Main trends
2.1 The boom in vehicle production in the 1990s and 2000s
Global vehicle production has more than doubled since 1975, from 33 to nearly
73 million in 2007 (see Figure 2 and Tables 1, 2 and 3 below). The opening of new
markets in China and India has helped to drive the pace of growth. While seven countries
accounted for about 80% of world production in 1975, 11 countries accounted for the
same share in 2005.
As Figure 2 illustrates, world vehicle production grew at an annual average rate of
around 2% in the period 1975-1990, rising to around 3% in 1990-2005. Low rates of
motorisation and huge populations resulted in a surge of new investment in China and
India, where market growth – and, accordingly, production – has been increasing very
rapidly (see Table 1). In this context, the ability to increase or maintain their share of
global automotive production since the entry of China and India in 1990-2005 can be
seen as a real success for some countries. Canada, for example, has maintained its share
of 4% in 2005.
Globalisation of the automotive industry 11
Figure 2 The geographic dispersal of vehicle production, 1975–2005 (see online version
for colours)
Notes: Includes cars and trucks but not large trucks and buses as in Table 1.
Source: Automotive News Market Data Books
Table 1 Motor vehicle production, selected countries, 1996-2006, in 000 units and in % for
growth rate in ‘000 units and in percentages
1996 1998 2000 2002 2004 2006
Growth
rate (%)
a
China 1,240 1,628 2,009 3,251 5,071 7,272 19.3
India 541 535 867 892 1,511 1,876 13.2
Republic of Korea 2,354 1,787 2,858 3,148 3,469 3,840 5.0
France 2,359 2,923 3,352 3,693 3,666 3,164 3.0
Brazil 1,813 1,547 1,671 1,793 2,210 2,597 3.6
Mexico 1,222 1,460 1,923 1,805 1,555 2,043 5.3
Russian Federation 1,029 1,021 1,203 1,220 1,388 1,495 3.8
Germany 4,843 5,727 5,527 5,145 5,570 5,818 1.8
Spain 2,412 2,826 3,033 2,855 3,012 2,776 1.4
Canada 2,397 2,570 2,962 2,629 2,712 2,544 0.6
Japan 10,346 10,050 10,141 10,258 10,512 11,484 1.0
United States 11,832 12,003 12,774 12,280 11,988 11,351 –0.4
United Kingdom 1,924 1,976 1,814 1,821 1,856 1,650 –1.5
Italy 1,545 1,693 1,738 1,427 1,142 1,212 –2.4
a
Compound Annual Growth Rate (CAGR).
Note: the relative positions of Russia and Canada differ from those in Figure 2
because Table 1 includes all vehicles including large trucks and buses.
Source: Ward’s Automotive Yearbook, various years
