Lesson 5: GVC in the Automotive industry

In this lesson, we’ll delve into the unique characteristics of Global Value Chains (GVCs) within the automotive industry, their evolution, key players, and regional production trends.

1. The Evolution of GVC in the Automotive Industry

• The automotive industry is distinct in its global integration; it’s neither entirely global nor limited to specific localities.
• Global integration has progressed as firms aim to leverage engineering efforts across products sold in various markets.
• Suppliers have gained prominence in design, establishing their design centers near major customers.
• The dominant trend in production is regional integration, intensified since the mid-1980s for political and technical reasons.
• Political pressure for local production has led to automakers establishing final assembly plants in major markets and emerging economies.
• Lead firms now require their major suppliers to have a global presence to be considered for new parts.

2. Characteristics of the Automotive Value Chain

• The automotive value chain is automaker-driven, with automakers controlling production systems.
• It’s a complex network with firms of different sizes, types, and geographic scopes producing various products.
• The value chain includes standardizers, material suppliers, component specialists, integrators, assemblers, and distributors.
• Standardizers invest heavily in research, development, and process engineering to design vehicle concepts and specifications.
• Component specialists manufacture components based on standardizers’ specifications for module/system production.

3. The Increasing Role of Large Suppliers

• Global integration in the automotive industry is driven by the consolidation and globalization of the supply base.
• Suppliers have assumed a more significant role since the mid-1980s, often through acquisitions of complementary assets and geographies.
• Supplier consolidation varies but has intensified recently, with the formation of global lead firms and groups.
• Supplier consolidation may face challenges, but relationships now span the globe within the value chain.

4. Why Regional Production Persists

• Regional production remains a key feature of the automotive industry despite global trends in other industries.
• Lead firms have the power to drive supplier co-location for operational reasons and political pressure to locate production near end markets.
• High costs and visibility of automotive products create political risks if imports become dominant.
• Governments often support local automotive firms, akin to other strategic industries.
• Political pressure for local production distinguishes the automotive industry from other high-volume manufacturing sectors.

Conclusion: 

• The automotive industry’s GVCs are a dynamic blend of global integration and regional production, allowing for efficient engineering leverage and market responsiveness.
• Key players in the automotive value chain include standardizers, material suppliers, component specialists, integrators, assemblers, and distributors, each contributing to the complexity and diversity of the industry.
• Large suppliers have assumed an increasingly significant role, driving consolidation and globalization within the supply base, fostering robust global relationships.
• Regional production remains resilient due to political pressures, high visibility of automotive products, and the desire to safeguard local industries, setting the automotive sector apart from other manufacturing industries.
• Understanding these GVC dynamics is essential for stakeholders to navigate the industry’s intricate web of relationships, regional dependencies, and global opportunities effectively.

Understanding the automotive industry’s unique dynamics within GVCs is crucial for stakeholders in this sector. It highlights the delicate balance between global integration and regional production, which plays a significant role in the industry’s resilience and adaptability to market pressures.