Minicase: Global Value Chains in the Automotive Industry: A Nested StructureSturgeon, Van Biesebroeck, and Gereffi (2009).

From a geographic point of view, the world automotive industry, like many others, is in the midst of a profound transition. Since the mid-1980s, it has been shifting from a series of discrete national industries to a more integrated global industry. In the automotive industry, these global ties have been accompanied by strong regional patterns at the operational level.

Market saturation, high levels of motorization, and political pressures on automakers to “build where they sell” have encouraged the dispersion of final assembly, which now takes place in many more places than it did 30 years ago. According to Automotive News Market Data Books, while seven countries accounted for about 80% of world production in 1975, 11 countries accounted for the same share in 2005.

The widespread expectation that markets in China and India were poised for explosive growth generated a surge of new investment in these countries. Consumer preferences require that automakers alter the design of their vehicles to fit the characteristics of specific markets. They also want their conceptual designers to be close to “tuners” to see how they modify their production vehicles. These motivations led automakers to establish a series of affiliated design centers in places such as China and Southern California. Nevertheless, the heavy engineering work of vehicle development, where conceptual designs are translated into the parts and subsystems that can be assembled into a drivable vehicle, remain centralized in or near the design clusters that have arisen near the headquarters of lead firms.

The automotive industry is therefore neither fully global, consisting of a set of linked, specialized clusters, nor tied to the narrow geography of nation states or specific localities, as is the case for some cultural or service industries. Global integration has proceeded at the level of design and vehicle development as firms have sought to leverage engineering effort across regions. Examples include right- versus left-hand drive, more rugged suspension and larger gas tanks for developing countries, and consumer preferences for pick-up trucks in Thailand, Australia, and the United States.

The principal automotive design centers in the world are Detroit, Michigan, in the United States (GM, Ford, Chrysler, and, more recently, Toyota and Nissan); Cologne (Ford Europe), Rüsselsheim (Opel, GM’s European division), Wolfsburg (Volkswagen), and Stuttgart (Daimler-Benz) in Germany; Paris, France (Renault); and Tokyo (Nissan and Honda) and Nagoya (Toyota) in Japan. This is just nine products sold in multiple end markets.

As suppliers have taken on a larger role in design, they have, in turn, established their own design centers close to those of their major customers in order to facilitate collaboration. On the production side, the dominant trend is regional integration, a pattern that has been intensifying since the mid-1980s for both political and technical reasons. In North America, South America, Europe, Southern Africa, and Asia, regional parts production tends to feed final assembly plants producing largely for regional markets. Political pressure for local production has driven automakers to set up final assembly plants in many of the major established market areas and in the largest emerging market countries, such as Brazil, India, and China. Increasingly, as a precondition to being considered for a new part, lead firms demand that their largest suppliers have a global presence.

Because centrally designed vehicles are manufactured in multiple regions, buyer-supplier relationships typically span multiple production regions. Within regions, there is a gradual investment shift toward locations with lower operating costs: the U.S. South and Mexico in North America; Spain and Eastern Europe in Europe; and Southeast Asia and China in Asia. Ironically, perhaps, it is primarily local firms that take advantage of such cost-cutting investments within regions (e.g., the investments of Ford, GM, and Chrysler in Mexico), since the political pressure that drives inward investment is only relieved when jobs are created within the largest target markets (e.g., the investments of Toyota and Honda in the Unites States and Canada).

Automotive parts, of course, are more heavily traded between regions than finished vehicles. Within countries, automotive production and employment are typically clustered in one or a few industrial regions. In some cases, these clusters specialize in specific aspects of the business, such as vehicle design, final assembly, or the manufacture of parts that share a common characteristic, such as electronic content or labor intensity.

Because of deep investments in capital equipment and skills, regional automotive clusters tend to be very long-lived. To sum up the complex economic geography of the automotive industry, we can say that global integration has proceeded the farthest at the level of buyer-supplier relationships, especially between automakers and their largest suppliers. Production tends to be organized regionally or nationally, with bulky, heavy, and model-specific parts production concentrated close to final assembly plants to assure timely delivery, and with lighter, more generic parts produced at a distance to take advantage of scale economies and low labor costs. Vehicle development is concentrated in a few design centers. As a result, local, national, and regional value chains in the automotive industry are “nested” within the global organizational structures and business relationships of the largest firms. While clusters play a major role in the automotive industry, and have “pipelines” that link them, there are also global and regional structures that need to be explained and theorized in a way that does not discount the power of localization.