International Production Network and Interplay of Technology in Automobile Industry: Experience of India as an Emerging Production Hub
Source:Gerpisa colloquium, Paris (2012)
Keywords:International Production Network, Technology and Innovation
During the second half of the 1990’s, the globalisation of the automotive industry has greatly accelerated. The global automotive industry, increasingly characterized by global mergers and relocation of production centers to emerging developing economies, is in the grips of a global price-war. The industry is subject to imperfect competition which has resulted in too much of everything — too much capacity, too many competitors and too much redundancy and overlap. The industry is concerned with consumer demands for styling, safety, and comfort; and with labor relations and manufacturing efficiency. Technology sharing and production network across the countries now play a crucial role in developing competitive strategy of these companies. Companies are using technology as a platform to drive the markets and/or complementary assets as a platform to drive the products and/or using technology itself as a complementary asset. International production network of automobile industry is now driven by technology as well as trade policy tools such as Free Trade Agreements (FTAs) (Nag (2011), Veloso & Kumar (2002)).
Asian economies are the latest production destinations as well as consumption centres. These countries are also major exporters of automobiles and auto components. India is also emerging as a new player and gradually becoming production hub of many automobile majors. Due to structural change in the automobile industry, the ancillary sector is morphing into system sub-suppliers and component manufacturers. They are now sharing risks significantly along with the original equipment manufacturers (OEMs). Component sectors in many Asian countries are increasingly less protected and competition is now intense.
At this juncture, the paper analyses the growth and trade dynamics of automotive sector in India focusing on the industrial structure and the layers of the value chain. It gives thrust on the intra-industry trade of crucial components between India and other Asian economies and analyse how FTAs are playing the role of catalysts in this. We also propose to develop few case studies to understand how MNCs are incorporating their strategies here. Are they considering the strength of Indian SMEs as ‘complementary asset’ to enhance their technological adoption? Do they consider their superior technology as the major driver to provide new models in India or judge technology as a complementary asset and provide more focus on cost reduction and consumer choice? Role of international trade both in component sector and final good will be studied in this light. The paper aims to reconcile the macro dynamics reflected through international trade with the micro issues imbibed in companies interplay between technology, new product development and cost push.