DIXIÈME RENCONTRE INTERNATIONALE DU GERPISA TENTH GERPISA INTERNATIONAL COLLOQUIUM

La coordination des compétences et des connaissances dans l’industrie automobile Co-ordinating competencies and knowledge in the auto industry

6-8 Juin 2002 (Palais du Luxembourg, 15, rue Vaugirard, 75006 Paris, France)

A COMPARATIVE STUDY ON PRODUCT AND R & D STRATEGIES OF MAJORS ASSEMBLERS OF BRAZILIAN CAR INDUSTRY

Enéas G. de CARVALHO*

MODULARIZATION AND TECHNOLOGICAL CHANGES IN THE CAR INDUSTRY

Modularization Despite the increasing quantity of electronic components incorporated by the cars in recent years, they still are basically a complex and systemic mechanical product. At the same time, cars have what has been called integral architecture, that means, “with a more complex relationship of parts and functions that requires each of the parts to be optimally designed to achieve its overall performance.” (Fujimoto and Takeishi, 2001: 3)1. Such characteristics are an impediment to design a car integrally in “modular”2 terms, with standardised interfaces facilitating a connection between respective modules and vehicles in a singular operation the kind “plug and play” (Chanaron, 2001)3.

Even considering this strong structural limitation in comparison, for instance, to products as portables computers, sound equipment and bicycles, it is possible to observe a fierce attempt, since the middle of the 90s, of modularization by the western car industry,

* Department of Economics of The State University of São Paulo at Araraquara () and Researcher at Grupo de Estudos de Economia Industrial (GEEIN). 1 “For instance, consider the driving comfort (ride) of a car. Delicated factors, like a minor difference in the geometry of the suspension, or whether the principal axis of the engine is sightly in front or behind the axle, can greatly influence the overall character of the car. In order to function as a system, each part must be designed optimally in this type of product. Further, if is manufacturing the car, the car must be basically be designed by Toyota ” (Fujimoto and Takeishi, 2001: 4). 2 At least the present car with an internal ignition engine and with steel architecture of o,8mm (Fujimoto, quoted by Lynch, T. M. et. al. 2000). This situation could be reversed with the arrival of new technologies of cars with propulsion engine (see next note). 3 “There is no unique definition for a module whicth would be accepted by both the OEMs and the suppliers. In professional magazines, some are using module for brake system, others for a chassis with wheels, others even a complete vehicle assembled by a sub-contractor. A module could be defined as a set of components and/or sub-systems which are pre-assembled off-line and delivered to final assembly line ready to be fitted on the vehicle or engine in the one single operation, i.e. on a “plug and play” approach. Such na approach is named modular assembly ” (Chanaron, 2001: 3). 2 particularly the Europeans ones. This tendency has been concomitant with a significant change towards an enlargement of outsourcing, also adopted by the western car manufacturing. In this last case, the motivation seems to be the possibility to decrease wages cost faced by the parts manufacturers and also to diminish risks and the amount of investments necessary to increase these activities, particularly regarding the markets of emergent countries (Fujimoto, 2001; Sturgeon and Florida, 1999). The adoption of these strategies implies in an important delegation of responsibilities to the modules suppliers, who would assume part of the design and manufacturing functions, and consequently, a significant role inside the productive chain. It is particularly this aspect which makes the Japanese car manufacturing concerned and cautious about the idea of modularization (Chanaron, 2001).

According to Japanese experts, the main obstacles to modularization are related to costs administration, assignment and innovation process. According to them, there is no clear evidence that the modularization leads to a systematic production cost reduction – wages difference between manufactures and parts suppliers in Japan is smaller than the ones faced by the western ones. On the other side, modularization might lead to an extra cost by synchronisation between manufactures and modules suppliers. Additional transaction costs have to be considered when is necessary to change suppliers, as well as extra direct costs generated by introduction of significant changes in design. In both cases, the additional costs would come from the choice of a single supplier required by the modularization (Chanaron, 2001).

A second main obstacle, also called black box syndrome, refers to a potential loss, by the manufactures, of the traditional control over the total costs, of the development of lead time, technical performance and quality levels. “A ‘Intel Inside’ syndrome, translated into ‘Bosch, Delphi (...) or Sony Inside syndrome in the , would be extreme limit of such a move. In that case, the risk would be a complete reversal of image and brand from OEM to a particular supplier” (Chanaron, 2001: 8).

Finally, there is the risk of having, as a single source, and in a long term, a module supplier less innovative. Promoting competition between potential suppliers is frequently an efficient way to stimulate innovation between them (Chanaron, 2001).

In accordance to these concerns, Toyota and Honda adopted a very cautious approach, introducing a partial modularization and under their total control, dismissing a more radical re-engineering of theirs plants, as well as a re-organisation of their suppliers chain, particularly in the case of their affiliated suppliers. In short, they have been developing and producing their own modules, which might be produced later by their affiliated suppliers in the Toyota case, or by its long term partners, as in the Honda case. The two main Japanese manufactures are showing an interest in leading and controlling the process, keeping a complete responsibility and control on design and core competencies in all levels considered essentials by them – the technological, the productive and the strategic ones (Chanaron, 2001).

Technological Change In general terms, it seems reasonable to consider four main scenarios regarding forthcoming technological evolution of international car industry. The first scenery, a more conservative one, involves the supposition of continuity of the present technological pattern, based on internal ignition engine, and in a crescent utilisation of electronic components (the 3 so called embodied electronic), in the intensification of Internet and in the introduction of new materials4. This first scenery, however, does not seem be compatible to the prospective requirements of legislation regarding a more efficient utilisation of fuel, particularly regarding the emission of pollutants.

Considering that the need to replace the present form of propulsion car engine is almost established, there is a real technological race to define, between feasible alternatives, the more efficient means to accomplish the mentioned replacement. This technological race, which is not confined only to the assemblers and parts manufacturers5, might result in a radical change in car industry and its components (Automotive Industry, October, 1999; Maxton, 1998).

At the present stage of the research, more promising technological prospective are indicating the existence of three other possible scenarios. The second one, which seems to attract the attention of Toyota, involves the chance, in the future, to choose between cars working on batteries, on cells fuel, hybrid propulsions, and natural gas, as well as new types of petrol and diesel engines. Considering that, at the present moment, it is not possible to be sure about which technology be the dominant, Toyota have been exploring either new technologies and developing lean-burn engine technology, which best example is the Toyota D-4 direct-injection petrol engine (EIU, 4th, 1998).

The third scenery is associated with hybrid vehicles6 – an electric engine and an internal ignition engine from mineral fuel. The technology of an electric engine, though simpler and well known, seems to faced two problems of difficult solution: the limited capacity of energy storage in the batteries7 and the high cost (and a subsequent restriction) required by a vehicle with two propulsion engine (Automotive Industry, October, 1999)8.

The forth scenery is related to cells fuel technology. In this case vehicles could adopt, as energy source, alternatively a mineral fuel – in this case the emission reduction would be

4 It is obvious that the increasing tendency of embodied electronic, new materials, and a more intensive use of Internet, both in the association between the assemblers and suppliers and the assemblers/suppliers and consumers, is considered compatible with all the other scenarios proposed here. The difference between the scenarios depends on the arrival, or not, of technological changes regarding the propulsion car engine. It is possible too, that the introduction of a new propulsion technology has, as a result, an intensification of technologies mentioned previously. Such fact does not seem to compromise the criterion adopted in the present study 5 It involves the main oil companies – “the biggest oil companies have been spent hundred millions dollars in Research and Development with hydrogen”(FT.com, 24th March, 2000: 1, Internet) – the companies related more directly to the basic technologies from which fuel cells will be developed. It has involved too association and horizontal deals between the assemblers themselves, between the assemblers and companies specialised in the development of cells fuel (as for example the Canadian Ballard) and even between the assemblers and oil companies (as, for example, Shell and Daimler-) (FT.com, 24th, March, 2000). 6 Hybrid vehicles would work more as a ‘bridge’ between the present and a new technology. Cf. What’s the Alternative Power? Automotive Industry, October, 1999. Internet: www.ai-online.com/archive. 7 This is the reason why a vehicle with a single electric engine does not seem feasible 8 Besides, it would not solve reasonably the problem of pollutants emission 4 around 20%9 - or a modified recycled one (as methanol, for example) – in which case the emission would be quite low but not zero10 – or still hydrogen – in which case the pollutant emission could be zero11. (Automotive Industry, October, 1999). Although it is not in a quite advanced stage, the cells fuel technology seems to be more promising in a long term12. Maybe this is the reason why there is an intensification in its research. Practically all the main car manufacturers have a developing programme of cell fuel on.

By other hand, it is possible to notice a change in attitude of the main assemblers regarding emission problems and, particularly towards these new technologies. What could be seen as a reluctant obedience to new regulatory norms is now becoming a competitive battlefield. The fastness that the car manufactures will be able to introduce new technologies, to attend new regulatory standards, is increasingly seen as a potential strategic advantage in this fierce competition (Automotive Industry, June, 1999).

The potential gains and losses associated to the introduction of new technologies is quite wide, particularly in the cells fuel technology case. This situation is mobilising large budgets and is having great attention by the assemblers, as they are afraid of losing the competition in case they are not able to control the new technology.

Ford 2000 and The New Strategy of Ford Products Presented in 1994 as a wide restructuring project aiming to promote a global integration of its activities, Ford 2000 Project had as a main purpose to surmount the Company’s worldwide resources by the elimination of a significant number of models and components, and also part of the overlapping operations in the US, in Europe, and in the rest of the world. This way, the top executives of the Company believed it was possible to reduce considerably the costs on research and development of the products, as well as to increase the production economies of scale (Storey, 1998; Bordenave, 1998; Bursa et. al., 1998)13.

On the other hand, the Company was restructured in terms of products line, renouncing therefore the previously form based on the regional organisation. Initially, five lines of products were launched, later reduced to three, each one belonging to a Vehicle Programme Centre. The Dunton units, in England, and the one in Merkenich, in Germany, became simultaneously responsible by the development of the small and medium size models,

9 According to estimates made by a Canadian institution Pembina Institute for Appropriate Development, quoted by Financial Times (FT.com//Shell backs the Hydrogen Revolution – 24th March, 2000). 10 There would be some emission of Co2. Cf. What’s the Alternative Power? Automotive Industry, October. 1999 11 Only the emission of water steam. Cf. Idem Ibdem. 12 According to Autofacts prevision, “the automotive utilisation of the fuel cells will be increased fastly after 2005” and the annual car production with this new technology will reach the level of one million unities by 2010” (Quoted in Automotive Industry, June, 1999). 13 With the introduction of Ford 2000 Project the expected costs reduction were at least of US$ 3 billions, per year, starting from the end of the Century. But by 1997, in the third year of the project and three years before expected, Ford had already reached an astonishing cost reduction of US$ 3 billions. In the same year, the second biggest car assembler in the world made a net profit of US$ 6.9 billions, a real record of the Company and of the international car industry as a whole. Of this total, operational net profit of automotive activities of Ford was US$ 4.7 billions, an impressive increase of 185% relating 1996 (Storey, 1998). 5 while the Dearborn unit, in the , was entrusted by the development of models of large rear and front traction (Bursa, 1998).

Apart from that, Ford 2000 Project planned too the period of 1994 to 2000 a significant reduction on the number of platforms of vehicles and of the different engine architectures (or the basic layouts). The reductions anticipated were 32 to 16, in the first case, and 30 to 14, in the second one (Bursa, 1998).

At the same time, in accordance to the motto “get more from less”, it was planned an increase of 45% on the quantity of the models’ variation from each basic engineering structure, presenting, for example, a production of a larger number of models niche based on the same platform (Bursa, 1998).

To illustrate this strategy, Fiesta model became one of the main models of Ford, with its essential layout offering a base to the Ka models14, and to the pickup Courier launched and produced in Brazil, but developed by the European Vehicle Centre (Bursa, 1998). The combination of Fiesta and Ka together are developing a fundamental role on the Ford operations in South America15 Launched in Brazil in the beginning of 1997, just after the introduction of the Fiesta, Ka model helped Ford to get a market share of 14,5% (280 thousand units) that year, increasing this way the sales in 61% relatively to 1996 (Bursa, 1998).

With the launching of Focus by the Autumn of 1998 in Europe and by the end of 1999 in the US, Ford 2000 Program, as well as its worldwide car strategy went to a new phase16. The new model – the greeted substitute to the Escort17, which was to compete directly to the VW Golf and GM Astra – is the first product entirely developed under a globalisation plan of Ford and also it is its second real try of developing a model that can be actually qualified as a worldwide car (Bursa, 1998).

14 Despite its avant garde image Ka model is strongly based on the previous generation of Fiesta Classic. Similarly, Puma is a niche model (35 thousands units per year) with a low cost development which uses components already paid off by Fiesta. It was launched as a competitor to Tigra (derived from Corsa) from GM. 15 In general terms, Fiesta represents a central role inside the strategies of Ford towards the emergent markets. (Bursa, 1998). 16 Despite the initial impact of Focus (Automotive News, 4th of July, 2000 and Gazeta Mercantil, 6th of October, 2000) the efficacy of a worldwide car strategy does not seem, up to this moment, sufficiently evident. “Standardised cars at the world level offer the prospects of reduced design costs, greater economies of scale and greater flexibility in matching production and markets at different locations. However, the need to adapt productions, prices and cost to local conditions (road conditions, physical enviroment, income leves, idiosyncratic local preferences, availability of material, and so on) is reflected in the continuing need for platforms to be adapted and design work to be carried out. The world platform is a reality, but the world car is not (...) The latest casualty in the batlle to produce the ‘world car’ is the Ford Amazon project. After two years of trying to design a new small car that would be identical in Europe and Mercosur, Ford’s designers finally came to the conclusion that a car that met European handling and safety requirements would be too expensive for the Brazilian market ” (Humphrey and Salerno, 2000: 171-2). 17 According to the Company, Focus has an advantage of production cost of one thousand dollars regarding its predecessor (Storey, 1998). 6

With an expected global annual production of 1 million of units, Focus – which is Ford first attempt of unifying a line of medium-size model to both sides of the North Atlantic – was restrict to the markets of those countries up to the second half of 2000, when started its production in the emergent countries, in the plants originally destined to produce the Escort (Bursa, 1998).

Ford first real attempt to develop a worldwide car was by the CDW27 project (Mondeo/Contour/Mystique) (Bursa, 1998) 18 launched by 1993 in Europe and in North America and Asia-Pacific in 199419. Developed by the European Vehicle Centre, it was projected to be sold to the upper-medium segments of North American and European markets. The assembler projected global sales around 800 thousand annuals units, expecting to sell the whole model group in approximately 70 countries (Bordenave, 1998).

Even considering the high total costs of the development of the CDW27 project (6 billions dollars), regarded as very high by several annalists, the North American versions – Ford Contour and Mystique – did not present a good acceptance, limiting its global success (Bordenave, 1998).

In fact, the local market has been20, so far, the main barrier found by Ford in its attempt to implement its strategies of the product of Ford 2000 Project – either in its worldwide car version21 and in its global platform.

The Strategy of Products of Ford in Brazil In 1983 Ford has remodelled its main plant (in S. Bernardo, S. Paulo) and launched in the Brazilian market its medium size model, Escort, which became the major product of the North American assembler during the existence of Autolatina (1987 to 1996). In 1992, the S. Bernardo plant was once more adapted to install the so called Ford Escort/VW Logus project, which generated the shared utilisation of Escort platform by both partner of Autolatina (Kolodziejski, 1998).

In 1995, already in the disassembled phase of Autolatina, the S. Bernardo plant was again widely remodelled to launched the Fiesta22, the new compact of the North American assembler. Launched in 1996, Fiesta represented, altogether with the end of Autolatina in December of the same year, a new stage of interest and investments of Ford in its Brazilian branch and market (EIU, 1997). The introduction of the Brazilian version of Fiesta – the first

18 In fact, this same author refers to the CDW27 Project (Mondeo/Contour/Mystique) as an attempt to introduce strategies of sharing platforms – from which we can easily deduce the strategies of global platforms – “antecipated Ford 2000 in its drawing together of common platform, shared design and development programmes, and transatlantic production facilities” (Bursa et al., 1998: 58). 19 Although Ford has announced the Escort model , launched in both sides of the Atlantic in the 80s, as a real global car, such assertion, in fact, was a mere market strategy, considering that “the two vehicles had almost nothing in common beyond their name and the fact that they belonged to the same class of product ” (Bordenave, 1998: 233). For the same line of thought, see also Bursa et al., (1998). 20 “(...)where conservative tastes and cheap petrol still force Ford to make big cars (Taurus-sized and above) that are unsaleable elsewhwere ” (Bursa et al., 1998: 69). 21 Possibly with the exception of Focus. 22 It was spent about US $1,6 bn to restructure the Fiesta production line at Anchieta plant (Kolodziejski, 1998). 7 product launched by the assembler in the most important segment of the Brazilian car market – attested a turning point of Ford strategy, which started to dispute openly the segment of “popular cars” (EIU, 1997).

Already in 1996, Ford promoted the introduction of a remodelled Escort in the Brazilian market, with a new engine (Zetec 1.4 and 16v) and a more European style. At the same time, the production of Escort family was transferred to the Argentinean plant of Pacheco. Trying to reinforce its presence in the small cars segment, the assembler introduced in 1998, the Ford Ka – the first sub-compact product (or mini) made in Brazil. With an advanced design it was seen with a certain scepticism by the competitors, Ka model introduced a new segment in Brazil called the city cars23.

In November of 2000, Ford launched Focus hatchback in Brazil, with an engine Zetec 1.8c.c. and 16v. Produced in the Argentinean plant of General Pacheco and destined to the Brazilian market, the arrival of the new medium model of Ford, around 2 years after its introduction in Europe, was followed by great expectation by the Brazilian branch of the North American assembler. They believed that with the introduction and publicity around Focus – which in less than two years in Europe and US had surpassed the 1 million units sold – it could benefit the whole line of Ford models in short term. “The idea is that the modern image of the model will have positive effects in the other segments, particularly in the popular one”(GM, 11/12/2000)

The current car line offered by Ford to the Brazilian market is accomplished by the Mondeo and Taurus models, imported respectively from Belgium and from US. The Mondeo production in S. Bernardo plant, an amount of 40 thousands units per year, was already considered by the assembler. (Santos et. al., 1999; Kolodziejski, 1998).

In the segment of light commercial vehicles, Ford produce locally the pickup version of Fiesta, the Courier, and the full-size pickup F 250 and F 1000, this last one from the North American model F 150. The offer of models to this segment is complete by the pickup, and by the Explorer imported respectively from Argentina and from US (Santos et. al., 1999, Kolodziejski, 1998).

Ford Strategy of Research and Development (R&D) To reach its aims in R & D, Ford count on Ford Research Laboratory, which employed by 1995 more than 650 full time scientists and engineers24. The R & D system at Ford enclose the three vehicle programme centre (VPCs)25 and also the other five Research

23 “Competitors such as Fiat and VW “believe that such small cars do not have a significant pontential in Brazil” (EIU, 1997: 70). 24 “In general, the objective of the research staff is to provide long-range technical leadership to the corporation worldwide. This means that the lab is involved in a spectrum of activities ranging from the development of advanced product and manufecturing technologies to long-range, revelant research in key scientific and engineering disciplines ” (Fine and St. Clair, 1996: 41). 25 Which originally were 5 VPCs in Ford 2000, subsequently reduced to the current three (Storey, 1998). 8

Centres26. Ford Europe is responsible by the VPC1, including the small cars (Mondeo and the small ones) and the US operation is in charged by the other two VPCs (Storey, 1998).

In 1999, Ford has invested US$ 7,1 billions in R & D surpassing even GM spending on it (US$ 6,8 billions), usually one of the majors investors in the world car industry. In terms of patents obtained Ford’s achievements were not too promising, although it is improving recently. This way, regarding the patent stock accumulated in USPTO, Ford is in the fifth position, behind respectively of GM, Toyota, Honda and (Carvalho et al., 2001)

To complete its individual efforts in R & D, Ford, GM and Daimler-Chrysler have been enlarging their purpose of pre-competitive associated research programme. In 1992, the three majors North American car plants founded the United State Council for Automotive Research (USCAR) aiming to facilitate, monitoring and promoting a co-operative pre- competitive research.

To this North American assemblers efforts was added, more recently, a Federal government interest towards the accomplishment of research and development of technologies focused on create a “new generation of vehicles”. With this purpose it was created, in the middle of the 90s, the Partnership for a New Generation of Vehicles (PNGV)27, combining efforts and interests of USCAR and the North American Federal Government28.

Technological Strategy of Ford in Brazil The estimates for investments destined to a new assembly car plant in Camaçari (Bahia), to be open in 2001, were around US$ 1.2 to 1.6 billions (GM, 27/10/2000; 26/03/2001)29. The unit from Bahia, which is considered, at the moment, the biggest investment of the assembler of this kind in the world30, will be able to produce up to 250 thousands vehicles when it gets to its full capacity (GM, 20/02/2001). From 2003 on it will become the Brazilian base to produce a new compact line, the Amazon, which will be, according to the assembler, “the best popular car in the Country”. The perspective is that the models Courier and Fiesta will be produced in this new base too (Anfavea, 2000; GM, 26/03/2001).

During the 70s and 80s, “Ford built in Brazil one of the majors units of a product architecture of Latin America, which was responsible by the development of derivatives as Corcel” (Quadros Carvalho et. al., 2000: 186). With the globalisation and with the end of

26 They are based respectively in Merkenich (Germany), Dunton and Coventry (England), Yokohama and Hiroshima (Japan) (Dalton and Serapio, 1999). 27 See also OTA (1995) Advanced Automotive Technology: Visions of a Super-Efficient family Car and The National academy of Sciences (2000) Review of Research of the Partnership for a New Generation of Vehicles: Sixt Report. 28 It was combined “the technology resources of seven federal agencies, twenty government laboratories, and USCAR” (Fine e St.Clair, 1996: 42) 29 It is estimated that additional investments of US$ 700 millions will be done by the system suppliers (GM, 04/09/2000). 30 “Initially, Ford counted with 16 partners, the manufactures of the whole systems who are due to work next to the plant in the same building of the final phase. But the number of partners are 29, by now, and the majority of them are in the installation phase of its plants, and this amount might increase” (GM 10/05/2001). 9

Autolatina, Ford abandoned completely the strategy of regional models. Since then, the number of product engineers employed by the assembler decreased substantially. In 1999, the total number of engineers in charged of product and process development was 120. Currently, the majority of tests and design of prototypes is made in England. In Brazil the activities related to product development are restrict to “local input of global platform (Amazon project)”31 and to the design of the Fiesta pickup derivative – the Courier model (Quadros Carvalho et. al., 2000: 188)32.

Regarding the achievement of patent rights next to INPI (Instituto Nacional de Patentes Industriais), Ford is the second in the ranking of total patents (with 385) of the Brazilian car industry samples, surpassed only by Fiat (with 414) (Carvalho et al., 2001). Besides, Ford is the assembler that presents the biggest absolute number of patents (48), which prior country is Brazil itself. Ford is the second largest assembler (surpassed only by VW) in relative terms, regarding the number of patents acquired next to INPI, having Brazil as a priority (Carvalho et. al., 2001). Ford’s astonishing achievement, regarding patent qualifications, is partly explained, is believed, by the past performance of the products engineering of the Brazilian branch (Quadros Carvalho et al., 2000).

The Globalisation and the Strategy Change in the Toyota Products It was only in 1996 that the major Japanese assembler presented a proper global business project. Up to then, Toyota had practically confined its international expansion to North America, Western Europe and Pacific Rim33 (Storey, 1998; Bursa et. al., 1998).

By 1996, after one year as the new president of the assembler, H. Okuda announced a number of directions which should be followed at Toyota in this new phase. In general terms, the main objectives of the globalisation project were to increase operational profits, cut costs, expansion of the productive capacity to 6 millions vehicles per annum and widening the productive capacity in the non-Asiatic emergent markets (Bursa et. al., 1998).

The project promoted a change in the products strategy of the assembler, which starts to emphasise the development of new models in a regional basis. Besides, the project gave Toyota more competitiveness regarding new markets, and, consequently, a less cautious attitude relating new risks (Storey, 1998).

As a result of the change in the product strategy, Corolla, originally produced in only one version, started to have three different versions: the North American, the European and the Japanese one, in which base are developed the variants for the emergent markets (Bursa et. al., 1998. Another good example is the North American Camry case. Originally built from

31 “About 60 Brazilian engineers are currently working in the development of a world platform at Ford main unit in Dearborn. They will be in the US until June of 2001 and by their return they will reinforce the development area of the local Ford” (GM, 16/02/2000). 32 It was announced that Ford was beginning the restructuring of its engineering production development, in the Taubate unit, where 60 engineers, the majority of them recently employed, were engaged in the development of local engines (GM, 15/08/2000). This information, though promising, it does not seem sufficient to change the character of the previous observations, regarding the present stage of activities of product development of the Brazilian branch of Ford. 33 In fact, up to that moment, Toyota did not present any advance in the emergent markets as China, India, Eastern Europe and Latin America (Bursa et. al., 1998). 10 the same version of the Japanese platform, the North American model was improved and changed itself at such a point that it adopted a specific platform (EIU, 1º Trimestre, 1998)34. Two other important examples of this strategy of a regional basis implemented by Toyota are the cases of its new small cars – the Yaris/Vitz and the Soluna – the so called Asia car. Yaris, the model was named for its European market, it was projected in Europe to the Europeans and it is essential to Toyota’s strategy of expansion, in that region, in particular35, and in the segment of the small cars, in general36. Launched in 1997, Soluna is a passengers car developed specifically to the emergent Asiatic markets and it is produced in a new plant in Thailand (Storey, 1998).

There is an estimate that the 58 line of light car models of Toyota is based around 20 different platforms37 (EIU, 1º trimestre, 1999). That means that the biggest Japanese assembler has, an average of, 2,9 models for each platform38. With the intention of keeping the costs under control and aiming to compensate the strong tendency of ‘nichedification of its domestic market, Toyota is taking decisions in order to adopt strategy of platform coherent regarding the segments of vehicles with engines of 1 to 2 litres – or 1000cc to 2000cc (EIU, 4º trimestre, 1998)39.

In fact, Toyota announced, in 1998, that it would adopt the referred strategy of platform also for its bigger and more expensive vehicles (above 2000cc). Toyota informed too that it was planning to reduce, up to the beginning of the next decade, its current offer of ten platforms to bigger vehicles, to four. A top executive of Toyota emphasises that the assembler would adopt a “progressive” approach of the mentioned strategy, making clear that the “platforms would be modified and improved at each launching of a new model” (EIU, 1º trimestre, 1998: 100). If the trajectory of the Camry North American model – which changed at such a point that it does not share the same platform anymore with its Japanese counterpart – is an example of the mentioned “progressive” approach, we have the impression, once more, that the Japanese idea of platform strategy – at least in the case of bigger and more expensive

34To implement the strategy of regional models, Toyota counted with a more active help of Marketing and Engineering (created in 1990, and based initially in Belgium) from Toyota Technical Centre, US and from Calty Design Research. 35 In 1998, Toyota held 2,8% of the European car market. With the end of the ‘voluntary’ restriction deal between EU and Japan, in 2000, Toyota is expecting to increase to 5%, within the next years, its participation in that market. Launched in 1999, Yaris is the big shot to the assembler’s planned expansion (Bursa et. al., 1998). 36 “The company considers that the European market is strategically important to the worldwide sucess and believes that if it can design a car which sucessfully meets the demanding tastes and preferences of European consumers, then this model will be appreciated in all world markets ” (Bursa, et. al., 1998: 82). 37 The assembler itself admited that it was “difficult to identify the number of platforms it has as products have mushroomed based on existing models and taken their own path of development” (EIU, 4th quarter 1998: 44). 38This wide line of models keeps the assembler more protected from sales fluctuation during the models changeover. Besides, the line of products of Toyota has a good mix, ...(Storey, 1998: 178). 39According to this new strategy, Toyota is planning to reduce platforms from 10 to 4, which number used to attend the subcompact car segment (1000cc to 2000cc) producing, this way, a reduction cost of about 20 to 30 billions yens 11 models, to which the notion of product integrity is stronger (see Fujimoto, 1997) – is apparently distinct of the western conception40.

In answer, for example, to the continuous tendency of ‘nichedification’ of the internal demand41 and the intensity of programs introducing new models of its competitors, Toyota adopted the most intense program of development of new products of the Japanese car industry (EIU, 1º trimestre, 1998). At the same time, Toyota plans to adjust its different expertise, centralising in Japan the production destined to market niche – internal and external ones – and leaving to the ‘transplants’ the production of the large production runs (EIU, 4º trimestre, 1998).

Toyota and the New Technologies In 1997, Toyota launched Prius, the first hybrid car (petrol-electricity) commercialised by an assembler. In 1998, the production of Prius reached 2 thousands units per month, the double of what it was planned initially. It was planned too the launching of Prius in the North American and European markets by 2000 (EIU, 4º trimestre, 1998).

In 1999, Toyota investments in R & D were of US$ 3.8 billions, the fifth biggest amount among the assemblers (2000 Global Automotive Finance Review). In terms of the numbers of patents, Toyota achievements have been much more expressive. In the stock ranking of patents given by the USPTO (US Patent and Trademark Office) Toyota appears in the 2nd place with 7218, surpassed only by GM (8437). Regarding flux of patents achieved annually, Toyota reached the 4th place in 1998 and 1999, with respectively 267 and 75 patents (Carvalho, et. al., 2001)42.

According to its strategy of increasing co-operation with other assemblers, instead of investing in fusion or mergers, Toyota established recently deals of technological co- operation with GM and VW. With GM the deal included a joint development of a future hybrid electric vehicle and also another one with a system of cell fuel within the next 5 years (Automotive Engineering International, August, 1999)43

With VW, the co-operation involving the development of recycling technologies, navigation and telematics. Regarding the last two, the deal consider the co-operation to

40There are more examples of this. There is the “flexible” platform technique developed by Honda, which is beginning to be adopted by other Japanese assemblers (Toyota, for example, informed that it was planning to use this new technique in the Corolla model, to be launched in 1999). Through the development of new technologies, which permit that a platform to be enlarged or extended, it was possible to produce models of different sizes with little additional investments in equipaments of body assembly. In fact, it is possible that the conventional definition of platform is changing nowadays (EIU, 1st quarter 1998). 41The Japanese consumers are leading the tendency to ‘nichedification’ of demand. “Only six passenger car models sold at a rate of over 100,000 units in 1997, and three of those were Toyota models. Only one model, the , sold at a rate of over 200,000 units” (EIU, 4th quarter 1998: 50). 42 It is possible that the 1999 data, the last one available, is not a definitive one, although, there is nothing about it in the information sources: USPTO and Delphion.com. 43 Concerning the development of vehicles with cell fuel, Toyota is less enthusiastic than the others assemblers. They are concern about the time necessary to put a vehicle with this technology in the market, even in a modest scale. It seems that 2003-2005 is a quite optimistic prevision for it according to Toyota (Automotive Engineering International, August 1999). 12 develop hard and software to the navigation system, as well as viability of traffic information services (Storey, 1998; Automotive News Europe, 3rd, July, 2000)44.

Toyota in Brazil Thirty nine years after installing its first plant in S. Bernardo (SP), Toyota opened, in 1998, its second Brazilian plant. Established in Indaiatuba (SP), the new unit of US$ 150 millions, was dimensioned firstly to produce 15 thousands units per year of a sedan Corolla model, a medium-size product. The initial previsions indicated that the production of this plant could be expanded up to 200 thousands units/year. It was planned too the possibility of producing a second model (a small car) to compete in the segment of 1000cc (EIU, 1997b; Kolodziejski, 1998).

Even considering that its achievements were better in the last year, the performance of the biggest Japanese assembler in the Brazilian market is just moderate, if compared, for instance, to Renault. Only in 2000 the sales of Toyota (28,3 thousands) had surpassed Honda (19,7 thousand) and it granted the fifth position in the ranking of the assemblers based in Brazil (GM, 19/01/2001). In 1999, the two assemblers sold around 17 thousand units each one. Toyota modest account in Brazil is due the relatively conservative behaviour of the marketing policy of the Company and to its absence in the segments of major demand in the Brazilian market45.

In fact, the line of local models of Toyota is restrict to the obsolete Bandeirante (still in production in S. Bernardo), to the medium-size sedan Corolla, produced in Indaiatuba, and to the pickup Hi-lux, produced in the Zerate plant, in the Argentinean province of Buenos Aires (GM, several numbers; EIU, 1997b). The line of models of Toyota in Brazil is complemented with the importation from Japan, of the cars Corona and Camry and the sports- utilities models Blazer (SW4) and Rav 4 (GM, several numbers).

Globalisation and the Strategy of Products of According to GM globalisation implies producing in the main markets and not only be present by means of importation. With this purpose, the Company plans expand significantly part of the productive capacity installed outside North America. As affirmed by Louis Hughes, chairman of General Motors International Operations (GMIO), “half of our production capacity will be located outside North America within the foreseeable future” (Bursa et al., 1998: 35).

In conformity with this perspective – and still under the impact of the fusion between Daimler and Chrysler – GM announced in the Autumn of 1998 its new global restructuring program. With several common purposes with Ford 2000, GM globalisation program anticipated:

Integration of worldly automotive operations in a single group, introducing, this way, a similar structure adopted by Ford, “in an effort to speed up decision-making and increase

44 “In all this cases, each company detains its independence and identity while the technical knowlodge and the efficient scales would be shared for mutual advantage (...) For Toyota, it is the way to the future ” (Automotive News Europe, 3rd, July, 2000: 1). 45 Such actitude is typical of Toyota towards the emergent markets, with the exception of the Asiatic countries (Bursa, et. al., 1998). 13 flexibility and responsiveness” (Storey, 1998: 86); reduction on the number of car platforms from 16 to 8; the off of Delphi (its partner on the parts manufacture) which occurred in 1999; the construction of a new generation of assembly plants, smaller and using less intensive work in comparison with the previous ones46; rationalisation of the structure of distribution of US, aiming reducing the superposition between its divisions; the adoption of the Opel Brand (German subsidiary of GM) as a base towards a international expansion (Bursa, et. all., 1998)47. Still under a strong impression regarding the Daimler-Chrysler fusion, GM and Fiat announced, in March, 2000, a partnership, involving share exchanges of US$ 2.4 billions48, aiming cost reduction of the two assemblers, a creation of several joint-ventures involving engine production and power trains, and the acquisition of components in general (FT, 13th, March, 2000)49.

Since the introduction of its global restructuring program, in October of 1998, GM products strategy are based mainly in the concept of flexible platform. Corsa is a good example of this strategy of globalisation: “Using one platform, it is already produced in five countries and five body styles. Brazil has added pickup, station wagon and saloon versions not seen in Europe”, where the hatchback model of three and five doors are the top sellers (Bursa et. al., 1998: 36).

Perfectly adapted to the emergent countries market, Corsa was too GM top seller car in Europe, between 1996 and 1997, becoming, not intentionally, in GM first ‘global platform’50 (Bursa et. al., 1998; Storey, 1998). Between 1993 to the middle of 1998, “3.6 million units have left the various production plants located around the globe, to be sold in 75 countries” (Bursa et al., 1998: 36).

The Strategy of Products of General Motors in Brazil The Opala – based in the Opel Reckord and introduced in 1968 – was the first car produced in Brazil by GM. Since then, all passengers cars produced in Brazil by GM are based in the Opel models. It was the same with Chevette and with Opala Caravan, a station wagon, launched respectively in 1973 and 1974. In the same way, Monza – introduced in 1980 (and re-styled in 1990) and which became the most well succeeded GM model in the Brazilian market – was based on the Opel Ascona. Still during the 80s, GM introduced the Kadett (EIU, 1997b; Bursa et al., 1998).

46 In 1998, the assembly launched a simultaneous construction plan of 4 new plants based in lean production technology, adopted in the successful plant of Eisenach. These 4 new plants were located in Argentina, Poland, China, and Thailand, with an estimate total cost of US$ 2.2 billions (Bursa, et. al., 1998). 47 Several analysts believed that the onus resulted from the globalisation plans of GM over the GM Europe, is one of the main consequences of quality problems faced by the Company in Europe, particularly regarding the Vectra model (Bursa, et. al., 1998). 48 With the deal GM will get 20% of the share capital of Fiat Auto in exchange of US$ 2.4 billions in GM shares, which will grant to Fiat group a control over 5,1% of the share capital of the North American assembler. (For the accomplishment of this agreement, the total value of Fiat Auto was rated in US$ 12 billions). Both assemblers informed that the deal will preserve their independence and distinct identities. (FT, 13th March, 2000). 49 Both groups announced that they are hoping to get annual cost reduction of US$ 1.2 billions during 3 years, and that they will reach an amount of US$ 2 billions in 5 years (FT, 13th, March, 2000). 50 As a matter of fact, it is not a global product as it was not, practically, present in the North American and Japanese markets. 14

From 1992, GM adopted a more aggressive strategy of products, which resulted in the introduction of a new model, literally, at each year. First it was Omega, which replaced the old Opala in 1992. Following this came the station wagon version of the Omega (Suprema), Vectra and Corsa hatchback, respectively in 1993 and 1994. In 1995 and 1996, GM introduced, respectively, a compact pickup S10 and the new Vectra. In 1997 GM launched Astra (imported from Europe), the pickup and saloon51 versions of Corsa and the sports-utility model Blazer (EIU, 1997b; Bursa et. al., 1998). By 2000, GM introduced Celta – a new subcompact, based in the Corsa platform, produced in the assembler new plant in Gravataí (RS). Still in 2000 were re-launched, in new versions, Astra and Vectra. Finally in 2001, the North American assembler introduced in the Brazilian market Zafira, a mini-van based in Astra platform and produced in its unit of S. José dos Campos. (O Estado de S. Paulo, 20/06/00, 20/07/00 and 20/09/00). The line of light vehicles of GM in Brazil is completed by the full-size pickup D20, currently imported from Argentina, and by Calibra – a two doors coupé imported from Europe (EIU, 1997b; Bursa et al., 1998; O Estado de S. Paulo, several numbers).

General Motors and the Research and Development Strategy GM in the last years became a leading North American corporation regarding investments too in R & D (US Corporation R & D, 1999). In 1999, its spending in this area were of US$ 6.8 billions52. “It also employs more PhDs than any other private employer in the United States” (Fine and St. Clair, 1996: 41). Even so, GM results in R & D – measured in terms of patents achieved in the US – are not too efficient (at least in recent years) comparing with Toyota and Honda (Carvalho et al., 2001).

At the moment, the R & D structure of GM is experiencing changes. The majority of the R & D activities used to be accomplished in the laboratory of central research – in the GM Technical Centre, built in the outskirts of Detroit in the 50s. Nowadays, the Company “is plancing much greater stress on the integration of its research efforts with the product planning of its car and truck divisions”. The three Product Development Centres – in Warren and (Michigan) and in Ruffelsheim (Germany) – reflect these changes: “the plans are more focused on the needs of its operating divisions and its customers” (Fine and St. Clair, 1996: 41).

According to the Automotive Intelligence information (www.Autointell.com), the new structure of R & D of GM would be complemented by other 8 local Engineering Centres (among those are the São Paulo (Brazil) and Shanghai (China) ones). Nevertheless, the information obtained – by recent information available from the North American Department of Commerce – indicates the existence of only four R & D centres of GM outside the national borders. They are the Ruffelsheim Centre (Germany); Strasbourg (France); Oshawa (Canada) and Shanghai (China)53. (US Department of Commerce, 1999).

51 It was, then planned too the introduction of the version station wagon of Corsa, which, together with the pickup and saloon versions, were developed locally, from the Corsa basic platform, by the GM Technical Development Centre based in S. Caetano plant (Bursa, et. al., 1998). 52 In this particular year it was Ford the one which invested more in R & D (US$ 7.1 billions) and GM reached the second place (1999 Global Automotive...). 53 Coincidentally, the local Engineering Centre of S. Paulo, referred as GM Technical Development Centre in Bursa et. al., 1998, was not mentioned by the North American Department of Commerce as a plant where there was R & D activities (US, Department of Commerce, 1999). 15

Regarding the tendency of an intensive use of electronic components in the car industry, both GM and Ford demonstrate that they are sufficiently adapted. Highly integrated (vertically) with electronics, the two biggest North American assemblers (and particularly GM) are among the majors consumers of electronic components, having a leading role in the development of electronic technologies (Fine and St. Clair, 1996).

Research and Development Strategy of GM in Brazil The new GM plant in Rio Grande do Sul – which up to its launching cost US$ 554 millions (40% financed by the local government) – was planned in an industrial condominium. As it is well known, in this way of organising the production, suppliers of systems and sub-systems – installed next to the plant, ideally by its side – deliver the systems complete or partially ready – just-in-time – which will be added to the vehicles in the assembly line54. The unit, which production is planned up to 120 thousand units per year, will operate, in its initial phase, with a total of 120 robots (the majority of them in the tin sector) (O Estado de S. Paulo, 21/07/2000)55.

In the S. Caetano do Sul plant – which was the first GM unit to do the final assembly of four cars (Kadett, Monza, Vectra and Omega) in a same line – is the base of the GM Technical Development Centre56, responsible by the development of the local derivatives of the Corsa platform (saloon, pickup and station wagon) and the Astra sedan, the engine 1000cc and also participated of the Blue Macaw project from its concept. (Bursa et. al., 1998; Quadros Carvalho et. al., 2000).

In conformity with its multi-regional product strategy, GM expanded considerably57 its “substructure and its R & D staff in the second half of the 90s.”. In fact, its Technological Centre in S. Caetano, employed more than 1000 people (400 product engineers), in 1999. And, still according to Quadros Carvalho et al. (2000), GM was the only subsidiary installed in Brazil to get “return selling its technological services to other countries (around US$ 100 millions, in 1998)” (Quadros Carvalho et al., 2000: 189).

Regarding the achievement of patents next to INPI/Brazil, the Brazilian branch of GM is the third (with 264 patents) in the ranking of assemblers car samples (Carvalho et al., 2001). GM is in the third position too (with 23 patents and 8,7%) when analysing the percentage of accepted patents by the INPI/Brazil which has Brazil itself as a priority(Carvalho et al., 2001).

54The assembler informs that it was possible to assemble, in the same place, 16 of a total of 17 systems suppliers in charged by the production of components and responding by 85% of the price of Celta (GM, 18/07/00). 55 By the time of its opening, in the 21st of July, 2000, the Gravataí unit employed 2100 workers. Prospective account points to 4000 workers the moment the plant works at its full capacity (O Estado S. Paulo, 21/07/00). 56By the time of its opening, in the 21st of July, 2000, the Gravataí unit employed 2100 workers. Prospective account points to 4000 workers the moment the plant works at its full capacity (O Estado S. Paulo, 21/07/00). 57In the same way as Fiat does (Quadros Carvalho, et. al., 2000). 16

Globalisation and Products Strategy of The main aspect of the action plan of the VW group is the well known “platform strategy”. Conceived in 1994, it had as its main objective the replacement of 16 car platforms existent by only four new ones, which would be the base of all models sold under the group’s trademark as Volkswagen, , Seat and Skoda. The program promised significant economies of scale. “For example, it will double the volume of cars produced on the Golf platform, from one million to two million ” (Bursa et al., 1998: 97), which implied cost reduction from 10 to 15%, according to the Company’s estimates. Essential to the project were the adoption of flexible and lean production technics58.

The possibilities of adjustment of the platforms dimension in width and length, would give to the VW designers “sufficient scope to cover the five recognised mainstream car classes with just three platforms. Indeed, rather than reduce customer choice, the plan has enabled Volswagen to increase the number of model/body variants on offer from 20 t0 30” (Bursa et al., 1998: 97).

By one side, the program would made possible a more strategic utilisation of the productive plants, with different models built from the same platform, in the same assembly line. One additional step in the program, which would reduce costs significantly, was to convert each productive plant in a global supplier for specific models, or, at least, for a group of models based in a same platform. The new Beetle would be the first car built under this system. It would be produced only by the VW plant in Puebla () to supply the whole world demand for the model59.

Even considering that the financial results of the VW group exceeded the expectations in 2000, there is a concern among the investors and annalists regarding the future of the product strategy of the corporation (www.ai-online.com/articles-00-07-2000). One of the worries is that the platform consolidation policy went too far 60. And it is not surprising that the “company is getting away from that strategy and going towards the ‘modularization’ (...)” (www.just-auto.com/editorial – 20/02/2001:1).

By other side, although VW group was able to benefit with scale gains, keeping low prices for Skodas and and getting high profits with more prestigious marks as VW and Audi, there is signs that consumers are noticing these corporate tricks of “smoke-and- mirrors” behind the multi-brands strategies. As it is been indicated by surveys, 5 times more consumers are swapping from VW models to Skoda ones in 1999 comparatively to what happened in 1997. Skoda models “are quickly building a reputation of cars with VW quality

58 VW was a pioneer in introducing the idea of having suppliers working directly in the assembly line, particularly in the Skoda plant in Mlada Boleslav, Czechoslovakia, where suppliers as Lucas Varity built whole modules of components directly in the cars (Bursa, et. al., 1998). 59Additionally this strategy would permit VW keep the development of cars specifically to thee emergent countries markets, as the model Gol in Brazil and Santana in China (Storey, 1998). 60 The production of several models from the same platform can result diseconomies of scale in marketing, R & D, design, and production costs if all the production overtakes the scale optimum (www.just- auto.com/editorial- 20/02/2001:1) 17 at Ford’s prices; and the consumers are reacting in accordance to it” (www.ai.online.com/articles – 00/07/2000: 2)61.

Products Strategy of VW in Brazil Up to recent years, VW in Brazil was keeping the tradition of developing specific models for the domestic market, having developed locally a sports car (SP2) in 1972, the hatchback Brasilia in 1973 and three generations of Gol – introduced in 1981 and remodelled successively in 1993 and 1999 (EIU, 1997; GM, 26/02/99).

Despite the large success of the Gol family – which sold around 448,7 thousand units in 1997 and answered for about 80% of de the sales of the German assembler in Brazil (GM, 26/02/99) – it will be probably the last model developed specifically to the national demand, and possibly will not share its platform with any other model of the assembler. In fact, the new strategy of reduction the number of platforms, which has been adopted worldly by VW, is not, actually, compatible with the strategy of developing local models (Bursa et. al., 1998).

What happened is that the PQ-24 – the new small car that VW is developing based on the Polo 4th generation platform, destined to the European and Brazilian markets in 2002, becoming the natural replacement for Gol, is turning up to be more expensive than it was planned initially, and if kept the original patterns of the project, its price would be much higher than Gol. Before this, the assembler is looking for other options for parts to place the new car in a basic level (entry level) and has decided to positioning PQ-24, in prices terms, between Gol and Golf segments.

Considering this, it seems that the PQ-24 model will replace only gradually (and maybe, partially) the products of the Gol family, which will have a similar role as the Uno Mille to Fiat. Apparently, the replacement of Gol will not happen as it was expected initially, considering its importance in the local market and the difficulties found by the assembler to introduce a new model with a similar price (GM, 13/02/2001).

Another important fact of the product strategy of the German assembler in the Brazilian market is a delay in the introduction of the so called “global cars” and its low competitiveness in the small car segment (A and B segments). Although, VW has been, in general, the assembler that has introduced more new car platforms in Brazil, in the 90s (Quadros Carvalho et al., 2000), none of them aimed the small cars segments and/or involved the so called ‘global cars’62. In fact, such introduction will happen only in 2002, with the launching of the new PQ-24, almost one decade late in comparison with its competitors63.

61The concomitant utilisation of a quite aggressive rationalisation policy of platforms (reduced to an amount of 4) and an unusual multi-brand strategy – based in the mechanical quality of VW (Bursa, et. al., 1998) – it seems to delineate the difference between the marks and generating a frightening ‘canibalism’ among them (...1; Storey, 1998). 62 By 1997, for example, all the main VW competitors introduced versions of the so called “global cars” in the Brazilian market, while the German assembler was restrict to Gol renovation. Fiat launched Palio, GM the Corsa, and Ford, which had already the Escort Hobby 1000, introduced Fiesta and Ka (Kolodziejski, 1998). 63 We are not considering the introduction of Golf, which begin to be produced in the S. Jose dos Pinhais (PR) unit from 1999, because this model – although is considered a “global car” – is usually classified as a medium vehicle, and therefore belonging to segment C. 18

The VW delay in modernise is products, regarding a crucial segment of the market, seems one of the main reasons which caused the German assembler to loose its privileged leading condition in the Brazilian market, inducing it to dispute, from 1997, the leadership with Fiat (Kolodziejski, 1998; Carvalho et al., 2001).

The current line of light VW vehicles produced in Brazil is formed by Gol family (Gol, Parati, Saveiro), by the Santana/Quantum platform64, by the obsolete Kombi (pickup and van) and by the new models Golf and Audi A3 produced in the new unit in S. Jose dos Pinhais (PR) since 199965. The model line of the German assembler is completed with the imported ones Polo Classic (Argentina), Bora (Mexico)66, Passat/Variant (Germany)67 and with Seat Ibiza and Seat Cordoba (Spain) (EIU, 1997b; Kolodziejski, 1998; GM, several numbers).

VW Group and the Research and Development Strategy The R & D centre of VW, in Wolfsburg, employs around 12 thousand technicians – including engineers, qualified technicians, and experts (www.autointell.com/european_companies/ volkswagen) – and at the Audi centre more 4 thousand technicians are currently working there (Quadros Carvalho et. al., 2000). At Seat and Skoda research centres are working 2000 and 1000 technicians respectively (www.autointell.com/european–companies/volkswagen). By 1999, the total expending of VW group with R & D was US$ 4.03 billions (Carvalho et al., 2001). With this amount VW group went to the fourth place in world terms, surpassed only by Ford, GM and Daimler-Chrysler AG, respectively.

In terms of patents achieved in the North American market, the numbers show little competitiveness of the group. The comparison with the Daimler-Chrysler number, for example, are quite contrasting (Carvalho et al., 2001) . The contrast becomes more evident when we realise that the total expending with R & D of the two German groups were relatively similar during 1999: US$ 5.77 billions from DC and US$ 4.03 billions from VW (Global Automotive Financial Review, 1999)68.

Regarding the technological sector, VW has as an advantage the fact that it was the first assembler to introduce, in the vehicles produced in Brazil, the electronic fuel injection, ABS breaks and the catalysers. VW was the first assembler to get ISO 9001 and 9002 register to its plant in Taubate and to its retail sales net. Besides, its unit in Taubate, where the family Gol models are produced, is considered one of the most advanced car plant of Latin America. This plant had, in 1997, a productive capacity of 1.100 car daily, a group of 167 robots (69 of them in the paint-work sector) and a productivity of 43 units per worker, far superior to the 33

64The Santana/Quantum family, launched in 1984, went through little changes, and it is still on thanks to its relatively low prices. It is the only one in its segment produced locally. Planned to replace the Passat family, it gained more strenght with the currency devaluation in 1999 (EIU, 1997b; GM, 04/07/2000). 65 Before been produced in Brazil, Golf was firstly imported from Europe, and more recently from Mexico (EIU, 1997b). 66 Launched in the Brazilian market in December of 2000, Bora is a medium sedan based on the Golf platform (O Estado de S. Paulo, 2001). 67 It was mentioned by the press the possibility of Passat be produced in the S. Jose dos Pinhais (PR) unit. 68 The idea that VW data might have some errors cannot be disregard. 19 units achieved then in its pioneer and complex plant in S. Bernardo (Kolodziejski, 1998, EIU, 1997)69. At S. Bernardo unit, VW has its design and engineering centre (Ala 17), which was considered once the biggest of its kind in Latin America. It had once 450 engineers, with the capacity to develop completely cars, trucks, and counting with the stations CAD-CAM connected by satellites to the R & D centre of VW in Germany. In 1997, it offer “a complete prototype shop, with press and injection moulding machines, a laboratory that has 28 dynamometers and a facility that can crash-test cars to US Specifications” (EIU, 1997: 89).

This centre was responsible, for example, by the design of the line Logus/Pointer (based on the Escort platform, during the Autolatina); of all generation of Gol platform and engines 1000cc (including the 16v and the turbo version ones). In the case of the new PQ-24 project, the participation of the Brazilian development unit has been more restrict, focusing on local inputs of the ‘global’ platform, not including the concept definition (Quadros Carvalho et. al., 2000). The Brazilian centre has been responsible too by the development of the trucks and coaches lines of VW, activity which began in partnership with Ford, by the Autolatina times. With the end of the joint-venture in 1996, VW focused in its production of heavy vehicles in its new plant in Rezende (RJ), which since its beginning in 1995 was the only unit of the group to invest in heavy vehicles (EIU, 1997b). This situation, however, might undergo some changes due the recent acquisition of Scania, the Swedish truck assembler, by VW group.

Regarding the patents in Brazil, VW is, surprisingly, the 7th in the ranking of the Brazilian car industry, amassing a total of only 34 patents (Carvalho et al., 2001) . However, the majority of patents achieved by VW in Brazil – 28 of a total of 34 (82,4%) – had Brazil itself as a priority (Carvalho et al., 2001). This fact might explain, partly, the low number of patents achieved by VW in the Country. Apparently, the German assembler does not care to validate here the patents from Germany. Anyhow, even if there was an emphasis on the patents produced locally, the performance by the Brazilian centre of design and engineering of VW would reach the third place in the Brazilian Autoindustry (Carvalho et al., 2001); a modest result considering a centre with a technical capacity relatively high (Quadros Carvalho et al., 2000; EIU, 1997).

The Globalisation and the Products Strategy of Fiat After a very promising beginning during the 80s – with the launching of the successful Uno, in 1982 – Fiat permitted that its product line stagnated for the rest of the decade70. The recovering, during the 90s, was equally remarkable. Announced in 1991, the US$ 21 billions project to renovate the whole line of products up to 1996, was one of the majors investments in renovation of models ever seen in the international car industry (Bursa et al., 1998)71.

69 Where were produced then three distinct family of cars, engine, gear box, and even some foundry work of parts (Kolodziejski,1998). 70The focus of the car division was excessively centred on the domestic market, which became responsible for half of the total car sales. By other side, in the same way as after the recession by the end of the 70s, Fiat group decided to diversify its activities - railway transports, chemical and machinery involving agricultural business – in such a way that the automotive activities were only 50% of the total income of the group (Bursa, et. al., 1998). 71 It was planned the introduction of 18 new models, both in the mass production segment and the “niche” one (idem, ibdem). 20

The first of the new models introduced was Fiat Cinquecento, launched in 1992 and produced only in Poland72, which was replaced, in the beginning of 1998 by the Seicento, the first model of the ‘second generation’ of the new line of products (Storey, 1998). On the other side, with the introduction of a new and flexible manufacturing software, developed by Comau (subsidiary of industrial machinery of Fiat Group), it was possible to expand the variety of vehicles produced in a same assembly line.

The new system was installed in the main plants of Fiat group, including the Melfi plant – the major and the most advanced of the group. Opened in 1994 on the Italian Southeast, the Melfi plant, with a productive capacity of 450 thousand units per year, has adopted new technologies of flexible manufacture and new productive conceptions of the Fiat Group (Bursa et al., 1998).

Regarding the strategy of products we have to point out that, as the others European assemblers, with the exception of DC and the majority of specialised manufacturers73, Fiat has incorporated too the concept of platforms. On the other side, the Italian group has adopted too a more multi-regional approach in its general globalisation strategy (Bélis-Bergouingnan and Lung, 1996), which lead Fiat to develop and introduce an entirely new platform, produced to attend the need of the emergent markets (the project 178). In showing interest to adopt derivatives of global platforms and, even so, having developed a regional platform (for the emergent markets), the Fiat Group, as GM too, introduced in its products strategy a dimension of what has been called of strategy of glocalização – qualification used to describe the general strategies of globalisation of some Japanese assemblers (particularly Toyota an Honda) and its consequences in terms of policy of products (Ruigrok & van Tulder 1991 and 1995).

Planned to sell around 1 million units74 and generate major economies of scale in the components acquisition75, the project 178 was finely conceived. Using consolidated technology (but not obsolete), it was projected to be easy to produce, low operational and maintenance costs. Launched in Brazil in 1996, in the hatchback version with three and five doors, the Palio family (the project 178) is having an important role in the geographic diversification strategy of the sales of Fiat Group, being produced in 8 countries76 – Brazil, Argentina, Turkey, Poland, Russia, Marroco, and South Africa – and assemble, in a kit CKD form, e more other five countries – Venezuela, Colombia, Ecuador, Indonesia, and Egypt (Bursa et al., 1998).

Products Strategy of Fiat in Brazil After the launching of Uno Mille 1000cc, in 1990, it follows in 1991 the introduction of Tempra saloon. Apart of entering in a new segment with this model, Fiat introduced new technologies too in the Brazilian car industry as, for instance, the first 16v engines and the

72 In 1997, the last year planned for its manufacture, the production reached 206,9 thousands units (Storey, 1998). 73 It is not, for example, the case of Audi. 74 In 1998, the productive capacity installed to produce Palio and its variants were around 1 million units (Bursa, et. al., 1998). 75 This permitted Fiat group to reach a total production of more than 3 millions units, which granted it conditions to survive in a long term (EIU, 3rd quarter, 1998). 76 It is produced too in the versions saloon 4 doors (Siena), station wagon (Palio Weekend), to which soon followed the van and pickup versions (Storey, 1998). 21 first car with turbo-compressor . From 1993, Fiat Tipo was imported from Europe and became very successful. By November of 1995, Tipo started to be produced locally in the production line of Tempra (Kolodziejski, 1998).

In April of 1996 Fiat launched, from Brazil, its first 178 project – a line of models developed mainly for the emergent markets (see item II 5.2). Initially were launched the models Palio hatchback of three and five doors. In March of 1997 came the station wagon (also produced in Betim). Following these models came the station wagon version (Palio Weekend), van and pickup. The Argentinean Fiat was in charged of the production of the saloon version (Siena) (Bursa et. al., 1998; EIU, 1997).

In October of 2000, Fiat introduced worldly, in Rio de Janeiro, its second generation of Palio family, re-styled in its shape, and mainly in the engine an technology embodied (Autodata, October, 2000). The motorization is made with new engines Fire (Fully Integrated Robotized Engine) 1.o, 1.3 and 1.6 (with 8 or 16v), produced in the newly opened line of engine of Betim.

From the previous line of products the models Uno Mille Smart (the cheapest car in the national market) and the version of Palio Young (from the first generation), more austere and slightly more expensive than the Celta (GM), but presenting now the versions with two And four doors (Autodata, October 2000).

The current line of products of the Italian assembler presents, still from the second generation of Palio, the family (platform) Brava/Marea (segments C and D respectively), launched in 199877, and the imported ones Alfa Romeo (164, 145, 155 and Spider). Some of Fiat special models are imported as Tempra SW and Coupé (Auto data, October, 2000; EIU, 1997).

Fiat grew quicker than any other assembler in Brazil, during the 90s, so much that it is currently disputing with VW the position of the biggest producer of vehicles in the Country (GM online, 21/03/02). Fiat was the biggest beneficiary of the internal market increase during the 90s, and it was quicker to understand the opportunity given by the fierce expansion of the small-size car segment, which resulted in the adoption of the Automotive Deals (in 1992 and 93), and mainly, the introduction of incentive to produce popular vehicles, in 1993 (Bedê, 1997)78. While the Brazilian total car sales grew 272,7% between 1990 and 1997, Fiat sales expanded around 489,2% (Kolodziejski, 1998).

The Strategy of R & D of Fiat The main technological centre of Fiat – Fiat Research Centre (FRC) – is based in Turin and employed, by 1998, around 850 technicians, according to the Annual Report of Fiat of the same year. According to information of Global Automotive Financial Review of

77 In substitution to Tipo and Tempra models. 78 With the advantage of been the single assembler to produce a 1000cc car – Uno Mille – since 1990 (Hollanda Filho, 1996) Fiat started from favorable conditions and conquered a large space in the crescent and important segment of popular cars. 22

1999, Fiat invested that year, US$ 1.4 billion in R & D79. According to these information the patents achieved, informed by the site Delphion and by USPTO (United States Patent and Trademark Office), Fiat has a total accumulated (stocked) of 594 patents achieved in the North American market. This number, which might seems modest at first sight (when compared to the North American and Japanese achievements), reveals, nevertheless, more significant if compared to the VW ones, or even the DC ones (Carvalho et al., 2001). But considering the quantity of patents achieved by Fiat (flow) next to USPTO in 1998 and 1999 is smaller than the VW ones, surpassing only the results conquered by Renault (Carvalho et al., 2001).

Relating the technological strategy of the Italian assembler in Brazil, is worth to emphasise initially, the creation of a technical centre in Betim, in 1993, accomplishing engineering activities and product development. Connected via satellite to the laboratories in Turin, the Brazilian technological centre would have, according to Quadros Carvalho et al., (2000), a staff of around 150 engineers – or 1/8 of the main technological centre of the assembler (Fiat Research Centre), in Turin80.

According to available data, the project 178, which development was based in Italy, counted with a substantial co-operation of Brazilian engineers, who participated of the project from its conception phase (Quadros Carvalho et al., 2000: 188; Kolodziejski, 1998)81. A latest account of the recent evolution of the contribution of the technical centre of Betim in the activities of the Italian assembler is, though, restrict, as the information are not available yet, for example, on the participation of the Brazilian engineers in the development of the second generation project of the Palio family.

Regarding the process of patents achievement – in the Brazilian case given by INPI – we have to point out that Fiat is the leader assembler in the Brazilian ranking, amassing 414 patents (Carvalho et al., 2001). We have to mention here, however, that only 7,5% of this total of patents had Brazil as priority (Carvalho et al., 2001).

DISCUSSION

The analysis of recent strategies of products and R & D of the five main assemblers based in Brazil – GM, Ford, VW, Fiat and Toyota – seems to indicate, in general terms, the existence of a strong association between global strategies of the assemblers products and its respective local action regarding R & D. This way, the assemblers that adopted strategies of models or regional platforms, as for example, Fiat and GM, presented an expansion on its local substructure of R & D (Quadros Carvalho et al., 2000). While Ford, when abandoned completely its old strategy of regional models with the adoption of Ford 2000, have been

79 It reached the fifth place in the European ranking of R & D investments in 1999, behind respectively of DC (US$ 5.7 billions), VW group (US$ 4.o billions), Renault (US$ 1.9 billions) and (US$ 1.5 billions) (Global Automotive Financial Review, 1999). 80 According to annual report of Fiat group in 1998, it had then a technical staff of 850 workers (see too item II. 5.3). 81 Again according to Quadros Carvalho et. al., (2000) the technical centre in Betim is developing design derivative from Palio (version sedan, wagon and pickup) and engines of 1000cc. Despite counting with a modest number of laboratories the centre is able to develop prototypes locally 23 reducing continually, since then, its local staff of product and processes development, which in the past was one of the majors product engineering units of Latin America (Quadros Carvalho et. al., 2000).

Now, the VW case is distinct of the others and a little paradoxical. By one side, the new strategy of platform reduction, adopted by VW worldly, does not seem compatible, at least apparently, with the strategy of development of local models (Bursa et al., 1998). This strategy was one of the essentials characteristic of the successful history of the German assembler in the Brazilian market. On the other side, as the successful experience of VW is largely due the (platform) Gol model, the German assembler is forced to postpone the announced replacement of the Gol family. According to the original plans of the assembler the replacement of Gol by the PQ-24 (see item II.4.2) should have occurred already. Owing to these facts, the importance and the activities of the design and engineering centre of VW in Brazil seems to be diminishing, as indicated by the fact that the Brazilian participation in the development of the PQ-24 project is restrict to local inputs of ‘global’ platform, not including, for example, the definition of the concept (see item II.4.3).

The position of Toyota is quite diferente. The effective entrace of the biggest Japanese assembler in the Brazilian market is very recent and until now its behaviour have been caution and relatively conservative. For this reason, it seems too early to obtain an appropriated estimate of Toyota’s strategies of product and R & D in the Brazilian case. 24

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