International Industrial Restructuring and the International Division of Labour in the Automotive Industry *J
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LIMITED UNIDO/ISAj2 19 June 193N UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION ENGLISH rINTERNATIONAL INDUSTRIAL RESTRUCTURING AND THE INTERNATIONAL DIVISION OF LABOUR IN THE AUTOMOTIVE INDUSTRY *J Working Papers on Global Restructuring prepared by the Global and Conceptual Studies Branch Division for Industrial Studies * This document has been reproduced without formal editing. The desigration employed and the presentation of material do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country or its authorities, or concerning the delimitation of its frontiers. V.8U 8 7 0 19 / - iii - CONTENTS Introduction 1 A. Purpose of the Study 1 B. The Importance of the Automotive Industry 2 C. The Confluence of Crires 5 1. The Structural Crisis 5 2. Government Policy 5 3. The Autosiotive Industry, the International Division of Labour and Domestic Industrial Structure 6 D. Plan of the Study 7 Chapter I The Evolution of the Automotive Industry 9 on a Global Scale A- The Initial Phase 9 B. Internationalization and Consolidation of Oligopoly 12 C. Crisis and Reorganization 13 1. Strategic Situations of TNCs 13 2. Towards New International Norms: Factory Organization and Supplier Systems 14 3. Government Policies 15 Chapter II Recent Trends; The Rupture of Stable Growth 18 A. Sale* and Market Shares 18 1. Declining Growth Rates 18 2. Returns to Investment and the Struggle for Market Shares 19 B. Production 21 1. Rankings of TNCs and Countries 21 2. Internationalization 22 3. Vehicle Size 25 4. Market Segmentation and Concentration Levels 25 C. Trade and Protection 26 D. Employment 37 E. Investment and Disinvestment 40 1. Outlays and Aims 40 2. Costs and Credit Ratings 43 3. Disinvestment and Diversification 44 4. foreign Investment and Government Subsidies 46 Chapter III Corporate Response to the Crisis: 49 The Incorporation of New Technology A. The Impetus 49 B. The Key Technological Dimensions 42 1. Robot¿ration 52 2. CAD/CAM 56 Z. Electronics 59 4. New Materials 60 C. The Consequences of the Technological Response 62 (i) The Product 62 (ii) The Production Process 62 (iii) The Inter-Industry Linkages of the Sector 63 (iv) The Impact on Labour 63 (v) The Impact on Developing countries 63 Chapter IV Corporate Response to the Crisis: 64 Management, Labour and Supplier Firms A. The Japanese Model 64 B. Plant and Company Changes 65 C. The Supplier Relation 67 Chapter V Corporate Response to the Crisis: 73 Collaboration, Offshore Sourcing and Global Integration A. Uneven Internationalization 73 B. The Growth of Collaboration 74 C. Offshore Sourcing 87 D. Global Integration 100 E. An Assessment of the Internationalization Response 103 Chapter VI Scenarios from the Corporate Oligopoly 105 A. The Technological Imperative 105 B. The Supplier Industries 109 C. Internationalization of Production 111 D. The Functious of States 113 E. The Overall Picture 115 Chapter VII Developing Countries: 117 The Contemporary Situation A. The Automotive Industry in Developing Countries 117 B. Promotional Policies - The End of the Road? 128 Chapter VIII The Experience of Selected 133 Developing Countries A. Brazil 133 B. Mexico 137 C. India 140 j). ASEAN 142 E. The Republic of Korea 144 - v - Page Chapter IX Strategic Option* for Developing Countries 147 in the Autoaotive Industry A. An Overview of Pos*ibilities 147 B. Ihe Key Issues 151 Chapter i. Susmary and Conclusions 155 Footnotes 159 Apendix I Suaaary of Collaboration Arrangements 168 Bibliography 185 LIST OF TABLES AND CHARTS Title Alternative Forecasts of Automrbile Demand in 1990 Foreign Production Shares Concentration levels of production in major producing countries Destination of automotive exports by major developing countries Survey of autoawtive trade restrictions maintained by selected nations World-wide employment changes in leading automotive TNCs, 1978-82 Realised domestic capital investments by US 'Big 3* automotive producers, 1970-82 Autosu>tiv2 plants closed, 1980-81, and announced closings, 1982 Technological diffusion: expected rate of introduction of robots into various automotive production activities in Japan, 1980 - 2000 Equity ownership among leading vehicle TNCs In-house end subcontrscted production of automotive components in US Foreign sourcing of automotive engines; Existing agreements to supply US vehicle manufacturers by 1985 Foreign sourcing of automotive transmissions: Existing agreeaients to supply US vehicle manu facturers by 1985 Foreign sourcing of various automotive components: Existing sgreenents to supply US vehicle manu facturers Estimated US manufscturing costs of selected subassemblies and components, front wheel drive cars, 1982 Comparative costs in the autosmtive industries of selected countries, 1982 - V l t - 17 Potential net savings of labour costs for US manufacturers through outsourcing of selected items in selected countries, 1982 97 18 The dimensions of organisational and technological change in the automotive industry: diffusion and impact 106 19 Actual and planned operations of selected TNC in selected developing countries, 1983 118 20 Foreign penetration of the 10 leading automotive component manufacturers in Mexico, 1980 121 21 Foreign firms' share of vehicle production in 123 Latin America, 1978 22 Concentration in the Latin American auto 124 industry, 1970 23 Policies towards local content and CBU imports in selected developing countries 149 24 Schematic view ~f automotive policies according to equity ownership, swdel variations permitted and degree of local content, selected developing countries ISO Chart l Joint ventures and collaboration arrangements 76 of main automobile producers, 1983 Chart 2 Collaborations in selected developing 81 countries Chart 3 Approximate relation between extent of local integration, volume of production and cost increases 130 INTRODUCTION A. Purpose of the Study This study examines the reorganization of a global oligopoly in a period of crisis. It analyzes the range of methods employed by giant corporations to alter the division of labour. These methods have been adopted simultaneously, but with differing degrees of intensity and to achieve diverse aims. The study shows that the crisis has its beneficiaries; and that these are the same corporate entities who claim to be the victims. Those whose position has been weakened are the labour force, particularly unskilled and semi-skilled persons, governments with regard to their bargaining power against the corporations, and in particular the countries of the Third World whose position in the corporate structure has been dramatically altered in recent years. Serious obstacles confront the corporations as they seek to implement these changes. First, apart from the Japanese firms, all other international leaders are under financial pressure - the combination of sharply reduced sales and the costs of new investment has forced them into substantial external borrowing. Hence the ability to mobilize adequate financial resources will be a critical issue in competition and bargaining in the remainder of this decade. Second, although drastic employment cuts have been effected in the past five years with apparently limited reactions from organized labour, it seems most unlikely that further reshaping of the labour force could proceed without major disputes. Third, publJc funds are being poured into the industry on a substantial scale in both OECD and developing countries (DC); it is an open question as to how long such transfers can continue without reactions. Fourth, it is still not clear that the corporations themselves have either fully determined their own strategies or that they have adequately mastered the technical