1. Automotive Industry: Cases from India, Brazil
and China.
Text: John Humphrey
Aya Okada
Weidong Liu & Peter Dicken

2. Globalization and supply chain networks:
the auto industry in Brazil and India
John Humphrey
 The transformations of the automotive industries of Brazil and India by
two major developments:
1. The integration of developing countries into the global production systems
2. The emergence of global component suppliers
 Assembler – supplier relationships in the global automotive industry
 Liberalization and restructuring: the auto industry in emerging markets
 The follow design and sourcing strategy in Brazil and India
 Limitations of the follow design and sourcing strategy
 A fragmentation of the component sector
 Marginalization of locally owned companies

3. Skills Development and Interfirm Learning Linkages under
Globalization: Lessons from the Indian Automobile Industry.
Aya Okada
 Changes in skill development for Indian firms with the integration into
the Global economy an the role of Assembler Firms.
 Skills development and interfirm linkages.
 The transformation of the Indian Automobile industry.
 Changing patterns of skills development in suppliers.
1. Changes in skill mix and employment practices.
2. Changes in work organization.
3. Formation of training programs at suppliers.
 Transformation of supplier relations into Demand – Driven Learning
Chains.

4. Transnational corporations and ‘obligated embeddeness’:
foreign direct investment in China’s automobile industry.
Weidong Liu, Peter Dicken
Government
 The Chinese government has exerted virtually complete control over free
entry and has adopted a policy of limiting access for foreign firms and
controlling the form that their involvement can take.
 CPC still retains effective control over governmental appointments and
thus can efficiently mobilize nationwide resources to fulfill a specific
target, such as economic development.
 The form, and the geography, of automobile TNC activity in China would
have been quite different had the firms had free access and freedom to
structure their operations in terms of organising their global production
networks optimally.

5. Government industrial policy in the automobile industry.
 The aim of the Chinese government has been to accelerate the
development of the industry whilst, at the same time, avoiding ceding
full control of the industry to foreign TNCs.
 Assembly-related FDI had to take the form of joint ventures.
1. A TNC was allowed to have up to 2 joint ventures for producing the same
kind of vehicle.
2. Assembly joint ventures had to undertake localization, and the level of local
content achieved was a prerequisite for permission to produce a second
vehicle.
 Entry to WTO:
1. Reduced tariffs of completely build units.
2. Requirements related to local content are to be abandoned.
3. Chinese government however will not loose much of its bargaining power.

6. TNC strategies: Obligated embeddedness and local supply
linkages
 By 2003 all major automobile assemblers had
invested in China
(joint ventures).

7. TNC strategies: Obligated embeddedness and local supply
linkages
 Localization of production in order to reduce production costs.
Willingness of localization depends on:
1. Quality of local supply.
2. Tariffs barriers on imported parts.
3. Market orientation.
4. Global sourcing strategy.
 TNCs invested in parts industry or encouraged their affiliates to invest in
China in order to upgrade local suppliers.
 Government recognized the problem of low quality parts and allowed
FDIs towards part making.

8. Governance / Upgrading
 Industry growth depends heavily on upgrading the skills of workers in
domestic firms, particularly in process technology to improve quality rather
than in product design engineering.
 Forge of partnerships with FDI firms (case of India) to develop leading
firms in the industry that will create interfim linkages with domestic firms.
 ‘Size matters’. Large individual states (case of China) are in a potential
stronger position to bargain with TNCs.

9. Issues for discussion
 What is the capacity of Indian suppliers to continue their activities in the
future?
1. Weak in innovation and generally in conception.
2. Good After-Sales networks
Which relation could be established between Indian suppliers and TNCs
1. Progressive marginalization or market sharing according to the kind of
products, industrial and trade cooperation?
 Is it possible that the state can maintain its bargain power in the future?
 Did TNCs starting to lose their market share after the emerge of Chinese
automobile firms like Ssangyong.

10. Demand –driven learning chains
 Suppliers undertook organizational reforms in order to improve quality and
operational efficiency in workplace for customers.
ISO certificate processes
Self-certification schemes
Training of supplier
employees both at home and
at plants of foreign partners
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11. Changes in skill mix and employment practices
 The patterns of acquisition and formation at the first tier suppliers changed
to the following types of skills:
Production Managerial Engineering
Employment of Firms interested in expanding R&D
highly skilled workers
from ITI’s. Manufacturing plants in various High technical skills
locations
Long term employment.
ISO requirement
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12. Changes in work organization
 The diffusion of new work organization with emphasis on teamwork and
quality consciousness occurred much faster among MUL’s suppliers than
TELCO’s. Stronger influence of MUL to its suppliers.
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13. Formalization of training programs at suppliers
 Formal in-firm training programs covering areas such as:
1. Health & Safety
2. Technical skills
3. Quality improvement
4. Problem solving techniques
5. Statistical process control
 Direct interaction and exchange with their foreign partners
(on-the- job training)
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