Calabrese - Automotive GVC

EAD 5977 – New trends in products,
processes, technologies and

transitions in automotive Industry
Global value chain in the

automotive industry:
challenges and new trends
Giuseppe Giulio Calabrese

(ex CNR‐Ceris), Moncalieri, Turin, Italy
AGENDA
 Clarifying global value chain (GVC) concepts
 Some peculiarities of the automotive global value chain
 The dimensions of the global value chains
Global context
 Input‐output structure
 Geographic Scope
 Governance Structure
Local context
 Local Institutional Context
 Industry Stakeholders
 Upgrading Trajectories
 The future of global value chains
 The future of the automotive global value chain
2 2
FEA USP - São Paulo, 8 June 2018 2/66
WHAT GLOBAL VALUE CHAINS (GVC) ARE
 CHAIN
The full range of activities that firms and workers do to bring a product
from its conception to its end use” (Gereffi and Fernandez‐Stark, 2011).
 VALUE CHAIN
The value categorizes the generic value‐adding activities of an
organization. Value added describes the enhancement a company gives
its product or service before offering the product to customers (Porter,
1985).
 GLOBAL VALUE CHAIN ?
The fact that value chains are increasingly spread over several countries
explains why they are regarded as “global” due to the rise of
intermediate goods trade (import content of exports): 20 in 1990; 40 in
2010; 60 in 2030 (P. Lamy, WTO)
3 3
WHAT GLOBAL VALUE CHAINS (GVC) ARE
 CHAIN
The full range of activities that firms and workers do to bring a product
from its conception to its end use” (Gereffi and Fernandez‐Stark, 2011).
 VALUE CHAIN
The value GVC= Value the
categorizes divided among
generic different firms
value‐adding andof an
activities
spread
organization. Value added over the
describes globe.
the enhancement a company gives
its product or service before offering the product to customers (Porter,
The value can be contained within a single firm or
1985). divided among different firms. Can be contained
 GLOBAL VALUE
within aCHAIN
single geographical location or divided
among
The fact that valuedifferent firms
chains are spread over
increasingly the over
spread globe.several countries
explains why they are regarded as “global” due to the rise of
intermediate goods trade (import content of exports): 20 in 1990; 40 in
2010; 60 in 2030 (P. Lamy, WTO)
4 4
THE ECONOMIC FORCES THAT GOVERN GVC
 The ICT revolution made it possible to coordinate complexity at
distance
 ICT impacts on the functional unbundling of production
processes by the trade‐off between specialization and
coordination costs
Better coordination technology reduces the cost of specialization and
thus fosters functional unbundling
Better information technology reduces the benefits of specialization and
thus disfavours functional unbundling
5 5
THE ECONOMIC FORCES THAT GOVERN GVC
 Direct costs differences (e.g. wages) and the reduction of
separation costs (e. g. trade barriers, transportation) made
separation profitable
 The geographical unbundling of stages of production is
governed by a balance between dispersion forces and
agglomeration forces.
Agglomeration forces create attraction to clusters that discourages
offshoring
 Knowledge spillovers favours co‐location with customers and intermediate good
supplies
The dispersion forces that encourage geographic unbundling include
 Wage gaps (fostering North‐South offshoring)
 Firm‐level excellence (fostering North‐North and South‐South offshoring).
6 6
EVOLUTION OF GLOBAL VALUE CHAIN
1977 1985 1994 2000 2007

Commodity Porter’s value Global Global value Global value
chains chain commodity chain network
chain
The basic idea A value chain is a The concept of The shift is A more recent
was to trace all set of activities “global combining the strand of
the sets of inputs that a firm commodity analysis of trade research prefers
and operating in a chain” was later and industrial to put the
transformations specific industry introduced for organization as a emphasis on the
that lead to an performs in describing the value‐added concept of
“ultimate order to deliver a apparel chain. “network” rather
consumable”. valuable or for commodity chain than “chain”
the market. spread across because
the globe. In the businesses are
2000s. more
interconnected.
7 7
YOU CAN CONFUSE GVC WITH
 Global Supply Chains
The distribution of goods and services to reduce time and costs by trade
facilitation (Manufacturing and distribution steps are emphasized)
 Filiere (Commodity chains)
It is a process used by firms to gather resources, transform them into
goods or commodities, and finally, distribute them to consumers
 Industrial districts
They are characterized by groups of co‐located small‐ and medium‐sized
companies operating in light manufacturing sectors of the economy.
There are not a few large companies within the region. Instead, the
dense network gives the regional economy its character.
 Industrial clusters
They encompassing many possible configurations of companies and
institutions so that industrial districts are one type of a cluster.
8 8
WHY FOCUSING ON GVC?
 Able to capturing several new characteristics of the world

economy
The increasing fragmentation of production across countries
The specialization of countries in tasks and business functions rather
than specific products
The creation, capture and sustain domestic value added (e.g., Chinese i‐
Phone example; build capabilities of domestic suppliers)
The role of networks, global buyers and global suppliers
 Regional Value Chains
Growing in importance, esp. since 2008‐09 and in emerging economies; beyond
fragmentation and EOI (Export Oriented Industrialization) development model.
 Global value network
Value networks differ from value chains in that there are more actors carrying out a broader
variety of functions in a value network than in a value chain, where producer consumer
distributor relationships predominate.
9 9
AGENDA
Global context
Local context
10 10
SOME PECULIARITIES OF THE AUTOMOTIVE
GLOBAL VALUE CHAIN
1) An extremely concentrated firm structure: a small number of
giant companies (carmakers and global suppliers) exert an
extraordinary amount of power over a pyramid structure of
smaller firms.
11 11
FROM FLAT HIERARCHY TO PYRAMID HIERARCHY
FLAT HIERARCHY
Carmaker
Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier
PYRAMID HIERARCHY
Carmaker
1st Supplier 1st Supplier 1st Supplier
2nd Supplier 2nd Supplier 2nd Supplier 2nd Supplier 2nd Supplier
3rd Supplier 3rd Supplier 3rd Supplier
12 12
FLAT PYRAMID
HIERARCHY HIERARCHY
2nd Industrial ’80 Japan
Period
revolution ‘90 USA - EU
Number of Number of direct suppliers
direct Many Few GOLF 5 2003 GOLF 6 2008 GOLF 7 2012
suppliers 306 206 163
Role of Vertical production disintegration in FIAT*
Low High UNO PUNTO STILO 500X
suppliers
1983 1993 2001 2014
Co-design Low High
50% 65% 70% 75%
Contract
Short Long
length Vertical engineering disintegration in FIAT*
Cross UNO PUNTO STILO 500X
Rare Prevailing 1983 1993 2001 2014
holdings
30% 45% 70% 60%
Lean
Divide and
Relationship manufacturing *Non‐official data, please do not quote
rule
Partnership
13 13
The relationhip in the pyramid hierarchy
Asymmetric Closed
relationship triad
Carmaker
Open 1st Supplier 1st Supplier 1st Supplier

triad
2nd Supplier 2nd Supplier 2nd Supplier 2nd Supplier 2nd Supplier
3rd Supplier 3rd Supplier 3rd Supplier
Europe: 1,094 direct suppliers but only 403 can be considered 1st tier supplier
14 14
FROM FLAT HIERARCHY TO NETWORK
Core 3
Core 2
Core 1
Carmaker
Systems and modules
Specialized in parts
Subcontractor
15 15
GLOBAL VALUE CHAIN
giant companies (carmakers and mega suppliers) exert an
smaller firms.
2) Although the automotive industry has become more integrated
globally since the mid‐1980s, it has also developed strong
regional‐scale patterns of integration.
16 16
THE NESTED GEOGRAPHIC AND ORGANIZATIONAL
STRUCTURE OF THE AUTOMOTIVE INDUSTRY
A global industry Regional production
Automakers and global suppliers systems
form buyer‐supplier Intra‐regional finished vehicle
relationships on a global scale. and parts flows are the
Inter‐regional vehicle and parts dominant operational pattern
trade is substantial, but capped in this industry.
by political and operational
considerations
96.7 of the 1st suppliers
of European carmakers
have production units
located in Europe
National production Local clusters:

systems Activities tend to be
concentrated within
Domestic production is still very
strong in this industry, and still clusters of specialized
dominates many national markets. activity, such as
 design and  assembly
17 17
A global industry Regional production
Automakers and global suppliers systems
form buyer‐supplier Intra‐regional finished vehicle
relationships on a global scale. and parts flows are the
Inter‐regional vehicle and parts dominant operational pattern
trade is substantial, but capped in this industry.
by political and operational
considerations
National production Local clusters:

systems Activities tend to be
Domestic production is still very concentrated within
strong in this industry, and still clusters of specialized
dominates many national markets. activity, such as
 design and  assembly
18 18
CARMAKERS GLOBAL SOURCING POLICIES
High Concentrate volumes on few Concentrate volumes on highly
highly specialized suppliers specialized obtaining
independently by their engagement in realizing localized
geographical location production
Supplier
Know‐how
Divide supply shares to best

Introduce local suppliers at
convenience, through periodical
lower possible cost
Low purchasing tenders.
Low Supply logistic complexity High
19 19
CARMAKERS GLOBAL SOURCING POLICIES
High Concentrate volumes on few Concentrate volumes on highly
highly specialized suppliers specialized obtaining
independently by their engagement in realizing localized
geographical location production
Supplier
Know‐how
Divide supply shares to best

Introduce local suppliers at
convenience, through periodical
lower possible cost
Low purchasing tenders.
Low Supply logistic complexity High
20 20
GLOBAL VALUE CHAIN
smaller firms.
3) Final vehicle assembly, and by extension, parts production, has
largely been kept close to end markets because of political
sensitivities.
21 21
DISTRIBUTION OF AUTOMOTIVE SUPPLIERS
BY REGION IN ITALY (%)
Lombardy 25.2 (33.2)
Veneto 7.0 (5.6)
Emilia-Romagna 10.4 (5.5)
Piedmont 36.0 (39.7)

Abruzzo 3.7 (3,7)
Lazio 2.7 (1.6)
Basilicata 1.0 (0.5)
Campania 4.6 (1.9)
22 22
THE AUTOMOTIVE GLOBAL VALUE CHAIN AND
THE FCA GROUP IN ITALY
FCA
Car Suppliers
assembling controlled
FCA Maserati Abarth Machinery Materials Components
Magneti Fiat
FCA Italy Sevel Comau Teksid Marelli powertrain
FCA Melfi Teksid Suspensions Plastic

Alluminium system components
Automotive
lighting
23 23
IMPORT INTENSITY:
Import on purchasing of materials and components (%)*
2008 2009 2010 2011 2012 2013 2014 2015 2016
Car assembling 23,5 22,7 22,7 23,7 21,4 23,7 22,8 24,3 26,7
Suppliers
21,9 37,9 37,0 40,3 39,8 35,7 36,9 41,2 36,8
controlled
TOTAL FCA
23,4 23,7 23,9 26,1 24,1 25,5 24,7 26,0 27,7
GROUP
*Non‐official data, please do not quote
24 24
TOTAL IMPORT OF MATERIALS AND COMPONENTS OF
ITALIAN FCA PLANTS (%)
2008 2009 2010 2011 2012 2013 2014 2015 2016
AFRICA 0,3 0,6 0,6 0,4 0,3 0,1 0,1 0,0 0,0
ASIA 0,2 0,2 0,3 0,6 0,7 0,9 0,9 1,3 2,2
BRAZIL 1,4 1,1 1,4 1,7 1,9 2,0 1,5 1,1 1,0
CHINA 0,6 0,9 0,9 1,3 1,4 1,6 2,5 2,0 1,7
EST EUROPE 64,7 70,8 66,0 52,8 49,7 53,9 51,9 49,6 52,8
JAPAN 1,4 0,2 0,2 0,3 0,3 0,3 0,4 0,3 2,5
NAFTA 0,4 0,2 0,7 6,3 8,1 5,0 4,9 3,1 3,1
SOUTH AMERICA 0,5 0,2 0,1 0,0 0,0 0,0 0,0 0,0 0,0
USA 0,1 0,3 1,0 4,0 5,0 4,4 6,5 8,5 5,0
WEST EUROPE 30,6 25,5 28,8 32,6 32,6 31,7 31,4 34,2 31,8
TOTAL FCA GROUP 100 100 100 100 100 100 100 100 100
25 25
EXPORT INTENSITY:
Export on production of Italian (%)*
2008 2009 2010 2011 2012 2013 2014 2015 2016
Car assembling 33,1 26,7 32,5 32,7 34,5 36,4 36,3 34,6 33,9
Suppliers
14,9 28,8 29,6 37,7 38,7 41,0 40,3 36,9 33,4
controlled
TOTAL FCA
31,0 26,9 32,2 33,6 35,3 37,2 37,0 34,9 33,8
GROUP
26 26
TOTAL EXPORT OF ITALIAN FCA PLANTS (%)
2008 2009 2010 2011 2012 2013 2014 2015 2016
AFRICA 1,1 1,2 0,7 1,0 1,3 1,4 1,1 1,1 0,6
ASIA 2,9 2,9 2,5 2,7 3,3 3,4 3,7 4,9 4,0
BRAZIL 2,3 2,6 2,8 2,9 3,5 4,3 3,0 3,8 3,1
CHINA 0,7 0,9 0,9 1,3 1,9 4,5 6,2 3,3 4,9
EST EUROPE 26,9 30,2 30,3 27,5 26,5 25,1 21,8 21,5 21,6
JAPAN 1,4 1,2 1,0 1,8 2,6 2,4 2,3 2,7 3,1
NAFTA 0,1 0,1 0,1 0,2 1,0 1,9 2,0 2,0 2,2
SOUTH AMERICA 0,1 0,2 0,3 0,4 0,6 1,2 0,7 0,7 0,7
USA 2,4 1,3 2,5 3,5 5,1 9,2 12,4 11,5 9,1
WEST EUROPE 62,0 59,4 58,9 58,7 54,1 46,6 46,9 48,6 50,8
TOTAL FCA GROUP 100 100 100 100 100 100 100 100 100
27 27
GLOBAL VALUE CHAIN
smaller firms.
3) Final vehicle assembly, and by extension, parts production, has
largely been kept close to end markets because of political
sensitivities.
4) Few fully generic parts or subsystems that can be used in a
wide variety of end products without extensive customisation.
28 28
SUPPLIERS SERVE MULTIPLE CARMAKERS
Carmaker Carmaker
B A
1st Supplier 1st Supplier 1st Supplier 1st Supplier 1st Supplier
2nd Supplier 2nd Supplier 2nd Supplier 2nd Supplier 2nd Supplier 2nd Supplier 2nd Supplier
3rd Supplier 3rd Supplier 3rd Supplier 3rd Supplier 3rd Supplier 3rd Supplier
29 29
SUPPLIERS SERVE MULTIPLE CARMAKERS Number of 1st
tier supplier by country and carmakers served
NUMBER OF CARMAKERS SERVED
2 3 4 5 6 7 8 9 10 11 12 13 14 15 TOTAL
BRAZIL 1 1
CANADA 2 1 1 1 1 6
CHINA 2 1 1 4
FRANCE 2 9 5 1 3 1 1 1 3 2 28
GERMANY 9 17 12 8 11 8 10 6 6 2 7 4 3 9 112
JAPAN 4 4 4 4 1 2 2 1 2 1 3 5 1 1 35
ITALY 2 3 8 3 1 3 2 1 1 1 1 1 27
SPAIN 1 1 1 1 1 2 7
SWEDEN 1 1 1 1 1 1 6
SWITZERLAND 1 2 2 1 2 2 1 5 1 1 18
TURKEY 1 1 1 1 1 1 6
UK 4 4 2 2 3 1 2 1 19
USA 7 11 3 8 3 5 5 4 6 3 6 6 6 7 80
OTHER COUNTRIES 2 6 7 4 3 2 0 2 3 5 0 1 2 0 37
TOTAL 33 64 46 29 25 22 29 23 19 15 18 20 19 24 403
30 30
AGENDA
Global context
Local context
31 31
SUPPLY TRANSACTIONS IN THE AUTOMOTIVE INDUSTRY
(%)
Two‐digit code Sector description (NACE) FRACTION OF TOTAL
29 Manufacture of motor vehicles, trailers and semi‐trailers 39.2
22 Manufacture of rubber and plastic products 10.9
28 Manufacture of machinery and equipment 10.0
25 Manufacture of fabricated metal products, except machinery and equipment 7.8
20 Manufacture of chemicals and chemical products 7.4
27 Manufacture of electrical equipment 5.9
26 Manufacture of computer, electronic and optical products 4.5
45 Wholesale and retail trade and repair of motor vehicles and motorcycles 3.7
23 Manufacture of other non‐metallic mineral products 2.7
13 Manufacture of textiles 2.6
24 Manufacture of basic metals 1.3
32 Other manufacturing 1.1
62 Computer programming, consultancy and related activities 0.8
43 Specialised construction activities 0.5
31 Manufacture of furniture 0.4
19 Manufacture of coke and refined petroleum products 0.3
33 Repair and installation of machinery and equipment 0.3
30 Manufacture of other transport equipment 0.3
17 Manufacture of paper and paper products 0.2
15 Manufacture of leather and related products <0.1
Schmitt, A. and Van Biesebroeck, J. (2017) ‘In‐house production versus specific forms of supplier governance: testing predictions of
the global value chains model’, Int. J. Automotive Technology and Management, Vol. 17, No. 1, pp.26–50.
32 32
THE DIMENSIONS OF GLOBAL VALUE CHAIN
 Global value chain analysis provides both conceptual and
methodological tools for examining the global economy
Top‐down: a focus on lead firms and inter‐firm networks, using varied
typologies of industrial “governance”
Bottom‐up: a focus on countries and regions, which are analysed in
terms of various trajectories of economic, social and environmental
“upgrading” (or “downgrading”)
GLOBAL LEVEL LOCAL LEVEL

1. Input‐output structure 4. Local Institutional Context
2. Geographic Scope 5. Industry Stakeholders
3. Governance Structure: 6. Upgrading Trajectories
Lead Firms & Industry Organization
33 33
1) INPUT‐OUTPUT STRUCTURE
A chain represents the entire input‐output process that brings a
product or service from initial conception to the consumer’s
hands.
Packing & Distribution &

Inputs Production Processing
Storage Marketing
The main segments in the chain vary according to the industry and
involves both goods and services, as well as a range of supporting
industries.
34 34
The food products and beverages industry
Storage Marketing
Seeds Farms: Fruit & Processing

Vegetables for Companies Supermarkets
processed food
Fertilizers Dried
Residues
Agrochemicals Farms :Fruit & Frozen
Vegetables for fresh Food
consumption Exporter services
Farm Companies Preserved
Equipment
Medium Packing Plants Juice & Pulps
Small
Irrigation & large Importers &
farms Cool Storage
equipment farms wholesales
Units
Large Producer Exporter Companies

Small scale
Packing Plants
Large farms retailers
Cool Storage Units
Research & Development

35 35
Length of GVCs by industry (OECD, 2009)
36 36
1) INPUT‐OUTPUT STRUCTURE: A top‐down definition of
the automotive industry based on NACE classification
First Intermediate Final
Inputs Distribution
processing processing processing
772 4,683 2,794 119 114,638
2410 Basic iron and 2030 Paints and 2211 Tires 2910 451 Sale of motor
steel and of ferro‐ varnishes Manufacture of vehicles
alloys 261 Electronic motor vehicles
2219 Rubber components 452 Maintenance
245 Casting of
metals 2221 Plastic 2920 Bodies 453 Sale of parts
4672 Wholesale of 2311 Flat glass 2931 Electronic 771 Renting and
metals and metal equipment leasing
255 Forging,
ores
256 Treatment and 2932 Parts and
coating of metals accessor
272 Batteries TOTAL ITALY: 141,660

Research & Development: 7112 Engineering activities; 7120 Technical
testing; 741 Specialised design activities 7,761
Machinery: 281general purpose machinery; 284 Machine tools; 289 Other machinery 10,892
37 37
1) INPUT‐OUTPUT STRUCTURE: A bottom‐up definition of
the automotive industry based on product precialization
ANFIA – Italian association of the automotive
industry filiere (number of members)
NACE code N. of members NACE code N. of members
1310 2 2825 4
1395 2 2829 2
2000 2 2849 2
2221 2 2910 12
2420 2 2920 42
2443 2 2930 2
2450 2 2931 8
2500 2 2932 114
2529 2 3030 2
2550 16 3091 2
2561 56 3099 2
2562 4 4520 2
2572 2 4531 4
2610 2 4674 2
2711 2 4690 2
2733 2 6200 2
2790 6 6820 4
2815 18 7112 4
2820 2 8292 2
2822 2 TOTAL 344
38 38
1) INPUT‐OUTPUT STRUCTURE: A Bottom‐up definition of
the automotive industry based on product precialization
Post
Core 3 Core 2 Core1 Carmakers
production
Subcontractors Parts Modules and

Components Manufacture of Camper
for third parties
motor vehicles
Assembling Electronics Electronics Minicar
Treatments Mechanics Mechanics Outfitting
Paintings Plastics Plastics
Materials Others Others

Electronics
Mechanics
Plastics
R&D NO CORE
Concept design; Engineering (product‐process‐engine‐electric);
Physical modelling; Software; Testing; Coachbuilding
Others
Machinery
39 39
1) INPUT‐OUTPUT STRUCTURE:
The Italian automotive industry (apart carmakers)
STRICT AFTERMARKET MOTORSPORT TOTAL NO CORE
Core 1 – Components
Electronics 62 7 2 71 Camper 38
Mechanics 146 39 10 195 Minicar 13
Plastics 38 6 1 45
Others 4 4 Outfitting 328
R&D 152 5 157 Machinery 72
Core 2 ‐ Parts
Electronics 137 47 13 188 TOTAL 451
Mechanics 792 159 57 959
Plastics 233 48 16 291
Others 21 10 2 32
Core 3 ‐ Subcontractors
Assembling 1 1 2
Treatments 118 1 1 120
Paintings 10 10
Core 3 ‐ Materials
Electronics 2 2 4
Mechanics 33 33
Plastics 44 3 1 48
Others 22 2 24
TOTAL 1,815 273 95 2,183
40 40
2) GEOGRAPHIC SCOPE
 Two main steps: value chain mapping and analysis
 Value chain mapping is the process of identifying the geography
and activities of stakeholders involved from taking a good or
service from raw material to production and then to the
consumer (input‐output). One task is the identification of the
lead firms in each segment thus informs the country‐level
positions.
41 41
2) GEOGRAPHIC SCOPE
Length of automotive GVCs by country (OECD, 2009)
42 42
2) GEOGRAPHIC SCOPE
 Two main steps: value chain mapping and analysis
Value chain mapping is the process of identifying the geography and
activities of stakeholders involved from taking a good or service from
raw material to production and then to the consumer (input‐output).
One task is the identification of the lead firms in each segment thus
informs the country‐level positions.
 Value chain analysis to define the position of different countries
in the value chain can allow to identify countries that have
successfully upgrading and then examine the policies and
changes they implemented to successfully achieve that
functional upgrading.
43 43
2) GEOGRAPHIC SCOPE Component allocation by origin
country in the European production system (%)
D USA F J I CH S UK CDN E IND Others TOTAL
Bonding/Adhesives 16,5 38,0 7,4 2,5 2,5 33,1 100
Tires 7,9 13,5 11,2 46,1 21,3 100
Cables 18,5 51,8 2,4 0,6 1,2 1,2 1,8 22,6 100
Electrical & Electronics 29,2 25,5 6,3 1,6 10,1 26,4 0,3 0,3 0,3 100
Front End/Rear End Module 26,4 7,5 49,1 3,8 3,8 5,7 3,8 100
Mirrors 21,7 24,6 0,5 1,5 38,4 6,9 6,4 100
Airbags 0,6 38,7 0,6 18,3 39,9 0,3 1,5 100
Engine Shafts 89,5 7,4 1,9 1,2 100
Starter Motor 43,5 2,8 34,3 19,4 100
Engine Control Unit 45,4 19,7 5,3 5,3 24,3 100
Security 4,5 83,6 7,5 4,5 100
Fasteners/Fixings 20,8 31,3 24,0 2,7 2,0 2,0 0,3 12,5 0,5 0,6 0,1 3,3 100
Body 29,1 9,2 14,9 2,1 2,3 7,7 0,8 2,5 13,4 1,5 3,8 12,8 100
Doors‐Tailgate 44,5 14,8 7,9 3,3 3,0 1,2 0,3 0,3 7,9 10,5 1,8 4,4 100
Interior 29,3 20,3 16,1 1,3 1,6 6,9 0,1 0,7 9,3 10,6 0,3 3,7 100
Wheels 42,3 17,0 2,6 1,5 8,2 3,6 0,5 7,7 1,5 1,5 0,5 12,9 100
TOTAL 39,2 23,6 12,8 4,7 3,4 3,2 2,4 2,4 2,3 2,2 0,3 3,5 100
44 44
2) GEOGRAPHIC SCOPE
Country positioning in the European production system
Medium‐
High
I
CH J
USA D S
PROFITABILITY LEVEL
F
E UK
Medium
CDN
IND
Medium- Medium Medium‐

TECHNOLOGICAL LEVEL High
45 45
3) GOVERNANCE STRUCTURE
 Governance analysis allows to understand how a chain is
controlled and coordinated when certain actors in the chain
have more power than others.
5 governance structures of GVC based on three variables:
 Complexity of transactions. More complex transactions require greater interaction
among actors in GVCs and thus stronger forms of governance is required rather than
simple price‐based markets
 Codifiability of transactions. Some industries codify complex information so that
data can be handed off between GVC partners with relative ease, often using
advanced information technologies. GVC partners must have access and expertise
for dealing with such codified information
 Competence of suppliers. The ability to receive and act upon complex information
or instructions from lead firms requires a high degree of competence on the part of
suppliers.
46 46
Determinants of GVC Governance
Complexity of Ability to codify Capability of
Governance transaction transactions supplier
type
Network Market Low High High
forms Modular High High High
Relational 1 High 2 3 Low 4 5 High 6
Captive High High Low
Hierarchy High Low Low
1. Increasing complexity of transactions (harder to codify transactions; effective decrease in

supplier competence)
2. Decreasing complexity of transactions (easier to codify transactions; effective increase in
supplier competence)
3. Better codification of transactions (open or de facto standards, computerization)
4. De‐codification of transactions (technological change, new products, new processes)
5. Increasing supplier competence (decreased complexity, better codification, learning)
6. Decreasing supplier competence.(increased complexity, new technologies, new entrants)
47 47
48 48
Actors buy and sell Suppliers make It requires trust and It is characterized by a It describes chains
products with products to a generate mutual high degree of characterized by
kittle interaction. customer's reliance, regulated by monitoring and vertical integration
The central specifications and reputation, social and control by the lead and managerial
governance take full spatial proximity. The firm with high control within lead
mechanism is responsibility for parties collaborate concentration of a firms that develop
price rather than a process technology closely (co‐design) as supplier’s sales with a and manufacture
powerful lead using generic frequent modifications single client. The products in‐house.
firm. Transactions machinery that are expected. buyer transfers some
are relatively spreads investments Supplier are more capabilities or know‐
simple. Partners across a wide likely to supply how to the supplier.
are easy to customer base. The differentiated products Small suppliers tend
change. supplier will perform based on quality, to be dependent on
several activities and geographic origin or larger buyers with
will have a other unique high switching costs
comparative characteristics. This for both. So, suppliers
advantage over the takes time to build, so are discouraged to
buyer. Making the the costs and work for competitors.
part in‐house difficulties required to
becomes a less switch to a new
attractive solution partner tend to be
for the buyer. high.
49 49
Post
Core 3 Core 2 Core1 Carmakers
production
Subcontractors Parts Modules and

Manufacture of Camper
for third parties
Assembling Electronics
Components
Electronics
Hierarchy
motor vehicles
Minicar
Market
Market
Treatments Mechanics Mechanics
Modular
Outfitting
Paintings Modular
Plastics Relational
Plastics
Materials Others Captive

Others
Electronics
Mechanics
Market
Plastics
R&D
Concept design; Engineering (product‐process‐engine‐
NO CORE
Relational
electric); Physical modelling; Software; Testing;
Others Coachbuilding
Machinery
50 50
COMPONENTS SUPPLIERS HH TECH GVC COMPONENTS SUPPLIERS HH TECH GVC
Chassis/Underbody 62 386,7 3,8 Market Bearings/Bushes 43 1241,2 3,6
Wheels 72 418,4 3,5 Market Noise, Vibration, Harshness 69 1250,4 4,0 Relational
Body 117 444,5 3,0 Market Engine cylinders 34 1348,8 3,5
Interior 122 474,6 3,0 Market Roof 54 1367,1 3,4
Steering System 73 519,9 4,2 Washer/Wiper Systems 28 1427,9 3,0
Engine Components 96 559,6 3,5 Lighting 39 1529,1 4,3
Exhaust & After Treatment 74 596,9 3,8 Engine Control Unit 21 1665,7 4,3
Electrical & Electronics 57 619,2 4,2 Gaskets/Seals 54 1739,8 3,0
Thermal System 96 645,6 4,0 Electric Motors 15 1754,3 3,3
Suspension System 67 645,9 3,6 Belts/Tensioners 22 2004,7 3,6
Fasteners/Fixings 153 674,0 3,0 Market Textiles 33 2038,8 2,8
Transmission 85 745,1 4,2 Front End/Rear End Module 20 2132,1 3,2
Doors/Tailgate 117 752,7 3,2 Market Lock System 35 2160,0 3,5
Seating 80 813,4 3,6 Glass 46 2163,6 3,8 Modular
Braking 64 853,7 4,3 Bonding/Adhesives 16 2514,1 3,3
Control Units 49 872,9 4,4 Mirrors 16 2668,7 2,3
Hoses/Pipes 83 909,4 3,0 Starter Motor 12 2860,6 2,8
Infotainment 40 913,8 4,4 Coatings 19 2882,1 3,8
Bumpers 42 972,2 2,6 Tires 6 2902,8 4,0 Modular
Engine Covers 50 1008,3 3,5 Engines turbo/superchargers 21 2935,4 3,8
Fuel System 69 1032,8 3,5 Airbags 15 2954,5 4,0
Axles 58 1059,1 3,5 Alternators 6 3103,6 3,3
Handles/Latches 44 1098,6 2,5 Cables 21 3117,4 3,0
Sensors 52 1112,7 3,7 Engine pistons 12 4060,9 3,4
Actuators 31 1183,4 3,2 Batterys 22 4404,7 4,2 Modular
Safety System/Driver Assistance 44 1195,8 4,7 Engine Shafts 20 4851,1 3,5
Switches 33 1203,9 2,4 Security 16 5292,7 3,5
51 51
4) LOCAL INSTITUTIONAL CONTEXT
5) INDUSTRY STAKEHOLDERS
 The institutional framework identifies how local, national and
international conditions and policies shape the globalization in
each stage of the value chain
Economic conditions include the availability of key inputs:
 Labour costs,
 Available infrastructure and access to other resources such as finance;
 Social context governs the availability of labour and its skill level, such as female
participation in the labour force and access to education;
 Institutions includes tax and labour regulation, subsidies, and education and
innovation policy that can promote or hinder industry growth and development.
 All the industry actors are mapped in the value chain and their
main role in the chain is explained.
It is important to consider how relations between these actors are
governed and in a position to drive change. This is critical to identify the
key players in the value chain and for upgrading.
52 52
6) UPGRADING TRAJECTORIES
The smiling curve
 In GVC the most value creation is often found in:
Upstream activities such as design, product development, R&D and
manufacturing of key parts and components;
Downstream activities such as marketing, branding and customer
service;
Assembly, often offshored, to emerging economies, represents only a
small part of value generation.
Developed countries
Added economic value
R&D Post sales
Design Developing countries Marketing

Purchasing Distribution
Production
Input output activities

53 53
Profitabilies indexes by core activities (%, 2016)
ROI ROS WCT
The Italian Return on Return on Working
Automotive investments Sales Capital
Industry Turnover
Engineering & Design 0.1 0.1 1,07
Core 1 – Components 5.6 3.0 1.84
Core 2 – Parts 9.5 6.2 1.53
Core 3 ‐ Subcontractors 7.1 6.0 1.19
Aftermarkets 8.3 7.5 1.11
Motorsport 12.0 11.4 1.05
54 54
Return on Investiment (ROI) distribution by regions
8.3 7.9
6.7
7.5
7.6 6.9
7.9
9.9
55 55
0,4
PROFITABILITY LEVEL CHANGE
0,2 CH
S
IND CDN
D I
0,0
J
F E
USA
-0,2
UK
-0,4
-0,2 -0,1 0,0 0,1 0,2
TECHNOLOGICAL LEVEL CHANGE 56 56
 Upgrading refers to the strategies that stakeholders (countries,
regions and firms) can take to improve their position within the
global economy

Storage Marketing
 Product upgrading: involves a shift to more sophisticated, complex, better quality

products as well as producing a larger range of products.
 Process upgrading: implies reduction in costs, productivity and flexibility increases
by reorganizing the production system or investing in new or better
equipment/technology.
 Functional upgrading: Changing the mix of activities and acquiring new skill
intensive functions (i.e. from manufacturing to design).
 Chain upgrading: Applying competences acquired in one function of a chain and
using them in a different sector/chain.
57 57
Policy implications
Complexity Ability to Capability of Predominant learning
Governance of codify supplier mechanisms
type transaction transactions
1) Market Low High High Importing‐exporting strategies
Accomplish international
standards
2) Modular High High High
Knowledge embodies technical
definitions
3) Relational High Low High Mutual learning
4) Captive High High Low Deliberate knowledge transfer
5) Hierarchy High Low Low Imitation and spillovers
 From 5‐4 to 2 thanks to improvements in MSTQ organizations

 From 5‐4 to 3 thanks to improvement in “local” systems
 From 5 and 4 to 2 and 3 thanks to innovation systems
supporting the coevolution of suppliers and GVC competences
58 58
Policy implications
 Promote and sustain the identification of new alternative GVC
Increasing capabilities in the supply‐base
 Support SMEs in complying with international standards
MSTQ organizations facilitate the handling of complex transactions and
modular chains are more likely to prevail
 Sustain the upgrading of local suppliers through a well‐
functioning innovation systems
Active technical bodies where the chain leaders and their local partners
can meet, ease the exchange of knowledge and reduce the complexity
of transactions (training programs, high tech incubators, Science and
Technology program co‐developed by the State and the private sector)
 Experiment with new forms of private‐public partnerships
(participatory systems for setting research agendas, intermediary
organizations linking small firms with universities)
59 59
AGENDA
Global context
Local context
60 60
THE FUTURE OF GLOBAL VALUE CHAINS
OECD extimations (2017)
SCENARIOS IMPACT ON GVC
Trade policy ?
New (low‐cost) producers in manufacturing Slightly positive
Growing demand in emerging economies Positive
Rising wage costs Negative
The digitalisation (IT) of production Strong negative
Rising transport costs Slightly negative
61 61
AGENDA
Global context
Local context
62 62
THE FUTURE OF THE AUTOMOTIVE GLOBAL VALUE CHAIN
Some facts
 Supplier scarcity and mega suppliers
Turnover 2016
1 Toyota 254,7 12 Bosch 80,9
2 WV 240,2 13 Suzuki 70,3
3 Daimler 169,4 14 PSA 59,8
4 GM 166,3 15 KIA 52,7
5 Ford 151,8 16 Renault 49,0
6 Honda 129,2 17 Continental 43,4
7 FCA 116,9 18 ZF 38,4
8 SAIC 113,8 19 Magna 36,4
9 Nissan 108,1 20 Denso 36,1
10 BMW 104,1 21 Aisin 31,3
11 Hyundai 88,0 22 Mazda 28,9
63 63
New perspectives and therories
 Change of perspective in supplier selection
from performance criteria (quality, price, technology, delivery) to
reputational criteria (appeal, trust, motivation)
 Social exchange theory
Actor starts a “business” relationship if the partner is sufficiently
attractive, then checks if the relationship matches initial expectations,
and then decides to continue or stop a relationship depending on the
availability of alternative
64 64
 Customer attractiveness literature
Outsourcing increases the value added coming from suppliers, and
customers are less able to influence them; reductions in technological
spillovers induce customers to sign exclusivity agreements, so they can
profit from suppliers’ innovations
The scarcity of innovative suppliers makes it difficult to find substitute
suppliers and relationships become stabilised;
The adoption of key account management in suppliers obliges
customers to be more attractive;
Global sourcing reduces customer attractiveness, distant relationships
entail greater risks than those established with local customers
65 65
 Customer attractiveness literature
 The cycle of the preferred customership:
Customer attractiveness motivates suppliers and increases
collaborative relationships along the supply chain
Supplier satisfaction relies on the confirmation/disconfirmation
paradigm
Preferred customer status is granted if a significant increase in
competitive advantage and business performance is reached. It requires
great efforts and costs on the part of both the supplier, in assessing and
comparing the performance of each relationship, and the customer, in
beating the competition
66 66

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EAD 5977 – New trends in products,

processes, technologies and

Global value chain in the

Giuseppe Giulio Calabrese

1977 1985 1994 2000 2007

 Able to capturing several new characteristics of the world

Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier

1st Supplier 1st Supplier 1st Supplier

3rd Supplier 3rd Supplier 3rd Supplier

Open 1st Supplier 1st Supplier 1st Supplier

3rd Supplier 3rd Supplier 3rd Supplier

National production Local clusters:

National production Local clusters:

Divide supply shares to best

Low Supply logistic complexity High

Divide supply shares to best

Low Supply logistic complexity High

Veneto 7.0 (5.6)

Emilia-Romagna 10.4 (5.5)

Piedmont 36.0 (39.7)

Basilicata 1.0 (0.5)

Campania 4.6 (1.9)

FCA Maserati Abarth Machinery Materials Components

FCA Melfi Teksid Suspensions Plastic

GLOBAL LEVEL LOCAL LEVEL

Packing & Distribution &

Seeds Farms: Fruit & Processing

Large Producer Exporter Companies

Research & Development

272 Batteries TOTAL ITALY: 141,660

Subcontractors Parts Modules and

Treatments Mechanics Mechanics Outfitting

Paintings Plastics Plastics

Materials Others Others

Medium- Medium Medium‐

1. Increasing complexity of transactions (harder to codify transactions; effective decrease in

Subcontractors Parts Modules and

Materials Others Captive

R&D Post sales

Design Developing countries Marketing

Input output activities

Packing & Distribution &

 Product upgrading: involves a shift to more sophisticated, complex, better quality

 From 5‐4 to 2 thanks to improvements in MSTQ organizations

New (low‐cost) producers in manufacturing Slightly positive

Growing demand in emerging economies Positive

Rising wage costs Negative

The digitalisation (IT) of production Strong negative

Rising transport costs Slightly negative

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