Nouvelles du Programme - Michel Freyssenet

The recomposition of the economic and political world environment

Financial Globalisation

If the question of the globalisation of the automobile industry is open, especially with regard to its forms (globalisation or regionalisation), financial globalisation has been achieved today- even if this process has not been accompanied by the development of a system of regulation adapted to this new configuration. Besides the risk-system which weakens the whole world economy (Aglietta, 1994; Bourguinat, 1987), companies are lastingly subjected to rather erratic fluctuations in exchange rates. These fluctuations have a drastic effect on companies, competition and profitability, as they modify investment plans and disrupt the parameters of longterm industrial strategy, (Dohni, 1995). The three major automobile countries (The United States, Japan and Germany), also hold the three major currencies of the international monetary system, (US dollar, Yen, Mark), which are immediately subjected to financial traders, dealings and with which the states can try to release profit margins. While Japan and Germany are currently reacting to the appreciation of their currencies, especially as far as the dollar is concerned, by relocating part of their production to developing markets or countries, the recovery of the American automobile industry will have benefited from the depreciation of the dollar. The Yen-Dollar parity has moved from 250 Yen in 198x to less than 100 in 1996, while at less than 90 Yen to a Dollar, the Japanese carmakers, financial situation automatically goes into the red.

These large and sudden fluctuations do not only concern relations between the three major world-regions. They can also be felt within regional areas including those which are supposed to be partially protected from disturbances in the monetary system thanks to local regulation mechanisms like those operating within the European Union. When you consider the large amount of inter-regional exchange that takes place in final products and parts, automobile firms are really hit hard by the risks of change. By covering themselves against these risks with the help of more and more complex financial arrangements the carmakers, are speeding up the financialisation of the world economy.

Recent current events give evidence of these risks, such as the collapse of the Mexican Peso in relation to the $ in the fourth quarter of 1994 and especially the sudden jolts experienced by the European Monetary system which have had an effect on the five main automobile countries. The industries in the countries with strong currencies (Germany and France) have sustained the effects of the depreciation of the Spanish, Italian and British currencies, whose product competitivity (assembled vehicles and parts) has been strengthened thanks to the drop of 20-30% in the value of these currencies. These modifications have brought about significant losses for European carmakers. A more straightforward industrial answer to the question of the risks of change is the internationalisation of production, favoured by the liberalisation of trade.

The liberalisation of automobile trading

The free trade wave which is dominating the end of the twentieth century has led to the negotiated development of new rules which govern international trade. These rules aim at doing away with tariff and non tariff obstacles to trade, either immediately, or in the near future, if we take the transition period into account. The creation of a supranational regulation authority, the World Trade Organisation, testifies to this intention even if its power has not been established especially with regard to the prerogatives of the great economic powers (eg act 301 in the United States). The automobile industry is particularly concerned by the reduction, or even the removal of obstacles to trade in automobile products (vehicles and parts),which we have seen in recent years, both by the great automobile countries and the smallest countries which have long been concerned with protecting their national industry.

Tariff protection is almost non-existent between the United States, Europe and Japan, and other forms of protectionism are facing a planned and negotiated dismantlement, (Japan and its partners, in particular are in the process of negotiation).The agreement reached between Japan and the European Union ensuring a voluntary restriction on the exportation of Japanese carmakers, products until the complete opening of the European market on 1 January 2000 (Vigier,1992) is an example. The relinquishment of importation substitution strategies has led to a reduction in tariff protection and in the establishment of quotas in countries like Mexico, Brazil and Australia. This has suddenly opened their markets to international competition.

The trend seems strong even if setbacks are to be expected in times of crisis. The Brazilian government's decision when confronted with a sudden rise in importations which deepened the foreign deficit, to unilaterally raise custom tariffs on automobiles, first to 32%, and then to 70%, before adopting a quota regime even with its MERCUSOR partners testifies to this. Even if this reaction eased after bilateral negotiations with Argentina and multilateral negotiations with the World Trade Organisation (cf. Roldán, 1996), the situation sometimes seems ambiguous and its evolution reversible. In fact the globalisation of competition provokes a disintegration of the national bases of the automobile industry, both on the level of the final market (an increase in importations and a decline in national producers) and on the level of parts (the internationalisation of the equipment industry) which weakens domestic companies and the ensemble of automobile networks in each country.

However the globalisation of competition does not imply that a world-wide automobile market will be created. A world-wide market would imply that in different countries we would find a homogeneous product or range and a single price for the final product (vehicle or range) as for intermediate goods (equipment and parts), which would facilitate the international breakdown of the production process on a planetary scale. We are a long way from such a scenario partly because the processes of regional integration tend to be strengthening.

The Processes of Regional Integration

The internationalisation of economies situates itself within the framework of the current construction of regional ensembles, even if this "regionalisation" can still be discussed (Sachwald, 1996). European integration is one of its most advanced forms with its economic and monetary union, which goes beyond the removal of trade obstacles, as far as co-ordinating economic policies. The European Union thus constitutes an integrated economic pole, especially as far as the automobile industry is concerned, seeing as companies define their trading strategies and their production implantation on a continental scale, "Europeanisation" (Bordenave, Lung, 1996; Hudson, Schamp, 1995). In North America, companies did not wait for a free trade zone to be created (ALENA) to integrate their market and their production systems. Canada - which has always been attracted by United States industry on the other side of the Great Lakes - has thus largely benefited from the Auto-Pact concluded with the the United States in 1966, while North American investments which were to make North Mexico a base for exportation began in the nineteen eighties (Carillo, 1990; Dombois, 1992). The rise in regional integration in Southern countries (MERCOSUR, ASEAN) is a more recent phenomenon and is particularly important for the automobile industry in so far as the effects of dimension (economy of scale) are far-reaching.

In view of the globalisation of competition , companies are prompted to develop production in all regions, including the Asia-Pacific zone whose integration process is economically dominated by Japanese companies, even if it can take on institutional forms which do not recognise a political leadership in Japan (like ASEAN). Each of these regions organise a division of work that takes advantage of each one of the localisations and relys on specific skills. This vertical regional division of work is very pronounced on a European scale, in North America, with the integration of Mexico, or even within the ASEAN member countries.

The Emergence of New Automobile Countries

The globalisation of competition is not limited to the strengthening of direct rivalry between the big automobile countries (USA, Japan, Germany, France and Italy).It has also got to do with the emergence of new automobile industry environments; new markets, considering the potential increase in demand and new production locations , considering the advantages in terms of cost, especially salary costs. Thus the production of new automobile countries on a world-wide scale has doubled over the past five years, going from 8.4% in 1990 to 16.7% in 1995. Besides these countries (China, India, South Korea, the ASEAN and MERCOSUR countries), the new automobile environments also concern other ensembles like Eastern Europe or even the Middle East - notably Turkey and Egypt - which harbour great potential.

If the common characteristic of these countries is their new role in the world-wide automobile environment, they do not have the same status vis-à-vis the central Triad countries.

- A first ensemble is made up of countries which tend to be absorbed in the process of regional integration centered around these poles since they are directly implicated in the vertical regional division of work. After the Iberian peninsula which became part of "Europe" in the 1980s, today the process of "Europeanisation" is moving in the direction of central and Eastern Europe (Balcet, Enrietti, 1996 ; Sadler, Swain, 1994). In North America, the "Big Three" are extending into Mexico, having invested in Canada.

- In second group of countries, the development of the automobile industry seems to come within the framework of a specific peripheral regional integration (Layan, Lung, 1996), like MERCOSUR in Argentina and in Brazil principally (Laplane, Sarti, 1996; Roldán, 1996) and ASEAN in South East Asia (Lecler, 1996). However the capacity of such configurations to resist the centripetal forces emanating from the central poles (Japan and North America) is not certain, all the more so because the companies which lead these processes are mostly multinational from these countries. These peripheral integrations remain fragile considering their positions as "satellites".

- Finally, the third ensemble is made up of South Korea and continents such as India, China or Russia. These countries have the economic and political means to develop a relatively autonomous automobile industry due to the extent of the potential markets they offer companies. They have considerable negotiation power which they can use to make Eastern and Japanese carmakers, as well as equipment suppliers, use local production implantation methods, which favour the development of a national automobile industry (network or complex). The obligation to do business with a local company to produce recent models locally with modern production methods (at the level of the whole process, organisation and equipment) aims at speeding up the transfer of technologies which is eventually liable to create new competitors for the settled companies. Despite this real threat these companies had better accept these transfers unless they want to leave the market open to competitors, bearing in mind that the countries benefit from competitive rivalry.

The automobile industry is thus largely affected by the recomposition of the economic and political world environment : the globalisation of competition is a strong factor which determines the rhythm and the form of the internationalisation of companies.