Component Suppliers and Manufacturers: Who Benefits from the Change in their Relations ?

In recent years, re-organization among component suppliers has followed a few strong developments: concentration, hierarchical organization; specialization which is more and more linked to technology; strategic alliances; extension of activity on a European scale; and more widely the development of the functions of the assembly of sub-units. These developments can be considered less and less in an isolated way, since the development of what Chanaron and de Banville call "the automobile system".

The research carried out by David Sadler which was presented at the session on March 14, gave us the opportunity to think about the evolution of the relations between suppliers and manufacturers in Europe. The study that was presented compared a few key facts concerning the main European automobile component manufacturing firms between 1987 and 1995, so as to study the increased cooperation between the partners of this system. David Sadler recommended that his results be considered with caution, because of the method he followed and the fact that his research is incomplete. Nevertheless the comparison of the manufacturers seems to indicate several characteristics: efforts made in R&D and investment have hardly increased for the component suppliers, nor decreased for the manufacturers; it seems as if stock, production work-in-progress and employment have decreased more for suppliers than for manufacturers, contrary to the trend for profits; so, it seems as if the biggest component suppliers do not just satisfy themselves by equaling the performance of manufacturers; they appear to have better results, which proves their rigor, flexibility and efficiency.

The fact that manufacturers maintained the level of research and development could correspond to an increasing complexity of products during that period, and the concern to maintain their own skills, particularly during the time when the partnership was getting off the ground, if not only to be able to evaluate the performance of the component suppliers.

But on a wider scale, it seems as if the latter had greater profits and carried out their rationalization more efficiently. It is not easy to identify the motivating forces behind this efficiency. The period studiedbegan when the majority of European manufacturers had already carried out a first phase of rationalization: French firms were then coming out of the red, and maybe had a few years advance on the suppliers. Especially, the "first tier" suppliers may not have been representative of the whole sector: they may have made their profit from internal rationalization. We can also envisage that, seeing as they orchestrated the re-organization of the automobile component sector, with the tiering organization of suppliers into a first, second, third tier hierarchy, or with the concentration of the ensemble, they were also the first to benefit from it. They could have transferred sacrifices onto their own suppliers, in terms of price, employment or stock. For example, a few years ago, Valeo had demanded and obtained a reduction in price of 10% from its second tier component suppliers.

These developments strengthen the big component suppliers vis-a-vis the manufacturers, as they have a more and more active role in the re-composition of the automobile system. The biggest of them have given themselves a European or even worldwide dimension more easily than the manufacturers, by making acquisitions and restructuring. This assertion raises questions about the specificity of manufacturers. In fact they know that certain domains are mastered better, and they have to redefine and determine the scope of their own competence. Their link with the market is certainly more restricting,especially the link with the national market, but it also significantly benefits the consumers, in particular thanks to the distribution networks. Finally, beyond the different levels of internalization and externalization of manufacturing, which can vary considerably according to company and country, the manufacturers maintain one fundamental specificity, that is to say the knowledge of the integration or the architecture which is particularly important for a product which is so complex to assemble. It is only this knowledge which allows one to take into account the complexity and diversity of demands.

These indicators allow us to consider the growing interest in modular assembly, even if its achievements are still modest. It is a bit premature to imagine a development similar to the one we have experienced in the world of computers, where manufacturers were robbed of their control by the suppliers. Besides, the principle of modularity must be put back into perspective: in fact it is a very old principle in the automobile industry and in a certain way, tends to reconstruct, in terms of organization and different social status, the industrial concentration that was to be found in the enormous factories that existed a few decades ago.

Finally, industrial geography is affected by the developments in the automobile system. In fact, in the beginning, just-in-time did not entail as strong a movement of concentration as one could have imagined. The current strengthening of the big component suppliers and the trend towards modularization could entail a concentration in the production locations. However, this trend is counterbalanced by the manufacturers desire not to be totally attached to their partners: they will surely waver between seeking independence from suppliers and being in close geographic proximity which would be supposed to bring about better productive efficiency.

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