Interfirms Governance in the automotive sector: a case study in southern Rio de Janeiro

Publication Type:

Conference Paper

Source:

Gerpisa colloquium, Paris (2019)

Abstract:

This paper aims to explore the concept of Global Value Chains (CGVs) (Gereffi et al., 2005), especially regarding the power relations between firms in the automotive chain. The paper explores the case of the relationship between a leading automotive company and a second-tier subcontractor, that is, an enterprise that provides less complex services, meeting the needs of the first-tier suppliers, who are global and have technology for the supply and production of complex components throughout the production process of the automotive sector.
 
Poorly explored in the Economic Sociology agenda, the concept of global value chain (CGV) emerged from the concept of Global Commodity Chain (GCC) developed by Hopkins and Wallerstein (1986) when analyzing the activities involved in the production of final goods and services with the government's influence in the definition of tariffs, flow of goods and global production systems. Years later, Gereffi (1994) returned the studies on GCCs defining them as a set of interconnected networks around a specific good or service that links all agents within the economy.
 
Gereffi's emphasis rests on the importance of the creation of productive chains with global distribution and fragmented organization, considering the leading firms as key actors responsible for the coordination and control of production, which the author defines as "governance". The governance of GCCs is divided into two types: "buyers" and "producers". Subsequently, the bimodal concept of GCCs governance was refined in order to make the theory possible to be applied to a wider range of market chains. Thus, the theory of the Global Value Chain (GVC) arose, which began to encompass all the activities necessary for the production and availability of a product or service, including the structures, sequences, links and elements needed, adding value to the process as a whole, through steps along the chain (Gereffi et al., 2005).
 
The present work is dedicated to the third dimension of the theory presented, that is of governance, essential for the approach of the Global Value Chain and is used in its coordination, through the definition of production parameters to be fulfilled by agents of the chain (Humphrey & Schmitz, 2001). Governance in the chain determines market access, is a fast way to acquire production capacity, helps to understand the distribution of gains along the chain and can provide leverage points for government initiatives (Humphrey & Schmitz, 2001).
 
As regards the automobile industry, this is an example of a chain oriented by the producer with a network of subcontractors very active in the production process. In it, the governance is done in order to ensure that the vehicle is assembled within the
specifications required by the automakers. In this sector, therefore, increasingly, suppliers have played a growing role in meeting the demand of their customers, investing in local production units, working in the manufacture and development of parts for new vehicles. In view of the above, the goal is to identify the types of governance inherent to this kind of relationship between supplier and assembler.
 
With the outsourcing of several processes, in addition to production and assembly, the automamaker in question is increasingly adopting new strategies and changing its business model. Many processes that were previously made only by the automaker, such as quality testing, product engineering, among others, are currently performed by "third party" suppliers, who are the service providers. This issue brings the importance of investigating the structural changes of the automobile industry to identify the new production models that may arise over the years.
 
Among the processes carried out by the "third parties" suppliers we can mention: information technology, industrial engineering, quality testing, durability tests, prototype vehicle rolling, product development, tooling development, distribution logistics, parts procurement logistics, inventory logistics, copy and print, building maintenance, cleaning, restaurant, ergonomics, among others. The BETA supplier (Racing Automotive) is the second largest in relation to the number of employees in the plant of the automaker ALFA (MAN Latin America) and is characterized by its diversified range of services, shared with its 10 service contracts.
 
The BETA supplier is part of the group of "third-party" suppliers, who are second- tier suppliers in the automotive value chain, and have interactions with first-tier suppliers (assembly partners and suppliers of complex components), second-tier (suppliers of less complex parts and other third-party companies) and third-tier suppliers (of raw materials). The BETA supplier currently has 381 employees installed in the plant of the automaker and working in 10 different and diversified services.
 
The methodology used involved the accomplishment of the descriptive research based on the accomplishment of two types of interviews: semistructured face-to-face and with survey applied via e-mail. The content of the interviews and the survey was compiled and then analyzed in a qualitative way, adding a quantitative analysis to describe the mechanisms of governance of the value chain of the automaker in its relationship with the supplier through the application of the developed theory by Gereffi et al. (2005) to the Brazilian contexto.
 
As the main result, the research made it possible to identify the types of governance of the ALFA assembler in its relationship with the BETA supplier in all areas and their respective service contracts. The research identified the presence of three types of governance of the theoretical model of Gereffi's theoretical model in the relationship between the Alpha assembler and the BETA supplier: relational, captive and hierarchical. In addition, it identified a contract whose composition of characteristics places the relationship close to the market model, with low complexity of transactions and high coding skills, but with low capacity of the supplier.
 
On the one hand, these results allow us to conclude that there is diversity and, therefore, relative dynamism in the relationship between firms, which helps to visualize
the space for learning and upgrading to a local second-tier supplier, as in the case studied. On the other hand, the standard that merges market characteristics with low capacity of the supplier may represent an exceptional case and, therefore, little significant for the understanding of the case studied, but can also illuminate a poorly explored dimension in the interfirm relationships in situations of great competition and few pre-existing resources by local suppliers.

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