Automotive Supplier Industry Development in Vietnam: Supplier Development and Localisation Strategies

Type de publication:

Conference Paper

Source:

Gerpisa colloquium, Detroit (2020)

Résumé:

 Automotive Supplier Industry Development in Vietnam: Supplier Development and Localisation Strategies

 

 

 

Purpose: This paper aims to analyse the progress (or lack thereof) of automotive component localisation in Vietnam. As the country has recently spawned her first domestic carmaker, opens herself to trade, and engages in economic regionalisation in ASEAN, the small-sized automotive component industry faces severe challenges as well as opportunities for development: Either it will be marginalised against competitors with a more developed automotive supply chain such as Thailand or it can successfully integrate into production networks. As domestic suppliers tend to be concentrated in motorcycle parts manufacturing, firms need to improve their capabilities to be considered automobile parts suppliers. Carmakers can actively support this process by engaging in supplier development. It will be investigated in which way supplier development initiatives differ, why this is the case, and what this implies for local firms and automotive sector policy. 

 

 

 

Design: The study uses multiple case studies of both carmakers and suppliers to elucidate different supplier development approaches. It was decided to investigate both parties of a supply relationship in order to avoid a one-sided perspective on supplier development. This qualitative approach is used in order to understand subtle but nevertheless important differences in supplier development across manufacturers.  

 

 

 

Findings: Carmakers engage in quite different approaches towards supplier selection and development. Differences are most pronounced between Japanese and Korean carmakers: While the former are mainly engaging in upgrading suppliers via teaching operational improvement methods, the latter display a strong preference for the use of state-of-the-art machinery, ideally in joint ventures between Korean and local suppliers. It will be argued that these differences are rooted in different production systems and different forms of supplier relations in carmakers’ country of origin. Apparently, these factors lead carmakers to pursue similar arrangements in overseas markets. However, national origin is not a sufficient explanation for observed differences: As the case of one Japanese supplier of advanced components indicates, the nature of locally made components also plays a significant role in the question if local firms can participate in supply chains. Further, the existing literature on supplier development demonstrates that even in Japan, there are significant differences in supplier development approaches between OEMs (Sako 2004).

 

 

 

Implications: Regarding practical implications for local firms, cases suggest that joining supply chains of different carmakers have very different requirements. Joining Japanese supply chains requires local firms to open their plants for customers and engage in operational upgrading. While this requires trust in the customer and results in pressure to learn and improve, suppliers may not have to invest significant financial resources to join supply chains. On the other hand, joining Korean supply chains requires little mutual trust and learning but investment into more advanced production machinery. This arrangement seems to favour larger Vietnamese firms who possess sufficient capital to engage in this kind of a carmaker-supplier relationship.

 

As for practical implications for sectoral policy, different OEM localisation approaches suggest that policy should ideally support both. Hence, policy should support the transfer of operational know-how which promotes upgrading of local supplier firms. As the same time, supporting investment into capital goods used in production should also be supported, e.g. through increased depreciation.

 

Finally, the general implication for upgrading of Vietnamese supplier firms is also noteworthy: Local firms mainly have opportunities to join supply chains by supplying components which are technologically rather simple. Regarding more sophisticated components, firms tend to lack know-how required for production. Overall, this suggests that Vietnamese automotive suppliers have opportunities to upgrade and join supply chains, but their role in these production networks will likely be limited to supply of standardised components and/or status as lower tier suppliers. However, this finding is not surprising as this is the case in several countries which are significant hubs of automobile production in the integrated periphery such as Slovakia (Pavlinek 2017) and Thailand (Intarakumnerd/Charoenporn 2015: 1317).

 

 

 

References

 

Intarakumnerd, Patarapong/Charoenporn, Peera (2015): “Impact of stronger patent regimes on technology transfer: The case of the Thai automotive industry”, in:  Research Policy, Vol. 44, Issue 7, pp. 1314-1326

 

Pavlinek, Petr (2017): “Global Production Networks, Foreign Direct Investment, and Supplier Linkages in the Integrated Peripheries of the Automotive Industry”, Economic Geography, Vol. 94, No. 2, pp. 141-165

 

Sako, Mari (2004): “Supplier development at Honda, Nissan and Toyota: comparative case studies of organizational capability enhancement”, Industrial and Corporate Change, Vol. 13, No. 2, pp. 281-308

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