Value chain structures and Innovation in Spain’s and Korea’s automotive industries

Type de publication:

Conference Paper


Gerpisa colloquium, Paris (2020)


automotive, innovation, Korea, Spain, Value chains


As the automotive industry paradigm changes, firms need to generate new competitive advantages through innovation to ensure their survival. This paper explores the institutional determinants of non-incremental innovation from the perspective of latecomers to the automotive industry through the analysis of the Spanish and Korean automotive industries since 2000.
We ask two research questions. The first question is what determines firms’ capacity for non-incremental innovation. Using insights from the innovation and GVC literatures, we argue that in addition to organizational features, firms’ capacity for non-incremental innovation is determined by the structure of the value chains within which they operate. We characterize two different types of value chains: self-sufficient (SS) and regionally integrated (RI). We define SS value chains as hierarchical structures involving a dominant automotive producer (OEM) and a network of captive suppliers. We define RI value chains as modular, transnational structures composed of several OEMs and a network of independent, specialized suppliers.
The second research question asks what type of value chain is more effective at fostering non-incremental innovation. We find that despite the greater innovation autonomy associated with having a local OEM, the autarkic character of SS value chains can prevent both the OEM and its captive suppliers from carrying out non-incremental innovation. Contrary to expectations, we also find that, thanks to their modular structure, RI value chains stimulate non-incremental innovation among large turnkey suppliers with well-established reputations and solid relationships with multiple OEMs. Due to the transnational character of RI value chains, these stimuli extend to suppliers based in countries where there is no local lead firm.
The paper articulates the connection between internalization and GVC through three main contributions. First, it indicates the benefits of shifting from the firm to the value chain as the unit of analysis. Second, it characterizes for the first time two types of value chains that may coexist within a single industry. Third, it explores the implications of these two governance structures on non-incremental innovation. Finally, the paper advances our knowledge of automotive firms from late industrializing economies by exploring the determinants of their transition from learning to innovation.
The argument is based on qualitative case studies of automotive firms from Spain and Korea from the 1960s. The Spanish and Korean automotive industries were established at a time when the prevailing industry paradigm was already well-established. Therefore, unlike their triad counterparts, Spanish and Korean firms have little prior experience with non-incremental innovation. On the other hand, firms from these countries have sufficient international experience to differ from their counterparts in today’s emerging economies. Both countries are large automotive producers: according to OICA, in 2018 they were the world’s seventh and ninth largest automotive producers respectively. At the aggregate level, the automotive sectors in both countries are comparable in terms of production, turnout, export revenue, and employment. However, the structure of production is quite different. Korea is home to one of the world’s largest OEMs, the Hyundai Motor Company, which controls an extensive network of suppliers. In contrast, all of Spain’s automotive firms are suppliers to foreign OEMs. These differences provide the variation necessary to explore innovation from the perspective of two different types of production organizations.
This research is qualitative in nature and is based on Bayesian process tracing. This process involves confronting specific priors or hypotheses that reflect the researcher’s initial level of information with actual data over several iterations and progressively updating the initial priors until a sufficient weight of evidence enables the researcher to accept or discard them. Evidence is obtained from a wide range of sources that reflect the characteristics of Spain’s and Korea’s automotive industries since the 1960s. Sources used include OICA’s statistics; Automotive News and other specialized journals; Spain’s and Korea’s national automotive associations: the Asociación Española de Fabricantes de Automóviles y Camiones (ANFAC) and the Korea Auto Industries Cooperative Association (KAICA); company reports and websites, and semi-structured interviews.
Firm selection for the interviews was based on data from the Organisation Internationale des Constructeurs d’Automobiles’ (OICA) 2018 statistics (OEMs) and Automotive News’ “2018 Top 100 Global OEM and Part Suppliers” (Table 3) (Tier 1 suppliers). Due to the small number of top Tier 1 suppliers in each country, we decided to extend the number of suppliers investigated. For Spain, we used examples from among firms identified by two experts from the Ministry of Industry, Commerce, and Tourism working in the Spanish commercial offices of Seoul and Chicago. For Korea, we included other suppliers that are part of the HMC family of affiliates. We conducted 26 semi-structured interviews with academics, civil servants, and managers of representative firms in Spain, Korea and the US between December 2018 and May 2019. Interviews were conducted in English or Spanish, over the phone or in person, in the interviewee’s place of work or in a public space. Almost all interviewees refused to be recorded, but most accepted that the interviewer takes handwritten notes. Questions were tailored to the experience and perspective of the interviewees. Firm interviewees occupied managerial positions at national or supranational level. These interviewees were asked about the types of products they produced, the internationalization trajectory of the firm, their client portfolio, the impact of the sector’s transformation, and their innovation responses. Information obtained through interviews was backed with data from other sources and contrasted with responses from other interviewees. Individuals were given space to describe innovation initiatives they thought were particularly relevant in order to uncover details that the interviewer might have otherwise overlooked. Key to understanding the structure and differences of the value chains win the two countries, and firms’ approaches to innovation were seven interviews with country or regional managers of Spanish automotive firms working in Korea. These interviewees, of Korean and Spanish origin had a unique in-depth comparative knowledge of the industry as it operates in both regions.

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