Can Industry 4.0 Spur Upgrading in the Automotive Semi-Periphery? Lessons from Canada

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Abstract:

During the post-2000 period, the global automotive industry has endured a significant and ongoing cycle of territorial and organizational restructuring. A substantial literature has emerged devoted to its explanation, drawing from, and building knowledge around, multiple concepts and theories. These include global value chains (GVCs), global production networks (GPNs), uneven development, and the international division of labour (Rutherford and Holmes, 2008; Sturgeon et al., 2008; Sturgeon and Van Biesebroeck, 2010; Pavlinek and Zizalova, 2016).

One segment of this research integrates several of these concepts by categorizing automotive-producing nations according to their position within value chains and production networks. These categorizations help explain the evolution and distribution of the range of processes required to design, develop, manufacture, and deliver vehicles. Until recently, studies of the global automotive industry tended to categorize automotive-producing countries as “Core” or “Integrated Periphery” with the prior deriving power within the automotive value chain via their status as hosts of a domestically-headquartered automaker and the latter via their offer of relatively low-cost labour (Sturgeon and Florida, 2000; Chanarron, 2004; Jacobs, 2016; Domanski et al., 2017). Examples of Core automotive nations are the US, Japan, Korea and Germany. Integrated Peripheries, meanwhile, consist of countries like Mexico, Central and Eastern Europe, and, more recently, North Africa.

Recently, studies have emerged that identify and examine the developmental dynamics in a separate group of automotive-producing countries labelled the Semi-Periphery (Pavlinek, 2018; Mordue and Sweeney, 2020; Mordue and Karmally, 2020; Sweeney, Mordue and Carey, forthcoming). Following Mordue and Sweeney’s (2020) definition, Semi-Peripheral automotive countries lack many of the regional assets endogenous to the Core, such as a domestically-headquartered automaker and the clustering of R&D and managerial functions within automotive GVCs/GPNs. Instead, they are home to a well-educated workforce (one presumed to be capable of performing knowledge-based activities), relatively high-cost labour, and the headquarter location of some large automotive parts suppliers. They also tend to retain significant (but declining) levels of automotive production. Such countries, which include Canada, Spain, the UK, Sweden, Austria and Belgium, were, in general, slightly-lower-cost than Core automotive countries. Their competitive advantage, however, has diminished throughout the 21st century.

The identification of the automotive Semi-Periphery was initially raised by Pavlinek (2018); however, with his focus being on the Integrated Periphery in general and Slovakia in particular, his discussion of Semi-Peripheral automotive nations was incidental. This has led other researchers to place more concrete emphasis on the strategic dilemmas and competitive dynamics within the automotive Semi-Periphery. Mordue and Sweeney (2020), for example, emphasize that the automotive industry is dynamic with entry and exit into the Core, Semi-Periphery and Integrated Periphery being fluid in nature. These forces are demonstrated by the introduction and rise of new members of the Integrated Periphery, a phenomenon that has, in turn, contributed to the bumping of some previous members of the Integrated Periphery to the new category of Semi-Periphery. Examples also include the shifting status of countries like Sweden and the UK; once Core automotive nations, which by virtue of the loss and/or sale of homegrown automakers, have dropped to the status of Semi-Periphery.

While the definition of the Semi-Periphery is helpful for classification purposes, further empirical fieldwork is required that examines the processes underlying why and how these shifts do or do not occur within automotive GVCS/GPNs. In this regard, recent research examining the economic geography of R&D investments in the automotive industry provides a strong exemplar. The tendency for automotive R&D and knowledge-based activities to gravitate to Core locations is well-established (see Calabrese, 2001; UNCTAD, 2005; Pavlinek, 2012; Goldman et al., 2016; Lampon et al., 2016; Pavlinek, 2018). Mordue and Sweeney (2020) demonstrate that, notwithstanding significant attributes of automotive Semi-Peripheries (including, for example, their well-educated workforces, the existence of a large automotive manufacturing base, and their proximity to Core automotive nations), these nations have proven incapable of attracting significant mandates for automotive R&D (Mordue and Sweeney, 2020). Moreover, the extent to which automotive manufacturing has shifted to the Integrated Periphery (and away from the Semi-Periphery) has also been quantified (see Mordue and Sweeney, 2020).

Mordue and Karmally (2020) extend the analysis of the Semi-Periphery by studying the proliferation of what they call “frontier automotive technologies,” which in this context constitute advancements disconnected from the traditional automotive industry and its headquarters-proximate geographic Core(s). To do so, they examine all countries, including Semi-Peripheral nations’ results with respect to the development of Autonomous Vehicle (AV) technology. The premise is that the development of AV-oriented technology may reveal new patterns of R&D development, a consequence of automotive firms’ needing to engage with innovation ecosystems beyond Core automotive locations. In the end, their research establishes that globally, even though AV-related R&D has emerged from non-traditional automotive countries, the preponderance of AV-related R&D is now converging in Core automotive locations: proximate to automakers’ global headquarters.

Further to formal R&D investments, a critical issue that could force upgrading in the automotive Semi-Periphery is Industry 4.0 (I-4.0). Through enhancements in sensor technology, edge computing, big data analytics, cloud computing and the internet of things, I-4.0 promises the enhancement of firm productivity, product quality and traceability within supply chains. At a broader industry level, several researchers argue that I-4.0 holds the potential to reshape existing industrial geographies as lead firms adopt new digital technologies and alter their sourcing practices (Schuab, 2016; Wolfe, 2018; Helper, Martins and Seamans, 2019). Thus, our research focuses on the question: Can Industry 4.0 Spur Upgrading in the Automotive Semi-Periphery?

We do so via a comprehensive survey distributed to automotive manufacturers in Canada about the extent and nature of their engagement with the tools of I-4.0. We ask detailed questions about their budgets for Industry 4.0 and the specific tools they have employed. We also ask them about their expectations and motivations, and where relevant, we probe them about the results they have achieved thus far. In addition, we scrutinize the barriers they experience to implementation as well as the role of public policy to assist them in moving forward. We supplement this information via a series of interviews with key industry actors, including manufacturing managers and policymakers.

We find that while many executives identify I-4.0 to be a pressing issue, few firms in the Canadian automotive sector are making the necessary investments in new digital technologies. Due to the inability of many Small and Medium Enterprises (SMEs) to make these critical investments, we argue that digitization is unlikely to spur significant growth in the sector. Moreover, we dispute the transformational view of I-4.0 and propose that, much like previous rounds of automation in the industry, the implementation of new digital technologies entails a resistance strategy for many firms and countries. (For a discussion of “resistance” versus “resilience” see Sweeney, Mordue and Carey forthcoming).