Path transformation in Baden-Württemberg's automotive industry: a growing divide?

Keywords:

Abstract:

Baden-Württemberg's (B-W's) large automakers and Tier-1 suppliers are pursuing radical innovation. However, they are less interested in collaborations with local small and medium-sized (SME) information and communication technology (ICT) and traditional suppliers, which engage in incremental improvements. So, SME's are faced with a challenge because they are not well placed to address increasingly complex technology requirements independently. These features clash with our understanding of the B-W's ecosystem as a collaborative one, where the institutional setup supports close SME-Large Business linkages to co-develop incremental improvements. They suggest the need for a more in-depth examination of the micro-dynamics of B-W regional coordination mechanisms to understand differential outcomes across firms.

The existing political science literature examines how the liberalization of industrial relations contributes to inequality and the concentration of wealth. The research on inter-firm disparities is more limited and identifies national-level regulatory capture as the leading cause. There is a need to investigate this phenomenon further because inter-firm inequality is increasingly associated with growing wage inequality in Germany and elsewhere.

This paper argues that there are regional inter-firm inequalities that stem from anchor firm overembeddedness in German Länder. To understand this outcome, we have to delve into the region-specific power asymmetries underlying non-market coordination mechanisms. Using the cases of both B-W and Bavaria, I show how SME learning, innovation and disruption is constrained by both automotive and ICT transnational corporation's power over firm and institutional systems and resources. Bavaria and B-W have very different industrial structures, yet SMEs face somewhat related constraints stemming from the power of incumbents. Notwithstanding, vehicle-tech SMEs in B-W face particularly harsh obstacles. The ICT sector has been historically dependent on traditional industrial clients for its growth. Automotive incumbent's power over inter-firm relationships and policies has contributed to institutional drift and marginalized the needs of significant portions of the SME population.