Changes in the automobile industry

An automobile industry is a wide platform where huge number of companies and organizations get involved in designing, developing, manufacturing, marketing and selling vehicles which also aims at contributing the world in terms of revenue.

There have been drastic changes in the automobile industry in last few years. The major two changes seen are mentioned below.

Increasing number of hybrid and electric cars

Hybrid cars and electric cars are in trend in recent years. According to the research conducted in United States, it has been found that the sale for these cars has raised 45% in 2017 as compared to the demand in 2016. The trend of these cars will be followed because they aim at manufacturing cheaper batteries and more robust charging infrastructure which helps to cut the cost of electric cars. They basically aim at focusing on the power and drive train systems which include clutch, rear axle, propeller shaft yoke and propeller shaft. The taxes charged by government on these cars are comparable lower than those involved in diesel cars (Youngs, 2012).

For example, Volvo is expected to emit 30% less CO2 and save the fuel of 5-10% by adopting a hybrid long haul truck. The company has also planned to update its drive train which will decide the best time to use diesel cars and electric cars.

Likewise, Tesla has built its image by selling 28000 of S model and Chevy has sold 25800 of its hybrid volts. However, Toyota’s Prius Prime is known as the third highest selling electric hybrid company in 2017.

Collaboration

Today, many companies are highly involved in building partnership with IT companies such as Toyota and Microsoft, Google and Honda and Volvo and NVidia and many more. Similarly, many automobile companies are also getting more involved with each other which was not in trend few years back. The main reason behind the interconnection is the strategic alliances.

For an instance, Mahindra and Mahindra entered into a strategic alliance with US Company named Ford Motor in order to create cooperation in terms of products, technology, functioning and electrifying of cars. They have collaborated and decided to work together for three years. Likewise, UK has also expected to produce 100% zero emission cars by 2050 which will help to create a healthy environment (Oberholtzer, 2016).

Earlier, it was proved that in the year 2016, it was reduced to 10000 units. By the end of 207, it has reached to 2.9% of the total number of registrations. Today, electric cars are present in 1.9% of the total market of cars in the UK (Lily, 2018). 

GVCs and GPNs frameworks

Global Production Network is an idea which belongs to the nexus of interconnected functions, operations and transactions with the help of which a product is introduced, scattered and consumed.

A GPN is the concept where the nodes are connected across the national boundaries. GPN framework aims at combining the insights what are available from global value chain. It also focus to encompass all the factors that are involved in the production and manufacturing process. It also helps to create a platform which is analytical in nature (Antràs. and Chor, 2013).

GPN has played a major role in the Industry since long time. From the above diagram, in 1977, Commodity Chains were introduced by Hopkins and Wallenstein which focused on building a quality products along with the processing of all the departments. Later, in 1985, Porter’s model was proposed which included bargaining power of supplier, buyer, threats and substitute products. Similarly, in 2007, Global Value network was introduced (OECD, 2012).

Strength of the framework

1. It is a tool which helps to enhance the business by competing with the competitors and creating values for the company.
2. It also helps to diagnose and build advantages on two factors i.e. cost and differentiation.
3. It helps to understand the issues involved in an organization to deliver the customer commitments and promises.
4. This Framework helps to understand business well using SWOT analysis.
5. This framework is easily adapted by any kind of business such as retail, manufacturing, schools and many more.

Weakness of the framework

1. The major disadvantage of the framework is that it can only be adapted by a specific business situation. It does not work with the logic of “Plug and Play”.
2. The format of the value chain presented in Porter’s book named Competitive Advantage is highly focused on the manufacturing activities but the language is not suitable for other type of business except manufacturing.
3. Sometimes, it happens that the scope of such framework might be intimidating. It may also be time consuming.
4. Today, every business and industry are aware of this framework but they do not use it on their daily basis.
5. The structure of business sometimes is not well structured. So, it becomes difficult to gain information using these framework (Carballa, Durand and Knauss, 2016).

Buyer-driven VS Producer driven aspect of GVC

There are majorly two aspects of GVC i.e. Producer driven and Buyer driven.

Producer Driven includes Manufacturers, Distributors and Retailers and Dealers. Likewise, Manufacturers are comprised of Domestic and Foreign subsidiaries and sub-contractors. While, Buyer driven includes Factories, Traders, Overseas Buyers, Branded Manufacturers, Branded Marketers and Retailers. The GVC framework has shown the major differences between these two. Buyer driven chain and producer driven chains are generally dominated by big manufacturing firms like General Motors and IBM. The interconnection and linkage between MNC is huge in numbers in case of producer driven chain, while in case of buyer driven chain have huge number of linkage between the firms that are legally independent by nature (Cattaneo, Gereffi and Staritz, 2010).

Likewise, buyer driven chain are very commonly found in simple products. Simple products includes toys, clothes, and home goods. Generally it happens that innovations that take place in such products lies within the product design and marketing instead of manufacturing. They do not bother more about the manufacturing process and know how they are made (Geref?, 1999). On the contrary, Producer driven chain are found in capital intensive items that are involved more into technologies. It includes automobile industry who needs expertise and core persons. It also include those suppliers who are captive in nature and who can be blocked from sharing information from competitors (Coe, Dicken, and Hess, 2008).

Buyer-driven vs producer-driven aspect

Value Chain Governance

There are basically five types of GVC governance patterns that were identified from Gary Gereffi, John Humphrey, and Timothy Sturgeon, “The governance of global value chains,” Review of International Political Economy, vol. 12, no. 1, 2005. These are mentioned below.

Markets

Markets are considered to be one of the simplest form of GVC governance. Those chains which are governed by markets include firms and individual who buy and sell products from one person to another by getting involved at low level. They do not interact more while exchanging goods and services. The connection that exists between values chains activities are not that strong because of the information shared are straightforward (Kaplinsky, 2010). 

Modular Value Chain

The suppliers that are involved in modular value chain manufacture products and aims at providing services to their potential customers. The suppliers here are responsible for the innovations and technology used in the production process. They generally use generic machines which helps them to cut the costs and make limited investments. The interaction between buyer and supplier here is very difficult because there is huge volume of information (Coe and Yeung, 2015).

Relational Value Chain

Under this pattern, mutual dependence are regulated by the means of reputation, social proximity, family and friends and many more. Examples of such chain are industrial districts. It takes time to build trust and make relationships and the costs involved in switching from one partner to another partner may also be high as well. Deep interactions and information are shared between the partners who help each other to solve the complex decisions (Humphrey, 2001).

Captive Value Chain

Here, tiny suppliers are dependent on the bigger buyers. The industry increases the switching cost for suppliers. Such chains are monitored and controlled by the leading firms. The suppliers here are forced to interconnect with their customers and maintain a healthy relationships (Bolwig, Ponte, Du Toit, Riisgaard, and Halberg, 2010). 

Hierarchy

The vertical diagram characterize the governance pattern. In vertical diagram, transactions are taken within a single firm. There are majorly two options that divide the cross border economic activities. The two options are market or hierarchy. Today industries either invest offshore directly or they directly to buy goods and services from international market (Bayne and Woolcock, 2011).

What makes GVC different?

There are many factors that helps GVC to grow over time again. The patterns involved in GVC varies from industries to industries. There are three major variables that GVC take care of. They are listed below.

Governance patterns

Transactions Complexity

Sometimes, it happens that the transactions are complicated and they need huge interaction to be involved in it. GVC aims at managing those complexity by serving many patterns such as modular, relational and captive (Elms and Low, 2013).

Transactions Codifiability

It happens that to codify the complex information, schemes are used through which data are managed with easiness. The data are managed using many technologies (Lundvall, Joseph, Chaminade and Vang, 2011). 

Competition between Suppliers

The suppliers must be competitive enough to manage and control all the information that are complex in nature. Moreover, they also need to be updated based on the technology used in the industry as well. The organization also must ensure that all the captive suppliers must be controlled and monitored.

Later, if any of the above variable changes, then the patterns of value chain governance will be hampered and it will also create a negative impact on the business (Gibbon, Bair and Ponte, 2009).

For an instance, if a business is adopting any new technology which renders a well-known codification scheme, the company may expect their value chain to be more rational and competitive. If there will be no competitive suppliers in a business, then the captive networks will be prevalent.

As a result, it can be concluded that automobile industry plays a major role in today’s era. There are huge number of changes that can be seen in last few years such as introduction of hybrid and electric cars and the collaboration of many partners. Moreover, there are many patterns that are involved in GVC and those patterns are generally followed by many industries. 

References

Antràs, P. and Chor, D., 2013. Organizing the global value chain. Econometrica, 81(6), pp.2127-2204.

Bayne, N. and Woolcock, S. eds., 2011. The new economic diplomacy: decision-making and negotiation in international economic relations. Ashgate Publishing, Ltd.

Bolwig, S., Ponte, S., Du Toit, A., Riisgaard, L. and Halberg, N., 2010. Integrating poverty and environmental concerns into value?chain analysis: a conceptual framework. Development Policy Review, 28(2), pp.173-194.

Carballa Smichowski, B., Durand, C. and Knauss, S., 2016. Uneven development patterns in global value chains. HAL.

Cattaneo, O., Gereffi, G. and Staritz, C. eds., 2010. Global value chains in a postcrisis world: a development perspective. World Bank Publications.

Coe, M. N., Peter Dicken, P. and Martin Hess, M. 2008. Global production networks: realizing the potential. Journal of Economic Geography. Volume 8.

Coe, N.M. and Yeung, H.W.C., 2015. Global production networks: Theorizing economic development in an interconnected world. Oxford University Press.

Elms, D.K. and Low, P. eds., 2013. Global value chains in a changing world. Geneva: World Trade Organization.

Geref?, G., 1999. International trade and industrial upgrading in the apparel commodity chain. Journal of International Economics. Volume 48.

Gibbon, P., Bair, J. and Ponte, S., 2009. Governing global value chains: an introduction. Economy and Society. Volume 37 (3).

Humphrey, J., 2001. Governance in global value chains. IDS bulletin, 32(3), pp.19-29.

Kaplinsky, R., 2010. The role of standards in global value chains.

Lilly, C., 2018, Electric car market statistics, viewed on 3^rd March, 2018. Available at: https://www.nextgreencar.com/electric-cars/statistics/

Lundvall, B.Å., Joseph, K.J., Chaminade, C. and Vang, J. eds., 2011. Handbook of innovation systems and developing countries: building domestic capabilities in a global setting. Edward Elgar Publishing.

Oberholtzer, S., 2016, why the new era of auto industry collaboration creates risks, viewed on 3^rd March, 2018. Available at: www.autonews.com/article/20160627/BLOG06/160629883/why-the-new-era-of-auto-industry-collaboration-creates-risks

OECD, 2012, Trade and agriculture directorate trade committee, Viewed on 27^th February, 2018. Available at: file:///C:/Users/Neha%20Kediya_JPR/AppData/Local/Packages/Microsoft.MicrosoftEdge_8wekyb3d8bbwe/TempState/Downloads/2015094_805602210_OECD2012MappingGlobalValueChai.pdf

Youngs, J., 2012, The Advantages of Hybrid Cars, Viewed on 3^rd March, 2018. Available at: https://www.jdpower.com/cars/articles/safety-and-mpg/advantages-hybrid-car