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Article Excerpt
ABSTRACT
How have the American assembly plants of foreign automotive manufacturers organized sets of other companies' factories that provide their parts or components, that is, their supply chains? Foreign automakers' assembly plants in the United States (or assembly "transplants"), like assembly plants everywhere, purchase many of their components from other companies (automotive suppliers). A recent study of transplants offers data that address the question of supply chain organization. Strategies include the foreign automakers encouraging their overseas suppliers to establish the suppliers' own plants in the United States, in turn urging those suppliers to participate in joint ventures with traditional American supplier firms, and sourcing selectively from traditional American supplier firms. The resulting supply chains often look like hybrids between the foreign automakers' home country supply chains and the traditional American automakers' domestic supply chains. The data lead to explanations of why this occurs. The evidence also permits consideration of ideas about the hybridization of overseas suppliers in their American plants, and the hybridization of American supplier firms that acquire assembly transplants as customers. Finally, the data bear on theories of how business organizations are linked together, and indicate that a hybrid model, rather than a strict "market" or a thoroughgoing "hierarchy" model, best represents these supply chains.
INTRODUCTION
How to organize an effective supply chain has been a challenge for automotive manufacturers. Supply chains are those sets of factories of other companies (suppliers) that provide manufacturers with parts and components. (1) Automotive manufacturers, also known as assemblers or as OEMs, outsource to suppliers as much as seventy to eighty percent of the content of their vehicles. This content amounts to thousands of distinct parts and components. In recent decades, the issue of supply chain organization has come up again with renewed urgency, as assemblers have established many automotive "transplants." Transplants are factories located outside of the nation that is the site of a firm's headquarters. Assembler transplants are becoming more numerous in the United States. How have these assembly transplants organized their supply chains, and what explains the form of these supply chains?
In this paper, we address these questions with data from a study of several assembly transplants and several supplier transplants in the United States. (2) We emphasize data from four assembly transplants involving Japanese manufacturers. Our investigation began with a review of available data on transplant supply chains, and then proceeded with over two dozen in-depth, qualitative interviews with transplant executives.
Despite its concentration on transplants in the United States, this paper has implications for the entire automotive industry. With the world-wide integration of this industry, many automotive manufacturers and suppliers have built and continue to build factories in nations distant from their home countries. Furthermore, the automotive industry is not only large, but tends to be an attractive industry, often welcomed (albeit with regulations) by developing nations. Thus the tasks of constructing transplant supply chains in this country are also faced in other nations as they develop economically, in both their automotive and other industries.
The paper also has implications for conceptions about business organizations. Theories of organizations, as well as studies of particular industries (Boyer et al. 1998; Freyssenet et al. 1998; Womack et al. 1990) raise questions about the extent to which globalization means convergence on a common pattern of organizational structure and of inter-organizational relationships, and questions about the nature of that structure and those relationships. We examine those questions in our final section.
The sections below begin by providing some context for the decisions of the Japanese manufacturers to establish production in the United States. Next, the paper describes briefly the research plan. Then there is a section on the theoretical basis of the paper. Following this is a short section on why transplants source locally. Next are two sections on constructing supply chains and a section on their current configuration. The paper ends with a conclusions and discussion section.
FOREIGN AUTOMOTIVE ASSEMBLERS BUILD FACTORIES IN THE U.S.
The large and increasing sales of imported foreign, especially Japanese, automotive vehicles in the United States by the end of the 1970s created very powerful political pressures in this nation for limiting such sales. Apart from the political pressures, some Japanese OEMs had strong business cases for erecting plants in the United States. (3) Assembling vehicles in this country insulates these companies from currency fluctuations. It also makes it easier to respond to variations in demand in the United States and to cut the costs and risks of overseas transportation of imported vehicles. The outcome was that Japanese manufacturers decreased their importation to the United States of vehicles built in Japan while constructing assembly transplants in the United States. The impact of these transplants is evident in Figure 1 which depicts the great increase for four Japanese manufacturers in the percent of their U. S. sales based on vehicles built in the United States, rather than imported.
These factors have also been important in the decisions of additional overseas assemblers to locate in the United States. The reasons for assembly transplants' existence seem robust enough that these transplants will not only remain in the United States, but also increase in number. For similar reasons, assembly transplants are becoming common in a number of other nations. For example, American, Japanese, and European OEMs have all built assembly plants in mainland Asia as well as in one or another western hemisphere nation other than the United States (e. g., Canada, Mexico, Brazil). BMW, a European manufacturer, has an assembly plant in South Africa, and various OEMs have established assembly plants in Eastern Europe. Given the extensive outsourcing all automotive manufacturers do, this means that many OEMs must confront the task of organizing assembly transplant supply chains.
[FIGURE 1 OMITTED]
RESEARCH PLAN
After our review of data on transplant supply chains, we conducted qualitative interviews with over two dozen automotive executives. At the time of the interviews, each executive had completed assignments at one or more of the assembly transplants in the United States, or had worked for at least one automotive supplier transplant in this nation. The project was successful in securing interviews with executives from a variety of functional divisions within these factories. The respondents had, variously, experience in human resources, purchasing, manufacturing operations, and general management. Furthermore, most of the executives had experience in the initial development of at least one transplant.
The interviews lasted from one hour to well over two. The primary emphasis of the interviews was on capturing qualitative data. This reflected the core questions of the project, which turned on the major challenges the transplants confronted, and the ways in which the transplants addressed those challenges and solved problems.
The manufacturer transplant operations we initially selected included Honda's plant in Marysville, Ohio; Toyota's plant in Georgetown, Kentucky; Nissan's factory in Smyrna, Tennessee; and the Diamond Star plant, a joint venture of Mitsubishi and Chrysler, in Normal, Illinois. In the second phase of the project, we selected two other assembly transplants (a second Honda plant, in Lincoln, Alabama, and a Mercedes plant, in Tuscaloosa, Alabama) and several supplier transplants; the latter represented a range of suppliers, from large to small.
PERSPECTIVES ON AUTOMOTIVE SUPPLY CHAINS
"Transaction cost economics" offers some understanding of the movement towards supply chains in the automotive industry. This perspective (Williamson 1975, 1985, 1996) suggests that a business considers whether it is less expensive to make itself (the "build" decision), or to purchase from another firm (the "buy" decision), a component or part that the business requires. In making the decision, the company evaluates the total cost of the part, including the nominal price as well as any associated costs (e. g. the cost of evaluating and choosing among potential vendors, if the business is likely to purchase the part from another firm). The "build" decision leads to vertical integration, whether the firm has the capacity and capability to make the part internally, or acquires another firm which does. The "buy" decision means the firm enters the marketplace and contracts with an outside firm that will supply the part. Historically, American automotive manufacturers have shifted back and forth between vertical integration and market outsourcing as parts acquisition strategies. Japanese assemblers, by contrast, have more consistently emphasized outsourcing, but of a specific type.
The usefulness of the transaction cost economics perspective lies in its linking of economic factors to organizational structure. Williamson (1975) uses the term "hierarchy" to describe the consequence of vertical integration, which in turn flows from the build decision. He uses the term "market" to describe the consequence of the buy decision; this means a situation of less or no hierarchy.
Other writers have directed extended comment and a variety of criticism at the perspective (e.g., see...
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