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International Production Networks in the Automotive Industry: Drivers and Enablers

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The automotive industry was one of the earliest to internationalise, with overseas production by US companies already happening in the early 1900s. However, the arrangement for overseas automotive production at that time was quite different from the idea of international production networks in the contemporary sense. There were few linkages between international locations and overseas operations were designed either as largely self-sufficient, vertically integrated, replications of their domestic factories or as CKD/SKD assembly plants with little local technical content. By comparison, our current understanding of international production networks is that they are dispersed, collaborative, high value adding and centrally coordinated. This paper uses global company case analysis to identify the drivers and enablers that shape the international production networks of two automotive companies, BMW and Volvo Cars. The methodology contrasts with previous network studies of the automotive industry that have concentrated their analysis at the country and regional level.
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24
th
International Conference on Production Research
INTERNATIONAL PRODUCTION NETWORKS IN THE AUTOMOTIVE INDUSTRY:
DRIVERS AND ENABLERS
Mats Winroth
1
, David Bennett
1,2,3
1
Department of Technology Management and Economics,
Chalmers University of Technology, Gothenburg, Sweden
2
Aston Business School, Aston University, Birmingham, UK
3
Business School, University of South Australia, Adelaide, Australia
Abstract
The automotive industry was one of the earliest to internationalise, with overseas production by US companies
already happening in the early 1900s. However, the arrangement for overseas automotive production at that
time was quite different from the idea of international production networks in the contemporary sense. There
were few linkages between international locations and overseas operations were designed either as largely
self-sufficient, vertically integrated, replications of their domestic factories or as CKD/SKD assembly plants
with little local technical content. By comparison, our current understanding of international production
networks is that they are dispersed, collaborative, high value adding and centrally coordinated. This paper
uses global company case analysis to identify the drivers and enablers that shape the international production
networks of two automotive companies, BMW and Volvo Cars. The methodology contrasts with previous
network studies of the automotive industry that have concentrated their analysis at the country and regional
level.
Keywords: international production networks; automotive industry; case studies; drivers; enablers
1. INTRODUCTION AND AIM OF PAPER
The idea of establishing an international production
network for automotive companies, in the sense that we
understand today, is relatively very different from the
concept of overseas production in the early 1900s when
US manufacturers started to internationalise, or even the
1950s when European companies first established
overseas plants. The US and European companies that
were early movers did not have many linkages between
their international locations and they designed their
overseas operations either as largely self-sufficient,
vertically integrated, replications of their domestic factories
or as CKD/SKD assembly plants with little local technical
content. By comparison, our current understanding of
international production networks is that they have the
characteristics of being “dispersed”, “collaborative”, “high
value adding” and “centrally coordinated” rather than the
more traditional “pipeline of physical transformation” [1].
The aim of this paper is to undertake an empirical
exploration of the recent developments in international
production networks within the automotive industry. Its
focus is on larger (but not necessarily the largest)
automotive companies. In particular, the paper
investigates the most significant drivers and enablers that
shape the way international production networks today
have been designed, or have evolved. As evidence, it uses
data from case studies of automotive companies in which
the drivers and enablers for their international network
design have been identified. One is BMW, which for its 3
brands has a network of 23 wholly owned and joint venture
plants for parts production and car assembly, 5 “partner”
plants for local assembly and 2 contract plants that provide
additional capacity for producing more specialised
vehicles. The other is Volvo Car Corporation, which for its
single brand has an expanding international network
including plants jointly operated with its Chinese owner
Zhejiang Geely. Currently this owned network comprises 8
plants for parts production and car assembly, together with
3 centres for design, R&D and engineering. The paper
addresses a research gap by considering the more
contemporary approaches to international network design
for production compared with earlier studies that have
focused on more conceptual benefits of networks [2] and
strategies underlying their configuration [3].
2. INTERNATIONAL PRODUCTION IN THE
AUTOMOTIVE INDUSTRY
The automotive industry started to internationalise only a
few years after the birth of the industry during the early
1900s. In 1910 General Motors established a joint venture
in the UK and by 1930 had added car assembly plants in
Sweden, Argentina, Brazil, South Africa, Australia, New
Zealand, Japan, Indonesia, India and Spain. By 1929,
Ford was assembling cars in the UK, Brazil, Argentina,
Mexico, Sweden, Belgium, France, the Netherlands,
Spain, Italy, Germany and Japan. Beyond the US,
internationalisation of automotive companies was much
slower. In the early 1900s the industry in Europe
comprised a large number of smaller companies, so there
was little motivation and insufficient resources for
establishing foreign plants. Instead a number of European
companies licensed production to newcomers elsewhere
in the world. Large scale international production of
European cars overseas did not start until after the
Second W orld War, with Volkswagen establishing its plant
in Brazil in 1953. In 1958 the British Austin Motor
Company opened a plant in Australia and also during the
1950s the Standard Motor Company opened overseas
plants in Australia, India, South Africa and France. By the
1960s and 1970s, internationalisation was becoming
increasingly prevalent in the automotive industry as most
of the main manufacturers started to open overseas
plants. At the same time, new countries emerged as
locations for automotive production and started to develop
their own automotive industries. South Korea, and later
China, became major automotive manufacturing countries
with government strategy promoting the establishment of
indigenous car and commercial vehicle companies.
3. DRIVERS AND ENABLERS IN OPERATIONS
STRATEGY
Traditional operations strategy comprises the competitive
priorities of the company (how it intends to position itself in
the market related to the product and services offered), as
well as decision categories (the decisions and capabilities
that the company has to manage in order to comply with
the competitive priorities). The different competitive
priorities vary, but according to Wu and Ellis [4] the
commonly accepted ones are quality, cost, lead time,
delivery reliability, flexibility (which could include design
flexibility and volume flexibility). Hayes and Wheelwright
[5] also listed the decision categories for a factory
manufacturing system, i.e.
Capacity: amount, timing, type
Facilities: size, location, specialisation
Technology: equipment, automation, linkage
Vertical integration: direction, extent, balance
Workforce: skill level, wage policies, employment
security
Quality: defect prevention, monitoring, intervention
Production planning/material control: sourcing
policies, centralisation, decision rules
Organisation structure: structure, control/reward
system, role of staff groups
This list of priorities and decisions becomes even more
complex when entering manufacturing networks acting
globally.
4. EXTENDED OPERATIONS STRATEGY IN
INTERNATIONAL NETWORKS
When applied to international production the competitive
priorities and decision categories for factory level
operations are also appropriate, but for the purpose of
taking strategic network design decisions they will usually
devolve down to second level drivers and enablers that are
more relevant to the specific context of the company and
its various network players (subsidiaries, partners,
suppliers of materials and technology etc.). For example,
the cost priority will normally have a longer time horizon
and take account of the need to meet the demands of
different geographical markets. And the decision category
of vertical integration will be modified to take account of
the dispersed nature of the network elements together with
the way in which this impacts the conventional ideas about
economies of scale.
In addition to the decision categories for factory
manufacturing systems, Shi and Gregory [1] have
identified other operations strategy aspects that are
important to consider in international networks, i.e.
Geographic dispersion: distributed factory condition
Horizontal coordination: coordinated mechanism
Vertical coordination: international dispersion of the
corporate value-adding chains and their linkages
Dynamic response mechanism: opportunity identify,
and manufacturing mobility
Product life cycle and knowledge transfer in
international manufacturing networks
Operational mechanism: network daily co-ordination,
management information system
Dynamic capability building and network evolution:
learning by operations
Cheng et al [6] described the development of
manufacturing networks and how the different plants within
a manufacturing network are interrelated. What can be
noted from their results is that the development of the
plants is dependent on local knowledge, access to network
knowledge, and how well top management succeeds in
knowledge transfer/exchange to support development.
Karlsson and Sköld [7] added more organisational aspects
on industrial networks and especially when the
geographical distance is longer, as in international
networks. In their study, they found that factories within a
company group often compete with each other. None of
the factories can be certain to get the task to produce,
meaning that they need to be the best producer of that
specific product. The choice is made based on different
aspects, such as available capacity and competence,
geographical suitability and availability of local suppliers,
historical performance, and naturally also on cost
performance. However, the factory that already has the
task to industrialise a new product does, through its
existing knowledge and capabilities, have a considerable
advantage in this competition. The most important aspects
of manufacturing networks and their interrelations are
described in Figure 1.
Figure 1: Manufacturing Network Context
adapted from [7]
5. METHODOLOGY
For this paper two medium-size automotive companies
have been selected, BMW and Volvo Car Corporation. In
2016 the three largest automotive companies (Volkswagen
Group, Toyota and General Motors) each produced
around 10 million cars. By comparison, in the same year
BMW produced nearly 2.4 million cars and Volvo Car
produced more than 530,000 (with its parent company,
Geely, also producing more than 765,000 cars). Most of
the data for the cases were collected from public sources
including company reports, press statements and articles,
published research, Internet sources etc. Both companies
have also been the subject of related empirical research
investigations by the authors over many years, so
accumulated information from plant visits and interviews
was used to supplement the data collected from desk
research. Simple visual text analysis of the data was used
to identify the main drivers and enablers that have shaped
the configurations of each case company’s international
manufacturing network.
Of particular importance in the analysis was to construct a
historical timeline that identified relevant acquisitions and
disposals in order to ascertain the extent to which network
design has been the consequence of new influences
within the whole company group or legacy factors from
past decisions. In using global company case analysis,
the research approach contrasts with previous network
studies of the automotive industry that have concentrated
their analysis at the country and regional level [8], [9].
6. THE CASE COMPANIES
6.1 BMW company origins
24
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International Conference on Production Research
BMW (Bayerische Motoren Werke) started in 1917 as an
aircraft engine manufacturer based in Munich, Germany,
but under the Versailles Treaty it had to stop producing
military related products, so in 1922 began making small
motorcycle engines and then complete motorcycles. Car
production started in 1928 when BMW acquired the
Eisenach car company and its facilities. The first model
was a license built version of the British Austin Seven.
During the 1930s BMW established a reputation as a
maker of prestigious sports cars, then from 1939 to 1945 it
built engines for the German air force and suspended car
production. Between 1945 and 1951 some “BMW”
branded cars were produced at the Eisenach plant, but
this was in the Eastern Zone controlled by the Soviet
Union so outside the jurisdiction of the West German
authorities. Meanwhile the original BMW company
produced motorcycles at its Munich plant until the dispute
about its trade name was settled in 1952. By 1958 BMW
was in financial difficulty and survived by making the Iso
Isetta three-wheeled “bubble car”. Only after 1959 was the
company transformed by its new owners to become the
international brand we know today. This transformation
started with the introduction of BMW’s New Class (Neue
Klasse) cars during the 1960s.
6.2 Establishment of BMW's international plant
network
In 1973 BMW's first overseas plant was established in
South Africa to assemble complete cars for the local
market from kits supplied from Germany. Then in 1979 it
opened a dedicated engine plant in Steyr, Austria (250 km
from Munich). By the mid-1990s BMW had 34 wholly-
owned subsidiaries. Of these 14 were in Germany and the
other 20 were located around the world. It also had more
than 130 foreign sales operations. BMW's manufacturing
activities were concentrated in six plants in Germany.
These included a motorcycle plant in Berlin and a tooling
plant in Eisenach (after German re-unification the old
Eisenach car plant closed). In addition, BMW operated a
number of overseas assembly plants in partnership with
local companies. In Thailand, Indonesia, and Malaysia
local partners assembled BMW cars from kits under joint
venture manufacturing agreements. In 1994, three new
overseas assembly plants were established. One was in
the Philippines and another in Vietnam to assemble cars
from kits supplied from Germany, thereby avoiding the
high tariffs from which were exempt by being augmented
with locally purchased components to comply with local
content regulations. The third plant to be established in
1994 was in the USA. This comprehensive production
facility at Spartanburg, South Carolina, has since proved
to be one of the most important parts of BMW’s
international network, being dedicated to the production of
several models for worldwide markets. In 1994 BMW also
acquired the Rover Group in the UK, which was sold again
in 2000. However, three significant parts were kept, the
new Mini model, under development since 1995, a new
engine plant and a body shop. In 1998, twenty-five years
after opening its first overseas plant, BMW acquired the
UK Rolls-Royce brand (but not the manufacturing facility
for producing Rolls-Royce cars, which was acquired by
Volkswagen along with the Bentley brand). BMW therefore
entirely redesigned the Rolls-Royce models using major
parts supplied from other BMW plants and built a new
assembly facility in the UK.
6.3 Main features of BMW’s international plant network
At the present time BMW has a network of 23 wholly
owned and joint venture plants for car assembly and parts
production, 5 “partner” plants for local assembly and 2
contract plants that provide additional capacity for
producing more specialised vehicles. It also has 12
design and R&D plants in 5 countries. The number of
BMW employees worldwide is 124,000. There are 8 plants
in Germany, with 4 of these assembling cars and 4
focusing on parts and tooling production. Some of the
assembly plants also produce parts including engines.
One of the German plants that makes parts also
assembles motorcycles. The plant in Austria is dedicated
to making engines. Outside Germany there are car
assembly plants in Brazil, India, the UK, the USA, Thailand
(including motorcycle assembly), South Africa and Mexico
(starting production in 2019). There are also joint venture
plants assembling cars from kits in Russia, Egypt,
Indonesia, Malaysia and Brazil (making motorcycles). In
the UK, there are 2 assembly plants (Mini and Rolls
Royce), a parts plant making body components and an
engine plant. In China, automotive companies can only
operate with a local partner so BMW has a joint venture
with “Brilliance Automotive” and has 2 plants in Shenyang
producing cars, various parts and engines. All cars made
in China by BMW are for the Chinese market only but
exports are being considered. Currently BMW and
Brilliance do not share any production or parts supply.
However, they have jointly developed electric cars with a
separate Chinese brand. In Austria and the Netherlands
two plants assemble special variants of the BMW Mini, but
they are independently owned. BMW’s wider international
network includes 12,000 external suppliers in 70 countries.
Of these, around 100 are first tier suppliers for major parts
such as automatic transmissions, axles, steering columns,
brakes etc. BMW has implemented the “supplier park”
concept for its first-tier suppliers with the first being
opened at its Leipzig assembly plant in 2005.
6.4 Volvo Car Corporation origins
The Volvo trademark was first registered in 1915 by SKF,
the Swedish machinery bearing company based in the city
of Gothenburg, with the name deriving from the Latin verb
“volvere”, meaning to roll. However, the company AB
Volvo was not established until 1926 with the first car
being produced in 1927 at a plant in Lundby, near to
Gothenburg. During the following 70 years Volvo grew to
become a large international group making cars, buses,
trucks, construction equipment, marine engines, aircraft
engines and various ancillary products. Cars produced by
Volvo gained a reputation for quality, reliability and
durability, which enabled the company to build on key
markets in Europe, North America and worldwide. By 1974
Volvo had four car assembly plants in Sweden and several
other plants producing automotive parts. In 1999 Ford
Motor Company bought AB Volvo’s car division, Volvo Car
Corporation (Volvo Personvagnar) and it became part of
Ford’s Premier Automotive Group together with the
existing brand of Lincoln and its other European
acquisitions of Jaguar, Land Rover and Aston Martin.
During the next 10 years Ford tried to build its stable of
distinctive prestige brands and also sought to gain
economies of scale through the use of common designs,
parts and group purchasing. However, Ford’s strategy
failed and drained both cash and resources at the time of
the economic downturn. In 2010 Volvo Car was therefore
sold to the Chinese automotive company, Zhejiang Geely
Holding Group. Under Geely, Volvo Car started a new
phase of its development focusing on an expansion of
sales and manufacturing in China and the Asian region as
well as re-establishing its reputation and building on
existing markets.
6.5 Establishment of Volvo Car’s international plant
network
In 1963 Volvo Car Corporation opened its first overseas
plant in Halifax, Nova Scotia, Canada. The purpose was to
circumvent North American import tariffs on foreign goods
and to capitalize on the newly signed Canadian/American
Auto Pact. Then in 1965, the Ghent plant in Belgium was
opened Also during the 1960s the Malaysian government
offered incentives to foreign automotive companies in the
form of lower duties on vehicles that were assembled
locally from ‘kits’ of parts sent from parent factories.
Therefore, a joint venture was formed in 1967 between
Volvo and Federal Auto Holdings for assembly of cars at a
new plant in Shah Alam near Kuala Lumpur. In 1972
Volvo bought the Dutch company DAF and for several
years produced cars at the plant in Born. The last Volvo
was produced at Born in 2004, although by that time the
plant had been sold to Mitsubishi Motors. In 1998 the
Halifax plant was closed, just before the acquisition of
Volvo Car by Ford. In 2006 Ford started to produce Volvos
in Chongqing, China, at its joint venture factory called
Chang’an Ford Mazda Automotive. Since 2010, under the
ownership of Geely, several new Volvo assembly plants
have been established in China, although production
under contract continued at the Ford joint venture plant in
Chongqing until 2016.
6.6 Main features of Volvo Car’s international plant
network
At the present time Volvo Car Corporation has 10 plants
for car assembly and parts production, together with 4
centres for design, R&D and engineering. The number of
Volvo Car employees worldwide is 31,000. There are 3
plants in Sweden with one of these assembling cars and 2
focusing on parts production. The single Swedish
assembly plant, at Torslanda near Gothenburg, has
recently been expanded to increase capacity from 200,000
to 300,000 cars per year. The last of the other car
assembly plants in Sweden was closed in 2013 and
another parts-producing plant was sold to an independent
supplier in 2015 since only 30% of its output was for Volvo
Car. The plant in Belgium is the company’s second in
Europe and has a capacity of 270,000 cars per year. A
new plant in the USA (in Charleston, South Carolina) is
due to start production in 2018 with initial capacity of
100,000 cars per year. Design and R&D activity for Volvo’s
cars is carried out in a number of centres including
Gothenburg, California and Copenhagen in Denmark. In
China, Volvo Car has a joint venture with Geely (its
owner). Since Geely’s acquisition of the Volvo two new car
assembly plants have been built, at Chengdu in Sichuan
Province and Daqing in Heilongjiang Province. Also, one
other plant is under construction at Luqiao in Zhejiang
Province. In addition, there is an engine plant at
Zhangjiakou in Hebei Province and an engineering and
R&D centre in Shanghai. All cars made in China by Volvo
are for the Chinese market only but exports are proposed
in the future. Volvo plans to make around 800,000 cars per
year globally by 2020, with one third produced in China.
Currently, Volvo Car and Geely do not share any
production or parts supply. However, they have a technical
collaboration for electric vehicles and it is also proposed to
make a new small SUV both in Belgium and at the plant in
Luqiao. Using common architecture there will be a Volvo
model of this car and a Geely version sold under a new
brand name. The wider international network of Volvo Car
Corporation includes more than 4,000 external suppliers.
Of these, 600 are described as “business partners
delivering production materials for serial production”. In
1995 Volvo Car opened a supplier park for its plant in
Belgium and in 1998 a supplier park was opened in
Gothenburg after halving the number of the plant’s first tier
suppliers to 150, of which fifteen located into a new
supplier park producing modules for headliners, seats,
tailgates, bumpers etc.
7. CASE ANALYSIS
A detailed analysis of the drivers and enablers that have
influenced the design of BMW’s and Volvo’s international
production networks has revealed a number of themes
that are common to both companies and other aspects
that are unique to their particular situation. Factors that
have determined a unique approach include markets,
ownership and legacies from acquisitions and disposals.
7.1 Drivers
The drivers can be grouped according to a number of
broad themes, i.e. environmental and safety standards (for
passengers and pedestrians), flexibility and agility,
leanness, ownership imperatives, legacies from mergers
and acquisitions, technology security, currency exchange
movements, and cross-border obstacles resulting from
trade restrictions. Table 1 provides a summary of the main
themes together with examples of associated key features
at Volvo Car and BMW. It also highlights the principal
factors that require consideration when designing or
reconfiguring international production networks. Three key
features have been identified under the environmental and
safety standards theme. The first two of these relate to
emissions control and efficiency of motor vehicle power
units.
Both Volvo Car and BMW have developed internal
combustion engines powered with biofuels, although with
subtle differences. Volvo’s main focus has been on the
Swedish and European E85 (85% ethanol) standard,
whereas BMW has focused mainly on the Latin American
Flexfuel E100 standard that is prevalent in Brazil with its
warmer climate. In this situation ethanol, made from local
sugar cane, is a more feasible engine fuel when either
used in its pure (100%) form or mixed with any amount of
petroleum. With this aspect, markets and R&D centres are
the principal factors to be considered. Under the same
environmental theme both companies have also been
developing alternative forms of propulsion, although to
date Volvo been following mainly the hybrid engine route
(with 20% of its X90 crossover model being hybrids),
24
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International Conference on Production Research
Table 1: Drivers and network design factors
Theme of
drivers
Volvo Car
key features
BMW
key features
Network design
factors
Environment / safety E85 biofuel engines for
Sweden and European
markets
Flexfuel E100 engines for Latin
American markets (Brazil)
Markets; R&D centres
Hybrid vehicles Electric vehicles Markets; Supply chain
Passive crash protection
and collision avoidance
Focus on active safety features Markets; Technology
partners
Flexibility / agility Scalable Product
Architecture (SPA)
Mixed model assembly plants Supply chain
Leanness Limited options offered Build to Order Markets;
Suppliers (supplier parks)
Ownership Various changes in
ownership
No ownership change
(acquisitions only)
Owner influence
Legacies from mergers
and acquisitions
Legacy of Volvo Group
and Ford
Legacies from Rover Plants; Suppliers
Technology security Transfer risks through
ownership and possible
competing brands
Transfer risk through partnership
requiring control of IPR
Nature of partnerships;
Workforce mobility
Currency exchange Expanding outside Europe
but exposure to CNY risk
Multiple locations to minimise
exchange rate risk
Dispersed networks
Cross border obstacles Mainly limited to EU trade
agreements
Production in EU, NAFTA,
Mercosur and ASEAN
Tariff restrictions; non-
tariff barriers
whereas BMW has placed more attention on the
development of electric vehicles (with the BMW i3
becoming the best-selling electric car in Europe during
2016). With this aspect, the principal network design
factors are markets and supply chains for engines and
transmissions. Also within this theme there are some
differences in the way the two automotive
companies have
addressed the question of passenger and pedestrian
safety. Volvo Car has traditionally focused on passive
crash protection and more recently on collision avoidance
in accordance with its well-known market strategy of
making safety a priority. BMW on the other hand has a
market strategy based on driving performance, which is
reflected in its focus on building active safety features into
its cars. With this aspect, markets and technology partners
are the principal network design factors. Compared with
more traditional factory level priorities the flexibility and
agility theme within the international production networks
of both companies focuses mainly on design rather than
volume flexibility. Volvo Car has recently developed a
concept known as Scalable Product Architecture (SPA) to
enable greater model range and variety based on common
modules. BMW on the other hand has placed its focus on
mixed model production systems at its international plants
to enable a wide range of offerings in local markets. This
aspect places greatest emphasis on the supply chain and
its capability as the principal network design factor. Since
the early 1990s lean production concepts have become
well embedded in most automotive companies. However,
at Volvo Car and BMW there are some differences in
implementation that impact on international network
design. These partly result from the relative market size
and sales strategy of each company. Volvo Car offers a
comparatively limited range of options for its models and
provides a large number of features as standard, thereby
enabling leanness in a system for building to stock. BMW
on the other hand has developed a build-to-order system,
which to enable lean production means having greater
coordination within the supply chain. For both companies
this aspect places markets, suppliers (and supplier parks)
at the centre of their network design thinking. The theme
of ownership, together with legacies from mergers and
acquisitions, has a profound impact on international
production networks. In some respects, this aspect is
outside the control of network designers, although in other
cases an acquiring firm may be influenced by the existing
network of an acquisition target. The situation of Volvo Car
has mainly been as an acquired company, with its past
acquisition of DAF being made by the Volvo Group and
having only short-term impact on its car division.
Nevertheless, its acquirers (Ford, and more recently
Geely) have still imposed considerable influence on how
its networks have evolved. By contrast, BMW has made a
small number of important acquisitions that have
influenced both its model range and also the network of
production facilities used to support all its manufacturing
activities (at its own plants and also its suppliers).
The last three themes in Table 1 are all consequent on
cross border considerations and the impact they have on
international production networks. Technology security is
of particular concern for retaining competitive advantage
and both companies are exposed to risk through their
international ownership structure and partnerships.
Workforce mobility into and out of the international
network is also an important design factor within this
aspect, so requires careful management control. Currency
exchange represents another theme with both
opportunities and risks. Due to its larger size, BMW has
been able to manage this aspect more effectively by
operating in multiple locations, with its plants in the USA
and Latin America being operated partly as a measure to
hedge against currency variations as well as providing
greater cost security when selling to local markets.
Outside Sweden, Volvo Car by contrast has traditionally
focused production and sales within Europe and more
recently the “Eurozone” common European currency area,
although the more recent expansion of its network into
China has created some currency risk regarding the
Chinese Renminbi Yuan (CNY). Only in 2015 did it start
construction of a new manufacturing plant in North
America after closing the Canadian facility almost 20 years
previously. The final theme in Table 1 relates mainly to
financial tariffs and other cross border non-tariff barriers
such as country product standards and cabotage
restrictions. The move towards free trade agreements and
single markets has provided some mitigation with Volvo
Car traditionally benefiting mainly from the EU single
market and to a lesser extent the South East Asian
(ASEAN) free trade agreement, while BMW has also more
recently taken advantage of the free trade agreements in
North America (NAFTA) and Latin America (Mercosur) as
well as ASEAN.
7.2 Enablers
To enable smooth operations of their international
production networks, both companies make extensive use
of ICT solutions for information sharing and control. BMW
has developed a “Partner Portal” as its interface and
communication platform for the whole BMW group and its
various partners. It also has a “Business Network Portal”
for employees and partners to access the company’s
business services and electronic mail systems. The
equivalent Volvo Cars “Supplier Portal” provides
information and communications for suppliers regarding
purchasing conditions, payment procedures, quality and
sustainability. Supply of parts to the international
production network is also simplified by reducing the
number of first tier suppliers and making extensive use of
product modules. Both BMW and Volvo Car have internal
component manufacturing facilities or dedicated third party
delivery of complete sub-assemblies from supplier parks
(such as cockpit and dashboard modules, seating units,
automatic transmissions etc.). Their role is important to
network design and control. Of similar importance is the
role of specialised shippers and providers of third party
logistics solutions for materials. For its plant in Brazil the
port of Paranaguá is uniquely equipped for handing
specialised RoRo vehicle carriers with movable decks,
while similarly the port of Gent has been upgraded and
equipped for shipping the Belgian production of Volvo
Cars. Efficient technology transfer from the parent
company to subsidiaries and partners has become a vital
aspect of international production networks and, as
mentioned earlier, technology security has become an
important consideration for this enabler. In the same way,
international skills mobility is an enabler but carries risk of
knowledge misappropriation as personnel move within
networks, and especially when interacting outside the
network.
8. DISCUSSION
The purpose of this empirical study has been to explore
recent developments in international production networks
with a view to identifying and assessing the main drivers
and enablers in two medium size automotive companies
that both target the same customer segment, i.e. the
premium market. It finds that network design has moved
beyond the traditional “keiretsu” supply arrangements of
Japanese automotive companies, which were typically
associated with the lean production concept represent in
an earlier, narrower model of manufacturing networks.
These early types of plant arrangements proved incapable
of achieving the need for speed of change, flexibility and
cost cutting that was demanded from the late 1990s and
were also more suited to plant networks that were largely
distributed domestically rather than internationally [10],
[11].
9. CONCLUSION
The current study has found that the principal imperatives
of cost reduction and quality improvement are now
achieved mainly through actions within the company’s own
network elements rather than externally through pressure
on the supplier network. Among the drivers that have been
identified for networks today are several that are less
closely related to the priorities of quality, cost, lead time,
delivery reliability, and volume flexibility, which are now
regarded as norms, so therefore taken as read, and thus
implicitly built-in as essential attributes of the core network
structure, while newer priorities drive the design of more
contemporary networks.
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