|
2.1 Overview
The literature relating to the motor industry in recent years
has focused on the reasons why the industry is changing, this
chapter will therefore focus on assessing the causes of those
changes and the effects they are having upon European motor
manufacturers, including what strategies manufacturers are
implementing to cope with the changing conditions, concentrating
on the motivation behind joint venture formation. The author
will also review supply chain literature in order to identify
how supplier strategy has been changing in order to assess
whether or not these changes are linked to industry forces
or manufacturing strategy. Throughout this chapter the author
will incorporate threads of the Rover and Honda case as an
illustrative example with the objective of contrasting the
experience against that of Renault and Nissan in the chapters
that follow. However, to begin it is necessary to understand
the current position of the European motor industry, in terms
of its global competitiveness.  2.2 Background - the European Motor Industry
The motor industry is one of the most globalised markets in
the world (D Audet, 1997; Hobrough, 2001; Rhys, 2001). Consequently
to resist the increasing requirement to be competitive on
a global scale is nearly as pointless as it was to resist
the development of the European Union in the 1960's and 1970's.
This is particularly apt in relation to the Western European
market, which is often considered to be the most competitive
of the Triad
of regions, yet manages to also be the weakest (Donnelly et
al, 2002). The European market is characterised with intense
competition from external markets across the globe (Corswant
and Fredriksson, 2002), this combined with an increased reliance
on a manufacturers ability to manage suppliers more effectively
and deal with
new manufacturing techniques such as lean production (Dennis,
2002; Womack et al, 1990.) the European motor industry is
no longer the leader, but the imitator. Many motor industry
experts (for example; Fine, 1997; Hancke;
Morris ; Rhys,
2001; Sturgeon, 1999) agree that Japanese motor manufacturers
have had a huge impact on the strategic direction of the European
motor industry in the past two decades. As a result of the
recent changes in the industry's environment
the structure of the industry is under a great deal of pressure,
and now manufacturers are attempting to re-align themselves
more strategically to deal with these changing conditions.
Consequently the future and changing nature of the European
industry has generated a vast amount of literature in the
past 20 years.
2.3 Industry Influences and Lean Production
In the 1980's, three members of the Massachusetts Institute
of Technology (MIT), Womack, Jones and Roos,
identified reasons to explain the success of the global motor
industry. The
work produced was very influential in the development of literature
that followed, particularly in the literature concerning how
and why the motor industry is one of the most globalised and
successful sectors in the world and is quoted in nearly all
literature relating to the motor industry (including Hobrough,
2001; Rhys, 2001).
The result of this study identified the transformation from
mass production to lean production, revealing how it really
works, why it results in better economies of scale and the
impact such a technique is likely to have on the motor manufacturers
across the globe.
It was 45 years ago that Galbraith (1958) declared
that the world had solved the problems of production. However,
in 1980's and early 1990's the problems of production were
a major concern of leading academics (for example Fine, 1997;
Hancke3; Morris4; Rhys, 2001; Sturgeon, 1999). "The Machine
that Changed the World" (Womack et al, 1990) is often
attributed to the realisation of the changing conditions of
the manufacturing sector and according to Fine (1997) it provided
both an articulate and data-reinforced description of the
lean production system.
Womack et al (1990) declared lean production
as a "technology" that would reshape motor manufacturing.
Whilst it may have originated in Japan, they suggested that
it was no longer confined to Japan and could be attributed
to a major cause of upheaval in the motor industry of the
early 1990's. Today the literature regarding the motor industry
suggests that the driving force behind the adoption of lean
production is the need to provide more product variety at
less cost with shorter development cycles (Kumar and Veleso,
2002). This can only be achieved through a combination of
product design, supply, distribution and manufacturing, where
all members within the system share information and resources.
The motor industry is over 100 years old and
is considered to be one of the main engines of growth during
the last century (Altshuler et al, 1984). The effects on the
environment5 are almost everywhere you look. Graves
(1993) wrote that in 100 years it is possible to track the
transformation from a craft production to a mass production
to a lean production. Arguing that the motor industry is now
facing a number of challenges and that the inability to integrate
lean production techniques into existing supplier companies
will be the failing of many motor manufacturers. Graves (1993)
argued that in the early part of the 1990s, European motor
companies needed to implement forms of lean production that
would enhance their overall performance, and Japanese producers
were responsible for driving the industry forward through
radical technological and organisational innovation. This
further confirms that one of the major contributing factors
toward the changing environmental conditions in the motor
industry is this new "technology"- lean production.
Graves (1993) adds that the way manufacturers decide to address
this new concept will determine their future survival.
Graves (1993) highlights the effects of lean
production in all aspects of the motor industry, from assembler
to supplier, from distribution to dealer, paying particular
attention to the supply side. Western Motor companies - those
in Europe more specifically - are being forced to rethink
their product development strategies and in attempt to become
leaner and come to terms with this new technique, manufacturers
are joining forces with their competitors and their suppliers
are doing the same. However, Graves argues that European manufacturers
have been slow to learn from Japanese partners in the past,
and he quotes the Rover-Honda case calling it a, "vanguard
of attempts to introduce Japanese management and organisational
techniques into the motor industry in Europe through learning
from the experience of a leading Japanese partner" (Graves,
1993, p 16) and this is why it's a fair to say that the European
industry is no longer the leader but the imitator.
From this it would seem a fair conclusion that lean production
is the way forward, as to date there has been very little
criticism, for instance it is either viewed as a half-hearted
attempt to respond to competitive threats where manufacturers
are reacting not pro-acting (Anonymous, 1998), or as "an
attempt to re-organise everyone's social life as it judges
everything and everyone on the basis of speed and productivity"
(Post and Slaughter, 2000, p 2), either way the literature
above suggests that lean production is one of the main reasons
behind the structural changes in the modern motor industry.
The following section addresses how European motor manufacturers'
have been re-acting to this new "technology"; and
considers whether or not a manufacturers drive to be lean
is the main cause for the formation of joint ventures.
2.4 Industry Influences and Joint Venture
Formation.
Oliver and Wilkinson (1992) argued in their book "Japanisation
of the British Industry" that Rover was incapable of
creating a reliable supplier network operating with a full
just-in-time (JIT) production system. They go on to argue that even "more
problematic for Rover is [was] the creation of a new company
culture…and a failure on the part of the company to bond
workers to the company above all else and to give them aspirations
identical to those of the company" (Oliver and Wilkinson,
1990, P56). So despite the "failure" of Rover and
Honda as an alliance, Rover had considerable success in improving
its productivity and quality, even if they only did this by
exploiting a different product development and production
philosophy than what was actually practised by Honda (Pilkington,
1999). From this the author concludes that on the one hand
Rover's strategy failed, but the joint venture between the
two companies was the first of many, presenting Rover with
the opportunity to learn about Japanese (Honda's) manufacturing
techniques - including lean production. As a result of these
Japanese influences (as described above), motor manufacturers
had to begin to re-structure a number of manufacturing processes,
in order to address these new market conditions. The author
goes on to investigate this question; how are manufacturers
responding to these changes and challenges?
One way that motor manufacturers are addressing
these new conditions is by forming joint ventures (similar
to Rover and Honda) and by re-organising their supply chains
in tune with the demands of lean production. The objective
of this dissertation is to assess whether these two strategies
are related. Modern literature (Ahlstrom, P. and Westbrook,
R. 1999; Dennis, P, 2002; Donnelly et al. 2002; Ghemawat,
P. and Ghadar, F. 2001; Graves, 1993; Pilkington, 1999 and
so on) relating to the industry is suggesting that Japanese
influences are largely responsible for the restructuring of
the motor industry. Manufacturers are responding to these
new challenges, by joining forces with competitors and reorganising
their supply chains to match Japanese standards and techniques.
Donnelly et al (2002) in their research on the
European motor industry concluded that the task of becoming
globalised is the biggest challenge for motor manufacturers.
In other words, how motor manufactures decide to tackle this
task will ultimately determine their success. Fordism was a system based on mass production and mass consumption
and it changed little from its inception in the early part
of the last century. By building a limited number of standardised
products, in high volumes, it allowed for low costs per unit
and huge economies of scale. Fordistic methods were eventually
established as being the key to success when allied to the
"Tayloristic" principles of Scientific Management. In the second half of the last century these methods were
adopted throughout the European motor industry with no challenge
rising until the arrival of the Japanese in the 1970's (Law
1996). European firms have responded to the global threats
by looking at both strategic and tactical responses through
restructuring, improving relations with suppliers and by forming
joint ventures with competitors in the search for competitive
advantage (Donnelly et al, 2002).
Corswant and Fredriksson (2002) investigated
the development of trends in the motor industry over the past
20 years. Looking at how and why the industry has been restructuring
itself including the effects of over-capacity, increasing
customer requirements, environmental legislation and rapid
technology development. McDermott (1996) identified these
factors in an earlier study indicating that they are a combination
of the "side-effects" from mass production and influences
of Japanese manufacturers within the European market. The
result of the survey showed and confirmed that both motor
manufacturers and their suppliers are reducing their product
development time, increasing suppliers involvement in product
development and JIT deliveries (Corswant and Fredriksson,
2002). In other words motor manufacturers are slowly moving
away from mass production techniques as introduced by Ford
in the early part of the twentieth century, and learning to
incorporate lean production processes in their strategies.
Humphreys et al (1998) support these findings by suggesting
that to stay competitive manufacturers and suppliers need
to improve performance, regarding production and product development.
Once again, illustrating the characteristics of lean production,
as first proposed by Womack et al (1990); but has lean production
influenced a manufacturers decision to form a joint venture?
Corswant and Fredriksson (2002) also say that
there are significant changes in terms of the product life
cycle, customisation and variety of motor vehicles, and this
is supported by many writers including Ahlstrom and Westbrook
(1999). With the current mass production system, use of customisation
complicates cost efficiency since the volume per product variant
is reduced. So to deal with this different manufacturers are
increasingly sharing product platforms and modularisation.
In other words, they are using global platforms for several
product models, allowing for production volume to be increased,
as well as product variants (Baldwin and Clark 1997). In order
to do this within the lean system of manufacturing, manufacturers
are finding that forming an alliance with a competitor is
an effective method of exploiting platform-sharing and other
similar strategies.
Therefore, in order to cope with the changing
nature of the industry and remain competitive, motor manufacturers
have recently been acquiring or merging with other manufacturers
(Pilkington, 1999). There are several explanations regarding
the purpose and reasons for joint ventures. Anderson (1990)
suggests that organisational learning and renewal (for instance
Rover-Honda alliance) are only recent additions to corporate
strategy, consequently joint ventures have traditionally been
seen as a means of opening new markets and spreading risks.
Porter (1990) argues that the primary reason why companies
enter into joint alliances is to reduce the costs incurred
in development or manufacturing or to gain advantage in new
markets or strengthen positions in existing markets. Parkhe
(1993) however noted that the literature relating to the purpose
of joint ventures has "exhibited a lack of progress in
the development of theoretical frameworks despite the volume
of literature" (Parkhe 1993, p3). A major reason for
this stagnation according to Parkhe (1993) has been the implied
belief that joint ventures represent the solution to a "strategic
quandary". In other words, how to compete in an ever
more narrow and competitive market characterised by increasing
costs and technological developments. However, whilst there
has been a fair amount of analysis into why and how joint
ventures operate including why they fail and how they work,
there is still very little empirical evidence to support it.
Nevertheless recent approaches to securing new
capability have suggested that joint alliances can be a highly
effective strategy (Pilkington, 1999). Once a firm has decided
to collaborate with another it will need to be both flexible
and determined if it is to make the most of the deal. Rover
may have seen the relationship with Honda initially as one
of strategic necessity,
but the impact of the relationship on the capabilities should
have had far more significant implications for its future
(Pilkington, 1999). Rover and Honda always maintained a distance
between each other and developed separate product plans. The
venture was initially a means to obtain a temporary product
in one sector
until a delayed programme was completed.
During this short period of time Rover became too dependent
on Honda for the majority of its activities. In spite of this,
Rover did learn a lot from its Japanese partner, as the Rover
today is unrecognisable from the Rover of the mid 1980s. Rover
now practices minimal inventory control (MIC), a JIT system,
which has developed in close collaboration with its suppliers
(McDermott, 1996). It has braced the Japanese concept of Total
Quality Management (TQM), as its slogan indicates "prevention, not detection:
part of Rovers total quality commitment" (McDermott,
1996, p7). But if the majority of writers have very few negative
things to say about joint ventures, it would seem easy to
become complacent regarding their effectiveness. Donnelly
et al (2002) offer a fair argument presented by Capital (1991)
saying that "in practice merger and acquisitions became
a part of self-preservation that was best served by fast growth,
geographical expansion, increased market share and a presence
in different market segments, but experiences of previous
manufacturers have proven this routine to be no real panacea"
(Donnelly et al, 2002, p32).
If manufacturers are to become leaner, changes
to platform strategies and shorter product life cycles, which
demand shorter development time, will require manufacturers
to take advantage of its supplier's knowledge regarding product
development and production. This therefore requires furnishing
more responsibility to suppliers. The problem of transposing
more responsibility to suppliers is that activities are placed
outside the boundaries of the firm (Richardson, 1993). This
is supported by Cousins (1999) stating that manufacturers
and suppliers need to co-operate to ensure efficient co-ordination
of supplier activity; manufacturers should therefore strive
to reduce their supplier base in order to be leaner. The European
motor industry as a whole is consequently part of a much more
globally orientated strategy (Ghemawat and Ghada, 2000), and
the impact on supplier chain is addressed in more detail in
the section that follows.
2.5 Industry Influences and Supply Chain Strategy
It is suggested above that the influences of lean production
will push manufacturers to consider strategically aligning
themselves with their competitors. Medcof (1997) hinted toward
this approach having profound effects on the supply chain
strategy as a consequence, but only hinted. If the main purpose
for forming joint ventures is to keep up with changing market
conditions, influenced by lean production techniques employed
by highly efficient Japanese competitors, where supplier relationship
and the number of suppliers are being reduced to cope with
new lean conditions, then that statement is technically true.
Graves (1993) argues that motor manufacturers throughout the
world are requiring new and more demanding relationships with
their suppliers as a response to these new conditions including;
world-class levels of productivity, quality, technology and
design, giving more responsibility to the supplier in the
product development programme at an early stage, as mentioned
previously. It is also argued the primary importance for suppliers
are to not only to match the levels of productivity and quality
to those achieved by their Japanese competitors, but to also
make significant cost reductions throughout their operations.
Durance (2002) adds that Japanese manufacturers have not yet
fully realised their potential in Europe, despite their reputation
as being among the most technically adept manufacturers in
the world. Europe has been targeted as a key area for growth
and change and this is supported by major investments in terms
of new plants, models and joint ventures.
Humphreys et al (1998) reports that it will
be necessary for European manufacturers and suppliers to adopt
significant changes in their structures in order to address
the challenges of globalisation, which is essentially what
Durance (2002) was suggesting. As a result of the global nature
of Japanese companies and their production systems it is no
longer possible for European companies to hide behind trade
barriers and tariffs. In fairness all European motor companies
have to some extent developed strategies to bridge the gaps
in performance (Graves, 1993). Graves (1993) argues however,
that these are based upon existing European strengths and
as a result imitating Japanese producers will still leave
some producers lagging behind. Therefore there is a requirement
for more direct strategic links between European producers
and Japanese manufacturers and it is suggested that joint
alliances (for suppliers and manufacturers) are the way to
achieve this. Further bridging the gap between the two approaches.
Humphrey (1999) states that over the past two decades, relationships
between suppliers and manufacturers in the West have been
transformed. In other words the way that the relationship
has developed has not been deliberate but more evolutionary.
Literature so far has suggested that suppliers have become
more involved with manufacturers. Either by designing parts
to meet objectives defined by the manufacturers, or by providing
design solutions. Additionally there has been a shift towards
the supply of complete functions, rather than individual components.
In other words first-tier suppliers are increasingly responsible
for supplying parts in complete units and as a consequence
are more involved in the specification of the production and
quality systems. This can be attributed to the increase in
quality control systems such as JIT. The role of first tier
suppliers has become more complex this is a combination of
technological advances, incorporation of new materials and
electronics, which may also require the first tier suppliers
to manage the rest of the supply chain. Therefore, it's difficult
not to assume that these changes will contribute toward the
overall supply chain strategy of a company. The author notes
many of these changes have come about as a result of new demands
placed on suppliers by manufacturers who have implemented
platform-sharing initiatives as a means to be leaner.
Veloso and Kumar (2002) confirm that these changing
supplier relationships are a direct result of new market trends
and demands. Generally all motor manufacturers are pursuing
a set of strategies that are common among major firms. This
includes attaining a global perspective in their operations.
Consequently manufacturers are now planning operations on
a global scale, with models being launched at the same time
in different locations with similar standards. With these
new investments, firms are trying to replicate supply chain
structures, insisting that suppliers are present in new regions
where they are located, often near to their plants. The second
important strategy motor manufacturers have been pursuing
is a re-organisation of their vehicle portfolio around product
platforms and car modules and systems. Declining sales per
vehicle and short product life cycles were preventing motor
manufacturers and their suppliers from reaching economies
of scale, which was having an adverse impact on costs. By
focusing on common platforms and interchangeable models, manufacturers
are able to increase productivity whilst lowering costs across
a whole product range. This allows manufacturers to be able
to tailor vehicles to a multitude of tastes and preferences,
suiting a broader range of consumers (Kumar and Veloso, 2002).
This in itself will affect the supply chain strategy. The
importance of systems being subcontracted by assemblers, leads
to a fair assumption that many motor manufacturers will be
moving toward working with a smaller number of suppliers.
Further to this Humphreys et al (1998) also
writes and supports that the globalisation of the car industry
is affecting the European motor manufacturer. With excess
production capacity and poor outlook for car sales, the European
motor industry requires structural changes to balance supply
and demand. In an effort to address these issues, motor manufacturers
are re-appraising their relations with their suppliers. Hyun
(1994) reports that the down side to this is that outsourcing
has led to car manufacturers becoming more dependent on their
supplier network. According to Sako et al (1994), there is
a lack of trust between the carmakers and suppliers. It is
essentially maintained that if European motor manufacturers
are to compete globally then there will have to be more trust
and co-operation between motor manufacturers and components
industry. The pressures faced in the motor industry are structural
in nature with the potential to radically change the competitive
landscape (Humphreys et al, 1998). Consequently this is radically
changing the way vehicles are built and this is having a profound
effect on motor manufacturers relationship with suppliers.
Lean manufacturing and lean management are now watchwords
of the industry.
Evidence indicates that Japanese motor manufacturers have
much better relations with their suppliers resulting in lower
costs, higher quality and greater innovativeness (Richardson,
1993). Owing to the success attributed to the Japanese subcontracting
structure, Western Manufacturers have been adopting and copying
many of its characteristics, by forming joint ventures. Matthyssens
and Van den Builte (1994), note that one of the striking features
of the European car industry has been the rationalisation
and consolidation of the supplier base. There are a large
number of producers who are dramatically reducing the number
of suppliers and changing the way in which they do business
with the remainder. According to Gadde and Hakansson (1994),
reducing the number of suppliers is a prerequisite for an
improved and collaborative supplier relationship. This has
changed the structure of the chain and the number of tiers
in it. Humphreys et al (1998) noted that this trend is now
apparent in European manufacturers. At present using the term
first-tier supplier is rather tenuous as the process in Europe
has a long way to go before it meets Japanese standards.
2.6 Review
After reviewing all of the literature addressed, the questions
that many academics are asking include; why imitate Japanese
producers? Why form joint ventures? And why does the supply
chain structure appear to be changing? As a result of Japanese
success on a global scale, manufacturers are being forced
to rethink their current strategies. As trade barriers are
reduced across the EU, the European market is now open to
increasing threats from worldwide and worldly-wise competitors.
One approach that motor manufacturers are opting for to manage
this threat is by forming alliances (joint ventures) with
their competitors. This opens up new opportunities and brings
in new skills and strengths into the manufacturers existing
portfolio. However the link between supplier chain structure
and the formation of these joint ventures seems tenuous, as
it would appear that these changing conditions and environmental
influences are altering supplier chains in itself without
the added condition of joint ventures. The remainder of this
report therefore analyses this relationship in more detail,
using Renault and Nissan as organisational examples, with
the intention of coming to a more "discernable"
conclusion regarding the affiliation between alliances and
supplier management within the European motor industry.
|
