Dynamics of Value Chain Governance: Increasing Supplier Competence and Changing Power Relations in the Periphery of Automotive Production—Evidence from Bursa, Turkey

Abstract

Adopting a global value chain (GVC) approach, this paper focuses on the ways in which global automotive transnational corporations coordinate their value chains with suppliers in the periphery of automotive production. In particular, it directs attention to particular forms of chain relations established by lead firms with suppliers in Turkey and the ways in which these chains are coordinated. Findings indicate that as component suppliers in the periphery of automotive production, such as those in Bursa, have gained the competencies not only to manufacture to the cost, quality and flexibility specifications required by their customers but also of design and product development, lead firms in the automotive industry have turned to modular value chains, where competent suppliers provide a range of services with less dependence on their customers, as a way of sourcing from these suppliers. I use this evidence to argue that GVC governance is dynamic and suppliers in the periphery have some room for breaking power asymmetries associated with specific modes of governance in GVCs.

Acknowledgements

This research paper is part of the PhD dissertation completed at the University of Sussex, part of which was funded by the EU Commission in Framework Programme 6, Priority 7 on “Citizens and Governance in a Knowledge-based Society”, contract no. CIT5-028519. I would like to express my thanks to Prof. Mick Dunford for his supervision, academic advice, guidance and support throughout my research. I would also like to thank Prof. John Humphrey and Prof. Ayda Eraydın for their valuable comments on the dissertation, most of which are incorporated in this paper. Finally, I thank the anonymous referees for their valuable comments on earlier versions of the paper. None of these people is responsible for what is or is not said.

Notes

Modules are a group of components, which are designed to be relatively independent of one another by defining standardized set of interfaces, but are functionally integrated as parts of a larger system (Baldwin & Clark, 2000). A system is a group of modules that operate together to provide a specific function (Dicken, 2003).

It should be noted however that the integral nature of product architecture in vehicles puts limits on switching suppliers. This is because of the necessity of ensuring compatibility of components and subsystems in order to make them work well as a product when put together (Langlois & Robertson, 1992; Sako, 2002; Herrigel, 2004).

Gereffi et al. (2005, p. 101) underline that “A high priority for the future will be the development of methods for measuring the key variables in the model [they suggested]. Effective proxies for transactional complexity, level of codification, and supplier competence must be identified and tested in the field”. This paper is one of the rare attempts to do so (for another see Pietrobelli & Saliola, 2008).

Of the eight outcomes, Gereffi et al. (2005) treat the first five as modes of governance. In GVC terms, hierarchical chains reflect intra-firm trade between a TNC and its subsidiaries. This article treats each semi-independent subsidiary as an independent profit centre (Dunford, 2009) and looks at the inter-firm relations of subsidiaries with their customers. This requires that the type “hierarchy” is discarded. The type named “exclusion” here represents the situation when firms are likely to be excluded from the value chain due to their low capabilities despite low complexity of the transaction and high ability to codify the transaction. Gereffi et al. (2005) recognize the importance of this outcome but do not consider it as a governance type on its own. Assuming that it may be a widespread outcome in the periphery of automotive production, this paper treats it as a type. The “unlikely” outcomes represent combinations of low complexity of transactions and low ability to codify. These outcomes are excluded in further investigation with the assumption that the questionnaires were not successful (seven firms). In the final situation, a number of 96 supplier firms are distributed among five types of value chain governance.

First, the economic crisis in 1994 had serious impacts on the metropolitan areas of Turkey, including Bursa, causing sharp declines in domestic demand. Second, the negative impacts of the East Asian crisis in 1998 were reinforced by a major earthquake in the region that locates Bursa where a significant part of manufacturing industry, including the automotive, was located. Third, the IMF-backed stabilization programme that was initiated following the 1998 crisis came to an end which was followed by political instability and a financial crisis in 2001.

Of the 17 vehicle assemblers in Turkey, 8 of them have seen an increase in the share of foreign capital by 2007.

The number of foreign components suppliers in Turkey increased from 138 in 1999 (Istanbul Sanayi Odası, 2002) to 163 in 2005 (Undersecretariat of the Prime Ministry for Foreign Trade, 2005), of which 55 (34%) of them were located in Istanbul, 44 (27%) in Bursa and 15 (9%) in Kocaeli.