Michael Gastrow Education, Science and Skills Development Research Programme Human Sciences Research...
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Michael Gastrow Education, Science and Skills Development Research Programme Human Sciences Research Council WIP - The evolution of sectoral innovation systems in the Argentine & South African automotive manufacturing industries
Michael Gastrow Education, Science and Skills Development Research Programme Human Sciences Research Council WIP - The evolution of sectoral innovation
Michael Gastrow Education, Science and Skills Development
Research Programme Human Sciences Research Council WIP - The
evolution of sectoral innovation systems in the Argentine &
South African automotive manufacturing industries
Slide 2
Why compare innovation systems in the automotive sector
Argentina and South Africa? Context: SA-Argentina S&T Bilateral
Structural similarities Historical similarities No previous work on
comparative innovation systems analysis between the two
countries
Slide 3
Key areas of research for a comparative case study Economic
history and technological trajectories: how did the South African
and Argentine automotive sectors respond to rapid globalisation,
and how has this shaped their current systems of innovation? How
did firms respond to the challenges of exposure to global markets?
How did the policy environment impact on innovation? What was the
role of MNCs? How did changing sourcing agreements, ownership, and
investment impact on technological upgrading and innovation,
including: systems of technology transfer & distribution,
international knowledge and technology flows, sources of
technology, domestic R&D patterns, expenditure on innovation,
collaboration, etc What are the lessons for policy-makers?
Slide 4
The evolution of innovation and technological upgrading the SA
automotive sector Origins of the SA automotive industry: 1920s to
1970s 1976 1994: international isolation 1994: re-inclusion in the
global economy So government developed the MIDP Market
liberalisation placed huge pressures on the industry, particularly
on components suppliers Turnover and employment losses in the mid
and late nineties Also major restructuring and competitiveness
improvements in the sector: benchmarking, capital investment,
technological upgrading, knowledge flows from MNCs, etc And
increased integration into global value chains
Slide 5
Transfer of assembler ownership The result? Need to meet more
stringent international demands Changes in sourcing agreements
MNC-driven technology transfer and innovation
Slide 6
Integration into global value chains and changing sourcing
agreements Global sourcing agreements tied OEMs to MNC component
manufacturers. Prompted many MNCs to move to SA, setting up
greenfield operations or JVs Shift in the ownership profile of the
components supply base: sourcing of local technologies declined
from 26% of supply base to only 10% This squeezed SA technology and
SA R&D from the automotive industry. Seems set for a long-term
decline: fits in with pattern in the developing world in general.
But also fostered a complex of interactions between the 2 sets of
technologies, skills & capacities. Both positive and negative
effects for domestic R&D However, there have been other forces
operating on R&D in the sector, incl. changes in production,
trade and investment
Slide 7
Production, trade and investment
Slide 8
Key drivers: domestic economic growth, importation of skills
from multinationals, improved competitiveness through benchmarking
and upgrading, increased political security Effects on
technologucal upgrading and R&D? Increased investment in
engineering, increased investment in local R&D may have acted
as partial countermeasure to adverse value chain dynamics. 2008/9:
Crash Full data still required Loss of jobs, production,
investment. Pressure on R&D. Government bail-outs a short-term
solution Yet technological upgrading and innovation remain key to
competitiveness in the long term.
Slide 9
SA Assembler capital expenditure: Increasing success of the
industry, incentives of the MIDP, improved domestic political and
economic situation, drew increasingly large investments,
particularly by OEMs Between 2001 and 2006 over 19b Rand was
invested, of which 2b was towards R&D and Engineering fixed
investment This supports the notion that growth in the sector
(manifested in increased investment) supported auto R&D and
allowed it to survive despite adverse value chain dynamics and
other challenges R&D/ EngineeringTotal 19971121266 19981391343
19991151511 20001411562 20012452078 20022622726 20031942325
20042742220 20052593576 20063996215 20074355753
Slide 10
Expenditure on R&D
Slide 11
OEM interviews GMSA: R&D capacity had eroded in previous
years, but most of it had been retained. Main causes: high costs
& lack of engineers. However, GMSA was the Design Centre for
several models in the Africa/Middle East/Latin America markets.
R&D activities included heat & endurance testing,
engineering for other GM models, development of specific components
New R&D tax incentive may spur increased R&D activity VWSA:
Adaptive engineering on several models Was lead product developer
for Citi Golf all R&D took place locally Other R&D
activities: product adaption to meet EU requirements, local content
testing, engineering innovation towards cost reduction.
Slide 12
DCSA: Adaptive engineering and components testing; software
development BMW SA: Minimal R&D activity; R&D strictly
controlled by international body Ford SA: Lead Vehicle Engineer for
several models. Included all design, testing, adaptation,
modification, prototypes & crash tests. Further specialised
research at dedicated R&D centre Overall findings: Interviews
identified the key areas in SA auto R&D: Those OEMs designated
as lead engineers performed a high level of R&D Older models
that remained in production generated a consistent demand for
R&D Other important niches include hot weather testing,
component testing, and adaptation to local conditions Key restraint
identified by every respondent was a lack of engineers
Slide 13
Innovation and technological upgrading the Argentine automotive
sector 1960s and early 1970s: the sector grew under highly
protected markets Technological learning through the import of
capital equipment, technical information, and patents. Local
product adaptation activity Positive externalities for the
industrial development of the whole economy However, the high level
of protection and lack of exposure to world markets allowed space
for inefficiency (high model range, batch manufacturing, long lead
times, low quality, etc) Late 1970s: Contraction in the economy,
trade balance and currency crises MNCs exited the country or
initiated mergers (incl GM, Citroen, Fiat, Peugot) Stagnation
eventually led to a policy change in policy favouring open markets
and elimination of local content requirements. However, this
opening did not go far enough, and the market was still relatively
protected.
Slide 14
1980s: Continued protectionism lead to a limited uptake of WCM,
a decade of contraction (average of - 7%), and technological
stagnation. Policy makers recognised the necessity of further trade
liberalisation, and embarked on a plan to re-orientate the sector
towards exports. 1988: The Argentine Automotive Regime and a
commercial partnership with Brazil So the 1990s were an era of
exposure to global markets and production and technical
restructuring that set the scene for growth that lasted until 2008
The Argentina Automobile Regime: Incomes policy: reduced taxes on
assemblers, reduced contribution to social security, set long- term
wages Industrial policy: a commitment by assemblers to investment,
technological upgrading, and specialisation (fewer models) Trade
policy: import-export complementation scheme where assemblers
obliged to export to the value of their imports. Commercial
partnership with Brazil: And the role of MERCOSUR to US & EU
MNCs investment strategies Led to structural changes in the 1990s
>
Slide 15
Changes in MNC strategies and sourcing arrangements Change in
ownership and control Increased integration into global production
networks Increased imports Mixed success in moving towards WCM TNCs
imported technologies Changes in technological learning: Mixed
uptake of technologies from abroad, depending on ownership and
market focus Pockets of excellence Little indigenous R&D
largely firms trying to import and adapt knowledge from outside the
country And changes in the supply base: Components sector also
characterised by MNC-led sourcing and technological upgrading,
accompanied by FDI and JVs But many components firms struggled to
adapt and remained stuck in Fordist systems Challenge for
components manufacturers as world prices set the benchmark
Re-structuring of the supply chain in favour of fewer, more
competitive 1 st tier firms Many local firms react to this
challenge by orientating towards the grey or afternarket.
Slide 16
Technological upgrading and favourable market conditions led to
sustained growth throughout the 1990s: Vehicle production increased
from 100k units in 1990 to 450k in 1997 Driven by exports: 1% of
production in 1990 to 47% in 1997 2000 - 2007: Continued
export-driven growth Accelerated MNC-driven technological upgrading
Further move towards WCM and integration into global supply chains
Brazil remained major trade partner 2001 macroeconomic crises set
back progress substantially, but recovery after the 2002
devaluation was fairly rapid 2008 2010: Global financial crises
still calculating the fallout
Slide 17
WIP Conclusions Striking similarities between the opening up of
these sectors in the 1990s in SA and Argentina Market
liberalisation backed by policy support for vulnerable sectors led
to short term difficulties for some, but long term success for the
sector as a whole Technological upgrading driven by: MNCs importing
technology through FDI and JV, largely through investment in
engineering and R&D Pressure on local supply base to reach WCM
standards or fall out Growth through export Those firms that
successfully adapted and upgraded technologically were set to reap
the benefits of the growth period from the late 1990s until 2007.
Skills, technology and innovation are keys to surviving the current
crisis in the medium to long term in both South African and
Argentina and it is here that the comparative case study can make a
difference.
Slide 18
The way forward Obtaining R&D data from Argentina
Interviews with Argentine manufacturers Combine with economic
history to develop a more comprehensive analysis and comparison
Further comparisons of the effects of the MIDP and the Argentine
Automobile Regime on upgrading and R&D to extract policy
lessons Exploration of the effects of the financial crisis
Slide 19
Michael Gastrow Centre for Science, Technology and Innovation
Indicators Human Sciences Research Council WIP the evolution of
sectoral innovation systems in the Argentine & South African
Automotive Manufacturing Industries