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  • InternationalAssociationforManagementofTechnologyIAMOT2015ConferenceProceedings

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    OPENINNOVATIONFORAUTOMOBILECOMPONENTMANUFACTURINGSMESINNIGERIA

    EJIMEZE,EMMANUELUniversityofPortHarcourt,InstituteofEngineering,TechnologyandInnovationManagement,Nigeria

    [email protected]

    AMADIECHENDUJOEUniversityofPretoria,DepartmentofEngineeringandTechnologyManagement,GraduateSchoolof

    TechnologyManagement,[email protected](Corresponding)

    Copyright2015bytheUniversityofPortHarcourtandtheUniversityofPretoria.PermissiongrantedtoIAMOTtopublishanduse.

    ABSTRACT

    SomeSMEswereinvolvedinautomobilecomponentproductioninNigeriabutaftertheintroductionoftheEconomicStructuralAdjustmentProgrammeof1986,mostofthesefirms(eventhoseintheindustrialcluster)couldnotmatchthesteadyincreaseintechnologicalinnovations,competitionsinautomobilesectorandtheconstraintsofthe localbusinessenvironment.Thispaper isproposingamodel that will ensure the continuous participation of Nigerian automobile componentmanufacturingSMEsinthelocalandglobalautomobilevaluechain.

    This paper draws on literature survey coupledwith semistructured interviewwithmanagers inautomobileassemble firms thatworkwithsome localautomobilecomponentpartsupply firms inNigeriaFindingsshowprogressmadebySMEs indifferentsector through theprocessofOpen innovation(OI),howeverthere isstilladivideontheuseofopen innovation intheautomotivesector.Oneofthe subsidiariesof aEuropeanmultinational automobile companies surveyed in this study statedseverallocalsupplierswhocouldnotfitinitssupplychainwhenitintroducedcarmodelsthatwereondifferenttechnologyplatforms.Thefastintegration&developmentofMechatronicsandmaterialscienceintheautomobileindustrywasdisruptivefortheNigerianfirms,eventhoughsomeofthesefirmsattemptedtosourcefortechnologyabroadtostay inbusiness. Therearequestionmarksonthe business strategies, absorptive capacities of these firms and also on the national supportinfrastructure.Themodelbeingproposed is suitableone for SMEs in theautomobile componentmanufacturing inNigeria.Thispaperconcludesbystating thatnetworkingofSMEs into theglobalvalue chain remains an open innovation approach for SMEs in Nigeria and as a good learningmechanism,consideringthestructureoftheinnovationsystemfoundinmostdevelopingcountries.

    Keywords: Open innovation,SMEs,automobile,automobilecomponentmanufacturing, learning,Nigeria

    BACKGROUND

    According to the Nigerian National Automotive Council report (n.d), the Automotive Industry inNigeriadatesbacktoearly1960swhenprivatecompanieslikeUAC,Leventis,SCOA,BEWACandR.T.BriscoepioneeredtheestablishmentofAutoAssemblyPlantsusingCompletelyKnockedDown(CKD)or SemiKnocked Down (SKD) parts. The report also noted that government got involved in theautomobile sector between 19701980 when it concluded agreements with Europe basedautomobile Plants in Europe to set up two cars and 4 truck/light commercial vehicles assembly

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    plants using Completely Knocked Down (CKD) Parts. Peugeot Nigeria Ltd. (PAN), Kaduna, andVolkswagenofNigeriaLtd.(VWON)LagoswereforthecarassemblywhilethefourtruckplantswereAnambra Motor Manufacturing Company (ANAMMCO), Enugu with technical partnership fromMercedesBenz,StyerhadStyerNigeria Ltd.,Bauchi,an indigenousNationalTruckManufacturers(NTM),Kano,andLeylanddidsetuptheLeylandNigeriaLtd.,Ibadan.TheNACreporthasitthatallthesecarsandtruck/lightcommercialvehicleplantswereallprivatizedbytheendof2007.

    ThethrustoftheNationalAutomotivePolicytiltstowardsthesurvival,growthanddevelopmentofthe Nigerian automotive industry using local human and material resources. The Nigerianautomotive industry also envisages the production of components, and vehicle of internationalstandard at competitive prices. Since 1960 till date, vehicle assembly in Nigeria started with apromising note but had gone down by 1986when the Structural Adjustment Programme (SAP)proposedbytheWorldBankandIMFwasintroducedinNigeriabytheNigerianmilitarygovernment.Smuggling of cheap goods affected manufacturing in Nigeria and most of the automobilemanufacturingplantswereproducingbelowinstalledcapacityandthisaffectedtheautocomponentsuppliers.SomefirmsthatexistedasreplacementsupplierstotheopenmarketcouldnotcompetewithsupplierswhowereshippingpartsfromAsiatoNigeria.Thoseautocomponentsuppliersthatexisted in industrial clusterswerenot immune to the vulnerabilitiesexposed to the independentautomobile component firms inNigeria.The caseof theNnewiAutomotive component industrialcluster(asstatedinBox1)isnotableinliterature.TheautocomponentfirmsintheNnewiclustershadtheirfortuneswobbleovertimedespiteeffortsbythefirmsintheclustertomanagetheclusterwithoutanyformofprotectionorsupportfromtheNigerianstateortheinternationaldevelopmentorganizations.

    INTRODUCTION

    PeterDruckerfamouslycalledtheautomobile industrythe industryof industries(MacDuffieandFujimoto,2010;Sako,2002).Takeishi(1998)notedthatatypicalpassengercarcontainsmorethan30,000parts, and this ranges from severalmechanical to electricalparts. The assemblingof carsinvolves levelsof autocomponent suppliers andprovidesemployment for thousandsofworkers,contributingtosizeablepercentofnationalgrossdomesticproductofmostindustrializedcountries,andaswellashasnumerousforwardandbackwardlinkageswiththerestofotherindustrialsectors.ThismakesOriginal EquipmentManufacturers (OEM) to engage several vehicle component/partsuppliers(first&secondtierlevelsofsuppliers)inassembleofcars.HowstrategicanOEMmanagesits component suppliersdetermines the competitivenessof theOEM and the sustainabilityof itsbusiness.

    Automobilemanufacturing is capital intensivewith veryhugedevelopment costs, yetautomobileassemblingcompaniesareboundtomeetcustomerstasteanddemand,meetregulationsoncarbonemissionsandcarsafetystandards.ThesechallengeshavemademostOEMstoshiftsomeofthesecoststothesupplierbaseinthesectorandtheytendtotightlymanagetheirsupplychain.Thehugedevelopmentcosts,longdevelopmentcyclesandfierceglobalcompetition,allmaketheautomotivesectoratraditionallyclosedindustryasnotedbyDodourovaandBevis(2012).

    Insomeadvancedcountriesthevehiclecomponentsuppliersareknowntocontributeuptofiftypercent of the Research & Development (R&D) funds in the automobile sector. These sharedresponsibilities passed from the OEM to the vehicle component suppliers do not end at R&D

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    spendingbutalsoonothercorporateresponsibilities;wherethesevehiclecomponentsuppliersareexpected toalsobeenvironmentallyresponsible.Thevehiclecomponentsuppliersaresuppose toshowevidenceofefficiency inenergy&materialuse,embrace lowcarbonemissionstandardsandenvironmentalbenignwastemanagement. Even though assembly firms such asGeneralMotors(GM), Toyota and Volkswagen take responsibility for overall design, assembly, sales, and service(andusuallyproduceafewkeypartsthemselves),thebulkofvalue inavehicleactuallyresides inthemyriadofpartsthatgointoit(Doneretal.,2006)

    Apart from the shared responsibility given to the auto component suppliers, the Buyersupplierrelationshipsintheautomobilesectorisalsochangingwiththeautomobileleadingfirmsdemandingthat their largest suppliershave a globalpresence as aprecondition tobe considered for anewcomponent supply contract (Sturgeon and Florida, 2004 as cited inHumphery andMemedovic ,2003). Multinational automobile firms production now spans multiple regions since they usecentrallydesignedvehiclesandplatformstocompeteintheseregions.AccordingtoHumpheryandMemedovic (2003), Political pressure for local production has driven automakers to set up finalassemblyplantsinmanyofthemajorestablishedmarketareasandinthelargestemergingmarketcountries such asBrazil, India, and Chinawith lower operating cost. TheOEMs drag their globalsuppliers as theymove to these emergingmarkets.Humphery andMemedovic (2003)were alsoquicktonotethatthegeographicalspreadofvehicleoutputandsales indevelopingcountrieshasnotbeenaccompaniedbyaspreadofownershipintheassemblysector.Theautoindustryremainsconcentrated,witha smallnumberof companiesaccounting fora significant shareofproductionand sales.How thencanautocomponentproducers indeveloping countries (suchasNigeriaandotherAfricancountries)beintegratedintheglobalautomobilevaluechain?Itisalreadyknownthatleading OEMS use Follow Supply Strategy. Some of these global suppliers are spinoff of theOEMS/multinationalcompaniesorsistercompanies from thesamehomecountriesasseen in thecaseofPeugeotandValeo,andothersassuch.Theseglobalsuppliersareoftenclassifiedasfirsttiersuppliersandtheyengageinmodularproduction.Theydonotjustsupplyonecomponentbutsubcompact systems of the automobile vehicles. This has place a huge barrier for suppliers fromdevelopingcountrieswhoyet tohavethe technologyexpertise toproducesomecomponents talklessofsubsystems.

    SomeofthevehiclecomponentsuppliersinNigeriaandotherdevelopingcountriesareeithermicro,smallandmedium scaleenterprises;anddonothave thecapabilities tocompetewith theglobalsupplierswho are competingwith them in the same localmarket. This paperwill look at howautomobilecomponentsuppliersinNigeriacanusetheopeninnovationmodeltoleverageontheirinternalcompetencestoexploitthevistaopportunitiesopenedupbythenewNigerianautomotivepolicy introduced in 2013/2014 and the Foreign Direct Investment that had followed theintroductionofthenewpolicy.

    THECONCEPTOFOPENINNOVATION/LITERATUREREVIEW

    Open Innovation (OI) is defined as the use of purposive inflows and outflows of knowledge toaccelerate internal innovation, and to expand the markets for external use of innovation(Chesbroughetal.,2006,ChesbroughandCrowther,2006).OIisseenasutilizationofinboundandoutbound knowledge flows converting to economic values, and acceleratio

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