7 - A Comparative Study of Global Production Sharing in the Automotive Industry in China and India

Summary

INTRODUCTION

The creation of production networks (“supply chains” or “production sharing”) has been one of the underlying sources of competitive advantages for multinational manufacturing firms in industrial countries since the late 1960s (Athukorala 2006). Multinational enterprises (MNEs) break up the vertically integrated production process into the smallest stages possible and relocate each stage to the most suitable location beyond their own borders. This creation of global production sharing has become the defining characteristic of the wave of globalization led by MNEs, especially in East Asia (Athukorala and Yamashita 2006). In this process, China and India, the two most dynamic emerging economies, have so far had contrasting experiences of attracting multinational production. On the one hand, China has emerged as a primal export base for assembling a wide range of manufactured goods from garments to personal computers. As a result, the bulk of China's manufactured exports contain imported parts and components, suggesting China's high involvement in trade and foreign domestic investment (FDI) in global production networks (Dean, Fung, and Wang 2011). India, on the other hand, has a poor track record of attracting this type of manufacturing FDI, possibly contributing to its lacklustre export performance in recent years (Srinivasan 2004; Athukorala 2008). Despite her huge potential of hosting larger scale FDI, India lags behind China in manufacturing performance, except for the success in attracting FDI for back-office business processing and relatively skill-intensive software service industries. This means that India has not been able to exploit its relatively abundant unskilled labour force yet in the way that China has. This has led to policy discussion about whether the service-led growth in India can be sustained.

However, this broad comparative picture of multinational production between China and India in more recent years has begun to change, especially in the automotive industry. In both countries, production of automobiles (in terms of production units) is quickly catching up with other leading emerging economies (Sturgeon and Van Biesebroeck 2010). At the same time, there has been a secular rise of trade flows linking global automotive production sharing in both countries. In this context, this chapter documents the current degree of involvement of China and India in this ongoing spread of global production sharing in the automotive industry.