Impact of supply chain on the competitiveness of the automotive industry

Abstract

Purpose – There is a great reliance on fiscal incentives to sustain the automotive industry competitiveness due to several structural problems, among them the inefficiency of the supply chain. This paper aims to compare the supply chain structure of traditional automotive industry with the supply chains from South Korea and China. Based on strategic decision and transaction cost theory, this comparison seeks to exploit the factors that led to the inefficiency of automotive supply chains. Design/methodology/approach – The authors used a qualitative approach and applied a multi-method research. They conducted semi-structured interviews with six executives from automakers representing the selected countries, carried individual meetings during one workshop and used secondary data from several sources. Findings – Concepts identified in the research such as reliability, supply chain governance and automaker competencies led the authors to propose that the traditional automakers have higher transaction costs when compared to the new automakers due to the horizontal structure of their supply chain. While new competitors have vertical upstream supply chains, which indicates better profitability, traditional automotive industry is horizontal, depends on fewer Tier 1 suppliers and is disconnected from Tier 2, impacting negatively in the transaction costs and supply chain management. Practical implications – This study suggests that automotive executives rethink the current upstream supply chain model by identifying the competencies required for their current and future competitiveness and implementing a vertical integration of these competencies. Originality/value – This research exploited the inefficiency of supply chain as one of the explanations for the low competitiveness of the national automotive industry.