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Global Manufacturing Capabilities: Spillovers, Know-How, and Trade Fair Dynamics

Explore the intricate dynamics of capability building, knowledge transfer, and trade fair strategies in the global manufacturing industry. Delve into the value of firm capabilities, the impact of worker know-how, and the emergence of spillovers. Learn about the trajectories of capability development and the trade-offs faced by firms in different markets.

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Global Manufacturing Capabilities: Spillovers, Know-How, and Trade Fair Dynamics

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  1. CompetinginCapabilities

  2. The Central Dynamic • Trade liberalisation re-visited

  3. Relative Wages I wB II wA III v u 1 Relative Quality

  4. Digging Deeper: the locus of capability

  5. Know-how and Capability worker know-how 1 A C 2 B C 3 A B Capability A B C

  6. Know-how and Capability worker know-how 1 A C 2 B C 3 A B Capability A B CProductsProduced X Y Z

  7. The First Puzzle The value of the firm: Why can workers not ‘carry away’ the firm’s value (capability)?

  8. The key idea: Intra-firm transfers of know-how are ‘costless’ worker know-how 1 A C 2 B C 3 A B - the departure of an individual worker leaves total know-how fixed- each recruit can absorb any available piece of know-how costlessly

  9. Intuition: By replicating know-how within the firm, the firm can dilute the bargaining power of workers …… but an intrinsic effect of this is that spin-offs become viable.

  10. The Main Implication

  11. The Main Implication • Spillovers emerge endogenously

  12. The Main Implication • Spillovers emerge endogenously • No monopolization of capability

  13. The Main Implication • Spillovers emerge endogenously • No monopolization of capability A platform for latecomers

  14. We noted above that the driver of Phase 2 globalization lay in the transfer of existing capabilities… • The speed of transfer reflects both factors that are exogenous to the firm, and also some delicate strategic decisions…

  15. The Speed of Transfer • Delicately dependent on industry characteristics • Key channels differ by industry (a) Buyer search channel: Textiles (b) Trade Fairs: Ubiquitous (c) Supply chains: Vertical Transfers The Evidence on “FDI Spillovers”

  16. Speed of Transmission FAST Auto components: Vertical relations with shared technology; standardization and codification of working practices. Domestic Appliances: Horizontal JVs – here incentives of senior partner are critical (cf. China). Machine Tools: Public sector bodies etc. SLOW

  17. A Timescale for Capability Building • A multinational seat maker on a greenfield site in India drops from initial 2,085 ppm to 65 ppm in year 3. • A domestic Indian seat maker drops from 20,000 ppm to 200 ppm over 5 years.

  18. The Mahindra Story

  19. … and at the other end of the spectrum

  20. CNC Machine Tools

  21. The Machine Tool Industry How trajectories develop/divide Controls Ball-screws The ‘machine’ Conventional Machines CNC Machines Pre 1970 Post 1970

  22. The Invidious Trade-Off controls ball-screws 55% wages Bought-in Components 15% 15% 15% Materials, Energy costs, etc. A typical cost breakdown

  23. 3-axis, 15 kW Japan size & complexity 11 kW, 350mm India Taiwan 7.5 kW, 165mm 0.25 1 4 Gross Labour Productivity

  24. Quality Comparisons 50 Indian CNC lathes and vertical machining centres were twinned with equivalent foreign machines doing a similar job in the same plant.

  25. Structural shifts in the Indian Industry • The emergence of ACE designers • A lesson for policy…of which more tomorrow

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