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The social and labour impact of globalization in the manufacture of transport equipment

Report for discussion at the Tripartite Meeting on the Social and
Labour Impact of Globalization in the Manufacture of Transport Equipment

Geneva, 8 - 12 May 2000

International Labour Office   Geneva

Copyright ©2000 International Labour Organization (ILO)

Part 3

Cover photographs: ILO/J. Maillard

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2. The motor vehicle manufacturing sector

2.1. The top 25 companies

Table 2.1 looks at the top 25 producers in the motor vehicle sector, which includes passenger cars, light commercial vehicles, heavy trucks, buses and coaches. From this it can be seen that, although cars account for over 70 per cent of the units produced, the vast majority of the larger automobile producers are usually horizontally involved throughout the entire spectrum of the motor vehicle industry. In addition, many are also active in the production and development of other transport equipment such as motorcycles (BMW, Honda, Suzuki), aircraft engines (BMW, Rolls-Royce Aero Engines), space craft engines (Volvo for the Ariane), aircraft (DaimlerChrysler previously through Dasa [1] in the European Airbus Industrie consortium, and the newly formed EADS[2] with the merger of Dasa and Matra) and satellites (General Motors through Hughes, and perhaps EADS in the future). Volvo and Isuzu also make marine engines and Rolls-Royce is adapting its jet engines to speed boats across the oceans. Some – like DaimlerChrysler (through Adtranz) and General Motors – even extend their horizontal integration to the manufacture of locomotives. Companies which make trucks often also make tractors and construction equipment, although these are technically outside the statistical definition of the transport equipment manufacturing sector. Until recently the linkages of many of the automotive companies, especially those of the United States, stretched backwards to include actual ownership of their parts suppliers, although the tendency today is to spin these ventures off as independent entities (an aspect which will be looked at in Chapter 3).

Table 2.1. Consolidated world motor vehicle production by type and number of vehicles, 1998 (thousand units)

2.2. The geographical spread of motor
vehicle manufacturing

Table 2.2 shows the global distribution of the number of units manufactured in the motor vehicle sector (as defined above). The European Union (EU) and the North American Free Trade Agreement (NAFTA) areas have almost equal shares of world production and together account for over 60 per cent of the motor vehicles made, followed by Japan with 19 per cent and the Republic of Korea with 4 per cent. Eastern Europe and Turkey account for another 5 per cent and the rest of Asia, the Pacific and Africa make up the remaining 7 per cent. From an ownership point of view, irrespective of where the vehicles were made, European-owned companies accounted for 35 per cent of world production, followed by Japanese companies with 28 per cent, American ones with 27 per cent and the Republic of Korea’s with 4 per cent. Interestingly, each of the major producing areas of the EU, NAFTA and Japan had about two-thirds of their production in the home countries of their regions. (This figure rises to almost 75 per cent in each region if all the neighbouring countries are included in each region.) Europe and Japan each had around 20 per cent of the production in NAFTA, whereas the EU was the largest target for American companies outside of North America (23 per cent). As could be expected, manufacturers owned by companies from EU countries (especially Fiat, Volkswagen and Renault) were the largest investors in Eastern Europe (accounting for 38 per cent of the region’s production), whereas the Japanese companies were the most significant in Asia and the Pacific (accounting for one-third of the vehicles produced there), while Asian companies (notably Daewoo and Hyundai) were making significant inroads in Eastern Europe. Japanese companies were largely absent from Latin America (except for Honda and Toyota) and foreign-owned companies (until recently) were totally absent in Japan, according to the production figures in table 2.2.

Table 2.2. World production of motor vehicles by manufacturer and economic area, 1998 (thousand units)

2.3. An overview of recent literature on the automotive industry

Although Chapter 1 focused on data for the transport equipment manufacturing industry as a whole, the data reveal the large share of motor vehicles and in particular of the automobile industry in some countries’ employment, production and imports and exports. Chapter 1 also looked at exports and highlighted the relative importance of the automotive industry’s share of countries’ total manufacturing exports – Canada (30 per cent), Spain (27 per cent), Japan (22 per cent), Germany (18 per cent), Belgium (17 per cent), Sweden (15 per cent), France (13 per cent), United States (12 per cent), Austria (11 per cent) and United Kingdom (9 per cent) – which was significant for their economies: changes in either direction would have repercussions on a country’s overall performance.

Given the vast amount of literature on the automobile industry, it would be impossible to read it all, let alone synthesize it in this background document. Another problem is that although much of the research relates to excellent case studies, there can be as many case studies as there are individual plants, and without adequate comparative analysis case studies are insufficient to understand the overall industry. Lastly, apart from pointing out that smaller companies must be prepared to merge or be taken over by the larger ones, none of the recent literature was able to predict sufficiently in advance exactly which companies would be taken over by whom. By and large, the DaimlerChrysler merger, Ford’s purchase of Volvo Cars, Renault’s link-up with Nissan, Volvo’s bid for Scania, Fiat’s strategic alliance with Mitsubishi and Daewoo’s demise were not anticipated.

In fact, the shelf-life of a book on the automotive industry is similar to that of a laptop computer. It keeps getting shorter and shorter (while the product gets better and better). The approach taken here will be to outline some of the major studies undertaken (which will also give the interested reader sufficient references to other relevant literature), while at the same time attempting to refer to the most recent periodical literature in the body of this report as it relates to the subject-matter. For the sake of classifying the material, the academic literature on the automotive industry may be divided into three main categories. The first is a group of authors which emerged around what came to be the International Motor Vehicle Program (IMVP) at Massachusetts Institute of Technology (MIT). Their publications include:

• The future of the automobile. 1984. Roos, Daniel; Altshuler, Alan; Anderson, Martin; Jones, Daniel; Womack, James (Cambridge, Mass., MIT Press, 1984).
• The machine that changed the world. 1990. Womack, James P.; Jones, Daniel T.; Roos, Daniel (New York and Don Mills, Ontario, Macmillan).
• After lean production: Evolving employment practices in the world auto industry. 1997. Kochan, Thomas A.; Lansbury, Russell D.; MacDuffie, John Paul (eds.) (Ithaca and London, ILR Press).
• The world that changed the machine: Globalization and jobs in the automotive industry (draft, 5 May 1999). Sturgeon, Timothy; Florida, Richard, Final report to the Alfred P. Sloan Foundation.

The second group is clustered around the Permanent Group for the Study of the Automobile Industry and its Employees, better known by its French acronym GERPISA.[3] Its major publications include:

• One best way? Trajectories and industrial models of the world’s automobile producers. 1998. Freyssenet, Michel; Mair, Andrew; Shimizu, Koichi; Volpato, Giuseppe (Oxford, Oxford University Press).
• Between imitation and innovation: The transfer and hybridization of productive models in the international automobile industry. 1998. Boyer, Robert; Charron, Elsie; Jürgens, Ulrich; Tolliday, Steven (Oxford, Oxford University Press).
• Teamwork in the automobile industry: Radical change or passing fashion? 1999. Durand, Jean-Pierre; Stewart, Paul; Castillo, Juan José (eds.) (London, Macmillan).
• Coping with variety: Flexible productive systems for product variety in the auto industry (Aldershot, Ashgate, 1999). Lung, Yannick; Chanaron, Jean-Jacques; Fujimoto, Takahiro; Raff, Daniel.

Although different approaches were used, with the MIT IMVP relying more on large-scale funding of coordinated research teams and GERPISA utilizing a loose network of scholars doing similar research and exchanging notes by presenting papers at international conferences, the results of both groups are impressive.

Most recently, the MIT IMVP and GERPISA have adopted what might be termed a “common platform”, with IMVP researchers featuring prominently at GERPISA’s Seventh International Colloquium on “Internationalization: Confrontation of Firms Trajectories and Automobile Areas” (Paris, 18-20 June 1999). The papers presented – many of which deal with labour relations – are available on CD-ROM.

Interestingly, more and more of the literature, including the above, is putting emphasis on jobs, work organization and industrial relations, and these may be classified in a third category. For example:

• Social reconstructions of the world automobile industry: Competition, power and industrial flexibility. 1996. Deyo, Frederic C. (ed.) (London, Macmillan; New York, St. Martin’s Press).
• Just another car factory? Lean production and its discontents. 1997. Rinehart, James; Huxley, Christopher; Robertson, David (Ithaca and London, ILR Press).
• Farewell to the factory: Auto workers in the late twentieth century. 1997. Milkman, Ruth (Berkeley, Los Angeles and London, University of California Press).
• Zeitnot und Zeitsouveränität in der just-in-time-Fabrik: Arbeitszeitorganisation und Arbeitsbedingungen in der europäischen Automobilzulieferindustrie. 1997. Lehndorff, Steffen (Munich, Rainer Hampp Verlag).

Table 2.3. Automobile production by company and worldwide share by country, 1996

2.4. Think global, act regional

2.4.1. The location of production

Despite all that has been written about the globalization of the world automobile industry, car manufacturers have until recently remained, by and large, national undertakings with regional sourcing and marketing strategies. Figure 2.1 shows the geographical distribution of production: North America, represented by NAFTA, accounts for some 20 per cent of global production; the 15-member EU has signed agreements with seven Central and Eastern European countries[4] and now totals some 40 per cent, while Japan makes up about 20 per cent. (If the OECD – which now includes the Republic of Korea, Mexico, Hungary, Poland and the Czech Republic – were taken as one region, this “economic space” would account for about 95 per cent of world production.)

In an industry initially dominated by European manufacturers, with 58 per cent of cars being manufactured at the turn of the century in the United Kingdom and France, the United States soon caught up and took over first place by 1923, producing more than 90 per cent of the world’s automobiles, and was soon to supply half of American households with cars. By 1929, the 10 per cent it exported represented 35 per cent of the rest of the world market.[5]

Although “transplants” is the euphemism now usually reserved for Japanese entrants to the United States and Europe in the 1970s and 1980s, American companies were already doing that in Europe decades ago. General Motors set up its first assembly in Denmark in 1923 and others followed in Dagenham, Strasburg and Cologne.

Despite the predominantly national bias of most automobile producers, the United States firms exhibit the greatest tendency towards internationalization, with 35 per cent of their models being produced outside North America, followed by the Japanese with 20 per cent outside their home base. European manufacturers are the least international of all, with only 12 per cent of their production abroad (Fiat and Volkswagen are notable exceptions, with about a quarter of their production outside Europe).

Figure 2.2 shows Japan’s meteoric rise over the past 40 years, from just over 1 per cent of world production in 1960 to more than 20 per cent today. The United States, which still accounted for more than half of world production in 1960, saw its share drop to 14 per cent in 1999, although the number of units manufactured remained about the same at approximately 7 million. Interestingly, Germany’s share in world production has remained constant throughout the same period at 14 per cent, while the United Kingdom has been the main loser, with its share falling from over 10 per cent to under 5 per cent (in fact no major company is in British hands today, although employment does seem to have stabilized). Figure 2.3 shows that the main winners include Spain and the Republic of Korea, followed by France and Italy, which have at least maintained their shares. Surprisingly, Belgium ranks number ten on the world list of automobile manufacturers thanks to numerous foreign assemblers present to take advantage of the single EU market (but making it all the more vulnerable to decisions to relocate elsewhere, as demonstrated by Renault’s sudden closure in Vilvoorde in 1997). Although the available data do not document it yet, Central and Eastern European countries such as Poland, Hungary, Romania and the Czech Republic will probably continue to benefit from foreign direct investment, as companies set up there both to supply the home country markets and to serve as export platforms for Eastern and Western Europe.

Figures 2.2 and 2.3 refer to units manufactured within a country’s borders irrespective of the nationality of ownership of the company. Viewed from another perspective, that of worldwide production, the position of Japanese companies is even more impressive, as their brand-name products account for 32 per cent of the cars made around the world, followed by United States companies with 27 per cent, Germany with 14 per cent, France with about 9 per cent, and Italy with almost 5 per cent (as shown by table 2.3 and figure 2.3). Figure 2.4 shows, however, that with today’s globalized economies, a car can qualify as “made in USA”, even if only the final 37 per cent of assembly is undertaken in the United States.

Brazil has attempted to attract almost all of the major European and American car makers, which have responded both because of its large internal market and in the light of its function as a platform for exports to the member countries of the Southern Common Market (MERCOSUR), or even back to Europe. Unlike the Republic of Korea, however, it has not been able to sustain the development of its own indigenous industry. The restructuring of Daewoo (and its search for a foreign partner to bail it out) also illustrates the fragile nature of attempts to evolve an automobile industry in developing countries. Malaysia’s gamble with Proton is another case in point (see section 2.8).

2.4.2. The major players

The major automobile companies (measured in terms of employment, production and market share) are located in the United States, Germany and Japan, followed by Italy, France and the Republic of Korea. Table 2.4 gives an overview of the Fortune Global 500 companies in the motor vehicle and parts industry, ranked by employment. As a result of mergers and acquisitions (M&As) there are fewer and fewer companies (figure 2.5). Obviously, the pace of consolidation has accelerated since 1998, when Daimler and Chrysler merged. Daewoo acquired Samsung and Ssangyong, Hyundai purchased Kia, General Motors increased its stake in Suzuki to 10 per cent, Toyota raised its interest in Daihatsu to 51 per cent and Renault took a 37 per cent share of Nissan in 1999. Whereas a dozen firms produced 80 per cent of the world’s passenger cars in the early 1980s, by the beginning of the 1990s 11 firms made three-quarters of the total,[6] and in 1998 only seven major companies (General Motors, Ford, Toyota, Renault/Nissan, Volkswagen, DaimlerChrysler and Fiat) accounted for 72 per cent of the market (see figure 2.6).

Although current predictions focus around the consolidation of smaller companies with less than 5 per cent market share with one of the current top six or seven companies, mergers or alliances among the smaller ones themselves are possible at the bottom end of the spectrum. However, further consolidation at the top of the spectrum might also be possible, with only two or three mega corporations ultimately emerging.[7] While the history of the automobile industry up until the last few years of the twentieth century has been one of national consolidation, the closing few years of the millennium seem to have ushered in the age of transatlantic, transpacific and transcontinental mergers and alliances with the deals between Chrysler and Mercedes, BMW and Rover, Volkswagen and Rolls-Royce, Lamborghini and Škoda, the Ford purchase of Volvo, Renault’s share in Nissan and the share-swapping between Volvo and Mitsubishi. (Only Volvo’s offer to purchase Scania in the truck segment – which needs EU approval – has remained within national boundaries.) It is also significant that by 1999, after the initial success of their exports (in the 1960s and 1970s) and later of their transplants (in the 1980s and 1990s), the Japanese opened up their home companies (both assemblers and suppliers) to foreign deals in an attempt to stay competitive.

Often (but not always), M&As are accompanied by a restructuring which initially leads to a reduction in personnel. At the senior executive level in a newly merged company this will mean only one chief executive officer (CEO), one personnel manager, one financial officer, one purchasing officer, etc. Unemployment does not seem to have been a problem at this level in the current round of M&As, as many senior managers found positions with their competitors. Given the high levels of executive pay and economies achieved in merging departments, it would appear that many companies have actually realized large savings out of their initial mergers. However, at the plant level, these cuts are real but can be cushioned by early retirements, golden handshakes and transfers to other companies in the case of spin-offs, exact details of which are not always available. When smaller firms are taken over, as in the case of Dacia in Romania by Renault, although jobs will be cut, the takeover can also be viewed as preserving some jobs for the future, since all would have been lost if the company had gone out of business.

Companies can follow different strategies to reach their markets. They can mass-produce large volumes which they sell relatively cheaply with low profit margins, but still succeed because of the numbers sold, or they can craft a few luxury vehicles sold at high prices. Figure 2.7 depicts the gap between Porsche and BMW at one end of the scale and Ford and General Motors at the other. In between, Volkswagen and DaimlerChrysler try to cover the entire spectrum. Luxury sports cars (table 2.5) and sport utility vehicles (SUVs) are two of the most important niche markets.

Table 2.4. Fortune Global 500 companies (motor vehicles and parts) ranked by employment, 1998

2.5. Trucks

Just as the dust was beginning to settle after the current wave of mergers and acquisitions in the automobile industry, the consolidation process – responding to the same pressures of globalization – was starting to shake up the truck and bus manufacturing segment. According to the Financial Times:

One thing was clear from yesterday’s announcement [8 Oct. 1999] ... The globalization of the automotive industry has arrived in Japan, with three out of four Japanese truck makers in partnerships with foreign companies. Isuzu is owned 49 per cent by General Motors; Renault holds 22.5 per cent of Nissan Diesel; and Volvo will control 19.9 per cent of Mitsubishi.[8]

Much of the same logic was also at work here. In an attempt to maintain (or increase) market share, reduce the cost of R&D and achieve economies of scale, companies are redesigning factories and sharing common platforms and engines (for buses and trucks), as well as distribution and service networks. They are also trying to cover the whole spectrum from heavy to medium to light trucks so that the downturn in demand for one type of vehicle can be offset by demand for one of the others. Cash-rich companies such as Volvo – after the sale of its car unit to Ford – are in a position to implement their strategic plan of focusing on trucks and buses by purchasing competitors. Volvo’s offer to purchase Scania therefore came as no surprise, followed by its alliance with Mitsubishi (with the combined total of the three companies making them number one in the heavy vehicle segment of the market, ahead of DaimlerChrysler). Companies wanting a presence in every segment of the transport equipment manufacturing (TEM) industry (such as Volkswagen) would be looking for takeover objects. Companies present in only one continent might seek market access in another through a strategic alliance (Renault and Nissan Diesel, Volvo and Mitsubishi). MAN of Munich is also known to be looking for a strategic alliance or merger it could lead in, rather than be taken over. At the moment it is about to venture into Eastern Europe with a takeover of Star of Poland.[9] The current 30 or so manufacturers in this sector of the industry could well be reduced to five or six in the next few years.

Up until the mid-1990s, the ex-USSR-based Kamaz was perhaps the world’s largest truck maker with 150,000 vehicles a year. Dump trucks are another niche market, led by Caterpillar (United States) and Komatsu (Japan) followed by Volvo of Sweden, which – now that it has sold its car division – is trying to consolidate its position in trucking and challenge the two frontrunners with a decentralized global strategy, leaving behind the other competitors in the second tier (Case and John Deere of the United States, New Holland of Italy and JCB of the United Kingdom). Farm equipment, although statistically in another category, is another niche where the same companies are vying for a share of the market. If the proposed takeover of Case by New Holland (controlled by Fiat) goes ahead, the new group would be close behind John Deere, the world’s largest tractor and farm equipment manufacturer, and would come third in the manufacture of construction equipment, after Caterpillar and Komatsu.[10]
 

Table 2.5. Global production of super sports cars, 1997-98

2.6. Buses

This subsector of the industry has been studied less, but the major players parallel the leaders in the truck industry, with a few additions. Mercedes is in the lead, followed by the new Volvo/Scania venture, then Iveco/RVI, MAN and the others. A Hungarian maker (North American Bus Industries Ltd.) has recently come up with a fibreglass version made out of composite material which results in a lighter vehicle with lower operating costs. It now has 15 per cent of the North American market. New Flyer Ltd., a Canadian manufacturer, is its main competitor there.

There are many synergies between the truck and bus industries. Volvo’s first bus in 1923 was simply mounted on a truck chassis; in many cases today bus manufacturers allow their clients to customize the bodies. The more common parts shared between trucks and buses, the lower the development costs and the better the distribution network and after-sales servicing. For example, Volvo’s new buses are fitted with a version of the seven-litre diesel engine that is used in the FM7 truck.

Table 2.6. Joint ventures in India’s auto industry

2.7. Indirect employment

Figure 2.9 uses the example of France to show how all the theoretical backward and forward linkages of the automobile industry might be calculated in a given country to provide an idea of the overall employment effect of the TEM industries. Employment in the direct suppliers (raw materials, electrical equipment, textiles, glass, paint, tyres and plastic, amounting to some 460,000) plus automobile parts and assembly (313,000) give a base figure of 773,000. Over and above this, vehicle use provides jobs for another 570,000 people working in the areas of fuel production and distribution, maintenance and repairs, vehicle testing, vehicle demolition and other vehicle-related service industries. The road transport (passengers and freight) sector and its related infrastructure employ around another 1,118,000, for a grand total (2.4 million) that is eight times the 300,000 directly employed in the industry. This gives a rough idea of the impact of the automobile industry on the economy as a whole. Changes in the sales pattern, need for servicing, fuel, financing and recycling will have employment repercussions throughout the chain. One example of this is the supplier industry, which will be looked at more closely in the next chapter.

Table 2.7. Industry composition of top 100 multinational enterprises (MNEs), ranked by transnationality index (TNI), 1996-97

2.8. Developing countries: From CKD to CBU

For many countries their initial contact with the automobile industry is the importation and assembly of completely knocked down (CKD) assembly kits. Because their economies and workforces were not yet ready to support a fully fledged auto industry, many developing countries thought that they could acquire skills by starting with assembly-type operations. To encourage these employment-generating benefits, countries typically placed higher tariffs on the import of complete vehicles than on the parts needed for assembly. Thailand was no exception – but there is a new twist today. Thailand now finds itself on the exporting side as Honda has decided to make body parts in Thailand, plastic components in Malaysia and engines in Indonesia for their new City model.[11] This has the advantage of allowing the company a local production base in a region which would not support a fully fledged car industry of its own in each country. Parts can thus be shipped between these countries or to third countries for final assembly, avoiding the high tariff barriers which until now have been placed on completely built up (CBU) vehicles.[12] Auto Alliance Thailand, a joint venture between Ford and Mazda, also produces CKDs for export to the rest of the world. However, a new trend is also emerging at the other end of the spectrum, with Ford and Mitsubishi entirely producing certain models only in Thailand for export throughout the rest of the world.

The case of Proton[13] in Malaysia (now the owner of the British company Lotus) is entirely different. With the current level of over-capacity in the automobile industry, the development of a local model in a developing country may be a risky business, but obviously it is a risk some countries are willing to take. The automotive industry, like all others in many developing countries, also suffers from chronic power shortages and scheduled and unscheduled cuts. This not only plays havoc with production runs but can also damage machinery. India’s largest car maker, Maruti (a government joint venture with Suzuki; for other joint ventures in the Indian automobile industry see table 2.6), has solved the problem by defying conventional economics and producing self-generated electricity that is cheaper and of a better quality than the public supply.[14] In addition to reliability, new technologies allow smaller plants to achieve economies of scale which were not possible before. Maruti has also lured its suppliers to set up shop within a 20-kilometre radius, which has advantages for both sides.

On the other side of the coin, the new trading rules of the World Trade Organization (WTO) will require countries to lower tariff barriers, so the advantages of CKD may soon be a thing of the past in the age of globalization, and Malaysia’s highly protected Proton will suffer competition from cheaper imports from the year 2000 onwards. Nevertheless, with Asia set to be the major growth region for new vehicle sales and production in the next 15 years (see box 2.2), according to one prediction, it may appear to be a risk worth taking. The scenario may seem over-optimistic in view of the recent Asian crisis, but does provide food for thought as production in Asia alone would almost be equal to that in the entire world today.
 

India, China, Viet Nam and Brazil are what are often termed large emerging markets. As mentioned earlier, only the Republic of Korea has been able to gain a foothold on global markets with indigenous manufacturing facilities, albeit with the aid of Japanese technologies. However, like many of their Japanese counterparts, companies in the Republic of Korea are looking for partnerships with foreign companies.[15] India, too, has opened up, allowing 100 per cent foreign investment (table 2.6).

Table 2.8. Top 14 automobile manufacturers ranked amongst the world’s top 100 MNEs by transnationality, 1997

2.9 Globalization index

One empirical measure of a company’s or an industry’s degree of globalization is the proportion of its assets, sales and employment levels which are outside its home country, and the number (or percentage) of other countries in which it has subsidiaries abroad. The United Nations Conference on Trade and Development (UNCTAD) has done this annually for the top 100 multinational enterprises (MNEs) with the most recent results shown in table 2.7, which further situates the top 14 automotive companies within all these different industries, indicating that by this measurement the industry is not as global as others.

A transnationality index (TNI) has been compiled by UNCTAD as a composite index of three ratios: foreign assets/total assets; foreign sales/total sales; and foreign employment/total employment (see tables 2.7 and 2.8). The average TNI in 1997 was 46.7 per cent for the motor vehicle industry, as compared to 55.4 for the top 100 MNEs, up by 1.3 per cent over 1996. According to this index (albeit calculated without using the ratio of foreign employment/total employment) Honda Motor Co. Ltd. ranks first in the automotive industry, although compared to the other industries, it comes in 32nd among the world’s top 100 MNEs. It can also be seen from this table that all the companies come from Triad countries.[16] Germany and Japan are represented by four companies each, while the United States and France both have two. Sweden and Italy each have one. Volvo AB recorded very bold figures for foreign sales, which constitute almost 90 per cent of its total sales. This is understandable, considering the quality of its products and the size of the Swedish domestic market. Although General Motors is ranked the lowest by this index (which is only one measure to gauge globalization), it is the most international of all the companies in terms of subsidiaries abroad, as can be seen from the last two columns.

The top 14 automotive companies have total assets equal to US$1,038 billion, of which 504.3 billion belongs to the United States-based companies, 309.2 billion to European companies and the rest, 224.2 billion to the Japanese companies. The same ranking is found for total sales, with American companies in the lead with US$331.8 billion, followed by Europe with 307.2 billion and Japan with 211.9 billion. Foreign sales show a completely different scenario: here Europe comes first with US$193.1 billion, followed by Japan with 120.6 billion and the United States with 99 billion. The average ratio of foreign sales to total sales is 63 per cent for Europe, 57 per cent for Japan and 30 per cent for the United States. Hence, one could state that automotive companies in the United States are more oriented towards the domestic market, while European and Japanese companies are more export-oriented.

The top 14 companies employed a total of 2,786,668 persons, of whom European companies accounted for 480,936, Japanese companies 481,936 and United States companies 971,892. General Motors had the largest workforce at 608,000 (before spinning off Delphi), followed by Ford with 364,000 employees, almost half of whom work in foreign branches of the company. Considering the fact that foreign assets represent only 26 per cent of its total assets, it can be inferred that the domestic branches of this company are much more efficient than the foreign ones.

As a percentage of the total for the top 100 MNEs, the assets of the top 14 automotive MNEs represent 24.6 per cent of total assets, employment 24 per cent of total employment, and sales 21 per cent of total sales. Comparing the data from the UNCTAD reports for 1997 with those for 1996 one finds practically the same companies in the UNCTAD top 14 list, with the exception of Peugeot SA, which does not appear in 1996, and Chrysler, which dropped out but will appear in the future under DaimlerChrysler (just as Volvo will be subsumed under Ford from 1999 onwards). Some companies, such as BMW, Volkswagen, Nissan, Renault, Ford and General Motors have experienced little change in their TNI (1-2.5 per cent), while others such as Honda (from 56.6 in 1996 to 64.1 in 1998), Bosch GmbH (from 62.4 to 53.8), Toyota (from 35 to 40), Mitsubishi (from 28.3 to 33.7) have seen more or less significant shifts. An analysis of the components of the TNI shows the same results. Honda has seen the ratio of foreign to total assets go up by almost 6 per cent in 1997 as compared to 1996 and Toyota and Mitsubishi by 5.5 per cent. These companies also have had an increase in the ratio of foreign to total sales, by 7 per cent, 9.7 per cent and 10 per cent, respectively.

The Ford Motor Company, which has the largest total asset value, has on the contrary experienced a decreasing ratio of foreign to total assets and of foreign to total sales (in 1997 this dropped by 13 per cent with respect to 1996). General Motors had irregular results, with the ratio of foreign to total assets going up and the ratio of foreign to total sales decreasing.

As table 2.9 shows, the automotive industry has a TNI lower than that of petroleum, chemical and pharmaceutical industries for the years 1990 and 1996 and electronic/electrical equipment industry for 1990. This is understandable, since the petroleum industry is built near the oil reserves situated for the most part outside the countries to which the companies belong. The same is true for chemical and pharmaceutical industries, which again are built near their input sources. It is also obvious why the trading companies have such a low index – they do not use such inputs and are situated in countries which have a developed infrastructure. Nevertheless, the top five MNEs in the automotive industry show the second largest increase (after the chemical industry) in degree of transnationality of the companies in the sample during the period.

For the top five companies in the petroleum and automotive industries, foreign and total assets are quite significant, although they show inverse trends for the years 1990 to 1996. In the petroleum industry the share of foreign assets has gone down from 15.1 per cent to 9.8 per cent and total assets have decreased from 10.6 per cent to 7.1 per cent, while in the automotive industry both have increased (foreign assets from 11.9 per cent to 12.5 per cent and total assets from 15.3 per cent to 17.1 per cent). The same trend can be seen for foreign and total sales: in the petroleum companies both have decreased over the period, while they have increased in the automotive industry. Both industries show a downward trend for employment.

The high figures recording the growth of international production camouflage many variations across and within regions. Undoubtedly the developed countries dominate the global picture, with more than two-thirds of the world inward FDI stock and 90 per cent of the outward stock, even though this dominance is being gradually eroded. Developing countries accounted for nearly a third of the global inward FDI stock in 1997, increasing from one-fifth in 1990.[17]

Table 2.9. Average TNI, assets, sales and employment of the top five MNEs in each industry, 1990 and 1996 (percentage points and % of top 100 total)

Source: OECD, op. cit., pp. 104-105.

Figure 2.12 shows the recent mergers and acquisitions from a cross-border perspective.

Note: Lists only the automobile MNEs that have cross-border capital links. Does not include technology agreements.

[1] DaimlerChrysler Aerospace AG.

[2] European Aeronautic, Defence and Space Company, with headquarters in the Netherlands.

[3] Groupe d’Etude et de Recherche Permanent sur l’Industrie et les Salariés de l’Automobile.

[4] Daewoo has recently started producing in Poland, whose exports to Italy benefit from this scheme, since they do not count as exports from the Republic of Korea, as long as there is sufficient local (Polish) content.

[5] See, for example, OECD: Market access issues in the automobile sector (Paris, 1997).

[6] Peter O’Brian: “The automotive industry: The permanent revolution”, in Gijsbert van Liemt (ed.): Industry on the move: Causes and consequences of international relocation in the manufacturing industry (Geneva, ILO, 1992), p. 56.

[7] Cyrus Freidheim: The trillion-dollar enterprise: How the alliance revolution will transform global business (Reading, Mass., Perseus Books, 1998), p. 90.

[8] Alexandra Harney: “Drive to make truckmakers more efficient”, in Financial Times, 9/10 Oct. 1999, p. 10.

[9] Tony Major: “MAN looks for trucks partner”, in Financial Times, 8 Oct. 1999, p. 24.

[10] “Brussels set to clear tractor deal: Approval likely for New Holland’s $4.4bn takeover of Case”, in Financial Times, 28 Oct. 1999, p. 21.

[11] Ted Bardacke: “Thai car and truck sector enjoying a boom in a box”, in Financial Times, 3 Aug. 1999.

[12] Joy Abrenica: “The Asian automotive industry: Assessing the roles of State and market in the age of global competition”, in Asian-Pacific Economic Literature, Vol. 12, No. 1, May 1998, pp. 12-26.

[13] T. Fuller: “Malaysian automaker takes uncertain road: Proton insists firm will find its own”, in International Herald Tribune, 7 July 1999, p. 13, and “2 routes for Asia auto industry: Thais welcome foreign firms; Malaysia takes control”, ibid., 4 Oct. 1999, p. 1.

[14] Sumila Gulyani: “Innovating with infrastructure: How India=s largest carmaker copes with poor electricity supply”, in World Development (Washington, DC), Vol. 27, No. 10, 1999, pp. 1749-1768.

[15] “GM confirms interest in Daewoo”, in International Herald Tribune, 20 Oct. 1999, p. 19.

[16] The European Union, Japan and the United States.

[17] Figures taken from UNCTAD: World investment report 1998.

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