The European e-Business Report The European e ... - empirica

The European E-Business Report 2005
ICT and the automotive supply chain
The sector study of 2005 also focuses on the increasing importance of ICT for make-or-buy decisions
by companies in the automotive industry. Generally, an OEM or large automotive supplier decides
whether to produce goods internally or outsource their production to external companies based on a
cost-benefit assessment of the two alternatives.
On the one hand, internal production minimises coordination and transaction costs. On the other hand,
external providers specialising in a specific task can have economies of scale or specialist knowledge
compared to an integrated firm, which gives rise to price or quality advantages. However, outsourcing
increases coordination and transaction costs, for example in order to identify suitable providers, to
communicate with them, to monitor their progress and outputs, and to avoid predatory behaviour.
The availability of powerful and cheap new ICT can decrease transaction costs and therefore increase
the attractiveness of outsourcing. If increased ICT usage intensifies the process of integration between
separate companies and leads to more outsourcing, the supply chain of the automotive industry may
change. A possible outcome would then be the emergence of a network structure in the industry
value chain. The OEM’s shift to cooperation with fewer suppliers and closer inter-firm integration is
related to the emergence of strategic networks resembling industry clusters like in other sectors, e.g.
textile.
A possible outcome would then be the emergence of a network structure in the industry value chain.
The OEM’s shift to cooperation with fewer suppliers and closer inter-firm integration is related to the
emergence of strategic networks resembling industry clusters present in some sectors, e.g. textile.
Together with hybrid organization forms and a network-like structure of the value chain, new issues for
competition policy emerge. For example, contrary to market organization forms where firms’ profits are
determined by price-quantity mechanisms, economic rents in a network structure are divided in the
course of bilateral negotiations. Thus, rent allocation is determined by bargaining power and outside
options of OEMs and suppliers. This, in turn, might lead to the ‘hold-up problem’, i.e. a situation where
an OEM and a supplier may benefit from process integration, but refrain from making necessary
investments due to concerns that they may give the other party increased bargaining power, and
reduce their own profits.
E-marketplaces in the automotive industry
Notwithstanding the delayed uptake and problems after the burst of the new economy bubble, online
trading platforms ("e-marketplaces") now gain acceptance in the automotive industry. E-marketplaces
designed for the automotive industry can be defined according to their ownership structure. For
example, there are marketplaces similar to ebay, i.e. the trading platform belongs neither to a buyer
nor seller and is administrated and managed by a neutral third party. Another form of e-marketplaces
includes consortia established by buyers or sellers. Combining their bargaining power, the owners of
an e-marketplace can reduce their transaction costs and obtain better purchasing terms. Examples of
such e-marketplace include SupplyOn, a marketplace established by a group of automotive suppliers
(see case study "SupplyOn"), and Covisint, a trading and cooperation network founded by the major
US OEMs. A large buyer, for example an OEM, can set up a private platform for its supplier network.
The industry has 2 categories of e-markets:
• Large e-marketplaces that have developed advanced logistic services and enable companies
to manage global transactions (e.g. SupplyOn, Covisint),
• Small e-marketplaces that have a local orientation and support transactions between buyers
and sellers from the area in which they are located.
However, e-marketplaces also raise fears among companies in the automotive industry. Automotive
suppliers often complain that OEMs use e-marketplaces as a means to increase price pressure and
reduce their margins. It therefore still remains unclear what effects they will have on the market
structure of the automotive industry in the future.
120