Foreign Direct Investment in Latin America and the Caribbean 2017

Foreign Direct Investment in Latin America and the Caribbean • 2017
II
Chapter II
89
A. An industry in constant change
A new global economy has emerged in recent decades. While globalization was continuously
expanding, many manufacturing activities were relocated from their countries of origin
to developing economies with the aim of cutting costs. Nonetheless, as this model is
increasingly being called into question —and the concept of post-globalization gains
traction— greater attention is now being paid to the location of manufacturing activity
for the creation of production linkages, the development of scientific and technological
capacities and the dynamism of innovation in national economies (Pisano and Shih,
2009). International enterprises place ever-greater value on these factors in their location
decisions; and several advanced countries have renewed their interest in industrial
policy to boost the competitiveness of their manufacturing sector.
The relocation of activities to developing countries has not been confined to
manufacturing and low-value-added services, and it has generated major tensions in the
industrialized economies. The process has been supported by a gradual improvement
in the innovation system in some emerging economies and difficulties in separating
research and development (R&D) from manufacturing design activities, given the
complementary nature of product innovation and processes, and the tensions that
arise between those responsible for the strategic areas in question (Galvin, Goracinova
and Wolfe, 2014).
Firms are facing ever shorter product life cycles, extremely complex production
processes, and increasing technological parity, requiring a wide range of capabilities.
Many have been forced to focus on the skills and competencies of their core business
and outsource a large number of activities and processes to save time and resources,
thereby improving their flexibility and response capacity (Nieuwenhuis and Wells, 2015).
In that context, the automotive industry is rapidly changing some key dimensions of
its operations: geographical location, mode of production, relations within the production
chain, collaboration mechanisms and product characteristics, as analysed in successive
sections of this chapter. Rapid convergence between traditional manufacturing and
electronics and software in the sector is changing power relations in the production
chain. This subjects the industry’s traditional firms to major tensions; and it encourages
enterprises that had not previously participated in the sector to enter technologically
more advanced segments.
This dynamic is coupled with the goal of many countries to strengthen their industrial
activities by generating capacities and knowledge based on new technologies. This
has enabled them to make progress with alternatives to the dominant paradigm of the
internal combustion engine and to facilitate the incorporation of electronics, software
and connectivity in automobiles. This has been possible thanks to the support provided
to collaborative initiatives and platforms between companies, research institutions and
governments (Warwick, 2013).
B. The new geography: the rise of East Asia
The global automotive industry has grown strongly for more than a century and has
managed to overcome episodes such as the Second World War, the rise in oil prices
in the 1970s and the international financial crisis of 2008 (see figure II.1). At present,
the sector remains a pillar of the world economy and a driver of economic growth and
technological progress, with strong inter-industry linkages (ATKearney, 2013).