by Merve Sancak
Digitalisation constitutes a key puzzle in the discussions about the future of capitalist systems. Digital technologies have been transforming the functioning of economic activities in at least three ways: the rise of automation and replacement of workers with machines; the emergence of new communication methods that change the interactions between economic actors; and the development of new instruments that are altering the methods of economic transactions.
In a recent study, I examined how digitalisation is changing the relations between supplier and lead firms in global auto parts-automotive value chains (AACs), and how this is influencing the upgrading prospects of supplier firms from low and middle-income countries. More precisely, I analysed (1) to what extent the online supplier platforms are affecting the coordination mechanisms in global AACs; (2) if there is variation across AACs; and (3) how the use of online platforms influences the upgrading prospects of supplier firms in lower tiers. I focused on the suppliers’ point of view and conducted in-depth face-to-face interviews with representatives of 40 auto parts suppliers from Mexico and Turkey, which are two key middle-income countries supplying auto parts and components for the global AACs.
The study shows that the use of online platforms varies across AACs and influences suppliers’ upgrading opportunities in distinct ways.
The use of online supplier platforms is the highest in AACs with market-based coordination structures, where the lead firms prefer having arms-length relations with their suppliers. While the international standards and certification systems are key for managing the supply chains – and the ISO/TS 16949 is the main certification system, online platforms constitute the main instrument for managing the day-to-day relations between the supplier and lead firms. Each original equipment manufacturer (OEM) has its own online platform and all matters are managed through these platforms – such as providing product information to the supplier, placing an order, organising the delivery, and reporting and resolving problems – while ‘unstandardised’ and personal communication is limited.
The predominance of online platforms, and the lack of communication through more direct means such as phoning or face-to-face meetings, influences suppliers’ upgrading prospects through two main ways. Firstly, such communication restricts the possibilities for ‘mutual learning from face-to-face interactions’, ‘learning through training of local workforce by GVC lead firms’, and knowledge transfer, and thus limits suppliers’ upgrading opportunities through such learning. Secondly, the lack of communication between suppliers and lead firms can cause misinformation, which may lead to problems in the supply chain and result in underperformance of suppliers, and consequently their exclusion from supply chains.
Online supplier platforms are used very rarely in AACs governed by captive relations. The lead firms in these AACs do not usually require the ISO/TS certification from their suppliers. Instead, these lead firms apply quality management strategies tailor-made for each supplier, which restricts the possibility of using standardised communication systems such as online platforms when managing the day-to-day relations. For implementing their tailor-made supplier management strategies, the lead firms in these chains communicate with their suppliers through more direct measures such as phoning, emailing, face-to-face meetings and company visits, and provide frequent training to their suppliers.
The limited use of online platforms and the direct communication between suppliers and lead firms affect suppliers’ upgrading prospects through two main ways. Firstly, the direct and frequent communication creates key mechanisms for ‘mutual learning from face-to-face interactions’, ‘learning through training of local workforce by GVC lead firms’, and knowledge transfer, which can facilitate product and process upgrading for suppliers. Secondly, the intensive communication between the two parties helps to avoid problems in supply chains, which facilitates suppliers’ longevity in such AACs.
Despite these possibilities, upgrading of suppliers in these chains is still limited because of the high control of lead firms over suppliers. Therefore, suppliers’ learning is usually dependent on lead firms, which will limit suppliers’ possibilities for functional upgrading.
There is also a third group of AACs where the use of online supplier platforms sits somewhere between the first and second groups. The lead firms in these chains utilise the ISO/TS certificate as well as lead firm-specific, but standardised, quality management systems to manage their supply chains. While the supplier platforms are used as the main method of communication for the day-to-day relations between the suppliers and lead firms, more personal and direct communication instruments are used when a problem occurs in the supply chain. This is different from the first type of AACs, where the online platforms are used also in cases of problems, and the second group of AACs, where online platforms are used very rarely.
The impact of online platforms on suppliers’ upgrading is ambiguous for these AACs. On the one hand, the use of online platforms as the main method of communication limits suppliers’ learning through face-to-face interaction, training or knowledge transfer. On the other hand, the arms-length communication through online platforms, together with the occasional direct communication, provides some opportunities for upgrading: the direct communication with lead firms improves the suppliers’ understanding about the expectations of lead firms while the arms-length relations through online platforms reduce lead firms’ control over suppliers. As a result, the suppliers can develop their own strategies to address the clearly defined expectations of lead firms, which can facilitate their independent learning. Although developing own strategies to address expectations has helped many suppliers to upgrade and remain competitive in AACs, a number of suppliers find it challenging to address the expectations of lead firms without any direct assistance or training.
Digitalisation in Supply Chains in AACs
Overall, my research on AACs shows that the use of online supplier platforms varies across AACs led by different firms depending on the strategies of supply chain management by lead firms. Furthermore, the different use of online platforms in AACs influences suppliers’ learning from lead firms and the information flow between suppliers and lead firms, which then affects suppliers’ upgrading prospects in distinct ways.
This is part of a series emerging from a workshop on ‘Mediterranean Production Networks and the Export Economies of North Africa‘ held at LSE on 17 January 2020. Read the introduction here, and see the other pieces below.
In this series:
- Introduction by Shamel Azmeh
- The Scandal of Seamless Linkages: Global Value Chains and Women Argan Oil Producers in Morocco by Kate Meagher
- Is Automation Stealing Manufacturing Jobs? Evidence from South Africa’s Apparel Industry by Jostein Hauge and Christian Parschau
- COVID-19, Digitalisation and Manufacturing-Led Development in African Countries by Karishma Banga
- Luxury Brands’ Roles in Pathways to Sustainable Growth: Prospects for Egypt’s Cotton Sector by Rachel Alexander
- Have North African countries upgraded and diversified in apparel and automotive GVCs? by Thomas Bernhardt