The smile curve: Evolving sources of value added in manufacturing

Ito, Tadashi

doi:10.1111/caje.12555

Cited by 36 publications

(32 citation statements)

References 21 publications

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“…According to Vernon's theory, the constant pressure of devaluation means that transfers of technology do not automatically result in upgraded production processes. Even switching a production line over to a new model can accelerate the life cycle of the given product and push it into decline-a process which tends to be ignored by proponents of the theory of upgrading (Gereffi -Korzeniewicz 1994;Henderson et al 2002;Gereffi et al 2005;Bair 2005;Gereffi 2014;Baldwin et al 2014). The latter concentrate on one particular segment of the production process or on one particular model, the transfer of which they understand as a dynamic improvement in the technological endowments of the given production facility.…”

Section: Introductionmentioning

confidence: 99%

Relocation, standardization and vertical specialization: Core–periphery relations in the European automotive value chain

Gerőcs

Pinkasz

2019

Soc Ec

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The global automotive industry has been exposed to an overproduction crisis for several decades. Under the pressure of restructuring, automotive companies renew both the geographical scope and the technological standardization of their production processes. We analyze the effects this restructuring had on the development of European economies in order to understand whether vertical specializations in the automotive value chain can lead to Central and Eastern European countries' catching up to advanced economies, or whether such specializations reproduce new forms of coreperiphery relations. In order to answer this question, we introduce a new methodological approach to understand vertical specialization in the global value chain from a semi-peripheral perspective. We combine the theory of global value chains with Vernon's product life-cycle theory. In the research we focus on the standardization of the production of electric engines behind the geographical relocation of production between core and periphery.

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Section: Introductionmentioning

confidence: 99%

Relocation, standardization and vertical specialization: Core–periphery relations in the European automotive value chain

Gerőcs

Pinkasz

2019

Soc Ec

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“…Developed countries tend to show a more sophisticated way of GVC participation by specialising in more technological and skill‐intensive stages where their competitive strength lies, such as high‐quality and highly specialised services. Developing countries are less engaged in GVCs or are engaged in less complex GVC activities such as non‐advanced manufacturing and assembly (Baldwin et al, 2014; World Bank, 2020). Recent related literature points out that, for developing countries’ GVC participation, access to high‐quality, highly specialised services to be embodied in their manufacturing exports, often provided by foreign suppliers from the North, becomes a key factor for enhancing their competitiveness (Blázquez et al, 2020; Díaz‐Mora et al, 2018) and their upgrading within GVCs (Kowalski et al, 2015; OECD, 2013).…”

Section: Introductionmentioning

confidence: 99%

Bilateral servicification in global value chains and deep trade agreements

2022

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International trade has been transformed by participation in global value chains (GVCs), where services linkages play a critical role. Recent studies examine the impact of deep trade agreements on GVC-related trade, but none of them focusses on GVC-related services.Using the gravity framework, this paper investigates the impact of trade agreements with substantial provisions on services on bilateral foreign services value added embodied in manufacturing exports. We also consider the depth of these agreements and explore the asymmetric effects depending on the partners' income level, the EU membership and on the direction of the trade flows. The analysis reveals that deep trade agreements with services provisions boost embodied services value added from partner countries, with larger impacts for deeper agreements. Moreover, there are heterogeneous effects, which are particularly significant for North-North flows and for embodied services value added from EU countries. Therefore, those deep trade agreements seem to allow the EU to exploit its comparative advantage in services and, consequently, strengthen intra-EU GVCs and GVCs with non-EU countries.

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“…The so called 'Smile curve' concept was originally introduced by the founder and number one leader (CEO) of Acer, Stan Shih in the 1990s in the information technology-related manufacturing industry (Baldwin et al, 2014). According to this idea, traditionally R&D, design and consumer branding activities that determine the content of a product or service are those that have a particularly high value-creating potential, so multinational companies typically hold these activities in-house, while low-value-creating activities -such as production itself -are outsourced (Gelei, 2017).…”

Section: 'Smile Curve' Conceptmentioning

confidence: 99%

“…It means, that advanced countries focus on activities with high-skilled labor and capital, while other countries on less-skilled activities (Timmer et al, 2014). As Figure 3 shows, there is a general concern that to high-wage service jobs belong activities like R&D, design and marketing, while to the low-wage jobs belong production services (as the iPhones' example showed, its products are designed in California and manufactured in China / Taiwan) (Baldwin et al, 2014).…”

Section: Near-shoring -As a Subtype Of Off-shoringmentioning

confidence: 99%

“…It is the result of growing pressure for cost efficiency, organizational flexibility and agility to attain resources and reach consumers in different markets (Beleska-Spasova, 2016). With regard to production activity, there has been a significant relocation tendency from industrialized developed countries to developing countries since the 1990s (Baldwin et al, 2014). By opening up to new and higher value markets, participation in the global value chain -especially for developing countries -offers multiple technological innovations and the ability to add more value to industrial production, improve labor demand and productivity, and that increase income consequently.…”

Section: Introductionmentioning

confidence: 99%

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Value creation of the automotive manufacturing industry in Hungary within global value chains Analyzing key suppliers

Lőrincz¹

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The purpose of the thesis is to analyze how the automotive manufacturing companies being active in Hungary operate in global value chains, with a particular focus on suppliers. Although the topic of GVC is widespread and discussed in international literature, there is a gap in relation to the Hungarian automotive manufacturing industry, especially in the current situation when the COVID-19 pandemic affects the operation of the multinational enterprises. The main identified research question is the following: What is the value creation of the automotive manufacturing industry in Hungary within global value chain? The research process started with a comprehensive literature review and theoretical background analysis about the GVC concept (including the introduction of ‘Smile-curve’) and FDI investment in Central and Eastern Europe (including the characterization of near-shoring activities) and continued with conducting a sample survey and semi-structured interviews with the key car parts suppliers. Executive board, managerial level and engineers were the target persons both for the survey and for interviews. Based on the literature review, I formulated two hypotheses: 1. The theory of ‘Smile curve’ is also valid in case of the Hungarian automotive manufacturing industry, typically low value-added production processes take place in the country. 2. In addition to the central location, the cheap and skilled Hungarian labour was the most important factor in the near-shoring activities of multinational companies expanding to Hungary. In order to be able to accept or reject the first hypothesis about the relevance of the so called ‘Smile curve’ in the Hungarian automotive manufacturing industry, to define position of the automotive manufacturer companies being active in Hungary in the global automotive manufacturing value chain and to create an in-depth understanding about investment incentives of the Western European firms in the country, I prepared an online survey. To test my second hypothesis about the reasons of near-shoring activity in Hungary, I conducted 3 interviews with industry experts from TIER 1 companies of different size. The targeted automotive parts manufacturers are all suppliers of the 5 OEMs present in Hungary (Audi, BMW, Mercedes, Opel and Suzuki) among others. The new results of the doctoral dissertation are the following: I can reject the first hypothesis about the relevance of ‘Smile curve’ in the Hungarian automotive manufacturing industry, because beside manufacturing activities with low added value typically, also research and development activities take place at bigger multinational companies with higher added value. I can accept the second hypothesis about near-shoring in Hungary, because beside the ‘proximity to export markets’, the cheap but skilled labour was decisive when multinationals decided to invest in the country. The ‘positive support system’, ‘favourable tax conditions’, ‘government policy’ and ‘proximity to HQ’ were aspects that companies used, but they are rather neutral factors. The ‘good infrastructure’ is not so good in the real life and the ‘cheap raw material’ is not cheap, because firms have to deal with world market prices, thus, these were not attractive to investors. Further results about the business operations of the analyzed supplier companies: The purchasing decisions for the Hungarian production happens locally decisively, either independently or with involving the headquarter. The manufactured products are typically drive chains, body parts and electric sensors and the proportion of products designated by OEMs is rather high. Western Europe is the biggest export market of the companies analysed, followed by China, North-America and the Central Eastern European region. Relocation processes are not characteristic of the firms. If so, only from other country to Hungary and it is also determined by OEMs providing new opportunities for them. In some cases, wage costs and logistics also play a role in the relocation process. Electromobility and autonomous driving are the most affecting trends in the automotive manufacturing industry. The semiconductor shortage as a serious downside risk is also the result of the pandemic. The effects of COVID-19 are becoming less pronounced today, but the semiconductor crisis is continuing. Favourable tax conditions and higher value added are the success criteria that will help the Hungarian automotive manufacturing industry to remain competitive in the future. Professional trainings, more support for SMEs and favourable legal conditions are also important aspects. Today, the CEE region, including Hungary is a net exporter of knowledge-intensive goods. To improve its global competitiveness and to be able to move into higher-value-added goods and services, the region should invest more in R&D, infrastructure, education and collaboration between companies and universities. The key players in the automotive part manufacturing has realized that value added is a very important factor in the success of an industry and it can be increased due to investment in research and development and innovation. As revealed by the research, they have already established R&D centers and joint projects with universities (e.g. departments), so companies are well on their way to producing higher added value.

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The smile curve: Evolving sources of value added in manufacturing

Cited by 36 publications

References 21 publications

Relocation, standardization and vertical specialization: Core–periphery relations in the European automotive value chain

Relocation, standardization and vertical specialization: Core–periphery relations in the European automotive value chain

Bilateral servicification in global value chains and deep trade agreements

Value creation of the automotive manufacturing industry in Hungary within global value chains Analyzing key suppliers

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