Leveraging Capabilities: Models of Foreign Production in the Taiwanese Automotive Industry

Abstract

“Going global” by establishing or expanding foreign production capabilities has long played an important strategic role for firms in the automotive industry. Faced with high costs, falling profits, and loss of domestic market share in the 1970s and 1980s, American automotive firms turned to existing foreign affiliates for parts and finished vehicles, and bolstered production capabilities in lower-cost countries like Mexico and Canada. In the 1980s, the rising yen and growing trade frictions led Japanese firms to establish production sites in North America and Europe in order to protect market share in these regions. When crisis hit German automotive industry in the 1990s, extensive foreign investment allowed assemblers to spread design and development costs over much larger volumes, and spurred the globalization and domestic restructuring of German suppliers (Pries 1999). For automotive firms in each of these countries, expansion of global capabilities helped solve critical problems, and in the German and American cases, was an important component of a larger restructuring effort.

I would like to thank conference participants and colleagues at MIT’s Industrial Performance Center for helpful discussions about the ideas presented in this paper. Special thanks to Momoko Kawakami, who provided detailed comments on an earlier version of this paper.