Are carmakers on the wrong track? Too much outsourcing in an imperfect-modular industry can be harmful

Abstract

Over the past few years, research into modular production – also known as modularity – has largely portrayed this approach is one way of increasing outsourcing. At the same time, empirical studies have often focused on industries that are associated with a pure form of modularity. This paper considers the case of the automobile industry, where modularity has demonstrably developed an imperfect form. Based on a literature review covering the automobile industry and modularity, we will show that a strategy of excessive outsourcing can be criticised because of the risks associated with opportunistic behaviour or the loss of absorptive capacities, and due to problems surrounding the long term fall in production costs. The conclusion looks at the suitability of the choices made by Western carmakers, which seem to differ from those made by Toyota.