The dilemma of domestic suppliers on the periphery of the automotive industry global value chain

Abstract

PurposeUnder the global value chain (GVC) approach, this paper aims to analyze how domestic suppliers on the periphery of the automotive industry are affected by their relationship with foreign multinationals.Design/methodology/approachA case study with primary data collected from foreign multinationals operating in the Mexican automotive industry was used to analyze their relationship with domestic suppliers.FindingsThe evolution of the suppliers has been characterized by improved quality and added value in their products and more asset-intensive, efficient processes. This evolution has been driven by improvement in production capabilities and investment in new equipment by domestic suppliers and facilitated by knowledge transfer from foreign multinationals. However, it has not involved the acquisition of innovation capabilities or the internationalization of production activities. This has limited their position on the first levels of the value chain and their global presence, which are essential aspects when climbing the industry value chain to lead some activities at a global level. At the same time, most of these suppliers have become strategic and have a greater dependence on foreign multinationals. This poses a dilemma for domestic firms, as the relationship with these multinationals becomes more intense and dependent and at the same time reduces the possibility of leading activities in the value chain.Originality/valueThe paper analyzes the impact on domestic suppliers of their relationships with foreign multinationals, integrating traditional product, process and functional upgrading and new elements, in particular, participation in the GVC and dependence on multinationals.