competing in capabilities. the central dynamic trade liberalisation re-visited
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The Central Dynamic Trade liberalisation re-visitedTRANSCRIPT
Competing
in
Capabilities
The Central Dynamic
• Trade liberalisation re-visited
Relative Wages
1Relative Quality
wB
vu
I
II
III
wA
Digging Deeper:
the locus of capability
Know-how and Capability
worker know-how 1 A C 2 B C 3 A B
Capability A B C
Know-how and Capability
worker know-how 1 A C 2 B C 3 A B
Capability A B C
ProductsProduced X Y Z
The First Puzzle
The value of the firm:Why can workers not ‘carry away’ the firm’s
value (capability)?
The key idea:Intra-firm transfers of know-how are ‘costless’
worker know-how 1 A C 2 B C 3 A B
- the departure of an individual worker leaves total know-how fixed- each recruit can absorb any available piece of know-how costlessly
Intuition:
By replicating know-how within the firm, the firm can dilute the bargaining power of workers …… but an intrinsic effect of this is that spin-offs become viable.
The Main Implication
The Main Implication- Spillovers emerge endogenously
The Main Implication- Spillovers emerge endogenously
- No monopolization of capability
The Main Implication- Spillovers emerge endogenously
- No monopolization of capability
A platform for latecomers
• We noted above that the driver of Phase 2 globalization lay in the transfer of existing capabilities…
• The speed of transfer reflects both factors that are exogenous to the firm, and also some delicate strategic decisions…
The Speed of Transfer
- Delicately dependent on industry characteristics
- Key channels differ by industry
(a) Buyer search channel: Textiles(b) Trade Fairs: Ubiquitous(c) Supply chains: Vertical Transfers
The Evidence on “FDI Spillovers”
Speed of TransmissionFAST
Auto components: Vertical relations with shared technology;
standardization and codification of working
practices.Domestic Appliances: Horizontal JVs – here
incentives of senior partner are critical (cf.
China).Machine Tools: Public sector bodies etc.
SLOW
Component Suppliers to Multi-National Car Makers
00.10.20.30.40.50.6
India
China
Component Suppliers to Steering Gear Firms
0
0.20.4
0.60.8
1
<1% 1-10% 10-20% 20-40% >40%
India
China
A Timescale for Capability Building
• A multinational seat maker on a greenfield site in India drops from initial 2,085 ppm to 65 ppm in year 3.
• A domestic Indian seat maker drops from 20,000 ppm to 200 ppm over 5 years.
The Mahindra Story
… and at the other end of the spectrum
CNC Machine Tools
The Machine Tool Industry
How trajectories develop/divide
Conventional Machines CNC MachinesControlsBall-screwsThe ‘machine’
Pre 1970 Post 1970
The Invidious Trade-Off
controls
ball-screws
15% wages
Bought-in Components
Materials, Energy costs,etc.
15%
15%
55%
A typical cost breakdown
Gross Labour Productivity
3-axis, 15 kW
7.5 kW,165mm
11 kW,350mm
0.25 1 4
size
& c
ompl
exity
Japan
India Taiwan
Quality Comparisons
50 Indian CNC lathes and vertical machining centres were twinned with equivalent foreign machines doing a similar job in the same plant.
Structural shifts in the Indian Industry
• The emergence of ACE designers
• A lesson for policy…of which more tomorrow