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Journal of Economic Geography 8 (2008) pp. 519544 doi:10.1093/jeg/lbn014Advance Access Published on 18 April 2008

The flea on the tail of the dog: power in globalproduction networks and the restructuringof Canadian automotive clustersTod Rutherford* and John Holmes**

Abstract

Recently, studies of industrial clusters and global production networks (GPNs) between

large transnational corporations (TNCs) and smaller firms have focused on how power

differentials shape, and sometimes undermine cluster innovation and governance. Such

studies raise issues of how to conceptualize TNCs power within GPNs and some economic

geographers have adopted approaches that seek to integrate the post-structural insights

of actor network theory (ANT) with heterodox and Marxian value theory. Based on a casestudy of the Canadian automotive industry, we engage in a sympathetic critique of this

perspective via a realist position that distinguishes between structural and actual power.

We argue that differences in structural position derived from financial size matter,

although do not necessarily determine actor network relations. Yet, TNC Original

Equipment Manufacturers (OEMs) have a tendential actual or power over smaller

automotive suppliers due to superior financial resources, their strategic position within

GPNs and especially their relationship with state accumulation projects designed to

capture those segments of GPNs, which offer the greatest potential for the creation and

enhancement of value. We show that such projects were critical to the development of the

Canadian automotive industry and the Kitchener and Windsor, Ontario automotive

clusters. Although large firms were generally favoured by such policies, suppliers andSMEs were able to partially offset power asymmetries through innovation, often by

accessing informal local networks in clusters. More recently, however, smaller component

firms and the coherence of these clusters are being threatened by neo-liberal

Schumpterian Competition State policies that privilege OEMs and larger firms and by

the restructuring of automotive GPNs in response to overcapacity and falling profits.

Keywords: power, automotive industry, global production networks,

state accumulation projects, clusters

JEL classifications: D21, L62, P16

Date submitted: 24 August 2006 Date accepted: 17 March 2008

1. Introduction

Power relationships shape, and sometimes undermine, the dynamics of cluster

innovation and governance. An increasing range of studies explore these relations,

raising the question of how best to conceptualize the power of transnational

Department of Geography, The Maxwell School of Citizenship and Public Affairs, Syracuse University,Syracuse, NY 13244-1020, [email protected]

Department of Geography, Queens University, Kingston, Ontario, Canada K7L [email protected]

The Author (2008). Published by Oxford University Press. All rights reserved. For Permissions, please email: [email protected]

atTheUniversityofBritishColombiaLibraryonApril12,2012

http://joeg.oxfordjournals.org/

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corporations (TNCs) and small and medium sized enterprises (SMEs) within global

production networks (GPNs) and localized industrial clusters (Lorenzen and Mahnke,

2002; Martin and Sunley, 2003; Bathelt et al., 2004; Coe et al., 2004; Coe and Hess,

2006; Christopherson and Clark, 2007). Political and economic geographers have

integrated the post-structural insights of actor network theory (ANT) with heterodox

and Marxian value theory (Castree, 2002; Smith et al., 2002; Smith, 2003; Allen, 2004;

Yeung, 2005). In ANT, power is viewed as performative and network-based rather than

due to any inherent structural capacities for one actor to have power over another.

In value oriented approaches, a weak version of ANT recognizes that networks may be

structured by the process of commodity production and value appropriation although

network relations are contingent (Castree, 2002; Smith, 2003, p. 19).

We concur with many of these insights and those scholars who stress the role of local

institutional capacity and networks in supporting cluster development that can embed

TNCs (Wolfe and Gertler 2003; Asheim and Coenen, 2004). These institutions and the

increased reliance of TNCs on the innovative capacity of SME suppliers (Schamp et al.,

2004) can potentially reduce power asymmetries within GPNs and clusters. In thisarticle, we begin by offering a sympathetic critique of, and an alternative to, weak

ANT conceptualizations of power. In discussing how power is exercised, and despite

recognizing the centrality of commodity production, these weak ANT accounts still

privilege networks over accumulation and financial size. This is followed by a case study

of the restructuring of automotive components clusters in southern Ontario, in which

power imbalances between TNCs and cluster-based suppliers and SMEs are growing.

This accords with growing skepticism in both North America and Western Europe

regarding the ability of regional governance institutions to cope with current restruc-

turing pressures (Herrigel, 2004; Whitford and Zeitlin, 2004; Pike, 2006; Rutherford

and Holmes, 2007a). These power asymmetries stem from the Original EquipmentManufacturers (OEMs) control of the key assembly and retailing segments of the value

chain and their immense accumulated financial assets. Over the last several years, the

growing imperative to stem financial losses and reverse declining share values has

caused the OEMs to reassert and exercise their power over suppliers. Drawing on the

realist perspective of Sayer (2004) and Marques (2007) that distinguishes between

structural and actual power, we stress that TNCs are privileged within GPNs by what

Jessop (2002) terms state accumulation projects, which shape strategies to create,

enhance and capture value at a regional level (Coe et al., 2004). Place-specific institu-

tions and the contingent nature of power within networks are critical in mediating

restructuring (Pike, 2006). Currently, in the North American automobile industry,however, radical restructuring is underway in an effort to restore profitability.

Especially, for smaller suppliers profit/price pressures coupled with state policies are

negatively impacting on innovation and inter-firm relations.

Empirically, our article focuses on the southern Ontario region where over 90% of

employment in Canadas automotive industry is concentrated. The industry accounts

for nearly 20% of the provinces manufacturing gross domestic product (GDP), with

about 45,000 workers in the vehicle assembly industry and a further 90,000 in the

automotive parts manufacturing industry.1 Ontario is the most important vehicle

1 At the time of writing the industry is suffering significant job losses. By November 2007 there were almost11,000 fewer jobs in the automotive parts industry in 2001 as compared with 100,000 in 2001.

520 . Rutherford and Holmes



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producing jurisdiction in North America and the eighth largest producer of motor

vehicles in the world (MEOI, 2006). We focus on two distinct subregional automotive

clusters within southern Ontario: Windsor and Kitchener. These clusters were largely

created by a series of federal and provincial state accumulation projects that attracted

to Ontario significant segments of the value chains within an increasingly integrated

North American automotive production and marketing system. Both clusters feature

informal networks that constitute the economies of scale and scope on which smaller

suppliers draw for innovation (Coe et al., 2004). The state continues to be vital in

attracting investment linked to automotive GPNs, but its role is shifting towards

Schumpeterian Competition State (SCS) strategies (Jessop, 2002) focused on fostering

innovation including developing stronger university-firm research networks. However,

these strategies have mainly favoured OEMs and large TNC component producers over

SMEs. Cluster coherence is being undermined, not only by these policy shifts, but also

by the far-reaching restructuring of the Detroit-based OEMs (GM, Ford, Chrysler),

which is intensifying the pressure on profit margins and reshaping innovation strategies

and inter-firm relations.

2. Power in clusters, GPNs and state accumulation projects

Previous clusters research has focused almost exclusively on collaborative inter-firm

networks (McLeod, 2001b; Grabher, 2006). Recently, however, institutionalist,

heterodox and Marxian value perspectives have drawn attention to the role of power

asymmetries in shaping both cluster performance and GPNs (Lorenzen and Mahnke,

2002; Smith et al., 2002; Bathelt et al., 2004; Coe and Hess, 2006; Christopherson and

Clark, 2007).2

Within economic geography, researchers such as Hughes (2000); Dicken et al. (2001)and Smith (2003) have adopted variants of ANT. Drawing on Castree (2002), Smith

(2003, p. 19) contrasts strong versions of ANT that emphasize the diffuse heterarchical

understanding of power and reject the alleged structural determination of Marxian

political economy, with a weak version, which combines the insights of both Marxism

and ANT. Thus, whilst Smith, Hughes and others recognize the fundamental influence

of commodity production they also emphasize how power and the exercise of power is

influenced by the knowledges of a variety of actors beyond TNCs. These include SMEs,

consumer groups, workers organizations and other institutional actors and provide

a more nuanced, fluid and territorialized understanding of the distribution of power.

As such, power is both structural and relational. It is based not solely on the predeter-mined ability of actors to have power over other actors, since the capacity to translate

power effectively between here and there is rarely unproblematic (Allen, 2004, p. 22).

Instead, stress is placed on an active power to that is derived from the strength

of association between actors and their ability to mobilize resources across scales.

Thus, for example, Smiths (2003, pp. 3536) research on the Slovak clothing industry,

found that relations between locally owned firms and workers in the outsourcing

networks of large Western European clothing TNCs are differentiated and not

necessarily pre-given.

2 Within human geography, more generally, there is growing interest in how power itself is conceptualized(Castree, 2002; Smith et al., 2002; Smith, 2003; Allen, 2004; Sayer, 2004).

Power in GPNs . 521



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The emphasis on the contingency and differentiation of power within networks is

useful, but is too narrowly focused on a given network structure (Yeung, 2005, p. 45;

Grabher, 2006) and under-estimates how power as capacity and potential are critical to

how networks actually work (Sayer, 2004, p. 261). For example, in Smiths research,

structural power capacity seems to be taken as a given and greater emphasis is placed

on associative and network effects, yet it is hard to see how the outcomes he identifies

are not at least partially derived from capacities possessed by the individual actors.

Whilst power to in associational networks is not simply determined by power over,

the latter remains critical in shaping the former.

The relative power of TNCs is in large part derived from their strategic position

within GPNs (Gereffi et al., 2005). Whether in producer- or buyer-led value chains,

TNCs are usually the critical agents in organizing and coordinating such GPNs

(Dicken, 2003). As Coe and Hess (2006, p. 12) argue, we must not lose sight of the

corporate actors in GPNs, their varying strategies and organizational forms and how

this empowers them within networks. Yet, this begs the question of how TNCs can

occupy such a pivotal role in GPNs. We argue that this largely stems from their abilityto collect power and condense it (Castree, 2002, p. 141). Significant accumulated

financial assets and corporate strategies to sustain and increase profit rates, confer on

TNCs a certain power over suppliers in GPNs and especially SMEs. This is not simply

an essentialist argument in which such capacities unproblematically translate into

given outcomes. As Allen (2004, pp. 2021) argues, TNC capacities can run afoul of

technological change, ill-conceived managerial strategies, or simply an inability to

manage their networks effectively. Moreover, TNCs contain within them diverse and

sometimes conflicting goals and strategies (Schoenberger, 1997; ONeill and Gibson-

Graham, 1999), and price and profit movements may have only an indirect impact on

their strategies (Gertler, 2001). Nonetheless, the large accumulated assets of TNCs, and

this is especially the case with global automakers, often mean that even with suboptimal

economic performances they can still outlast smaller firms (Harrison, 1997). As com-

petition intensifies within an increasingly globally unified system of value production

and exchange (Webber, 2000), pressure increases on publicly traded companies to

protect share-holder value (Pike, 2006). In turn, this imposes significant constraints

on firms.

We view TNC power from Sayers (2004) realist position (see also Marques, 2007), in

which rather than power being immanent as post-structuralists argue, it is both causal

in that it derives from structures and actualin that it only exists when active. From this

perspective, power can indeed be possessed, but the exercise of power is both spatially

and temporally contingent, since it depends not only on an objects causal powers butalso on the powers of those with which it interacts. In other words, TNCs can possess

structural power due to their ability to accumulate capital, but whether or not they

exercise that power depends on their relationships to other actors, and especially, in our

view, their relationships with the national and regional state. Some ANT influenced

theorists (Allen, 2004) stress the more performative, network aspects of the state-capital

relationship but the latter also rests on a necessary and internal relationship, since

capital cannot be reproduced via market means alone (Jessop, 2002, p. 18). Moreover,

besides the state relying on revenues derived from capital, the ideological and discursive

resources of the state and capital are often symbiotic. Despite globalization and

economic integration into regional blocs such as the EU and NAFTA, both Smith et al.(2002, p. 58) and Coe et al. (2004) maintain that national and regional state policies




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remain critical in attracting and sustaining TNC and GPN investment. Even as GPNs

cut through and across nationstates and regions, they remain dependent on regulatory

institutions and local socio-cultural conditions (see also Whitford and Zeitlin, 2004).

Yet, as Jessop (2002, p. 279) argues, state policies towards TNCs and GPNs are part of

larger accumulation strategies or models of economic growth, and the latter also need

to garner the support of other interests and classes such as labour. As such, the state has

autonomy from capital and is both strategically and spatially selective in ways that may

not always favour TNCs. Yet, because state strategies and revenues depend on capital

accumulation, there is a tendency for the state to provide support for larger business

and TNCs. The latter also have a greater capacity to lobby the state for policies that will

further their interests (Christopherson and Clark, 2007).

This tendency for the state to favour TNCs has been strengthened by globalization

and what Glassman (1999, p. 673) terms the internationalization of the state:

a process in which the state apparatus becomes increasingly oriented towards facilitat-

ing capital accumulation for the most internationalized investors regardless of their

nationality. The rise of the SCS has seen a re-scaling of statehood and a move awayfrom equity and redistributive focused forms of nationstate intervention favoured by

the Keynesian Welfare State (KWS) towards multi-scalar strategies promoting

continual innovation (Jessop, 2002; Brenner, 2004). The increased importance and

rising real costs of innovation are occurring precisely at a time when there is a secular

decline in basic research performed by firms due to depressed profit rates (Chesnais and

Serfati, 1997). Thus, the SCS becomes critical in financing pre-competitive research

(Weiss, 2005), engaging in technological intelligence gathering, facilitating technology

transfer, increasing incentives for universities to engage in research consortiums and

developing entrepreneurship. The nationstate is also still significant in setting the

rules under which jurisdictions compete for investment and providing subsidies to

TNC operations by underwriting the costs of training and infrastructure. In sum, states

still retain power to negotiate their incorporation into GPNs (Smith et al., 2002, p. 48;

see also Webber, 2001) but do so in ways that are unpredictable (Perraton, 2001).

The rise of competition states has involved the development of new organizational

forms (Jessop, 2002; Brenner, 2004). The nationstate has devolved responsibilities to

regions and is increasingly involved in establishing and managing networks to facilitate

innovation. It also remains central in overcoming market and governance failures via

its role in metagovernance or boundary spanning, designing institutions [and] provid-

ing mechanisms for collective feedback and learning with key stakeholders (Jessop,

2002, p. 242).

SCS innovation strategies involve managing certain contradictions (Jessop, 2002,pp. 130131). Internationalization means that nationstates will both facilitate capital

mobility and attempt to capture and retain TNCs and key segments of GPNs within

their national space. The nationstate also needs to balance promoting an intellectual

commons with protecting intellectual property to capture technological rents (David,

2001). At a regional scale, both large and small firms in GPNs rely on localized

economies of scale (via highly localized concentrations of specific knowledge and

expertise) and economies of scope (intangible assets of learning and cooperative

behaviour) in part created by the state. Thus, regions may attract GPNs by providing

conditions for the creation, enhancement and capture of value that are not easily

replicable elsewhere (Coe et al., 2004). Training, cooperative learning and positivelabour relations may all play an important role in the value creation strategies of GPNs,

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while technology transfer, knowledge and upgrading firm capacities are critical to value

enhancement. As TNCs outsource more and more activities including RD and design,

state policies designed to upgrade the innovative capacity of SME suppliers may result

in a lessening of power asymmetries (Humphrey and Schmitz, 2002; Whitford and

Zeitlin 2004).

Yet, within regions there can be significant conflicts between TNCs and SMEs over

state innovation policy. In their study of the optical devices cluster in Rochester,

New York, Christopherson and Clark (2007) argue that publicly traded TNCs

responding to share-holder pressure to reap short term profits, are less interested in

innovation per se than in sustaining their competitive advantage. Such firms seek to

minimize the risk of disruptive innovation and competitors entering their markets,

whereas SME strategies are more likely to aim at developing disruptive technologies.

Also, within clusters TNCs and SMEs compete for skilled labour and may engage in

conflicts over intellectual property, especially where SME suppliers have design and

innovation relationships with TNCs. TNCs are more sensitive to sunk costs than SMEs

and with investments and excess capacities in different regions, they will attempt tohold down costs via inter-regional competition (Christopherson and Clark, 2007, p. 25).

Thus, even after downsizing, the greater overall financial and employment size of TNCs

makes it likely that state regional policy will tend to favour them.

Thus, the size and power of TNCs results in asymmetrical power relationships within

networks (Belzowski et al., 2003; Whitford and Zeitlin, 2004). Coe et al. (2004, p. 476)

caution that localized conventions and norms may become too binding and that

institutional path dependencies may breakdown due to GPN crises stemming from

technological change, overcapacity and the TNCs ability to de-localize production.

Along with Smith (2003) they argue that value capture is ultimately about power and

regions simply may be unable to negotiate anything approaching symmetrical relationswith GPNs.

In summary, TNCs use their control of GPNs to harness innovation developed by

suppliers in SME networks and to capture regional economies of scale and scope

fostered by state policies. Network power relations are contingent, but we contend that

structural factors such as financial size, overall position in the value chain, global reach

and favourable state policies tend to give TNCs power over suppliers and especially over

more regionally based SMEs within GPNs. However, the capacity of TNCs for power

over may not be fully realized in such networksespecially if SMEs can utilize their

local networks to innovate. Of course, how power in such networks develops is GPN

specific (Gereffi et al., 2005), but, as we demonstrate in our case study of the automotive

industry, even innovative suppliers may not be privileged in networks when faced with

firms (customers), which command significantly greater financial and other resources.

3. Supply-chain governance and restructuring

in the automobile industry

The power of automotive OEMs and large transnational component producers within

GPNs has been enhanced by the significant restructuring the industry has undergone in

the last 20 years (Dicken, 2003). In North America, the once highly vertically integrated

industry has been reconstituted into a series of networks that include strategic alliances,joint-ventures and in some cases mergers. The structure of the global automotive




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components industry is in many ways more complex than that for vehicle manufacture,

and offers a number of different strategic options for supplier companies (Herrigel,2004; Maxton and Wormald, 2004; ILO, 2005). OEM outsourcing has increased but the

restructuring of the supply chain has led to a consolidation of the supply base including

a decline in the number of suppliers (the number of first tier suppliers globally is

predicted to fall from 8,000 in 2002 to around 2,000 by 2010). Surviving first tier

suppliers now bear greater responsibility for research and development, delivery of

modular subsystems and managing the overall supply chain. In certain ways, GPN

relations have become less hierarchical due to the growth of some large global suppliers

such as Bosch whose annual sales rival those of some of the smaller OEMs (Table 1).

Indeed, as OEM outsourcing and supplier consolidation continues to increase, some

commentators argue this will lead to the eventual emergence of 610 globally dominant

first-tier systems integrators (SIs).

Researchers such as Helper et al. (2000) see a shift towards more collaborative

relations between first tier suppliers and OEMs. The former are often located in close

proximity to vehicle assembly plants and with increased outsourcing OEMs become

more reliant on the specialized skills and technology of their suppliers (Whitford and

Zeitlin, 2004, pp. 1314). However, Whitford and Zeitlin and Herrigel do not see new

forms of supply chain governance springing directly from competitive forces and . . .

hence it is not surprising that public authorities at various territorial scales are

experimenting with institutional solutions intended to ease the transition to a more

decentralized production regime. (Whitford and Zeitlin, 2004, p. 52).

The state has always played an important role in the automotive industry (Dicken,2003). Although the SCS state is less able to directly protect domestic producers, its

focus now includes pre-competitive technology development such as the ATEAM

initiative involving the United States federal government, GM, Ford and Daimler-

Chrysler3 and programmes designed to attract and retain key elements of GPNs.

Regionally, the state has assumed new roles not only in supplier upgrading, but

also with regard to governance. Whitford and Zeitlin (2004), for example, point

to the initiatives undertaken by state and local officials in Wisconsin. Coe et al.

Table 1. Top global automotive original equipment manufacturers and components firms by

financial turnover (in billions of US dollars) 2006

Automotive OEMs Components suppliers

General motors 207.3 Bosch 43.4Toyota 179.1 Johnsons controls 32.2

Ford 160.1 Denso 28.2

Daimler-Chrysler 151.6 Delphi 26.3

Volkswagen 104.9 Magnaa 24.1

Honda 84.3 TRW automotive 13.1

aCanadian-owned supplier.

Source: Corporate annual reports; The Globe and Mail 12th May 2007.

3 Commerce, Big 3 US Auto Makers Form New Partnership to Improve Competitiveness of US

Automotive Industry Technology Administration 9 December 2004. Available online at: http://www.technology.gove [Accessed 19 November 2006].

Power in GPNs . 525



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(2004, pp. 477478) cite federal and state incentives in attracting BMWs initial

investment near Regensburg, Bavaria, and the companys subsequent strategy of

inviting key first tier suppliers to the region and negotiating greater work time flexibility

with IG Metall, the German metalworkers union.

Developing collaborative and symmetrical networks between automotive OEMs and

suppliers has proven problematic due to intensifying competition, significant excess

capacity (estimated at 30% in Europe and 25% in North America), falling profit

margins,4 and fragmenting, highly cyclical markets (Dicken, 2003, p. 362). To cope,

many North American and European OEMs are engaging in opportunistic practices

towards their suppliers (Holweg and Pil, 2004; Whitford and Zeitlin, 2004; ILO, 2005).

OEM outsourcing forces suppliers to take on increased risk and favours those suppliers

that can not only innovate and deliver quality, but can also access inexpensive capital

markets since cost pressures often lead to small returns on capital invested (Conference

Board of Canada, 2006, p. iv). Many large suppliers have had problems in achieving

the necessary level of component integration to become fully fledged SIs and, since

vehicle manufacturers represent their primary, if not exclusive, customer base, enor-mous economic power differentials remain between the OEMs and most of their

suppliers. Despite the OEMs public rhetoric about developing collaborative partner-

ships with key suppliers, information exchange and power relationships remain highly

asymmetric. This is because as aggregators of value-added the vehicle manufacturers

are and always have been the principal arbiters of the investment requirements,

production locations and, in large measure, aftermarket access of their components

suppliers. (ILO, 2005, p. 35). Thus, many OEMs require their suppliers to submit to

audits of operations, while the suppliers have no comparable right of scrutiny of their

customers. Indeed, OEMs and Tier-1 suppliers often rank their suppliers according to

their ability to deliver goods of the desired quality and price and publicly grant favouredfirms preferred supplier status, whereas suppliers dare only rank their customers in

the anonymity assured by independent third-party agencies. (ILO, 2005, p. 71).

Suppliers, who collectively account for 75% of the total manufactured cost of the

vehicle, represent the OEMs biggest target for cost reduction (ILO, 2005, p. 71). The

pressure to reduce costs has led to pathological behaviour across the supply chain

(Herrigel, 2004, p. 76), including OEMs shifting cost and risk to suppliers, sharing

supplier proprietary information with competitor and the unilateral implementation of

cost-reduction targets (Whitford and Zeitlin, 2004). North American buyersupplier

relations have long been adversarial and price-based (Helper, 1993) but are becoming

even more so. Currently, more than a dozen large US-based transnational suppliershave been forced to seek court-ordered bankruptcy protection in the United States due

to price squeezing by their customers and significant price increases in key raw materials

such as steel and resin. Even European-based producers in regions such as Baden-

Wurttemberg with highly embedded governance institutions are having difficulty

coping with these pressures. As Herrigel recently admitted:

none of the governance arrangements surveyed seems to be in a position to battle perhaps the

most severe problem confronting component producers in the current severely recessionary

4 This is especially severe for North American OEMs. In 2004 while Toyotas operating margin was justunder 10%, Daimler-Chrysler was at 4% and GM and Ford were both under 1% (The Economist, 2005).




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environment in North American and European manufacturing: the constant pressure on

component producer margins driven by unremitting OEM demands for cost reduction

(Herrigel, 2004, p. 75).

Such pressures by OEMs have a direct impact on supplier innovation strategies.

In response to stagnating markets and over capacity, OEMs are offering new modelsand increasing design intensiveness as suppliers and engineering service firms take on

more responsibilities for design (Schamp et al., 2004, p. 615; The Economist, 2005).

However, even as design intensity increases, cost is now a prerequisite: getting a new

technology heard requires a cost advantage first (Dupont, Automotive News,

27 March 2006). Thus, knowledge development within North American and many

European OEMs and suppliers is inflected and narrowly focused such that most com-

panies are making tactical knowledge investments based solely on cost reduction

potential. (Belzowski et al., 2003, p. 19). Many independent observers have concluded

that the unrelenting price reduction pressures on suppliers will yield declining returns to

both parties, in part by compromising the innovation ability of suppliers on whomOEMs increasingly rely (Herrigel, 2004).

4. Power, Canadian state policy and cluster development

in Windsor and Kitchener Ontario

The states role in the re-shaping of actor networks in GPNs and clusters is illustrated

by the Canadian case. Despite lacking a domestically owned OEM, by 1999 the

Canadian auto industry was the fourth largest producer of motor vehicles in the world,

and featured a group of globally competitive Canadian-owned automotive component

companies such as Magna, Linamar and Woodbridge. The industry is very heavilyconcentrated in southern Ontario (Figure 1). This region that includes the Windsor and

Kitchener clusters owes much of its development to proximity to the US automotive

industry centred around the lower Great Lakes. This is especially the case for Windsor

directly across the border from Detroit. By 2000, the automotive industry in Windsor

had over 500 plants employing approximately 50,000 employees. These included OEM

assembly plants, plants manufacturing automotive components, and an important

automotive machine tool and mould (MTM) industry (Table 2). Indeed, by the 1990s,

with over 300 firms, Windsor had 20% of Canadas tool and die makers, and 50% of

industrial mould manufacturers, was one of the leading MTM clusters in North

America (DesRosiers, 2003), and enjoyed a world class reputation for the designsophistication and quality of its automotive moulds. The Kitchener region5 is more

diversified economically than Windsor (Table 2) with rapidly developing information

and communication technology (ICT) industries (Nelles et al., 2005). Automotive parts

and MTM are not as significant in Kitchener as in Windsor, but with over 10,000

employed in the sector they are the largest single employer in the regions

manufacturing economy.

Proximity to the United States has been important (Figure 1), but the federal and

provincial state have played a critical role in negotiating southern Ontarios relationship

5 For purposes of this study the Kitchener region includes the Kitchener Census Metropolitan Area (CMA)including the cities of Waterloo, Kitchener, Cambridge and Guelph.

Power in GPNs . 527



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with GPNs and developing economies of scale and scope. Like other late industrializers

(see Dicken, 2003) the Canadian federal state under Sir John A. Macdonalds 1879

National Policy used import substitution and high tariff barriers to protect domestic

producers that favoured a labour-capital alliance in the rapidly industrializing regions

of Southern Ontario and Quebec (Brodie, 1990). Yet, this strategy also captured value

by attracting American-owned branch plants of companies seeking to circumventtariffs. By the 1920s, American automobile OEMs dominated a Canadian automobile

Figure 1. All automotive parts plants, 2002, Southwestern Ontario.

Table 2. Comparative profiles of the Windsor and Kitchener clusters

Windsor Kitchener

Leading sectors Mould making, tool and die,components

Automation systems, tool anddie components

Support for

entrepreneurship

Strong in mould making Strong at the level of the

general economy

Role of unions Strong Weak

Role of universities Links to OEMs, few to parts

and MTM

Important link to OEMs,

WATCAR, some to parts

Role of community colleges Important for skills development Important for skills development

in workforce

Final markets Dominated by Big Three Mix of transplants and Big Three

New economy linkages? Not significant Developing in ITlinks to

automation systems

Cluster? MTM-especially in mould makingNot in components Overall, local linkages not strong

Source: Authors survey.




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industry expanding rapidly due to its close economic and technological connections

with the United States and preferential access to certain British Empire markets

(Holmes, 2004). Thus, the initial development of the Windsor and Kitchener auto-

motive clusters resulted from US investment by OEMs such as Ford in Windsor and

rubber and tire producers in Kitchener (Walker, 1987).

Despite attracting US automotive investment, central problems for the industry and

Canadian state policy were relatively small firm size and short production runs

(Howlett and Ramesh, 1992). A growing competitive crisis in the Canadian industry

was resolved by the 1965 Auto Pact with the United States. Until the Auto Pact was

struck down by the WTO in 2001, it remained the cornerstone of Canadian automotive

trade policy and integrated the United States and Canada automotive industry by

permitting duty free trade in new vehicles and original equipment (OE) parts (Holmes,

2004). The Auto Pact also contained safeguards to ensure a specified minimum level

of automotive production in Canada and thus represented a significant shift from the

accumulation project of value capture via tariff protection under the National Policy

towards the continentalism of Canadas permeable Fordism (Jenson, 1989, Brodie,1990). It also represented a compromise between complete free trade with the United

States, favoured by the US government and major US OEMs and a protected Canadian

industry advocated by more nationalist elements of the Canadian federal state and

some Canadian sections of the United Auto Workers (UAW) union (Anastakis, 2005).

The Auto Pact production safeguards ensured a significant expansion of both the

assembly and parts industry in Canada in the late 1960s and early 1970s (Holmes

1983) favouring investments by large OEMs and US-based multinational parts

producers, which were often subsidized under Canadian regional economic develop-

ment incentive programmes. Many new plants including large US parts suppliers such

as Budd and Lear Seating in Kitchener were located close to the publicly financedHighway 401 between Windsor and Toronto and along the QEW Highway between

Toronto and Fort Erie. As one Windsor-based respondent stated, this area benefited

tremendously from the Auto Pact in 1965, and with all the plants that had to be built

here and the 401 was in place, all you had to do was open a stamping shop and that

was a license to print money. (University-Industry Liaison Officer, Windsor,

11 August, 2003).

Throughout the 1980s and the 1990s the Canadian industry flourished based on a

significant labour cost advantage over the United States. Through various state incen-

tives Canada was successful in attracting a significant share of new OEM investment,

despite increasingly intense competition between North American jurisdictions forsuch investment (Thomas, 1997; Holmes, 2004; Molot, 2005).6 In the mid-1980s, trade

limitations on Japanese vehicle imports forced the Japanese OEMs to build assembly

plants in North America and the Canadian government secured investment from

Toyota, Honda and Hyundai by offering specifically designed duty drawbacks and duty

remission incentives that it viewed as consistent with the Auto Pact (Macdonald, 1989,

p. 13). This led to the arrival in the Kitchener region of a Toyota assembly plant in 1986

and a number of Japanese parts suppliers such as Denso.

6 While Canadas share of the total North American market for vehicles remained at around 89%, by the

end of the 1980s its share of total North American vehicle production and industry employment had bothrisen to around 15% and remained in the 1516% range through the 1990s.

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The Auto Pact and related policies resulted in the development of a world-class

and competitive Canadian auto industry. However, power between OEMs and sup-

pliers, was highly asymmetrical in that many of the suppliers were owned or captive

producers for the OEMs or relatively small and highly dependent Canadian parts

suppliers who were lacking in substantive formal RD capacity. After the mid-1970s,

Canadian and Ontario state policies adopted value creation and enhancement

strategiesespecially directed towards the development of a more RD intensive

and Canadian-owned supply base. These policies were part of a broader state strategy

aimed at Canadianizing key economic sectors by facilitating the growth of threshold

SMEs (Britton et al., 1996). The expansion of vehicle assembly capacity in Ontario

during the 1980s and 1990s provided a growing market for the automotive components

industry including automotive tooling. The federal Industrial Research Assistance

Program (IRAP) was critical in assisting Canadian-owned suppliers such as Magna and

Linamar upgrade their technology and finance new investment. Magnas exceptionally

rapid growth during the 1980s relied heavily on IRAP assistance.7

An equally important policy was the federal Scientific Research and ExperimentalDevelopment (SR&ED) Tax Credit incentive program.8 Introduced in the early 1980s,

it is one of the most generous R&D tax credit programs in the world (especially when

combined with similar provincial programmes). By the early 1990s, the programme was

delivering more than twice the amount of direct government grants to RD and

innovation activities (Baldwin and Hamel, 2003, p. 334). The SR&ED program is

especially critical, since it is well-suited to the incremental nature of innovation in the

automotive parts and MTM sectors. While510% of the automotive parts firms in the

Windsor region perform pure R&D, between 80% and 85% have availed themselves

of the R&D tax credit (Senior Partner, Tax Consultancy, Windsor, 11 August 2003).

Furthermore, in an industry that traditionally has not attracted venture capital, pro-

vincial agencies such as the Ontario Development Corporation (ODC) were important

in financing start-ups especially in the Windsor MTM sector during the 1980s and early

1990s (Ontario Government Official, Windsor, 13 August 2003).

The industry has also benefited indirectly from federal and provincial social

programmes. Thus, under the publicly funded health care system in Ontario, employee

health care costs per vehicle in Canada are approximately $ (US) 30 compared with

between $1000 and $1400 for North American OEMs in the US (Stanford, 2005).

Ontario workers also have a higher level of educational attainment with 43% having

completed post-secondary education as compared with 27% of their counterparts in

the US (MEDT, 2001). Since few firms in the Canadian industry adopt a strategic

perspective towards investment in worker training (Canada Consulting Cresap, 1991;Paget Consulting Group, 1996), skill development has tended to rely on knowledge

7 Magna International, which began as a one-man operation in the owners garage in the 1960s, is today thesecond largest automotive supplier company in North America with annual worldwide revenue close to$US 24 billion. During the 1980s the company was opening a new plant every few weeks (Anderson andHolmes, 1995).

8 The SR&ED program is designed . . . to encourage Canadian businesses of all sizes and in all sectors toconduct research and development (R&D) in Canada that will lead to new, improved, or technologicallyadvanced products or processes . . . . Claimants can apply for SR&ED investment tax credits for

expenditures such as wages, materials, machinery, equipment, some overhead, and SR&ED contracts(http://www.cra-arc.gc.ca/taxcredit/sred/aboutus-e.html).




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provided through the public secondary and post-secondary education system such as

community colleges.

State policies for value capture, creation and enhancement were critical to the

development of the Canadian automotive industry and power relations within evolving

supply chain networks and clusters. Moreover, policy initiatives reflected power

differentials within the state and between the state and capital. Until late in the Fordist

KWS period, when provinces such as Ontario and Quebec began to assert themselves,

these initiatives were led principally by the federal state that enjoyed a high degree

of autonomy in policy development (Wolfe, 1989; Brodie, 1990). This autonomy was

reflected in the relatively unorganized nature of Canadian business (Wolfe, 1997) and

the dominant role of US-owned auto assemblers and suppliers. As noted earlier, policies

implemented during the 1970s aimed at Canadianization stimulated the development

of large transnational component producers such as Magna, Linamar and the ABC

Group. Whilst RD tax credits have been used by SMEs, they have been applied most

intensively by larger firms (Baldwin and Hanel, 2003, p. 348). However, these policies

have not significantly improved the relatively poor RD performance of Canadiansuppliers, nor the power asymmetries favouring OEMs. By the late 1990s, only 2%

of automotive parts firms had a proprietary product technology strategy and overall

research and development expenditures were less than half of the Canadian man-

ufacturing average (Industry Canada, 1998). First-tier supplier plants in southern

Ontario are part of GPNs situated in what Wolfe and Gertler (2003, p. 28) term

entrepot clusters in which most knowledge, especially design engineering and formal

RD, is acquired through market and often global sources. Like other synthetic

knowledge industries (Asheim and Coenen, 2004), the automotive parts industry relies

heavily on incremental process innovation based on workforce tacit knowledge. The

almost exclusive focus on incremental innovation reflects power asymmetries within theNorth American supply chain, in particular, how OEMs control intellectual property

and value price reduction:

The car companies ultimately determine successful intellectual property, which is evident to the

extent that it is incorporated into vehicle designs. Relatively few companies are rewarded for

a strategy of original product development. In contrast a company being perceived as being

a low cost, high quality build-to-print supplier is always valued products at a lower price

is the prime competitive requirement in the industry. Consequently most Canadian parts

manufacturers are necessarily more concerned with developing process productivity impro-

vements, rather than speculative product development or applied RD (National Forum on

Automotive Innovation and Investment, 2002, p. 5).

As one large Canadian supplier argued these power asymmetries are directly linked

to differentials in financial size:

I frequently call us the flea on the tail of the dog. Even though we are 1.5 billion dollar

in sales which seems quite large, we have to picture that our tier one customers are in the 15 to

18 billion dollar range and their customers are the OEMs who are in the 100 billion range

(Canadian automotive parts producer, 15 February 2004)

Power asymmetries are also reflected in the relative representational weakness of

Canadian parts supplier organizations such as the Automotive Parts ManufacturersAssociation (APMA) that tends to have arms length, non-collaborative relations with

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its members. This is particularly notable at the local cluster scale where one Windsor

respondent stressed, The APMA is the key player and the parts guys dont see them-

selves as purely Windsor based . . . . They may have their roots in Windsor, but they see

the APMA (Senior Partner, Tax Consultancy, 11 August 2003). Moreover, there is

relatively little cooperation between parts manufacturers and the MTM sector.

Ive had talks with APMA members saying that you guys should be talking with the mold

makers, the tool makers, and incorporate them into your group . . . They [APMA] think were

parts; we dont care about the tool makers. They make so much money there is always

a reluctance to join up with local politics and power sharing issues (Senior Partner,

Tax Consultancy, Windsor, 11 August 2003).

Even within similar sectors relationships between firms tend to be highly competitive

(Ontario Government Official, Windsor, August 2003; Tool and Die Manufacturer,

Kitchener, June 2004). In Windsor, most of the output from the MTM firms goes to

OEMs in Michigan and to global markets. There are relatively few linkages between

component suppliers who are mostly part of GPNs, although first tier suppliers have

strong linkages and knowledge flows with local OEMs. In both regions, some

Canadian-owned firms have policies to source tooling locally, but purchasing authority

for the Ontario plants of TNCs is often located outside of Canada. Despite co-location,

some automotive OEMs were not aware of the presence or capabilities of even globally

successful, locally based firms (Auto Parts Supplier, Kitchener, 27 July 2004).

Yet, formal linkages and associations between actors play only a partial role in how

power is developed. Smith (2003, p. 33) notes how informal and often highly localized

actor networks in Slovakia at least partially offset TNC power and there is similar

evidence from both Windsor and Kitchener. Largely informal networks provide a

milieu for the development of cluster economies of scope and scale and representa critical basis for innovation and power for both parts suppliers and MTM producers

when negotiating with TNCs. Indeed, the very weakness of formal representation is

both a cause and consequence of the relative strength of such networks in the Kitchener

and Windsor clusters. During the 1980s and 1990s, the growth of the Windsor MTM

sector was generated by spinoffs from a couple of key anchor firms. Learning and

incremental innovation was fostered as skilled workers moved between firms that

served as learning sites for the acquisition of tacit knowledge. This provided a pool of

technical expertise in SMEs that allowed them to win design contracts even over large

TNCs such as Siemens (Tooling Manufacturer, Windsor, 8 October 2003). Despite the

fact that MTM producers are fiercely competitive, collaborative networks also exist.Several respondents noted what some outsiders considered a remarkable level of capital

equipment sharing among competitors.

If I wanted a job done, - - - we dont have a molding machine here, but there are different places

that can shoot certain jobs for you and get parts to customers. So all these little factories

develop around somebody else, you take the spin-off here. We recognize them because they

helped us out along the way through good years and lean years (Mould Maker, Windsor,

11 August 2003).

In Kitchener, informal relationships centred on the German and Mennonite

communities. In the initial post-war period trust-based relationships developed betweenfirms (in some cases based on inter-marriage between families) and between labour and




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managementespecially at locally owned firms (English and McLaughlin, 1996).

Indeed, the German heritage of the region is a continuing source of attraction for

new German-based investment. Interviewed respondents commented on continued

good labour relations and the unique levels of informal networks for business and

entrepreneurial mentoring present in the region (Federal Government Official,

Kitchener, 9 July 2004; Chamber of Commerce Official, Kitchener, 27 July 2004).

In both Windsor and Kitchener, public secondary and post-secondary education

institutions play a significant role in skill and social capital development. In Windsor,

local technical high schools were critical in fostering the acquisition of technical skills by

tool makers who went on to become successful entrepreneurs in the MTM sector.

Importantly, common schooling and the tight knit community laid the foundation

for strong social bonds, not only between entrepreneurs but also between the parties

involved in industrial relations. Canadian labour relations are based on an adversarial

system (Drache and Glasbeek, 1992) and the Canadian Auto Workers Union (CAW)

has staunchly resisted developing partnerships with management (Kumar, 1995).

However, a number of our respondents, especially in Windsor, stressed how commonschooling became the basis for informal networks between labour and management.

The CAW is an important workplace and civic institution in Windsor, representing

over 50% of the automotive related workforce (although mostly in OEMs and parts

rather than MTM). Even by non-union MTM entrepreneurs, the union is recognized

as important in fostering cluster coherence and for some unionized firms serves

as an important source of competitive information and innovation (Auto Parts

Manufacturer, Windsor, 12 August 2003; Mould Maker, Windsor, 8 October 2003)a

role also noted in Kitchener (Automotive Stampings Manufacturer, Kitchener, 23 June

2004). The CAW is an important force in Windsor local politics and overall community

and economic development. It also plays a critical role in regulating wages and workingconditions in the local labour market for both unionized and non-unionized

establishments (Rutherford and Holmes, 2007b).

5. Restructuring, state policy and cluster crisis

Despite their past success, firms in the Windsor and Kitchener clusters are currently

experiencing intense pressure, especially from the North American OEMs, to cut costs.

Together with shifts in state policy, such pressure is undermining the coherence and

innovative capacity of the clusters. During the 1990s, automotive producers in Ontario

retained a significant competitive cost advantage over US-based producers, in large partbecause of the low value of the Canadian dollar. However, since 2002 the appreciation

of the Canadian dollar against the US currency has severely eroded this advantage. 9

Canada is a member of several regional free trade agreements and global trade

institutions such as the WTO that have a neo-liberal bias. Tariffs on automobiles and

parts imported into North America are significantly lower than similar tariffs for

automotive products entering either the European Union or Japan, making North

America uniquely open to direct global competition (Dicken, 2003; Stanford, 2005).

9 The advantage was further reduced as a result of the cost-cutting in US plants that OEMs achieved in

their 2007 round of collective bargaining with the UAW. The cost savings came from a radicalrestructuring of health care and retiree benefits and the UAWs acceptance of a two-tier wage structure.

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In 2001, the Auto Pact was struck down by the WTO eliminating Canadas ability to

tie investment to market access.

These changes coincided with a downturn in employment in the North American

auto industry, a shift in market share from the Detroit Big Three to Asian and

European-owned OEMs and a concentration of investment in new assembly capacity

into the American South. Between 2000 and 2003 Ontario lost 10 and 5% of its

assembly and parts production employment, respectively (DesRosiers, 2004), as

Canada fell from fourth to eighth largest global auto producer. Between 2003

and 2007 parts employment fell by another 11,000 to just over 92,000 (Keenan, 2008).

Yet, Ontario has withstood the shift of automotive production towards the southern

United States much better than neighbouring Michigan (Klier, 2003). With an annual

production of 2.7 million vehicles in 2004, Ontario for the first time surpassed Michigan

as the top auto-producing jurisdiction in North America.

The Canadian operations of the Detroit-based OEMs continue to have quality,

productivity and capacity utilization levels that match those of Japanese transplants

such as Toyota and Honda (Stanford, 2005). Yet despite this, over-capacity and profitdeclines being experienced by GM, Ford and Daimler Chrysler in North America have

impacted negatively on Southern Ontario where three assembly plants have closed since

2003 (Stanford, 2005). Southern US states such as Alabama, Mississippi and South

Carolina have offered large financial incentive packages to attract the bulk of new

OEM investment and with it suppliers. Although Ontarios annual automotive capital

investment remains steady at $$3 billion year (Murnighan, 2003), the province has

attracted only two of the 17 new assembly plants opened within the NAFTA region

since 1990.

These threats to the Canadian industry have led the state to reformulate its

automotive policies. Drawing on Jessop, Clarkson (2001, p. 501) sees the Canadian

state shifting towards a more multi-scalar form of governance as its functions are

redistributed upwards to the international level, downwards to the subnational

scale and laterally to the private sector and other stakeholders. Since 1980

federal autonomy in policy making has been challenged not only by Canadas

involvement in NAFTA and the WTO, but also by provinces such as Ontario,

which played a key role in subsidizing RD and training and increasingly asserted

themselves in developing automotive and other policies (Brodie, 1990; Courchene and

Telmer, 1998).

State re-scaling has coincided with trade and investment agreements becoming more

socially intrusive (Britton, 1998) and policy formation becoming more congested with

increasing civil society representation (Clarkson, 2001, p. 508). By the 1980s, federaland provincial government automotive industry task forces and commissions included

direct representation from labour and business interests (see Yates, 1993 on labours

involvement). Committed to a neo-liberal accumulation project, the state also became

involved in stakeholder institutions such as the Canadian Automotive Partnership

Council (CAPC) created in 2002. CAPC includes representatives from the federal,

Ontario and Quebec governments, OEMs, suppliers, the CAW, academia and other

institutions. Providing a framework for more on-going policy formation than earlier

task forces, CAPC features what Jessop refers to as Schumpeterian competition

state (SCS) meta-governance strategies. CAPC is driven by concerns that relative

to competitor jurisdictions, the investment process in Canada is perceived asdisjointed/inconsistent with various levels of government (and only government)




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involved (CAPC, 2004, p. 9). Rather than the state being the sole arbiter of GPN

investment, CAPC aims to synthesize and coordinate the knowledge of key

stakeholders to make Canada the location of choice for automotive manufacturing

within North America, driven by globally competitive innovation [and] enhancing

investments and capabilities in innovation (CAPC, 2004, p. 1). With heightened federal

and provincial interest in cluster development (Wolfe and Gertler, 2003), CAPC also

aims to develop such synergies by establishing supplier parks (CAPC, 2004, p. 17).

CAPC has been acknowledged as instrumental in attracting and co-coordinating new

automotive investments in Canada (The Globe and Mail, 12 May 2006), through the

revived use of locational investment incentives by the Ontario and federal governments.

In 2004, the newly elected Liberal government in Ontario announced a $500 million

assistance programme for the automotive sector. This programme is credited with

leveraging $7 billion in new investments including the modernization of the Ford

Oakville and GM Oshawa assembly plants, Toyotas investment in a second assembly

plant in Ontario and assistance to a number of component makers including Linamar

and Nemak (The Globe and Mail 14 April 2004).Efforts to enhance innovation capabilities are also reflected in state policy promoting

universityindustry research networks to capture, create and enhance segments of the

value chain that are more knowledge intensive and foster the growth of intellectual

capital (The Globe and Mail, 7 October 2004; DesRosiers, 2007). Through the federal

Networks of Centres of Excellence (NCE) program, the Ontario Centres of Excellence

(OCE) program10 and the Ontario Research Fund11 both the federal and provincial

state have placed greater emphasis on university researchers, and especially engineering

faculty, developing research collaborations with automotive manufacturers. This

coincides with the North American OEMs expanding activity in their Canadian-

based research and design facilities such as GMs $2 billion Project Beacon to which theCanadian federal government is contributing $200 million. Such relationships have

become increasingly critical as automakers become more RD and design intensive,

and yet due to cost pressures must outsource more of the RD work. Ontario

universities have become significantly involved in this process. The Kitchener cluster

includes the University of Waterloos automotive engineering research consortium

WATCAR, while the University of Windsor has several direct research links to OEMs

including the University of Windsor/Chrysler Canada Inc. Automotive Research and

Development Centre. The latter reflects federal government initiatives to develop

greater cluster synergies in locales such as Windsor, in particular, by enhancing

knowledge flows between the Universitys engineering school and the auto industry

(University-Industry Liaison Official, Windsor, 11 August 2003). Indeed, building

on these developments Windsor has been proclaimed the automotive intellectual

capital of Canada. Yet, it is clear that these developing networks favour and

10 The OCE Mission Statement reads as follows: We take ideas to income. Created in response toOntarios most critical competitive challenges, we facilitate economic growth through support forindustrially relevant R&D, the opening of new market opportunities and the commercialization ofleading edge discovery. We build strong industry and academic relationships. And, we stimulateknowledge transfer through the development of bright minds, moving their skills to the market.(Available online at: http://www.oce-ontario.org/default.aspx?mabout; Accessed 28 June 2007)

11 In March 2007 the Ontario government announced $15million from the Ontario Research Fund tosupport the Hamilton Initiative for Automotive Manufacturing Innovation at McMaster University.

Power in GPNs . 535



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augment the power of OEMs and large parts supplier over SMEs. As one university

research officer argued:

Smaller suppliers of course, have a major problem. They have no real resources to apply to

research projects, so would have very, very limited resources to discuss possibilities with us,

whereas a Magna of course, [can] scope out possibilities, but the small company doesnt quite

have the same capability (University Research Officer, Waterloo, 6 July 2004)

While a manager of a major Windsor tool maker stated flatly:

The university . . . . has done absolutely nothing for the tool, die, and mold industry.

They are . . . . working with the Bendix, and the Nemaks [tier one suppliers] and the Fords of

this world, but for TDM . . . nothing (Tool Manufacturer, Windsor, 14 August 2003).

Many smaller suppliers are largely excluded from such emerging research networks

and increasingly aggressive and cost-reduction focused supply chain manage-

ment practices by the North American OEMs are eroding their financial and

innovation capabilities. Besides unilateral demands by the OEMs for annual price

reductions and financial givebacks, changes in payment scheduling mean that many

suppliers now face long delays in receiving payment for their products. In effect, smaller

innovative suppliers are financing OEM and Tier One product development

(House of Commons, Standing Committee on Industry, Science and Technology,

2006, p. 6). Given over-capacity in the industry, automotive tooling and parts firms

are not in a strong bargaining position to resist OEM demands. As one tool maker

stated:

We went to a meeting with one of our largest customers in Detroit, 15 tool shops in the room,

and the buyer said Well the industry has matured to the point that were not going to beputting dates on our purchase orders for PPAP [Production Part Approval Process]. You guys

understand that? Do you know how many people complained? Nobody. With over-capacity

and such a competitive situation in the industry right now, nobody would dare bring it up

(Mould Maker, Windsor, 14 August 2003).

New purchasing technologies (such as EDI technologies and internet bidding

systems) used by North American OEMs allows them to access lower cost suppliers

globally. A Windsor-based stamper stressed how much of the tacit nature of negotiation

with OEMs has been eliminated in favour of price:

. . .. this e-bid now makes it more global. Its not who you know anymore. Its difficult. Theyve

down sized a lot. . . . [T]hey said, give us cost improvements and one company might give

them more than they had expected but they didnt get the business because its still even.

It doesnt matter how much money you give us back, its still going to go to the lowest price.

(Stamping Manufacturer, Windsor, 13 August 2003).

A Windsor mould maker emphasized that customers are increasingly measuring

supplier price quotes against world prices (usually meaning China) for an equivalent

product:

Price is the almighty thing in quoting today. Forgetting that you got thirty years of serviceon your last job [for them], price seems to be the deciding factor that purchasing agents are




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j econ geogr 2008 rutherford 519 44

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