Technological globalization and intra-company coordination in the automotive sector:

The case of Delphi-MexicoBy

Arturo Lara

&

Jorge Carrillo

“Supply Chain Governance & Regional Development in the

Global Economy” Madison, September 9, 2002

TECHNOLOGICAL LEARNING & INDUSTRIAL UPGRADING: BUILDING INNOVATION COMPETENCIES

IN THE MAQUILADORA INDUSTRY IN MEXICO, CONACYT PROJECT 35947-S

Objective:

To describe the process of technological globalization in Delphi

Assumption:There is a process of globalization of R&D activities in Third World Countries. This process is adapted to local conditions of each market and legislation, and depending of firm’s policy.

Evolution Perspective: 1st. From assembly to manufacture; 2nd. From synchronicity of R&D and manufacture to coordination of multiple-activities

What were the factors and conditions that encouraged the globalization of Delphi’s productive activities in Mexico?

Was it viable for Delphi to continue to expand its division of labor in Mexico under a hierarchical scheme that was highly dependent on R&D activities carried out in the United States?

How did the creation of a technical center in Mexico affect the interaction among the divisions and establishments located in that country?

To what degree were the forms of control and monitoring in the various divisions and establishments located in Mexico modified with the creation of a R & D center in that country?

SOME FACTS1995 Delphi separated from GM 1999 It became totally independent 2001 It employed more than 193,000 persons in 34 countries

198 manufacturing plants, 53 sales and service centers, 31 technical centers and 44 joint ventures

This listing of Delphi resources gives an idea of the immense area the corporation must cover in its efforts to coordinate, integrate and communicate throughout its extensive network of business units. The panorama is complex, given that global corporations must construct global objectives for multi-division companies, with heterogeneous institutional, cultural and national conditions, but must also work to promote adaptations to local niches.

DELPHI-NAFTA2000 136 establishments (US 49%, Mexico 48%, Canada 3%.

Employment: (Mexico: 52%, U.S. 47%, Canada 1%)

Lam o niLu c as

Os c e o la

t AyrMurray

idalg o

o City

ud ad Vic to ria

xc alaApas e o

Fo le y

Dunc an

B ro o khave nClin to n

DurantYazo o CityFlo ra

Jac ks o n

Pre ntis sHattie s burg

o to s i

Laure lAlbany

Fitzg e ra ld

Oak Cre e k

Elizabe th to wn

Athe ns

atam o ro s

Mo nro e

Co nc o rdOs hawa

Winds o r

Tus c a lo o s a

Ne w B runs wic k

Ro c he s te rWe s t He nrie tta

Tre nto n

Lo c kpo rt

Ko ko m o

Nappane e

Po rtland

Co rtland

Vie nna

HubbardYo ung s to w n

Aus tin to wn

Nile sWarre n

Co o p e rs v illeGrand Rapids

Munc ieAnde rs o n

Indianapo lis

Milfo rd Auburn Hills

Tro y

S ag inaw

Livo niaAdrian

Vandalia

Co lum bus

Dayto n

Warre n

Flint

Ro o ts to w n

B ris to l

Fre ds ric ks burg

Ke tte ring

S andus ky

B rig hto n

elphi Automotive Systems Worldwide Locationselphi Automotive Systems Worldwide Locations

Grossp

Ziata

TournaiSouthampton

Tallaght

Bascharage

Paris

Toulouse

Berlin

SluVisovice

Bela

GermagnanoDesio

Bochum

Wuppertal

Russelsheim

Neumarkt

Neuss

Nottingen

Gifhorn

Lebach

Guarda

Linho

TarazonaPampalona

Olvega

BrusselsMilton Keynes

Coventry

Villeneuve

Turin(Torino)

Rome

Madrid

Sarreguemines

Strasbourg

Livorno

Kaiserslautern

Logrono

Epila

Castelo Branco

Milan

Molinella

Donchery

GennevillersVillepinte

Dunstable

Pontiac

Troy

381071129151910Countries

104.47.34.56.244.614.121.76.1Areas

252121115117295216PlantsTotal

92136353Countries

5.40.20.30.41.60.71.70.5Areas

41324135104PlantsAsia and Pacific

2252318794Countries

13.61.20.71.252.230.4Areas

87524459175PlantsEurope and

Middle East

52343332Countries

12.80.21.10.47.20.51.71.6Areas

67234367114PlantsSouth America

31112221Countries

72.65.72.44.230.810.715.33.6Areas

57243238143PlantsNorthAmerica

TotalSaginawInteriorHarrisonPackardChasisEnergyDelcoPlants/CountriesRegion

TABLE 1

DELPHI. PLANTS AND MANUFACTURER AREAS BY DIVISION IN THE INTERNATIONAL LEVEL

11

2

9

Saginaw

136696524813Total

664522933Mexico

6623431458United States

4112Canada

TotalPackardInteriorHarrisonEnergyDelcoChassisCountry

TABLE 2

DELPHI. PLANTS BY DIVISION IN NAFTA REGION

1,071

9643

1155

9240

403

403

Saginaw

9031,4841,1612,2341,0813,215928Average

127,7785343769688935183711929211132TotalTotal

224245325Average

895245650TotalCanada

9111739756283299226311235Average

60.1228696302284951289378939883TotalUnited States

10121443197344017443800300Average

74,167447413946440523311399599TotalMexico

TotalPackardInteriorHarrisonEnergyDelcoChassis

TABLE 3

DELPHI NAFTA REGION. EMPLOYMENT BY DIVISION AND AVERAGE BY PLANT

Activities with a higher degree of globalization are those associated with production that is labor intensive, specificallyinvolving unskilled workers ( electrical parts and subsystems in Packard).

Wage gap between Mexico and U.S./Canada (with wages approximately ten times cheaper in Mexico). (personnel: Canada 7%; U.S. 47%, Mexico 52%)

Delphi’s history in Mexico: two periods

1978 to 1994: Mono central model1995 to 2002 Poli central model , Beginning of MTC in 1995, modifying the way in which coordination was carried out among the Delphi divisions located in Mexico.

FIGURE 1

MODEL OF LEARNING AND COORDINATION MONO-CENTRAL

1979-1994

1

2 3

4

R & D

AUnited States

Mexico

Expensive in time and money to cross the US-Mexican border Expensive in time and money to take an airplane to cross 000s milesProblems to resolve “bottleneck” problemsMono central model with a few companies and when the harness was simple, and the need to decrease design times was not very urgent.

FIGURE 2

MODEL OF LEARNING AND COORDINATION POLI-CENTRAL

1995-2002

1

2 3

4

R & D

AUnited States

Mexico

R & D

A'

MONOCENTRICRegional growth based on a new and flexible forms of organization in order to produce high volumes of wire harnesses that change rapidly.

POLICENTRICIntensive use of engineering, and reduction of cost of innovation and

development.

Modern technological infrastructure

Centralization of administrative functions

Modular design

Technological change and accumulation of capacities

Learning trajectories

MTC integration to Delphi plants network``

GRAPH 1

EMPLYMENT GROWTH. DELPHI-TECNICHAL CENTER

0200400600800

100012001400160018002000

Empl

oym

ent

1995 1996 1997 1998 2001

Years

CONCLUSIONS

1.- It is necessary however to recognize the administrative difficulties that occur when there is interdependence between various business units —and these difficulties intensify when a cognitive nucleus for control and monitoring is lacking, as in the monocentricgrowth model.

2. Resources and capacities are distributed unequally within an organization, and consequently, the motivation for investing in coordination processes will not be the same among the different business units. It is important to recognize theappropriability problems that arise in coordination processes.

3.- Each business unit has its own history, and its own highly specific circumstances in its organization and region, and consequently, the different units have different identities. In addition, different cultures and languages within the business units, as well as administrative differences, varying procedures and geographic distance are other factors that can inhibit communication and coordination among business units.

4.- Coordination among business units is strongly influenced by the company’s history and organizational configuration. In companies that are highly diversified, achieving coordination and cooperation is part of a long process of negotiations and conflicts that consume time and resources.

5.- As more plants were built in Mexico, an increasingly critical situation was created in relation to the geographic distance and communication between: 1) plants located in Mexico and those in the United States; and especially, 2) the “technological, economic and organizational” distance between plants located in Mexico. Geographic distance signifies time, transportation costs, and learning communities that are not cohesive or only occasionally integrated.

6.- It is important to capture the complexity of coordination processes in global corporations which are multi-plant, multi-division and multi-technology. From this perspective, MTC’s function is not only to design new processes and products, but also to coordinate the accumulation of Delphi business units. In addition to the activity of developing new processes and products, MTC fulfills intra-company functions at a regional level in the areas of administration, finances, engineering support and coordination.

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