2nd ICAI 2022

International Conference on Automotive Industry 2022

Mladá Boleslav, Czech Republic

1. Introduction The automotive industry belongs amongst the most fragmented industries (de Backer andMiroudot, 2013). Since the 1990s the changing geography of automotive production to less developed countries also included the post-communist Central European states (Sturgeon, van Biesebroeck and Gereffi, 2008). This was mainly driven by company strategies, characteristics of the respective countries and public policies (Humphrey et al., 2000). Pavlínek (2012) also stresses low production costs, geographic proximity to core markets and integration into the EU leading to lower economic and political risks and easing the flows of goods. As the automotive production networks are highly hierarchical and thus vertically disintegrated, there are strong backward linkages between lead firms (auto producers) and large number of their component suppliers (Humphrey and Memedovic, 2003). This leads to highly asymmetrical power relations and quasi hierarchical or captive governance types within GVCs (Humphrey and Schmitz, 2002). Typically, tier one (or sometimes modular suppliers called 0.5 suppliers) produce complex products such as sophisticated parts of engines, brakes or door. Tier two suppliers produce other parts of engines or lights based on the designs provided by assemblers or 0.5/first-tier suppliers. Third-tier suppliers provide basic components such as car bodies or interior parts (Dicken, 2015), although supplier can produce a wide variety of products. High level of integration of Czechia and Hungary into mainly European and German automotive GVCs through FDI realised by foreign multinationals is documented by various studies (Domanski and Lung, 2009; Pavlínek et al., 2017; Kordalska and Olczyk, 2019; Klein et al., 2021) This is also obvious from changes in the product compostition of exports from the Visegrad countries (Myant ,2018). However, this integration remained peripheral, no complete value chains were transferred to CEE, just certain, mainly labour-intensive processes (Pavlínek et al., 2017), benefitting mainly from low labour costs, while the most advanced activities remain in higher wage countries (Krzywdzinski, 2017, Grodzicki and Skrzypek, 2020). Indeed, based on occupation-level data, the CEE economies remain specialised in production activities, which limits the domestic value added content of exports (Pellényi, 2020). Local content originating from locally owned or controlled suppliers has remained relatively low (Pavlínek et al., 2017), though company-level (Kazainé, 2013) and macro-level (Sass-Szalavetz, 2013) analysis point to some upgrading over time. While the CEE economies took a very similar development path, there are certain differences between their performance and upgrading (Pavlínek, 2021). 2. Problem Formulation and Methodology In this paper, we analyse and compare the backward linkages in the automotive GVCs of the two countries, highly integrated in automotive global value chains. We describe, what is the role of foreign OEMs and suppliers and domestic companies, how these roles relate to each other? What is the role of OEMs in shaping these linkages? Our paper relies on a combined methodology. First, through the analysis of UIBE (WIOD) data, we present the local and international backward links of the Czech

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