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Competing in Capabilities

Competing in Capabilities. The Central Dynamic. Trade liberalisation re-visited. Relative Wages. I. w B. II. w A. III. v. u. 1. Relative Quality. Digging Deeper: the locus of capability. Know-how and Capability. worker know-how 1 A C 2 B C 3 A B

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Competing in Capabilities

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  1. CompetinginCapabilities

  2. The Central Dynamic • Trade liberalisation re-visited

  3. Relative Wages I wB II wA III v u 1 Relative Quality

  4. Digging Deeper: the locus of capability

  5. Know-how and Capability worker know-how 1 A C 2 B C 3 A B Capability A B C

  6. Know-how and Capability worker know-how 1 A C 2 B C 3 A B Capability A B CProductsProduced X Y Z

  7. The First Puzzle The value of the firm: Why can workers not ‘carry away’ the firm’s value (capability)?

  8. 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

  9. 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.

  10. The Main Implication

  11. The Main Implication • Spillovers emerge endogenously

  12. The Main Implication • Spillovers emerge endogenously • No monopolization of capability

  13. The Main Implication • Spillovers emerge endogenously • No monopolization of capability A platform for latecomers

  14. 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…

  15. 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”

  16. Speed of Transmission FAST 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

  17. 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.

  18. The Mahindra Story

  19. … and at the other end of the spectrum

  20. CNC Machine Tools

  21. The Machine Tool Industry How trajectories develop/divide Controls Ball-screws The ‘machine’ Conventional Machines CNC Machines Pre 1970 Post 1970

  22. The Invidious Trade-Off controls ball-screws 55% wages Bought-in Components 15% 15% 15% Materials, Energy costs, etc. A typical cost breakdown

  23. 3-axis, 15 kW Japan size & complexity 11 kW, 350mm India Taiwan 7.5 kW, 165mm 0.25 1 4 Gross Labour Productivity

  24. Quality Comparisons 50 Indian CNC lathes and vertical machining centres were twinned with equivalent foreign machines doing a similar job in the same plant.

  25. Structural shifts in the Indian Industry • The emergence of ACE designers • A lesson for policy…of which more tomorrow

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