In their study of Japanese-affiliated automotive manufacturing plants across the United States, Smith & Florida (1994) found that new firms in particular preferred locations near established Japanese automotive assemblers. Given these broad results, the recent growth of international automobile manufacturing in the southeast provides a useful case study setting in which to assess the evolution of a new industrial district. Table 1 summarizes the locations and operational capacities of global automakers in the American southeast.
Notes: Other than Saturn, GM also has a truck facility in Tennessee and an auto plant in Kentucky.
Source: Based in part on data from Jaffe and Suris (1997), Federal Reserve Bank of Atlanta (1995), and Sherman (1994).
All these automakers are motivated by the need to apply the techniques and organizational structures of lean production. Such structures have become crucial to the success of any entry into the competitive high-margin car market segment. This new production system requires the cooperation of workers in intra-plant activity, and of inter-plant components/parts suppliers in "just-in-time" (JIT) inventory practices. Lean production, originally introduced by Toyota Motor Corporation (Womack, Jones, & Roos, 1990), derives its strengths from two sub-systems: intra-plant (mainly shop-floor) organization and inter-firm relations with key CPA (Components, Parts, and Accessories) suppliers (Smitka, 1991). The flexibility that the integration of these two systems provides yields considerable improvements in both cost-efficiency and quality relative to the traditional Fordist-Taylorist operations in Detroit (Abo, 1994; Maxton & Wormald, 1995).
Automobiles are highly CPA-intensive assembly-based products. As final assemblers, lean-production automakers need to have CPA-suppliers nearby (within an average radius of approximately 150 miles in the present case) for JIT delivery. In addition, many of those CPAs are specific to particular car models, which are highly differentiated in color and engineering design. Yet, because of a single firm's limited scale of operations, final assemblers cannot afford to completely monopolize their suppliers, who in turn are eager to diversify their customer base to gain from both scale and scope economies. There is thus considerable incentive for common patronizing of many suppliers, a foundation of regional localization economies (e.g. Blair, 1991).
The structure of the southeast's new auto district highlights these considerations. Local CPA suppliers used to serve American automakers in a conventional vertically-integrated fashion. GM's original plants in the South, along with other (mostly Detroit-based) American automakers, were producing in-house a substantial portion of key components and parts. Approximately 75 to 80 percent of total CPAs were previously manufactured internally. When American automakers outsourced remaining needs, they resorted to a so-called "built-to-prints" procurement under which successful bidders produced CPAs in accordance with the blueprints given to them. Such contracts were usually short-term, e.g. year-to-year renewal, and made in parallel with at least two sub-contractors to guard against supply disruptions. Since transactional distances were often more than 1,000 miles, just-in-case stockpiled inventories were crucial. CPA suppliers in Dixie catered to the local units of GM, as well as to the customers in Detroit via long-haul shipping. The transactions were strictly arm's-length and impersonal, as predicted by Marshall's (1920) traditional industrial district model.
With the arrival of Japanese automakers -- first Nissan in Tennessee and then Toyota in Kentucky -- the situation began to change. Japanese lean producers began to reorganize their vertical supplier structure by gradually replacing imported key components with local production. Many of their own primary suppliers in Japan were compelled to follow their customers to the southeast, and established local production either on their own or in joint ventures with American suppliers. In contrast to the conventional Detroit system, most major components are outsourced in such a system; remaining in-house production (about 25%) plays only a relatively minor role, and only for the most critical and specific parts. In fact, Toyota and Nissan both use the CPA procurement practice called "design-in" or "black-box" supplier engineering, where the carmakers closely collaborate on new model development with their suppliers from the outset. Thus, they in effect purchase their suppliers' soft engineering capabilities, rather than simply their hard final components.
Once key CPAs are collaboratively designed and engineered, they are delivered just-in-time for final assembly. The contracts are long-term, and assembler-supplier transactions are guided by trust and pursued to the mutual benefit of both parties. Nissan's Tennessee plant, the first foreign arrival in the southeast, has already woven the most extensive/intensive network of supplier affiliates (400), followed by Toyota's Kentucky plant (246). The continued and accelerating entry by auto assembly companies in Dixie seems to be largely motivated by the maturing network of available suppliers (Fed/Atlanta, 1995).
The advantages of such integration make the completion of an unusual collage of competitive yet cooperative inter-firm relations likely in the near future. Each major automaker will have its own primary suppliers of key components. But those CPAs which are more standardized (i.e. lower asset specificity) will be catering simultaneously to all the local assemblers to gain scale and scope economies. Even if some CPAs are assembler-specific in design and engineering, flexible production (e.g. multi-purpose robots and adaptable manufacturing techniques, such as fabricating a variety of differentiated CPAs on a given assembly line) can still accommodate considerable diversity in upstream supplier products.
The end result of this situation is likely to be a shared and cooperative use of specialized CPA suppliers. Thus, car makers may cooperate in upstream supplier operations, while vigorously competing in downstream assembly and marketing operations. The case of the Fremont (California) NUMMI plant is actually an advanced form of cooperative competition. GM and Toyota cooperate in joint production but compete vigorously in marketing by using their separate brands (Corolla for Toyota and Geo Prism for GM) for cars that are physically nearly identical.