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Lock-in or renewal? On governance of global value chains and
opportunities for SME suppliers. Two case studies
Paper presented at the 9th Seminar on Regional Innovation Policies, Stavanger Norway,
October 16-17, 2014
Ola Jonsson
Economic Geography Group
Department of Human Geography
Lund University
Abstract
There is a more or less continuous process of structural change, not least due to a globalizing
economy, that poses a number of challenges to firms, regions and local communities. When firms or
whole industries are hit by these changes, windows of opportunity tend to open up. In this context of
resilience and renewal SMEs and especially SME suppliers in non-core regions are looked at.
Empirical analyses point at the importance of retaining existing knowledge, and at the same time
search innovative directions in upgrading and exploiting this knowledge within the given value chain
or in coupling with new value chains. Special focus is on SME supplier´s involvement in Global Value
Chains with different modes of governance. Findings point at opportunities for these suppliers to
become involved in value chains that enhance their upgrading and innovating capabilities
Furthermore, the case study reveals the relative importance of actors and institutions
surrounding the SME suppliers and their capacity to connect to developmental value chains.
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Key words: resilience, non-core regions, SME suppliers, innovation, global value chain
governance
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Introduction
Most regional growth and innovation strategies today in Sweden are based on forming or
upgrading clusters and regional innovation systems with a strong emphasis on research and
knowledge intensive activities. Less attention is directed towards processes going on within
the “broad mass of industries”, many of them not distinctly clustered. The focus is also more
often on the large, on large systems of activities with large corporations as major driving
forces and most often in more resource rich regions. In this paper a complementary line of
argument is presented were the emphasis is mainly on the small, on the small less resource
rich non-core region and on small firm’s opportunities. Especially the opportunities for SME
suppliers are addressed.
More precise, the ambition is to relate a Global Value Chain perspective to innovation
strategies, to see how this perspective can contribute when focusing on SME´s
opportunities. The underlying question here will be analyzed with the case of Scania
Transmission in Sibbhult, its closure process and following new developments as context,
and especially the creation of new suppliers and theirs strategies to become competitive.
Scania in Sibbhult was a subsidiary to the large Swedish corporation Scania Group, producing
heavy vehicles, mainly buses and trucks, for a global market, with production units in seven
countries and represented in almost a hundred countries with dealers and workshops, a
truly global corporation.
The line of argument starts in the interest of traditional manufacturing regions. What are the
innovation challenges and what strategies can be adopted in a more general meaning, both
from a firm perspective and a public actors´ perspective? From that the possibilities to be
more precise in operationalization of these strategies will be tested by inserting a Global
Value Chain (GVC) perspective. Different modes of GVC governance are then discussed in
order to identify potentials for SME suppliers to connect to these chains in a developmental
way.
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To adopt a value chain perspective makes the analysis spatially unlimited, not presupposing
spatial proximity as a key determinant for SMEs competitiveness. However this approach
does not exclude cluster analyses as part of the picture, as will be illustrated in the case
study.
The paper is organized as follows. Next section gives some introductory comments on
regional strategies for growth and innovation. From this the focus narrows down to
processes of resilience and renewal in traditional manufacturing regions. In the next section
the lens is even more focused, looking into the meaning of global value chains and different
modes of governance. The conceptual framework in these parts of the paper is then used to
analyze the empirical case presented. In the final part conclusions are presented,
emphasizing the need to develop more firm and place specific frameworks, not least how to
understand SME supplier´s potential to find new and innovative routes to development
adopting a global value chain perspective.
Different regional contexts
Both regional innovation systems (RIS) and clusters have been frequently applied in regional
growth policies. In this paper I will not address the immense literature in this field more than
pointing at some elements that has direct relevance to the empirical case presented later.
Clusters and RIS have become key components in regional growth strategies all over Sweden
during the last two decades. In the region Scania (Skåne), a number of initiatives have been
taken. From a situation characterized as a “wild hunt for clusters” (see analysis by Henning,
Moodysson, Nilsson 2002, 2010) there is now a more mature approach to RIS and clusters.
Still there is very much a focus on R&D intensive activities and less attention is paid to
middle spectrum of knowledge intensive industries and the more traditional sectors. When
looking at a core region like Skåne in Sweden this makes sense to a certain degree. But even
within such a region we find different worlds represented when it comes to industrial
structure and production factors available. Tödtling and Trippl (2008) point at the need to
differentiate the kinds of innovation policies depending on the region we are aiming at. They
distinguish between three types of problem regions when considering innovation
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capabilities, “Peripheral regions” (characterized by organizational thinness), “Old industrial
regions (lock-in) and “Fragmented metropolitan regions”. My reflection here is that NE
Skåne is a mixture of a peripheral region and an old industrial region being a sub-region
within Skåne, a non-core region. SW Skåne (the Malmö-Lund region) is clearly a core region
with strong innovation capabilities. It seems as if regional innovation strategies have to be
decomposed to a sub-regional one in order to be more place specific and accurate in actions
taken by local and regional governmental bodies.
Furthermore, the relation between innovation and space is complex and we need to
distinguish between different kinds of innovation, from small incremental to major
innovations to even paradigm shifting ones. The point here is that depending on kind of
innovation the resources needed, and receiver capabilities among firms and regions differ
(Jonsson 2002, Tödtling, Trippl 2005). Another dimension here is how firms with different
capacities can relate to different kinds of cluster formations or innovation systems.
Since focus in this paper is on SMEs in non-core regions, facing structural changes, some
short comments are made on resilience processes in next section.
Resilience, renewal
The literature on resilience that has grown over the last years seems to take two major
directions. One is the more conceptual/theoretical one (e.g. Simmie, Martin 2010, Pendall et
al 2010, Martin 2011, Pike et al 2010) while the other one is more based in empirical
analyses (e.g. Kaufmann, Tödtling 2000, Birch et al 2010, Trippl, Tödtling 2008, Trippl, Otto
2009). Although there are most important conceptual discussions on the different meanings
of resilience of regions and different phases in this process, for the purpose of this paper
focus will be on the latter.
When analyzing renewal processes in old industrial regions Trippl and Tödtling (2008) chose
a cluster based approach. They identify three types of such cluster based renewal:
Incremental change (innovation based adjustment within mature clusters), Diversification
(new clusters in established industries) and Radical change (new high-tech-technology and
knowledge intensive clusters). Trippl and Otto (2009) illustrate these types of cluster
renewals empirically by analyzing developments in the region Styria and in Saarland. With a
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focus on SMEs and non-core regions, as is the case in my paper, the incremental type stands
out as the one most relevant to look at. Emphasis is on upgrading existing core
competencies, on large endogenous firms and foreign companies as important contributors
of new knowledge and catalysts in innovation processes. At the same time the needs of
small firm´s are paid attention.
Tödtling and Kaufmannn (2001) analyses of SME´s engagement in regional innovation
systems in a number of regions in eight different European countries adds other important
insights.
SMEs involvement in innovation processes differ as expected depending on
industry. But they also find that SMEs are mainly defensive or reactive in their innovation
strategies and this goes especially for firms in traditional industries. There is in general a low
willingness to engage in new markets. Existing customer firms are the most important
drivers of their innovation activities. In non-core regions there are often a mismatch
between the needs of SME´s and available research institutions. Hence, the national arena
becomes more important than the regional.
Kaufmann, Tödtling (2000) map firm´s innovation partners in four old industrial regions,
Styria, Wales, Tampere and Basque. Out of many interesting, findings they state that the
most important partners are customer firms and suppliers. However, the degree of intraregional collaborations differs both between industries and regions, there is no general
pattern.
From this short summary of some inputs to the discussion on resilience processes in regions,
especially traditional industrial regions, at least one or two conclusions can be made.
Resilience processes are, if not unique, at least very much contextual. And so are the
opportunities for SMEs. There is definitely room for more analyses of SME suppliers, firms
that constitute the back bone in the industrial structure in many small non–core regions. In
the next section I will turn to a global value chain perspective and more precise to SME
suppliers and their possible strategies to cope with change in developing directions.
Global Value Chains (GVCs) and modes of governance
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Global production networks (GPNs), global value chains (GVCs) or global commodity chains
(GCCs) can be seen as three strongly overlapping approaches to analyses of how global
production is organized. In an argumentation Coe et al (2008) claim the GPN approach to be
the more encompassing, including not just the inter-firm interactions within the value chain
but also actors and institutions (e.g. labor unions, state government, consumers, CSOs) that
have a more or less strong impact on production networks.
However, since focus here is on the relations between suppliers and customer firms I chose
the more narrow approach of GVCs including a governance aspect in order to understand
the potential for SME suppliers to upgrade and strengthen or retain competitiveness in times
of structural change. There are a number of research reports on GVCs (Morris, Barnes 2003,
Sturgeon 2002, Sturgeon et al 2008, Rutherford and Holmes 2008, Humphrey and Schmitz
2002, Gereffi 2002, Gereffi et al 2005) presenting different perspectives on interactions
within these formations. Most of them are focusing manufacturing industry and producer
driven value chains. An interesting case of a buyer driven value chain is the analysis of IKEA´s
relations to their suppliers (Ivarsson, Alvstam 2010).
In the following special focus will be on a theory of global value chain governance presented
by Gereffi, Humphrey, Sturgeon (Gereffi et al 2005). Criticism have been raised towards this
approach, just focusing on the inter-firm governance and leaving out institutional
governance like global standards for products and processes (Nadvi 2008) and political
governance (Coe et al 2008), that might have a strong impact on firm´s network strategies.
For my purposes I find the GVC governance framework instrumental as a point of departure.
Gereffi et al (2005) have suggested a theory consisting of five different types of value chain
governance and three key determinants. The types are market, modular, relational, captive
and hierarchy. To this typology the authors add three determinants to give the different
modes of governance their characteristics: complexity of knowledge transacted, degree of
codified knowledge, and capability of suppliers. The combinations of these types and
determinants result in different degrees of need for coordination and control of power, what
they call power asymmetry.
The types of governance could be described as follows (ibid, pp 86):
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Market - a traditional arm´s length relation where the costs to terminate or
build a new relation are low. The specifications of products or processes are
simple and transactions are to a high degree codified, and following from that
the suppliers capability to meet the requirements are high. The costs of
changing suppliers are low.
Modular – where the suppliers are governed by the customers detailed and
highly codified but also more complex specifications. The suppliers are taking
responsibility for upgrading their own technologies and competencies. The
interaction between customer firm and supplier is based on the supplier´s high
capability to act as a partner in development processes. Therefore the need for
the customer firm to control the supplier´s actions is rather weak, the power
asymmetry is low. Due to the highly codified knowledge transacted, the costs
for changing partners are also low.
Relational – characterized by dense interactions, often creating far going
interdependencies between customer and supplier. Relations are very much
based on trust, facilitated by spatial proximity. Complex knowledge with a high
degree of tacit knowledge is an important element and transfer of this
knowledge takes frequent face-to-face contacts. High level of coordination and
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control and high costs of changing partners are therefore most probable
consequences.
Captive- the specifications are highly codified and detailed but also complex
but the capability of the supplier is low. These relations have to be strictly
controlled by the customer firm and the supplier becomes very much
dependent on and subordinate to the customer firm, captive, that is we see a
high degree of power asymmetry. For the supplier it involves high costs to
switch customer firm, if at all possible.
Hierarchy – when transactions are hard to codify, the processes are complex
and it is hard for the customer firm to find capable suppliers, then the
customer firm choses the option to govern the value chain by keeping all
important links in-house.
To this typology Gereffi et al (2005) add possible dynamics, in the sense of different
development paths for the relations between lead firm and supplier. For instance, when the
ability to increase the codifications of transacted knowledge complexity decreases in the
relational type the relational type becomes more of a modular one. When “captive”
suppliers learn and upgrade its capabilities it moves into a more modular governance type.
In cases when new technologies are introduced by the lead firm, there is a risk of the existing
supplier, part of a relational governance type, to become less capable of meeting the new
requirements, becoming more subordinate to the lead firm (more of a captive character or
even becoming expelled from the value chain). The authors illustrate these dynamics with
cases studies of four different industries. One of the conclusions is that there is no single
trajectory that value chain governance follows and there is no single model for how to
organize a global value chain. The disparities between industries, and even among firms
within industries, are large. Other studies support the importance of these dynamics,
especially developments within the automobile industry (Morris, Barnes 2003, Sturgeon
2002, Sturgeon et al 2008, Rutherford, Holmes 2008).
To relate these governance models to space, Gereffi et al conclude that even though they
stress the borderless nature of value chains, they recognize the importance of spatial
proximity, agglomerations or clusters as a part of the picture. For instance the relational
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governance type, characterized by a low degree of codified knowledge, is then likely to be
most present in these proximity dependent networks.
The Sibbhult case: the context
The starting point for the analysis of SME supplier´s engagement in global value chains is a
follow up study of Scania Transmission´s plant closure in Sibbhult and subsequent
developments (Jonsson 2009, 2012).
Scania Transmission in Sibbhult was a branch plant and production unit, part of Scania Group
(heavy trucks and buses). Main function has been assembly of transmissions, but
manufacturing of components to transmissions, gear boxes and retarders has also been part
of the production at Sibbhult. The company has approximately 600 employed at the time of
closure 2008. It is located in a small countryside town in the NE of Skåne, a semi-peripheral
subregion. Sibbhult is located 120 km from Malmö and has a population of less than 2.000
people and is surrounded by other small towns.
In the follow up analysis twenty five semi-structured interviews with key actors have been
conducted during 2008. These include representatives of Scania Transmission, five new firms
established at the site, local labor unions, public actors at local and regional level. A handful
follow up interviews have been conducted the following years up to autumn 2014. Many
visits to Scania Transmission and the new firms, observing the actual production processes
guided by operational staff have been complementary sources deepening the
understanding.
A platform for resilience and renewal
A most important step towards finding ways out of the plant closure trauma was the
constitution of Färe Industri Center (FIC) in 2007, with its localities at the Scania plant site in
Sibbhult. Constituted during the plant closure process, FIC became a crucial platform for
collaboration between local firms, labor unions and public actors on local and regional level.
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The outspoken mission of Färe IC was, and still is, to stimulate local business, attract new
firms by protecting and upgrading existing knowledge capital, create out-ward relations to
public and private R&D and to other firms and other industries.
Rather soon there were new firms established at FIC. Two main suppliers, Sibbhultsverken
(SBV), now with 150 employed including its subsidiary company MBS, and SwePart, 230
employed in total, 85 in Sibbhult, started their production in 2007 and 2008. The former
took over production of components that Scania Group outsourced. The result was that the
same production (besides assembly of transmissions) continued at the same facilities but
under a new regime. SwePart, also a supplier to heavy trucks industry with its main
activities in a neighbor town, started a subsidiary production unit in Sibbhult with Scania
Group as customer. In addition two smaller technical consultancy firms should be
mentioned. One of them, DynaMate, was a subsidiary to Scania Group servicing the Sibbhult
plant. Still part of Scania the firm now has a free role, and has to find other customers
outside Scania. The other one is SVP Engineering with five employees, consultant in fluids
for metal cutting processes and packing.
These four firms are the first to start activities in Sibbhult under the FIC umbrella. They are
all rooted in Scania Transmission. Interesting to note is that the founder and CEO of
Sibbhultsverken was the former managing director of Scania Transmission in Sibbhult.
Furthermore, SVP Engineering was started by a former technical manager at Scania
Transmission, who was also the chairman of one of the local labour unions. So the impetus
to these firms came very much from their backgrounds in Scania.
A fifth firm among the early starters is Compower (eight employed), a firm that has its R& D
at IDEON Science Park in Lund, while starting production of prototypes in Sibbhult in 2008.
Compower is the outsider here, having no connection to the heavy truck industry. This small
company develops microturbines for heating and power generation based on new
technologies. The reason to establish in Sibbhult was to find a competent production partner
for manufacturing of the turbines.
In addition to these five firms there were soon fifteen micro service firms established at FIC.
They covered everything from marketing, manpower, law, logistics to security. At the time of
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closure of Scania Transmission in 2008 there were already approximately 350 employed at
FIC.
Related diversification
The five early starters mentioned above at Färe IC has developed close relations (see figure
2), including purchasing/selling, knowledge transfer and social contacts. What we see
emerge is a group of SMEs collaborating, based on a shared strategy characterized by
related diversification, and supported by local and regional actors. With existing knowledge
platform (advanced metal cutting processes, in high volumes and high production efficiency)
still with major focus on transmissions for heavy trucks industry, we now witness a partial
reorientation towards additional industries, the energy sector/clean-tech, food and other
engineering industries (see figure 2). The result is a two-legged strategy, decreasing the
dependencies to heavy trucks industry, especially to Scania Group as dominant customer,
and increasing production to other customer firms and other industries.
But there is also a specific element in this related diversification strategy worth to highlight.
In a couple of the new business relations, there is a question of entering partnerships with
customer firms developing new products on the market, especially risky in the case of
Ripasso Energy. The solar power plant as such is not new but the engine technology, the
Stirling motor, is new in this application. Consequently the SMEs at Sibbhult are now part of
an innovation process in a new field, a kind of innovative diversification part-strategy,
“innoversification” if you like. Going back to the types of renewal suggested by Trippl and
Tödtling (2008) this should indicate an incremental type of innovative change. However this
is then seen from a supplier´s perspective. Looking at the whole Solar Power value chain and
the final product, it could be characterized in terms of “diversification”, following Trippl and
Tödtlings typology. This is no contradiction, it´s just a question of what focus we choose, the
lead firm in its organizational and spatial context or the supplier´s. To the more innovation
oriented diversification we can add the hybrid engine project, that Sibbhultsverken and its
subsidiary MBS is involved in, collaborating with two other Swedish firms and Lund Technical
University. This is also an innovation project but within a closely related value chain and
grounded in the same knowledge base. If this project develops it might be more of a
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“diversification” type and not just incremental. To the suppliers in Sibbhult it still is of the
incremental type, however the future developments might bring about more qualified
demands on the suppliers capabilities in terms of new knowledge.
Figure 2: Relations between five firms at Färe IC, established in an early stage with Scania as
most important customer firm. Black arrow = purchase/sales of components, processing and
services. Thick red arrow = new extra-regional business relations. Thin red arrow = informal
relations, business information exchanged, social relations. Dotted arrow = potential or
coming business relation.
If looking at the local milieu we can conclude that there are signs of an emerging industrial
district (Asheim 2000, Becattini 2001) and an emerging micro-cluster (however
complemented with the very important extra-regional relation to Scania Group). We can
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identify the importance of elements like local networking based very much on social capital,
trust, proximity dependency, local embeddedness and local commitment among
stakeholders involved. At the same time the Färe IC strategy avoids becoming locally
introvert by the explicit ambitions to relate to extra-regional business and not least to
research institutions. And we already see such engagements being realized. Interesting to
note is that the developments at Sibbhult did not get any support from a RIS in Skåne or any
cluster initiative.
What might be unique is the role taken on by the corporate management of Scania Group.
Both in the closure process and in supporting new firms in Sibbhult, most important by
outsourcing production to Sibbhultsverken and SwePart, Scania has become an important
“umbrella”, giving local business a basis for future business opportunities.
The Sibbhult case: two suppliers involvement in Global Value Chains
The findings in this section is from ongoing research and far from being completed, and must
be seen as preliminary indications when it comes to how the two larger SME suppliers in
Sibbhult relate to value chains. It is important to stress that SME suppliers is a most
heterogeneous group of firms. Even within machinery or automobile industry suppliers have
quite different characteristics and roles to play in relation to their customer firms. We find
suppliers that are labor intensive, working on a low technology and knowledge level but also
those who are most knowledge intensive operating highly sophisticated technology. The two
suppliers analyzed here belong to the latter group.
Scania Group has stated a production strategy that indicates a value chain governance
model which would be of the type “modular” following Gereffi et al (2005).
Scania
concentrate on its core activities and keeps the most critical operations in-house while
outsourcing more standardized functions, processes or component manufacturing that is
then highly specified (Jonsson 2009). The knowledge is highly codified. Subcontractors need
the competence to work according to advanced specifications and at the same time be able
to upgrade its own capabilities. This TNC adopted strategy open up windows of opportunity
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to suppliers in many locations, but far from everywhere. Still supplier capabilities and
transaction costs differentiate spaces. Furthermore, knowledge involved in more
standardized and high volume production might at the same time be highly sophisticated.
The demands on the supplier and its labor force are high.
The governance model for Scania´s global value chain seem to be supportive of SMEs like
Sibbhultsverken and SwePart, firms with highly competitive knowledge in production
processes. Becoming part of Scania´s production network seems to offer opportunities of
more independent and developmental positions in the value chain. Before looking closer
into the governance aspects some facts regarding the two main Sibbhult suppliers must be
mentioned.
Sibbhultsverken (SBV) and GVC governance
Sibbhultsverken (SBV) has today a handful dominant customers, and to a large degree these
are lead firms in global value chains. That means in theory that SBV could be exposed to five
different types of value chain governance. SBV has still a strong focus on heavy trucks
industry (Scania and Haldex). Another closely related customer is Volvo Penta (engines and
transmissions for marine uses). The other two we find in non-automobile industries, one in
water solutions (Xylem) and one in the solar power stations industry (Ripasso Energy).
SBV has a subsidiary company, MBS, which has the same technology base. But there is a
clear division of labor between the two. While SBV is focused on highly automated and high
volume production, MBS is mainly producing prototypes and single pieces or small batches
to customer firms or other highly unique and customer specific operations. The firm also
functions as “buffer” producer when customer firms can´t cope with peaks in demand.
SBV is involved in value chains governed according to the modular type but with substantial
“relational” elements. The customer owns the specifications but SBVs judgments on how to
manufacture the components is very much considered by the customer firm. The adaptation
process from customer specifications to actual production is managed in a Design for
Machining process (DFM) in interaction with the customer firm in order to increase the
manufacturability. The knowledge interacted is mainly codified, but far from everything can
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be represented in written instructions or drawings. There is still important tacit knowledge
involved that has to be interacted in direct contacts between supplier and customer. For
instance, many articles produced by the supplier have to be tested in installations at the
customer firm before the article is ready for final production. This is even the case when the
specifications remain unchanged. SBVs relation to their customers is long term. According to
SBV it takes 12-18 months for the customer firm to move the production of a component
from SBV to another supplier. It is a lot of work involved, a risky and costly operation to
exchange SBV for another supplier. The first option for the customer if problems arise is to
avoid this. When considering possible changes in customer demands on SBV´s capabilities
the one put forward is increasing volume flexibility, that is the ability to quickly increase or
decrease the production rate (and still be profitable seeing it from the supplier´s point of view and
still keeping costs down and quality high seeing it from the customer firm´s perspective). SBV´s
emphasis is still very much on heavy trucks industry, it is considered as both an expanding and
profitable strategy. However SBV is open to commitments in other segments when opportunities
arise.
To summarize SBV´s relations to customer firms within heavy trucks industry in terms of value chain
governance, following conclusions can be drawn. SBV is engaged in value chains with a mix of
modular and relational characteristics. In some aspects the modular type fits very well. The
complexity of knowledge is high, codified knowledge dominate and supplier´s capabilities are high.
SBV acts as a partner and is active in developmental process. At the same time there are factors
pointing more at the relational type. There is considerable scope for tacit knowledge and a need to
interact face to face with the customer on a frequent basis. The costs for changing suppliers are not
low but rather the opposite. The power asymmetry is moderate, somewhere between the extremes.
There is a time dimension that also has to be considered. What are the dynamics in these
relations? Will they continue to have a relational component or will it be more of a modular
type? Today the view is that SBV will stick to its role and will not be totally absorbed in a
modular type of governance. With existing technologies there will be a continuous need for
interactions of the relational type.
SBV and its subsidiary company MBS is also, as mentioned earlier, involved in a hybrid
engine project in collaboration with Volvo, MagComp and The Faculty of Engineering at Lund
University (LTH). So the picture becomes even more complex considering the functional
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division of labor between SBV and its subsidiary when it comes to value chain engagements.
MBS is now part of value chains governed both by the market type and the relational type.
It is even harder to classify the governance type when it comes to the relations to Volvo
Penta and Ripasso Energy. The projects these firms are managing are still in a developing
and prototype phase. SBV is more a partner in these processes and there are clearly
relational elements involved in the current phase.
The last couple of years SBV has expanded and diversified even more and founded
Sibbhultsverken Group by acquisitions of five firms with related activities like tool-making
and aluminium foundry. SBV Group with its Tech Center has also developed further
collaborations in hybrid technology projects with LEAX Group (belonging to Swedish
Powertrain), Volvo and research teams at Chalmers University of Technology and Faculty of
Engineering at Lund University. In these hybrid projects both Volvo, Scania, MAN, and
Daimler are addressed as potential customers. The strategy is to become an even more
important partner to large customer firms in developing upgraded or new products,
although still with major focus on heavy trucks industry.
SwePart Transmission and GVC governance
SwePart Transmission has a similar knowledge platform as SBV and produces components
like gears, shafts, gearboxes mainly to heavy vehicles industry but also components to
industrial robots, to mining equipment and vehicles for the forest industry. The complexity
of knowledge interacted is high. But the scope for SwePart to influence the production
process is rather large. The interactions to the customer firms follow different paths.
Sometimes the customer specifies every detail in the drawings and there is no further
interactions until production starts. But most often it is a matter of dense communication
between the construction and development departments at SwePart and the customer firm.
The time from first contact until serial production starts could vary from one month up to
three years of joint development. This process involves interactions on design, on
construction of a prototype and test runnings. Long commitment as development partner is
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a competitive strategy, a way to reduce the threat from low-cost producers in low-cost
countries. Prize competition is not an option for SwePart.
The knowledge is highly codified but in the interactions during the development phase, a lot
of experiences, tacit knowledge, is transacted in frequent face-to-face contacts. SwePart´s
capabilities are very high seen in the perspective of its industry. It has the ability to act as a
long term partner to large customer firms with advanced requirements regarding quality and
deliverance. In what sense is SwePart replaceable as supplier? It depends on the product,
but in general it is a costly process for the customer. But in a two years perspective Swepart
could very well be exchanged for another supplier. The customer firm tries to avoid a singlesourcing situation. When it comes to critical components, the customer strive to have two
suppliers, dual-sourcing. Still in such a situation the supplier can´t be replaced with any ease,
not least due to the required volumes. Therefore, SwePart has as a strategy to offer some
unique quality, for instance a part-process or a special machinery tool, that other competing
suppliers don´t have. The threat to SwePart as supplier to Swedish customer firms is when
these firms move their production units to other countries mainly for market reasons. Then
it is likely that they start development units and establish relations with suppliers in that
country, for convenience or due to governmental demands on “local content”. An increasing
challenge to SwePart is to cope with the large variations in demand. They see it as crucial to
increase its volume flexibility (see SBV). A threat is also a growing lack of qualified labor. A
consequence already is an increasing need to recruit temporary workers via staffing
agencies. This threatens the quality of work performance and in the long run decreases the
capabilities of the firm, which in turn could lead to less favorable relations to customer firms.
Will SwePart stick to existing industries or will they follow a path of related diversification
into new industries? The answer is that diversification seems to be a way to upgrade and
become less vulnerable. But in the case of SwePart there is one crucial obstacle to further
diversification. To be part of the heavy automobile industry means high volume production
with long series. Scale economies are most prominent. For SwePart to enter new possible
industries, for instance wind power as a typical new industry for automobile suppliers,
means small production batches and no scale economies. So the assessment of the situation
is that SwePart will not diversify further, unless there is scope for high volume production.
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To conclude, SwePart, as well as SBV, is manly involved in value chains governed according
to a mix of a modular and a relational mode (see table 1).
Conclusions
The minor case presented here is based on ongoing research and presented conclusions
must be seen as tentative.
Resilience and renewal
The process in Sibbhult bears most marks of an incremental type following Tripp and Tödling
(2008) classification. The developments after the closure of the Scania plant have been
partly successful so far. But the time perspective is short, just six years of efforts of renewal.
What will happen in a more long-term perspective is hard to foresee. There is still a
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dominance of the traditional industries even though some other directions are growing. The
knowledge platform is the same, although upgraded. The question is if there is a risk of lockin. Do the supplier firms have the capacity to continue to upgrade and become more
involved in resilience processes of the diversification type? Or has it just been a short period
of “pioneer-ship”, a couple of windows opened up and opportunities taken, but no
continuation?
GVCs in RIS
Both suppliers in this case study are involved in a handful of value chains and have to adapt
to slightly different customer needs. Seen from the perspective of the developmental
potential for SME suppliers presented in this case, probably there is no best governance
type. Being involved in global value chains with different modes of governance might be the
most rewarding one, however challenging. The combination of capabilities needed demands
continuous upgrading and innovation. When considering the main emphasis in this
combination there seem to be no simple answer. It is very much about the context in which
the SME supplier is situated, it might differ over time due to business cycles, on lead firm´s
strategies etc. But in general and as a more long term strategy, a move away from market
and captive modes in direction towards modular and relational value chains seem to offer
SME suppliers the best opportunities.
However, SME suppliers constitute a most heterogeneous group. We have to distinguish
between suppliers in different industries and different knowledge/technology level but also
between suppliers on 1st, 2nd and 3rd tier in a given production system. It is likely that 3rd tier
suppliers are more exposed to market or captive governance while suppliers on 1st tier are
more exposed to value chains with the modular or relational governance type. Hence, a
common strategy among suppliers in Swedish engineering industry has for a long time been
to upgrade its capabilities and climb in the supplier hierarchy (Jonsson, Lundquist, Olander
1996, 1999), and leave a market or captive mode of governance for a more relational or
modular one. The scope for this trajectory is also considerable even for less technology
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advanced suppliers than presented here, like in the furniture industry as Ivarsson and
Alvstam (2010) have shown in their extensive empirical analysis of IKEA suppliers in China.
Going back to the Gereffi et al typology, I believe it is important to more explicitly point at
trust and time commitment as elements in the determinants when taking the perspective of
SME suppliers. The importance to suppliers to be certified according to ISO 9000 and other
ISO standards reflects the strategic value in being marked as reliable and capable in relation
to customer firms when it comes to product quality and just-in-time deliveries (see Jonsson,
Lundquist, Olander 1996, Nadvi 2008). If the supplier can´t meet the customer´s
requirements, whatever mode of value chain governance, then it will get short term
contracts, reflecting a loss in trust. A consequence of this could be that the supplier’s
upgrading potential will be weakened.
The Sibbhult case reveals the relative importance of actors and institutions surrounding the
value chain (see figure 3). Thereby the findings support the argument on a Global Production
Network approach. Social capital, place embeddedness and an industry culture in Sibbhult,
emphasizing collaboration rather than conflict, have had an important impact on the new
developments and the suppliers in question. Representatives of local labor unions,
municipality officials and local politicians as well as regional actors, have all been part of the
support structure. We also see how the knowledge infrastructure at Lund University and
other research organizations have been approached. But still this is in a very early phase.
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Figure 3 SME suppliers and GVC governance in a context of actors and institutions: the case of
Sibbhult
The argument of trustful relations being dependent on spatial proximity can be questioned.
Yes, proximity makes it easier to establish trustful relations, but it is not a prerequisite.
Although the suppliers at Sibbhult have pointed at the value of trustful relations in their local
milieu, SBV and SwePart show that such relations can be established and maintained with
distant customers and partners, even if it is less convenient. To most Swedish suppliers all of
Sweden is within reach. So what does spatial proximity mean? That a face-to-face contact
can be accomplished ad hoc and on the spot? That a business meeting can take place during
one day including time for travel? The spatial proximity argument has to be qualified.
Public actors have a challenging task in assisting SME suppliers in their efforts to restructure
and upgrade. This is especially the case in traditional manufacturing industry in non-core
regions. How regional innovation systems can be more supportive of SME suppliers is a
question for further debate. I believe a global value chain perspective could be an important
additional element in such an innovation strategy.
22
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