International Competitiveness of Automotive Industry in the Uk

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International Competitiveness of Automotive Industry in the UK

1. Introduction
The automotive industry which has been treated as an imperative contributor to the global economy, plays an essential role supporting the growth of the UK’s economy. According to the figure provided by OICA (2009), in 2008 this industry produced roughly 1,649,515 automobiles, ranking it 4th in Europe in terms of the whole output. Until now, there are about forty firms manufacturing vehicles in UK (LowCVP, 2010). In accordance with the House of Commons (2009), the total turnover of the domestic retail automotive industry is 14 billion pounds per year, while this sector provides about 570,000 jobs in 70,000 businesses.

Generally speaking the automotive industry has two different parts: the manufacture of automobiles and components; and the vehicle trade in terms of retail, distribution and relevant services (BIS, 2011). When it comes to the manufacturing process, it has gone through a host of evolutions. In the beginning, the whole industry had low productivity and maintained high level of product differentiation (Bowden and Mckinlay, 1995). Then in the second phase (during 1950s and 1960s), one type of standard vehicle was designed which became popular and therefore fostered the standardisation process of the motor industry. Simultaneously, the increasingly upgraded technologies enhanced both productivity and efficiency of this industry. As for the third phase, it witnessed further advancement of manufacturing process, in which increasing automatic methods were adopted not only to boost output but also to pull down the total costs of manufacturing. In addition a substantial amount of innovative practices were introduced, which helped producers to cater customers’ requirements as well as improving the competitiveness of the whole industry.

In the case of the structure of the UK motor industry, it depends on a complicated and tiered network of suppliers (LowCVP, 2010). According to OECD (2010), the UK already has 2,600 component producers and suppliers, whilst roughly ninety percent of suppliers are small and medium enterprises (SMEs). As been illustrated in the diagram 1, basically the supply chain comprises three tiers of suppliers .

Diagram 1 Tiered network of suppliers

Source: Low Carbon Vehicle Partnership

Tier 1 suppliers consist of a number of large foreign owned companies, which tend to establish their R&D centers outside UK. As for Tier 2 and Tier 3 suppliers, they are usually formed by small or medium sized firms and tend to maintain closer connections with low-level component suppliers. More often than not, their manufacturing process involves more innovative activities than their counterparts in first Tier.

2. Literature Review
International competitiveness can be reinforced when one country generates economic growth through international trades. Hence some literatures of international trade theories may be used to interpret international competitiveness of a nation (Daniel, 2000). Adam Smith is the first person trying to explain why countries participate in the international trade. According to his absolute advantage theory, countries will gain welfare if they export goods or services in which they maintain absolute advantage compared with other nations (Krugman and Obstfeld, 2003). This theory indicates that countries should specialise in what they have absolute advantage which, however, may not necessarily contribute to the benefits from international trade (Smit, 2010). In accordance with Ricardo’s comparative advantage, one country should specialise in the production containing higher efficiency over other countries (Krugman and Obstfeld, 2003). The fact that one country which has no absolute advantage in its manufacturing activities, can still export goods or services that contain lowest absolute disadvantage, may differentiate comparative advantage theory itself from the absolute...
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