GLOBAL CRISIS AND EFFECT OF THE AUTOMATIVE SECTOR

Global crisis and effect of the automative sector

Global Crisis and Effect of the Automative Sector

Introduction

The current global economic crisis, which originated in the financial sector of the developed countries, spread at a rapid pace to the real sectors in developing countries. Considering the scale and the speed of its transmission, this could be viewed as the worst crisis for the developed and more so for developing countries since the Great Depression in the 1930s. Freer movements of goods, people and money through globalization have synchronized the development as well as the destruction of the world economy more than ever before. Akin with climate change and environmental destruction, an economic crisis of such a magnitude becomes a global issue, and as such it requires a multilateral framework where the causes, effects and solutions can be considered.

Global crisis and effect of the automative sector

Differences in the speed of the crisis' transmission to developing countries and its effects on their manufacturing industries are evident. Conventional industrial characteristics, such as degrees of foreign market exposure and factor intensities, explain them only partially. Globalization of manufacturing industries, evidenced by the international division of production processes, foreign direct investment in production, and interaction of foreign subsidiaries and local suppliers, has made the causes of such differences more complex. To better understand how this crisis was transmitted to and has affected an industry, its workers and other industries, and to draw policy implications for the future, it is necessary to look into the details of the production structure and its evolution. There are three reasons why the automotive industry in general, and the UK automotive industry in particular, make an interesting case for studying the effect of the global economic crisis. First, as more than 30,000 parts go into a final product, the automotive industry has significant linkages with other industries, including steel, electricity, rubber and plastics, as well as the service sector.

Thus, studying the automotive industry permits an investigation of the transmission mechanism within a country. Secondly, the UK automotive industry had grown quantitatively until 1996 with a relatively mild interventionist approach of the UK Government, and a more active participation of a large number of multinational corporations. However, it seems that alongside this quantitative expansion, qualitative, technological improvement did not take place at the same pace. This limited technological deepening of the industry could well have been one of the underlying causes of the Asian financial crisis of the 1990s. The effects of the current crisis on the industry are again a function of the production structure that has evolved since the last crisis. A comparison of the two crises enables one to have a better understanding of the interplay between a shock and production structure in the process of generating the effects on industries.

Finally, in the history of a generally market-based development, the UK automotive industry continues to exhibit dynamism. The bargaining power and position of each actor have shifted according to the strategies ...