U.S. Automotive Parts and Accessories
Similarly, American automobile companies enjoyed a tremendous revival during the 1990s, as U.S.-nameplate vehicle shipments rose by more than 25%. Domestic parts shipments also increased by nearly 20%, to $112 billion by 1994. Imported parts integrated into U.S. automotive components and subassemblies, however, rose even faster, growing from $20 billion to $28 billion, a 40% jump -- including a 33% rise in Japanese imports alone. While nameplate companies recorded banner profits, American auto-supply-industry employment declined by more than 8% from 1990 to 1994 as the industry shed nearly 50,000 jobs.
ARE THERE NONMANUFACTURING NETWORKS?
Supply-base competition is the most advanced in conventional manufacturing sectors, because that is where the United States' major competitors, especially in Asia, have focused their efforts. Traditional service industries -- restaurants, cleaners, utilities, and the like -- also enjoy a degree of competitive protection because they still depend on geographic proximity to their customers.
All that may soon change. Many manufacturing and service sectors are now merging into hybrid industries -- computerized metal cutting, digital marketing, and on-demand legal-research services, for example, all combine hardware, software, and service products in ways that depend on integrating a variety of skills into a final product. As this transformation takes place, customers will increasingly look for suppliers that can package everything into a neat final product, and manufacturing's supply-chain-management skills will become crucial in services as well.
New information-delivery systems also reduce many of the geographical limits to service sectors. It's not uncommon for a client to secure research and legal counsel from top-quality, computer-savvy lawyers thousands of miles away via electronic mail and the Internet. Software and hardware service support for many U.S. computer companies is now provided by consultants via telephone from India. Service providers that once might have been able to get contracts to serve a contiguous region now have to compete with communication and engineering companies on the other side of the globe -- exactly the problem that gives rise to supply-base competition.
GLOSSARY
network, or supply chain: a group of specialized companies that combine their skills to produce final goods for world markets
fully integrated supply chain: links top-quality manufacturers from raw-materials suppliers to final assemblers in the design and fabrication of a final product
nameplate companies: multinationals with brand names like GM, Xerox, or Apple that buy goods and services provided by integrated supply chains and then sell these products under their own, more famous company names
IT CAN HAPPEN HERE
Silicon Valley and Hollywood are among the most visible U.S. supply-chain successes. Both are made up of a mixture of large companies -- brand-name computer companies and film studios -- and thousands of highly specialized suppliers that provide them with products to sell. In most cases, the suppliers drive job and technological growth. Software and hardware developments, and major film innovations, are the product of project-by-project collaboration among ever-shifting groups of suppliers that design and produce what they sell to their customers.
Hollywood and Silicon Valley work because no other regions in the world boast similarly dense, fully elaborated supply networks. Other regions may lure away an isolated company, and some can support the less dynamic mass-production elements of each industry, but in virtually every case, a company that wants to succeed in computers or filmed entertainment still has to have a close relationship with Silicon Valley or Hollywood to remain at the cutting edge of production and design.
The employment and business-development benefits each region enjoys are the result of a number of innovative industry practices. In Hollywood, unions and payroll companies long ago helped solve the now-ubiquitous problem in the world economy of job instability -- a by-product of project-by-project employment. Payroll companies save suppliers millions in overhead by hiring all the workers for a film, acting as the employer of record, and simply reconstituting their workforce as needed for subsequent productions. Unions increase Hollywood security by permitting their members to pay more during periods of work than during downtimes, all the while keeping health and other benefits intact.
Unlike Route 128 in Massachusetts and other once-premier computer regions, Silicon Valley companies moderated what would have been debilitating cutthroat price competition and secrecy by developing elaborate cross-licensing arrangements that permitted companies to jointly share in breakthrough developments, information that would then be integrated freely up and down the supply chain. Trade agreements with Japan forcing the purchase of U.S. components and public/private consortia like Sematech are also credited with providing the means and opportunity for once-struggling U.S. companies to better coordinate the region's supply chains.
In both Hollywood and Silicon Valley, full-spectrum suppliers have learned to collaborate in ways that no other areas have yet been able to copy. They sustain high-skill, high-wage jobs, technological dynamism, and business growth by succeeding where many other U.S. industries fail: in supporting and building competitive supply chains, not just nameplate multinationals or isolated parts vendors.
RESOURCES
Among the best summaries of how competitive regions succeed in the new economy -- based on Silicon Valley -- is AnnaLee Saxenian's Regional Advantage (Harvard University Press, 617-495-2577, 1994, $24.95).
The Hollywood story is explained in "Why Every Business Will Be Like Show Business" (Inc., March 1995, [Article link]), by Joel Kotkin and David Friedman.
"Small Business Networks: Tools to Promote Economic Success," by Gus A. Koehler (California Research Bureau, 916-653-7843), is a recently compiled analysis of American efforts to build supplier networks that is aimed specifically at small companies.
The National Institute of Standards and Technology publishes A Catalog of U.S. Manufacturing Networks (NIST, 301-975-2000).
