Automotive sector growth rates
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Is the automotive market pulling the brakes?
Central Europe has experienced one of the most impressive growth and convergence stories of recent times. In particular, this has been achieved on the back of foreign-owned, capital-intensive manufacturing production in the automotive sector.
With large domestic supplier networks and high skill intensity, the presence of complex industry yields many economic benefits. However, this developmental path is now reaching its limits with the exhaustion of the available skilled workforce, limited investments in upgrading and research, and persistent regional inequalities.
Supplier networks in the automotive industry contribute to job creation and linkages and spillovers stimulate the overall economy. Foreign actors in the sector have helped shape national institutions in terms of education and training and labor market regulation. Interconnections with the German economy proved beneficial during the Great Recession.
High levels of external dependence and low diversification of production in some countries raise their vulnerability to external shocks. While some upgrading has taken place, the share of research and development in employment and value added re-mains comparatively low. Economic development has been uneven and regional inequalities continue to rise. A developmental path in Central Europe based on foreign-owned, export-based manufacturing production has secured relative prosperity through economic growth and the advancement of educational and labor market institutions.
In order to sustain prosperity, public policy should focus on increasing the share of research and development in the region, improving national skill bases, and diversifying production structures. A key lesson for developing countries aiming to successfully integrate into global production networks is that active governmental support, favorable human and physical capital endowments, and political stability are necessary. Before the — economic crisis, Central Europe—the Czech Republic, Hungary, Slovakia, and Poland the Visegrad —experienced one of the most impressive growth and convergence stories of recent times [1] , [2].
The automotive industry, representing a prime example of complex manufacturing composed of high capital, technology, and skilled labor, became a leading sector in these countries. Its growth was initiated in the very early stages of transition when world-leading companies bought stakes in existing automotive firms.
By , the Czech Republic and Slovakia had become world leaders in per capita production of light vehicles see the Illustration , with sizable volumes of passenger cars as well as engines and heavy commercial vehicles produced in Poland and Hungary. In addition to quantity, functional upgrading has secured higher-end production, including expensive and technologically sophisticated car models [5].
Most observers of economic transition in the early s would have been surprised to discover globally integrated, sophisticated manufacturing in Central Europe only a decade and a half later.
First, the starting point for such systemic change was characterized by large inefficiencies in the economy, outdated equipment, and dilapidated physical capital. Second, the region experienced a large economic shock at that time, which led to deep recessions, fiscal crises, high inflation, and large structural problems in the labor market.
Third, while the transition economies started with relatively similar levels of complex manufacturing production measured through export shares , their trajectories gradually diverged Figure 1.
A different path based on capital flows into finance and services and deindustrialization materialized in the Baltic countries and south-eastern Europe [3]. In several ways, the existing institutional framework with respect to employment, industrial relations, and economic policy more generally has been adapted in Central European countries to sustain the comparative and competitive advantage of complex manufacturing.
The — economic downturn showed that these countries with the exception of Hungary were more resilient than the Baltic countries, whose developmental model proved less sustainable [3]. What key factors have contributed to the growth of the automotive industry? FDI has been the key driver of growth in many transition economies, and in the Visegrad countries in particular [6] , [7]. It secured integration into the global supply chains of multinational corporations MNCs , mainly in the automotive industry but also in electronics sectors, contributing to technological transfer and the provision of necessary capital for upgrading physical infrastructure.
Various factors led to the early entry of FDI and then helped secure continued interest in the region well after its accession to the EU in It appears clear that motivations to invest in Central Europe combined all of those factors and changed over time. This advantage was further sustained by an institutional framework that has maintained wage levels below productivity levels. Flexible employment arrangements allowed firms to combine a stable core workforce with a less secure periphery by means of agency employment of domestic as well as foreign workers.
This helped leading manufacturing companies withstand fluctuations in demand. Second, the industrial tradition of Central Europe presented a cornerstone for revitalization and further development of the sector. During state socialism, Central Europe served as the industrial base for processing primary commodities coming from the Soviet Union. This was due to a comparative advantage and manufacturing legacy dating back to the pre—Soviet era.
This manufacturing legacy signaled to foreign investors the presence of sufficient human capital and physical capacity to produce complex manufacturing goods [9]. Moreover, joining the EU guaranteed political stability and institutional convergence to Western standards [10]. Fourth, governments enacted favorable industrial policy and built up professionalized investment support services to attract and retain foreign investments [11].
In the early s, Visegrad governments opened up to FDI to various extents and at different speeds. More open policies toward foreign capital in Hungary and Poland initially secured comparatively higher levels of FDI relative to Czechoslovakia [4]. The early s was characterized by cut-throat competition between Visegrad countries. In these bidding wars, potential investors clearly held the upper hand, securing generous tax breaks, infrastructural development, and financial support for building greenfield production sites and delivering workforce training [1] , [4].
The countries gradually made support more transparent and designed differentiated schemes to attract new firms to less developed regions. This form of financial support was enabled due to the availability of EU structural funds. As a result of these factors, over the past 25 years, the region has turned into a major automotive cluster, where most leading brands are represented and a rich supplier network covers the Czech Republic, north-western Hungary, western Slovakia, and south-western Poland.
The existing production sites continue to use state-of-the-art technology and are highly competitive within their respective automotive consortia.
In retrospect, it is clear that the developmental path based on sophisticated manufacturing production that Central Europe followed secured economic growth, convergence with the EU, and global competitiveness [2]. The most recent significant test was the — economic crisis, which revealed that the Visegrad countries with the exception of Hungary were more resilient than the Baltic countries [6]. Several factors underpin this economic performance.
First, due to the technological intensity and complexity of production, the automotive industry and other capital-intensive industries generates rich forward and backward linkages. Backward linkages are characterized primarily by the emergence of local supplier networks.
Forward linkages are extensions and links to other industries, e. Through backward and forward linkages, additional employment is created and multiplier effects emerge.
Moreover, as interlinkages become more entrenched, manufacturers and suppliers become more geographically embedded, making relocation less likely though still possible.
It is through various linkages and spillover effects rather than via corporate taxes that the country-level economic benefits surface [7]. Economies may be further invigorated due to productivity pressures and corporate governance practices that foreign firms exert on domestic firms [1]. Second, skill-intensive production requires a continued supply of well-trained labor. Flagship manufacturers were aware of this, and thus became actively engaged in institutional development, supporting cooperative, rather than only competitive, interactions [4].
For example, leading firms have influenced the reform of vocational education laws in Slovakia. This has resulted in the introduction of elements of dual vocational education and training, following leading German and Swiss models. More generally, foreign employers have helped create links with education systems at various levels in the Czech Republic and Hungary, promoting stronger connections between business and academia [4] , [5].
The comparative advantage held by the Visegrad countries lies in their institutional complementarities in skilled and cheap labor, foreign capital, and technological innovation brought by transnational companies.
Extreme openness and their relatively small size expose these economies to external shocks and shifts in global demand. Implications of this dependence are manifold. While the automotive industry is a technologically intensive sector, the Visegrad countries have not fully integrated into most value-added segments of the value chain [1]. This is revealed by the small concentration of domestic firms operating in the highest value-added segment, with no obvious improvement over time Figure 2.
This in turn increases the risk of relocation, should the costs of labor increase to uncompetitive levels, as evidenced by various automotive factory closures in Western countries in the past decades [8]. While the automotive industry has contributed to high growth rates and convergence with the rest of the EU, economic development in Visegrad countries has been characterized by large and growing intra-country inequalities Figure 3 [10] , [12].
In effect, growth in the region has not been inclusive. Low-skilled and young people have faced high unemployment rates relative to other EU countries. The Roma population has been kept on the fringes of societies, marginalized and excluded from formal labor markets, even at times of labor shortages.
This points to a policy failure, but also marks a broader challenge of bringing complex manufacturing production to underdeveloped regions where infrastructure might be lacking and from where the most educated people have left for other regions or countries. Further economic diversification to include other industries and services might be crucial to achieve a more equal distribution of the economic benefits ensuing from the existing developmental model.
The declining supply of well-trained labor has gradually become one of the key bottlenecks for further expansion and sustainability of manufacturing industries in Visegrad countries. By , firms faced labor and skill shortages in the order of thousands of workers. Policymakers have been troubled by labor market mismatches characterized by the concurrent existence of high unemployment among selected groups and workforce shortages. This is partly due to underperforming education systems, which have only partially adapted to market demands.
In parallel, agency workers at the same firms are offered irregular employment, lower wages, and often precarious living conditions [13]. Firms have increasingly relied on an immigrant workforce from countries such as Serbia and Ukraine.
However, Visegrad countries continue to promote inward-looking immigration policies and are poor at immigrant integration, which presents barriers to hiring a qualified foreign workforce.
There are also few studies that evaluate complex implications of the model, looking at different levels macro, mezzo, and micro , or from the perspective of different actors: domestic and foreign firms, labor, governments, and other relevant actors, such as social partners.
While much research has gone into understanding the development of the automotive sector, less is known about home-grown internationally competitive firms in other industries e.
Understanding their success or failure parameters could significantly add to knowledge about the broader factors behind particular developmental trajectories of post-socialist countries [9]. It would also allow one to derive generalizable lessons for other middle-income countries. The process of embedding foreign firms is crucial for the sustainability of foreign investments.
Finally, more systematic comparative research would be useful in terms of understanding factors beyond national frameworks and how they play out in the dynamic realities of the refugee crisis, Brexit, and other international events that are likely to have strong economic effects on Europe and the Visegrad economies. The automotive sector has become a leading industry in Central Europe, placing the Visegrad countries among the top per capita car producers in the world.
This might require a more open immigration policy to bring in a foreign workforce with diverse skill levels. Governments could further benefit from a more thorough understanding of how foreign firms become embedded in a national economy, in order to develop more effective tools to support the upgrading of industries in the region.
Furthermore, policy attention should improve its focus on education systems, which have received less financing relative to Western Europe. Vocational education systems in Central Europe have gone through various reforms, and currently face quality, reputation, and attractiveness issues. A key challenge lies in designing vocational education that is able to endow students with skills that are both specific and transferable. In parallel, it is important to teach high levels of general skills and to invest more in lifelong learning to enable flexible career pathways.
A key lesson for other countries interested in promoting complex industrial production is that active governmental support might be crucial for attracting foreign capital and for successfully establishing the sector in the global market. This may only be possible if other prerequisite conditions for capital- and skill-intensive industries exist, such as a well-educated workforce, robust physical infrastructure, political stability, and quality institutions. The author thanks three anonymous referees and the IZA World of Labor editors for many helpful suggestions on earlier drafts.
Previous work of the author contains a larger number of background references for the material presented here and has been used intensively in all major parts of this article [4] , [8] , [9] , [11]. The author declares to have observed these principles.
Source: IHS Markit Light Vehicle Sales Forecasts. An nual light veh icle sales (millions). An nual grow th (%.) Average growth %. Growth rate peaks -. Geographically, the detailed analysis of consumption, revenue, market share and growth rate, historic and forecast () of the following.
Central Europe has experienced one of the most impressive growth and convergence stories of recent times. In particular, this has been achieved on the back of foreign-owned, capital-intensive manufacturing production in the automotive sector. With large domestic supplier networks and high skill intensity, the presence of complex industry yields many economic benefits. However, this developmental path is now reaching its limits with the exhaustion of the available skilled workforce, limited investments in upgrading and research, and persistent regional inequalities. Supplier networks in the automotive industry contribute to job creation and linkages and spillovers stimulate the overall economy.
North America is one of the largest automotive manufacturing hubs in the world. The presence of leading automotive manufacturers, as well as component manufacturers is driving the market value.
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Automotive Industry Overview | Data and Analysis
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Our Insights blog presents deep data-driven analysis and visual content on important global issues from the expert data team at Knoema. Leverage our AI Workflow Tools and online data environment to manipulate, visualize, present, and export data. Spring Global motor-vehicle production continues to fluctuate: a dramatic declining growth rate in upturned slightly in but is significantly lower than Overcapacity in Europe has increasing shifted production out of Western Europe. Meanwhile Asia, led by China, has gradually expanded its global production share, as has North America, where vehicle production almost doubled during the last 4 years. Moreover, global production of motor vehicles is expected to be less volatile in coming years even if growth rates will be more moderate given anticipated upward trends in oil prices. The Automotive Data Brief reviews the most recent data to present an overall picture of the automotive sector. You can find information relating to vehicle production and sales as well as statistics about fuel prices, vehicle stocks, and the electric-vehicle market.
Is the automotive market pulling the brakes?
The MarketWatch News Department was not involved in the creation of this content. Mar 04, The Expresswire -- Automotive Industry Global Market research report is a professional and in-depth study on the market size, growth, share, trends, as well as industry analysis. The report represents a basic overview of the Automotive market share, competitor segment with a basic introduction of key vendors, top regions, product types, and end industries. The report mainly studies the Automotive market size, recent trends and development status, as well as investment opportunities, market dynamics such as driving factors, restraining factors , and industry news like mergers, acquisitions, and investments.
