LOCAL ASSEMBLY UNITS IN THE MOTOR COMPONENTS INDUSTRY - A CASE-STUDY OF EXHAUST MANUFACTURE

This paper explores the conditions under which motor component manufac turers may choose to supply car assembly plants through decentralised production in local assembly units (LAUs). The analysis is based on a case study of the decision to supply motor exhausts through an LAU whe re demand from the OEM company is sequenced. The case suggests that lo cal assembly may result in significant efficiency gains. However, most of these gains now to the OEM company, while most of the costs of loc al assembly flow to the component supplier. This finding emphasises th e importance of trust and collaboration within supplier relationships, but suggests that significant possibilities for opportunistic recontr acting may exist after the establishment of the LAU. Both supplier and OEM company should consider these possibilities when making the initi al investment decision.