Institutional Factors and Competitiveness Determine Where Cars Are Made

When somebody says "Made in Italy", I say "Not so fast". In the years of galloping globalization, the "Made in" concept underwent profound changes in cultural and economic terms: its territorial identity was progressively eroded, as it turned into an almost accidental organizational option, embedded into a complex and geographically distributed logistical chain. The corporate brand, this was the mantra of marketing, must replace geographic origin denomination as guarantee of quality: Made in had to become Made by; the reference was no longer a nationality and a territory, but a brand and an organization. But the worst economic crisis in years, with its pangs of protectionism and mercantilism, has taught sharp-minded managers to consider manufacturing labor as a fundamental arbitrage factor in national and international maneuvering for fiscal aid and company subsidies. For major manufacturing firms, today more than ever, labor is a bargaining chip in the institutional and political game. The great industrial challenge is to marry the constraints imposed by economies of scale and rationalization of production with the renewed role of national governments in protecting employment. The case of the auto industry is exemplary. During the period of most acute economic crisis, France, Germany, and then the other European counties, have come to the rescue of the national car industries with direct or indirect subsidies, blatantly disregarding EU regulations prohibiting government aid to business companies: the influence of competition authorities was effectively neutralized by global financial emergency. In an industry deeply in crisis, the protection of the "Made in" has become the political justification to shelter employment. In Italy, FIAT. dealing with a crisis too large to be compensated by the intervention of a too small national state, has immediately seized on the opportunity, with the acquisition of Chrysler, to propose a risky institutional deal to the US government, offering technological synergies and maintenance of employment levels in exchange for a company share with a total control option. And in recent weeks, with the "Fabbrica Italia" initiative illustrating the new industrial plan, Sergio Marchionne put on the table the doubling of car production in Italy, in exchange for the unions signing for additional flexibility on the assembly line. This smart move in terms of industrial relations is accompanied by the choice of unremitting standardization of car components, the sharing of technological platforms and modules and the pursuit of economies of scale through industrial collaborations that are global in scope. In car-making, however, the share of value added represented by the final assembly of the vehicle – i.e. what is considered "Made in" – has steadily declined through the years, to the benefit of upstream stages of manufacturing (components and platforms), as well as downstream stages such as selling formulas and financing schemes. In the automotive industry, the Made in Italy is reinventing itself: it will more and more be constituted by the optimal minimum perimeter of processes to ensure the right compromise between, on one side, the level of industrial relations and the national identity of the product, and on the other the rationalization imperatives of an irreversibly global production chain.