Plastic Cars in China? The Significance of Production Location over Markets for Technology Competitiveness

This paper provides insights into (1) the impact of production location on design competitiveness and (2) the tension between product customization for regional production and for product customization for regional markets. The results show that as production and demand for automobiles shifts to emerging economies, and in particular to China, there may be a shift in the technologies that are competitive. Specifically, contrary to conventional wisdom, innovative new polymer composite vehicle bodies – a critical energy-savings technology – are less cost-competitive in China than in the United States. Production characteristics are different abroad, and the prevailing steel body technology is more cost-competitive in China. Further, while national differences in market characteristics improve the competitiveness of the composite design in China, this advantage is far outweighed by the above-discussed penalty from differences in production. These results suggest that in cases such as automobile bodies where markets and manufacturing location are tightly coupled, firms may need to put as much or more emphasis on understanding the impact of local production differences on technology competitiveness as in understanding local markets.