The obsolescing bargain theory within MNC – host country relations of the South African automotive industry

Abstract

The success of the South African automotive production industry relies on the industry support programs from the Government. The industry’s seven Original Equipment Manufacturers (OEMs) of passenger vehicles are wholly owned by respective Multinational Companies (MNCs) and they, together with the Components suppliers, engage with the Department of Trade and Industry, as Host Country (HC), in the development of the automotive industry support programs. The research tested the Obsolescing Bargain Theory (Vernon, 1971) within the South African Automotive Industry context of three bargain cycles of the industry programmes, viz. 1989 Local Content Phase VI, the MIDP of 1995 and APDP introduced in 2013. The study explored the longitudinal interaction between automotive MNCs and the Host Country in terms of relative bargain power during the three bargain cycles. Using the qualitative single case study method, nine industry stakeholders were interviewed, and responses were triangulated with secondary data. The findings provided the following insights into the automotive industry’s bargain power relations between government and multinational companies: The relative bargain power shifted towards MNCs due to the locational disadvantage of the HC, FDI spill-over effects on components suppliers, employment and technology, as well as due to investments driven by short product cycles. Further insights emerged in terms of the collaborative nature of MNC-HC relations during the three bargain cycles due to industry significance. This research was of value in extending research on the obsolescing bargain theory, particularly in the manufacturing industry. It was also of value to the future of bargain relations between the automotive and manufacturing industries with the government, in general.