Vertical Integration in a Lean Supply Chain: Brazilian Automobile Component Parts

Brazil’s automobile component parts industry shows that vertical integration and scale economies endure within flexible production systems. Recent neoliberal economic reforms propelled vehicle assemblers to adopt flexible modes of production and subcontract component manufacturing. However, transactional hazards in supply chains escalated as first-tier subsystem assemblers had to rely on small, opportunistic, and inefficient parts makers. Large tier one suppliers purchased existing parts makers and invested in greenfield facilities to service both new flexibly organized vehicle assembly plants in southern Brazil and Argentina and restructured assembly plants in the traditional automobile complex of São Paulo. We focus on Dana Corporation, Bradesco Bank, and British Tyre and Rubber Corporation—firms that assemble chasses, engines, and body subsystems, respectively. These companies dominate their segment of the parts industry, delivering subsystems to a growing network of flexible vehicle assembly plants throughout Brazil. Large-batch parts production, subsystem assembly by a few major multinational tier one suppliers, and ownership consolidation underscore the continued role of vertical integration and scale economies in automobile production chains.