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FIGURE 1 Estimated R&D spending for top industries, 2006. Source: Schonfeld & Associates, 2006. Reprinted with permission of Schonfeld & Associates. Note: Industry SIC Codes are: Software: 7372; Telecom Equipment: 3663 and 4812; Semiconductor: 3674; Automotive: 3711 and 3714; Pharmaceutical: 2834.

FIGURE 2 R&D spending for top 20 global companies, 2004. Sources: Corporate R&D Scorecard, Technology Review, 2005; Industrial Research Institute, 2005; company annual reports. Note: Siemens includes Siemens VDO automotive business, which accounted for 12.7 percent of 2005 revenue.

vidual parts engineered into hundreds of components and subsystems. Vehicle manufacturers purchase one-half to three-quarters of these parts from their suppliers. All of the major vehicle manufacturers spend at least 50 percent of their revenue on components from suppliers.3 Vehicle manufacturers increasingly specify overall system requirements and give suppliers free rein to engineer and design a component or vehicle subsystem to meet those requirements. This contrasts with the traditional business model (which still exists for some components),4 in which vehicle manufacturers give suppliers detailed technical specifications for components. Supplier engineers, who frequently work closely with engineers at the vehicle manufacturers, play a critical role in introducing technology into vehicles.

Many of the hundreds of firms that primarily supply the automotive industry have consolidated into global enterprises that employ thousands of people in facilities spread across the planet. In theory, the industry supply base is divided into tiers. A tier-one supplier sells directly to the vehicle manufacturer (e.g., BorgWarner may sell a transmission to General Motors [GM]). Tier-two suppliers sell to tier-one suppliers (e.g., Timken may sell roller bearings to BorgWarner). In practice, however, the distinctions are often blurred, and some very small firms may sell directly to vehicle manufacturers (although these should not be considered tier-one suppliers for the purposes of analysis). Some firms, such as Freescale (formed when Motorola spun off its automotive semiconductor business), Siemens, Sumitomo Electric, DuPont, and even Microsoft), are not thought of as automotive supply firms, although they have large automotive businesses. In addition, many firms supply production equipment to the automotive industry (e.g., stamping presses or robotics systems) or test equipment (e.g., dynamometers and road simulators). All of these firms employ product and manufacturing engineers.


Product architecture, the relationship between the functions and structures of the vehicle, greatly influences how a vehicle is engineered. The terminology developed by Clark and Fujimoto (1991) provides helpful distinctions:


Some vehicle manufacturers and suppliers have significant equity relationships. In the Japanese keiretsu system, for example, Denso and Aisin Seiki, two large Japanese suppliers, are partially owned by Toyota. In France, PSA Peugeot Citroën and Faurecia have an equity relationship; and Hyundai-Kia and Mobis in South Korea have a similar relationship.


For more on the rise of the “black-box parts ratio” in automotive product development, see Clark and Fujimoto, 1991.

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