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Abstract

This chapter examines the development of corporate research and development (R&D) in the automotive industry of East-Central Europe (ECE) in the context of the internationalization of corporate R&D generally and the automotive industry R&D specifically. Driven by large inflows of foreign direct investment (FDI) since the early 1990s, vehicle assembly and the production of automotive components grew significantly in ECE. I investigate to what extent these production increases have also led to the development of automotive R&D as an example of a higher value-added function of the automotive value chain. I provide a more detailed analysis of the Czech automotive R&D because of its prominent position in ECE. Despite a modest growth, my analysis uncovers inherent weaknesses of automotive R&D in ECE and strong barriers to its future development related to its peripheral position in the European and global automotive production networks.

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Notes

  1. 1.

    R&D is composed of basic research, applied research and development. In industry, basic research advances scientific knowledge without having specific immediate commercial applications in mind. Only a very low percentage of R&D performed by automotive firms is truly basic research. Applied research also advances scientific knowledge but for specific commercial objectives. Its goal is to apply scientific advances to specific products, processes and services. Development refers to the systematic use of the knowledge developed by research to advance production processes both in terms of methods of production and the nature of produced goods. It involves the new product design and development, including its adaptation to the local environment, the development of prototypes and the development of production processes (UNCTAD 2005).

  2. 2.

    Henceforth domestic-owned firms are referred to as “domestic” and foreign-owned firms as “foreign”.

  3. 3.

    Continental AG represents an example of R&D centralization for these exact reasons in the automotive industry. Continental centralized its R&D from its overseas subsidiaries to its corporate R&D center in Hannover, Germany in the early to mid-1990s (interview with CEO of Barum Continental, November 12, 2010).

  4. 4.

    Interview with the former director of the Research Institute of Motorized Vehicles, Prague, August 12, 2010.

  5. 5.

    In addition to automotive R&D conducted at vehicle assemblers, such as Škoda, former Czechoslovakia also had the centrally organized Research Institute of Motorized Vehicles in Prague. It employed about 630 workers in the 1980s. They conducted various research-related activities, such as the development of gearboxes. The number of workers at the Institute declined to about 100 after 1990, and the Institute was bought by German TÜV and transformed into a testing facility (interview with the former director of the Institute, Prague, August 12, 2010).

  6. 6.

    To compare automotive R&D in different EU countries, I have used data provided by the Eurostat Structural Business Statistics database for the narrowly defined automotive industry (NACE 34). In order to ensure the data compatibility in time series, I am using the classification of industrial sectors based on the NACE 1.1 revision up to 2007. Since this data is unavailable after 2007, I am using data for NACE Rev. 2 (C29) for 2013, which means that the 2013 data is not fully compatible with the pre-2008 data series. During the data analysis, I have found that some important automotive R&D establishments are not classified as NACE 34 and thus not included in the database. For example, Johnson Controls has an R&D center in the city of Trenčín of Western Slovakia, which is classified under NACE 73.1. It employed 377 workers in 2007. Its inclusion under NACE 34 would significantly affect automotive R&D data for Slovakia. Similarly, Ricardo Prague, which had 124 workers in 2007, is classified under NACE 74.2. MBtech Bohemia, which employed more than 160 researchers in Czechia in 2006 and 280 at three technology centers in Prague, Pilsen and Mladá Boleslav in 2010, is not included in the Eurostat database at all. All of these are stand-alone R&D centers not attached to a particular plant (see also Table 4.5), and I assume that they are classified the same way outside NACE 34 in all EU countries.

  7. 7.

    Denso’s technology center was opened in Liberec in 2007, and it represents the largest Japanese automotive R&D facility in Czechia. Its 40 workers are engaged in technical drawings, design and development of condensers, coolers, evaporators and other products for the parent company. It represents the lowest level of R&D facility in Denso’s R&D hierarchy (interview with the company director on October 25, 2010).

  8. 8.

    More recent data is not available.

  9. 9.

    More recent data is not available.

  10. 10.

    More recent data is not available.

  11. 11.

    The decisions about any Škoda investment exceeding EUR 15 million are made at VW’s headquarters. Škoda is involved in strategic planning but in “cooperation within the VW Group, and the parent company coordinates the strategic planning for its brands”. VW’s headquarters decide whether Škoda’s profits are transferred to headquarters or are reinvested at Škoda (Interview at Škoda Auto, Mladá Boleslav, June 30, 2005).

  12. 12.

    I am aware that too much proximity may negatively affect the innovation process (see Boschma 2005; Torre and Rallett 2005).

  13. 13.

    The differences in value capture capabilities between the Czech-based Škoda Auto and the German based VW and Audi were revealed during the distribution of 2010 bonuses. The bonus of Škoda Auto workers (EUR 129) was less than 2% of Audi’s (EUR 6500) and 3.2% of VW’s (EUR 4000), suggesting a disproportionate value capture at Audi and VW compared to Škoda. Audi accounted for about half of VW Group’s profits, VW for about one-third and Škoda for 6% in 2010. The main reason is the different value of cars assembled by these three assemblers. Audi’s luxury cars are three times as expensive as Škodas (Kaláb 2011).

  14. 14.

    Personal communication with Vincent Frigant, February 2, 2011.

  15. 15.

    Interview with the CEO of Visteon-Autopal, Nový Jičín, August 9, 2005.

  16. 16.

    Interviews at Visteon-Autopal, Nový Jičín, September 9, 2010 and August 9, 2005.

  17. 17.

    Interview at Bosch Diesel, Jihlava, July 7, 2005.

  18. 18.

    Interview at Škoda Auto, Mladá Boleslav, June 30, 2005.

  19. 19.

    SOR Libchavy, a small domestic bus maker, is the only notable exception to this general trend. SOR used to produce agricultural machines before 1990 but moved into assembling buses of its own design in the 1990s (inter-sectoral upgrading). SOR had 29 R&D workers and assembled 478 buses in 2010 (interview, October 14, 2010).

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Pavlínek, P. (2017). Research and Development. In: Dependent Growth: Foreign Investment and the Development of the Automotive Industry in East-Central Europe. Springer, Cham. https://doi.org/10.1007/978-3-319-53955-3_4

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