From Tacit to Formal Knowledge: Supply Chain Restructuring and Innovation in the Canadian Automotive Parts Industry

Tod Rutherford
Department of Geography at the Maxwell School of Citizenship

John Holmes
Department of Geography at Queen's University in Kingston, Ontario Canada K7M 3N6

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Abstract
The literature on firm learning and innovation usually identifies both tacit (or informal) and formal (or codified) knowledge as critical components of the innovation process (see David and Foray 1995; Senker 1995; Storper, 1997). However, these are often examined as parallel if not separate phenomena. Tacit knowledge is seen to flow primarily through informal networks, is often highly localized, and is generally embodied in people rather than in objects or written form (Malecki, 1997). Codified knowledge is usually tangible and is often associated with patents or some other formal recognition of intellectual property rights. Furthermore, much of the learning literature has tended to focus on knowledge as an abstract use value rather than as a commodity (see Taylor and Asheim, 2001) and while rightly stressing the importance of learning by interacting (see Lundvall and Johnson, 1994) tends to present relations between firms as based upon relative equality. More recently, however, research has suggested that globalization is associated with strong pressures for the commercialization of often highly localized tacit knowledge through the construction of ‘global pipelines’ to tap into ‘local buzz’ (see Bathelt et al 2003). Some researchers (see Lorenzen and Mahnke, 2002) have raised concerns that this process is contributing to the undermining the innovative dynamism of regional clusters as large transnational corporations (TNCs) effectively internalize the knowledge of smaller firms within clusters.
In this paper, we wish to push this analysis further through a case study of the conversion of tacit in formal commodified knowledge in the Canadian automotive parts industry. While most research has focused on larger ‘core’ automotive components manufacturers (see Anderson and Holmes, 1995; Rutherford, 2000), we focus on the industrial mold and tool and die (MTD) industry cluster located in Windsor, Ontario which over the last two decades has achieved a global reputation for innovation and quality. We estimate that there are approximately 250 tool, die and mold establishments in the Windsor area, the vast majority of which are linked to the auto industry.

The automotive components industry in Canada has traditionally performed little formal R&D. All of the auto assembly plants and virtually all of the first-tier supplier plants in Ontario are embedded in large transnational corporations and much of the formal R&D activity takes place elsewhere within the corporate structure and, most often, in facilities located in Michigan or other parts of the United States. Thus the Ontario automotive industry is closer to an entrepot cluster which receives knowledge largely via market transactions from the outside rather than a regionally embedded one (Wolfe and Gertler 2003; Fitzgibbon et al 2004). An exception to this is the Windsor moldmaking and tool and die cluster which has relied largely on the informal and tacit knowledge of highly skilled workers. Despite a relative lack of formal R&D investment, the skills of firm owners and workers in the Windsor MDT industry meant that by the 1990s a highly innovative and world class cluster had emerged in the region.

However, over the last five years this cluster has experienced increased competitive pressure as a consequence of significant changes in the automobile industry supply chain. Suppliers in southern Ontario and Windsor are being challenged by the increasing global outsourcing of components –especially to low wage nations such as China and the shift in assembly plant capacity towards the US South. Original Equipment Manufacturers (OEMs) are placing intensified cost and innovation pressures on their suppliers. Thus, first-tier, and increasingly second-tier suppliers, are being forced by the demands of the OEMs to now engage in innovation and R&D activity. However, research indicates that the increasing delegation of R&D to suppliers is based on unequal power relations such that suppliers perceive that knowledge flowing up the supply chain to OEMs or first-tier suppliers is not matched by knowledge flowing down the supply chain (Belzowski et al, 2003). In the case of the Windsor MTD cluster, we find that the greater financial power of OEMs and first-tier suppliers means that smaller but highly skilled and innovative MTD suppliers are increasingly being squeezed with respect to product pricing while, at the same time, their tacit knowledge and innovative capacity are being appropriated and utilized by the OEMs, often without recognition of the supplier’s intellectual property rights. Suppliers have attempted to offset this trend by increasing their formal patenting activity and developing a collective association, The Alliance for Automotive Innovation, to better represent their interests and draw attention to the problems confronting the industry.

The structure of the paper is as follows. Firstly, we critically examine the developing literature on the role of tacit and codified knowledge in cluster formation and the role of globalization in transmitting locally embedded tacit knowledge into more formal codified forms via the creation of global pipelines. We then examine clustering within the Canadian automotive parts industry with a focus on the Windsor, Ontario mold, tool, and die industry. The paper then explores the development of this cluster and, in particular, the role of tacit knowledge in innovative activity within and between local firms. We argue that in many ways Windsor has many characteristics of a classic regionally embedded cluster. The initial formation of the MTD cluster within Windsor was facilitated by the arrival of skilled European immigrants in the post war period, the presence of a large lead anchor firm, and public investment in technical education. However, innovation in the cluster has been fostered by skilled workers utilizing acquired knowledge within one firm to establish a network of new enterprises which in turn has been reinforced by largely informal associational activity. The paper then explores how this cluster is now being challenged by the restructuring of the automotive supply chain and the changing assembler-supplier relationships and how this is reshaping innovative activity. We conclude by assessing the implications of our study for the role that tacit and formal knowledge plays in innovative activity as cluster links with global pipelines undergo rapid change.






References

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