Association for Public Policy Analysis & Management

The wind energy industry has seen major geographical shifts recently. Both demand and manufacturing, and more recently also R&D activities of wind turbines have shifted from Europe and the US to emerging economies, notably China and India. Expansion to new countries is expected given ambitious policy targets for deployment. These patterns in internationalization mimic trends in other high-technology industries (e.g., opto-electronics), where the location of manufacturing has potentially influenced innovation trends (Fuchs and Kirchain, 2010).

Research on innovation in the wind industry has primarily studied one part of the value chain: the original equipment manufacturers (OEMs)—i.e., the 10-15 manufacturers that assemble wind turbines. However, little attention has been paid to hundreds of specialized firms that supply to OEMs. These component suppliers, often small and medium firms, constitute the backbone of the economy of most countries and must innovate to manufacture at low costs, or develop competences to stay competitive in global markets.

This paper aims to understand how internationalization of manufacturing and R&D location to developing and emerging economies affects innovation. More specifically, we address the following questions: (i) what factors explain internationalization in different parts of the wind manufacturing global value chain (GVC)? (ii) how does internationalization of manufacturing OEMs and suppliers in the wind GVC affect innovation? We use mixed-method techniques to conduct this research. We develop and analyze a novel dataset of over 400 component manufacturing firms that supply to 12 major OEMs (2006 to 2014). Our dataset includes details on over 10 key components, the OEM strategy used to procure each component (i.e., in-house or outsource), major supplier-OEM relationships for each component, location of suppliers (i.e., home location and manufacturing location), patenting trends, etc. We conduct a statistical analysis to test the relationship between the internationalization of firms and their innovation trends (measured through patenting activity). We complement our quantitative analysis with interviews with wind industry experts.

Initial results suggest that over time, component manufacturers that were originally from developed countries (e.g. Germany or the US) expanded to new manufacturing locations in emerging economies (most notably China, but also India, Mexico, etc.) while new suppliers also appeared in these emerging economies. However, the extent to which firms internationalized manufacturing was heterogeneous between firms, depending on factors including the technology complexity of component involved, shippability and commodification of the component, the size of the wind turbine market in the manufacturing location, public policies including for domestic manufacturing, OEM strategy, etc. Our preliminary results also suggest that for less complex components, innovation follows manufacturing location trends as innovation activity shifted towards emerging economies over time. In contrast, innovation activity in more complex components remained in developed country locations. Overall, our findings highlight how changes in manufacturing locations in globally distributed clean energy industries impact innovation differently across components, which has policy implications for promoting climate and development goals.

Fuchs, E. and Kirchain, R. “Design for Location? The Impact of Manufacturing Offshore on Technology Competitiveness in the Optoelectronics Industry” Management Science 56, no. 12 (2010): 2323–2349.