Auto Suppliers Under Pressure to Expand Globally
DETROIT, March 8 -- Manufacturing will not disappear in Europe and North America -- but the development of emerging markets and the need to compete with peers in low-cost countries will draw more of automotive manufacturing investments into the south of the U.S. and Mexico and toward Asia and Eastern Europe.
That is the main finding of The Odyssey of the Auto Industry: Suppliers Changing Manufacturing Footprints, a study conducted by Roland Berger Strategy Consultants, in partnership with the Original Equipment Suppliers Association (OESA).
The study is the focus of a half-day seminar today at the 2004 SAE World Congress in Detroit's Cobo Center.
The study finds that movement to low labor cost locations is the highest priority for suppliers when aligning their manufacturing footprint. As a result:
* North America and Western Europe will lose 11% to 20% of their global supplier production share by the end of 2010, as automotive supplier production in Asia and Eastern Europe will soar.
* The global production share for automotive suppliers in the U.S. Midwest is forecast to shrink 3.5% annually, and mid-sized suppliers are going to be the most affected. Small and medium size automotive suppliers will expand production capabilities in Mexico and in the southern United States, but larger suppliers will expand overseas.
* Within Europe, Spain and Portugal will suffer the biggest losses in share production, and Eastern Europe will benefit the most with a 130% gain.
* By 2010, the share of supplier production will increase 19% in South America, with Brazil being the strongest player.
* China will attract the bulk of automotive supplier investment as its share of Asia's automotive supplier production increases by 165% by 2010. Korea and Japan will remain stagnant as their suppliers focus on overseas expansion.
"Growth opportunities in distant markets and increasing global cost competition elevate the pressure to act globally," said Wim van Acker, managing partner of Roland Berger's Detroit office. "Domestic automakers have lost almost 10 percent of U.S. market share in less than 10 years," he added. "The decrease has accelerated the need for domestic automotive suppliers to seek overseas customers and to invest outside of the U.S."
The study outlines some of the major pitfalls of global expansion and addresses ways to avoid them. Major risks to global expansion for suppliers include underestimated startup and operations costs, a lack of local capabilities and materialization of customer demand.
"There is a need for better cooperation between suppliers and customers in adjusting their global footprints," van Acker said. "Suppliers currently lack information about their customers' plans, which in turn makes it more difficult for them to develop their own global manufacturing strategy."
Data for the study was gathered online from more than 60 suppliers in December and January, representing more than $70 billion in annual revenue. Those results were supplemented by extensive interviews with the operations managers of more than one dozen selected suppliers.
The Roland Berger findings are the basis of the study's recommendations for best practices in aligning manufacturing footprints; strategies to design competitive manufacturing footprints, most wanted emerging markets, and major pitfalls of global expansion and how to avoid them.
Roland Berger is a leading global strategy consulting firm with more than 1,700 consultants, in 34 offices in 24 countries across Europe, Asia, and the Americas. The company's global Automotive Competence Center of 120 professionals has completed more than 700 projects during the last decade. For more information about the company, visit www.rolandberger.com .
OESA is a forum for more than 350 automotive suppliers with global sales of more than $300 billion annually. Members include automotive suppliers of components, modules, systems, material and equipment.
NOTE TO EDITORS: A full copy of the report will be available for news media on March 24, 2004.