This month, Ward's Auto World devotes 17 pages to the critical issue of automotive-supplier globalization starting with the following overview, which also includes selected results of our 17th Annual Supplier Survey.
Conductors at automotive manufacturers are shouting "all aboard," and North American suppliers left standing at the depot of the global express could soon feel like the guy in Johnny Cash's Folsom Prison Blues, hearing nothing but the sound of a train passing in the distance.
Most suppliers already have one-way billets for the global bullet train. Others are in line at the ticket counter.
Those already involved in the globalization process say the key to success is communication. You have to wonder what the world would be like today if the Roman and British Empires -- humankind's early attempts at globalization -- could have communicated via telephone, fax, satellites, E-mail or video teleconferencing. The Rose Bowl might be hosting the Christians vs. the lions instead of the Trojans vs. the Nittany Lions. Or the whole world might take an afternoon break for tea and crumpets.
"Globalization is being driven by increasing consumer demand and a revolution in information technology and availability," says Harold Krivan, a former vice president at Rockwell Automotive and now senior partner at J.D. Power & Associates. "These two forces ensure that there will never be a turning back. The forces feed upon each other."
Mr. Krivan says the number of requests his new company receives for information about foreign markets and potential partners is continually rising. "Why shouldn't they want to know what's going on? The stakes are incredibly high," he states. "Large chunks of business are being awarded to those who can help vehicle manufacturers delight their customers and demonstrate advanced technology, people empowerment, visible process controls, superior quality, good supplier management and, yes, competitive prices -- anywhere in the world that vehicles are manufactured."
Although automakers sometimes act like they invented globalization, they certainly have an opportunity to perfect the concept using advanced technology and new business practices. At the same time, suppliers near and far have a chance to expand their reach beyond traditional geographic boundaries to seize opportunities in remote lands.
At one time Eastern Europe was thought to offer the biggest chance for automotive growth. China, with its huge population and potential for automotive consumption, now takes center stage in global economic forecasts. Experts estimate the potential growth of the automotive market in China from 1.4 million vehicles (mostly trucks) today to 3 million cars and trucks by 2000 and 6 million by 2010.
"China is a wild card for everyone," says Ralph L. Miller, president & CEO at APX International, an engineering and design service company. "How long it's going to take to develop is anyone's guess, but the potential there is huge."
Although no one is exactly sure when the Chinese market will explode, it's believed the government will issue car and light-truck contracts as early as next year. In preparation for that day, nine European suppliers, 11 Japanese companies and 33 North American vendors are setting up shop in the land of the Great Wall. GM's Delphi Automotive Systems leads the pack with 11 Chinese joint ventures. PPG Automotive has five operations there.
Elsewhere in the Far East, in countries such as Thailand, Singapore, Malaysia and the Philippines, millions of people finally are reaching middle class status. Topping their purchase lists, say those familiar with the area, are cars.
"And what's happening in Korea is enough to take your breath away," says Mr. Miller excitedly. "There are probably more car programs going on there than in the U.S."
A new attitude in India, with its 900 million citizens, offers a challenge to China as the world's new investment hot spot. Less than five years ago India nearly went bankrupt because of its conservative view of foreign investment. Reforms introduced in mid-1991 led to at least eight foreign vehicle producers including GM and Ford making plans to infiltrate. Naturally, suppliers follow suit. Companies from Japan and Europe as well as the U.S. are beefing up the parts and components sector with joint ventures and wholly owned subsidiaries.
Closer to home, developments in Mexico and South America have global economists and automotive companies agog. Implications of the North American Free Trade Agreement (NAFTA) have the Mexican market expanding rapidly, notwithstanding its current economic turmoil. Vehicle output and domestic sales there are expected to double by 2000.
In Brazil, U.S. and European automakers traditionally satisfied the market with old designs. Now the Japanese are entering the Brazilian market, and they're arriving with their latest goods, prompting GM, Ford and Volkswagen AG to update their products and reorganize operations.
In Europe, forecasters say the automotive market will continue to rebound from recession but won't reach 1992 levels until at least 1997. Suppliers say their activities in Europe primarily are driven by U.S.-based automakers plans for global platform decision-making. European suppliers, on the other hand, are going worldwide as well, following role models like Robert Bosch GmbH and Siemens AG.
Given the open U.S. market, supplier analysts say it's easier for a European supplier to come to the U.S. than vice versa. So when BMW AG and Daimler-Benz AG (Mercedes) announced plans to build assembly plants here, U.S. suppliers saw these developments as a way to break in with Europe's elite automakers. Meanwhile, many of their traditional European suppliers have followed them across the Atlantic, setting the stage for spirited competition.
Togetherness with their traditional suppliers is clearly a major priority for automakers entering foreign markets, based on findings of WAW's 17 Annual Supplier Survey. Some 64% among those within automakers' ranks say they expect their suppliers to follow them as they pursue their global goals. Perhaps surprisingly, 74% suggest that suppliers can service a global automaker from plants in the U.S.
Do automakers expect suppliers to follow their global lead?
If the WAW survey results are any indication, most suppliers already have reached global status. Seventy percent among supplier respondents say their companies are global, so it appears suppliers are a step ahead of the customers. Not quite.
"We are a global company, but we've acted regionally because our customers were set up that way," says John Van Alstyne, general manager of the Ford account at Freudenberg-NOK General Partnership. Mr. Van Alstyne's company is a joint venture between Germany's Freudenberg and Japan's NOK.
When asked to define what makes a global supplier, 50% on the supplier side and 48% representing the automakers say such companies need manufacturing and sales facilities around the world, need to be open to partnerships with overseas suppliers and must have the ability to offer seamless service to automakers. In short, automakers want the same attention, delivery, quality and pricing abroad that they get at home.
APX's Mr. Miller explains the challenge in fairly simple terms. "We've got to be able to design by wire with a few people in the local market, more people in the U.S., with tools being made in Japan and prototypes being made in Germany and do it seamlessly. That's where technology makes the difference," he says referring to satellite communications, computers and faxing, to name a few.
Being truly global presents certain challenges -- over and above technology -- for suppliers. These include adapting to various cultures, governments, languages and time zones.
Joseph R. Corace, president and CEO of sunroof manufacturer Inalfa Hollandia Inc. (itself a Detroit-based joint venture between the Netherlands' Vermeulen Hollandia BV and Inalfa BV), recalls being frustrated by the cautious and slow manner in which Mitsubishi Motors Corp. helped his company find a Japanese joint-venture partner. After a six-month wait came a year-long courting process with the chosen company.
"In the U.S. we want to do things right away," says Mr. Corace. "Relationships are very important to them and they take their time."
Besides cultural differences, other barriers -- not the least of which is language -- must be hurdled to play the global game. In India, for example, language isn't a problem because educated people speak English. China is another story.
Government policies also can throw up roadblocks. India won't allow companies to take profits out of the country. "When you go into a country like India, you have to have a 40- or 50-year business plan instead of a five-year plan," says Mr. Corace, who stresses that India must change if it wants foreign investment.
Then there's the time warp. An engineer in the U.S. who needs to talk to a colleague in the Far East or Europe must get up in the wee hours to make the connection. "There are 13 hours between here and Korea, so there are social skills as well as technology involved," notes Mr. Miller.
"You need people in the same time zone speaking the same language," says Dick Snell, president and CEO of Tenneco Automotive. "If you can't do that, you're not really in the picture."
Do OEMs think suppliers can service them without global plants?
Successful globalization, say those intimately involved, takes immense communication and coordination efforts.
"It's not easy by any stretch of the imagination," says Ronald A. Weber, vice president in charge of 3M Corp.'s Automotive Engineered Systems Div. "You need cross-functional teams with the right people working together. The communication and the frequency of the communication is critical. In automotive, things change damn near every day."
Mr. Weber says 3M has been a global company since 1951 and has facilities in 59 nations. "The bottom line is that the right people will make it work," he says.
Coordination is the key to transforming a supplier with plants around the world into a global company. Before automakers began their globalization push, a supplier's European division serviced its customers there while its North American unit served the Big Three. Now, rather than protecting their turf they must work together.
"We're trading personnel between Europe and the U.S. to help establish trust, understanding and confidence among ourselves, to facilitate the communications bridge," says Freudenberg-NOK's Mr. Van Alstyne. "We have to fully understand each others' capability and capacity."
On paper it seems simple enough that the Freudenberg-NOK joint venture covers the U.S., Canada, Mexico and Brazil; NOK covers Japan, China, Indonesia and Thailand; and Freudenberg covers Europe. But each company organizes its product groups differently, making business interaction between them interesting, to say the least. To make life easier for customers, the three companies are organizing sales offices by similar product groups. In the future, Mr. Van Alstyne says, even manufacturing could be reorganized along similar lines.
IHI's Mr. Corace cites three basic strategies suppliers use to enter a new market in another country: shipping products from plants in the U.S., establishing new plants, and entering joint ventures or acquiring companies in the new market. "We're trying a little of each," he says. "Every market is different. Each country has its own customs that determine the way you go in."
Tenneco's Mr. Snell says if suppliers follow automakers into uncharted waters the risk is significantly reduced. "We're not doing any anticipating in setting up plants," he points out. "That's not financially wise to do without booked business."
AlliedSignal Automotive has 245 facilities in 35 countries. President John Barter sums up what's needed to succeed on the global express: "You need the right markets, the right timing, the right partners, the right people and the right attitude."