Suppliers are moving facilities to emerging markets to keep up with demands from automakers.
Suppliers are going to continue moving their operations from North America to emerging markets while enduring never-ending demands for pricing concessions from automakers, according to a new study from Boston Consulting Group.
The consulting firm, also known as BCG, suggests suppliers will continue to migrate to emerging markets in Asia, Latin America and Africa during the next half decade at the insistence of their customers.
Even though carmakers insist they want better and more cooperative relations with suppliers, they are putting more pressure on their suppliers for cost savings. The report indicates that a new financial squeeze is on the way as the world’s biggest automakers – are preparing to demand some of the deepest cost reductions in years.
At the same time, automakers are increasingly pressuring their suppliers to locate more research and development and production facilities in fast-growing emerging markets so that they’ll be closer to their assembly plants, which adds cost and complexity to global operations of many suppliers.
These conflicting demands represent “one of the most serious management challenges that the global automotive-supply industry will face over the next few years,” the authors say.
An overwhelming majority of respondents to the BCG survey – 86% – said they are under increased cost pressure from their automotive customers
However, suppliers surveyed expect to increase the number of their global manufacturing sites by an average of 9% during the next five years. Nearly 60% of surveyed suppliers’ total production sites is expected to be located in emerging markets some five years from now, compared with only 45% five years ago
Underscoring the continuing migration, the share of manufacturing sites in the U.S. and Canada is expected to drop to 21% in 2019, from 30% in 2009, according to the survey.
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The predictions from BCG are basically in line with other global forecasts, which show sales of new vehicles, growing more rapidly in emerging markets such as China, India and Southeast Asia than in North America, Europe or Japan.
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These insights emerged from a survey of 42 auto suppliers from around the world, conducted by BCG in partnership with the Fraunhofer Institute for Manufacturing Engineering and Automation, based in Stuttgart.
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This sample comprised one-quarter of the world’s 100 largest companies and a selection of midsize companies. The authors also interviewed dozens of auto supply executives and industry experts to understand the challenges that companies are facing and to assess how well they are prepared to confront.
Takata has illustrated what happens when auto makers use the lowest bidder. It’s amazing how clueless the car makers are on cost vs. quality. How many Billions are the auto makers shelling out due to defective Takata airbags? Yet they still don’t get it. It’s always about the $$$ and it will never change because you can’t fix STUPID.
Build cheap sell high. I think the manufacturing will come full circle. Meaning with the advent of 3d printing and cnc machining plus greater shipping of componentry from one side of the planet it will become possible to build one own vehicle from a modular interchanging components that suppliers already make. Witness the chinese motorcycle and bicycle makers that you can buy with a group of your friends. The only think slowing this is the manufacturers prtecting their turf.
Tata does this india with local mechanics and garages. Henry Ford might start turning over in his grave with increasing revolutions!
All one has to do is look at the profits generated by major auto makers to understand that it is not necessary to buy from the lowest bidder, despite the mentality. If there are enough losses from these poor decisions, eventually quality vendor suppliers will win out but it’s a long torturous journey for auto makers to finally see the light.
Gotta remember that to get promoted in companies is to be able to make a component as cheap as possible and performs it function. One example I belive was when a business case was being made for the ford raptor. One of the sticking for approval was the high cost of the fox offroad racing shocks. The objection was is Ford could make a engine cheaper the the price of one shock! Sometimes the curtain doesn’t cover the supposed magicians tricks!