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New Supply Base: Coming Soon

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Up until the mid-1980s, the North American supplier community existed purely of American, Canadian and a few Mexican supplier companies. Largely content in their home markets, European and Asian suppliers preferred the close, almost paternalistic relationships with their regional OEM customers. But then something changed—globalization.

The globalization of the automotive in-dustry caused suppliers to re-examine their nationalistic loyalties and seek op-portunities abroad. The mid-1980s flood of Japanese vehicle manufacturers to North American soil prompted many Japanese suppliers to establish "greenfield" production facilities or form strategic joint ventures with established North American supplier companies. Honda, Nissan, Toyota, Mitsubishi (DiamondStar), SIA (Subaru-Isuzu) NUMMI (Toyota/GM) and CAMI (Suzuki) moved in.

In the 1990s, the Germans invaded. BMW and Mercedes-Benz really opened up the Southeast U.S. to the automobile industry. Taking advantage of the friendly economic development initiatives of Southern states, these companies established huge manufacturing complexes utilizing low-cost labor pools. To support their OEM partners, many German suppliers established new production facilities in the Southeast, as well.

Recently, DaimlerChrysler announced plans for expanding its Alabama production facility and Honda (Alabama), Nissan (Mississippi) and Hyundai/Kia (to be announced) announced plans to build new production facilities in the Southeast U.S. What's next for the North American market? Providata Automotive predicts the following:

  • Rapid development of supplier parks in the Southeast U.S. to support regional vehicle production in Alabama, Mississippi, Georgia, and South Carolina.
  • Continued flood of Japanese suppliers into the North American market to support Toyota's new production facility in Princeton, Indiana, and Nissan's new plant in Mississippi.
  • A large number of Korean suppliers will establish greenfield production facilities and joint ventures to support Hyundai/Kia's new facility in the Southeast.
  • Expect continued German and Japanese supplier greenfield developments in the short-term. Korean suppliers should be expected in 2002.
  • Expect new plant location analyses from Volkswagen, Fiat (with GM's cooperation), Renault, and PSA. The next flood could consist of French and Italian suppliers.

Market Entry Strategies for Foreign Suppliers

Entering into an unknown market can be a difficult proposition for a foreign supplier. Unique regional business practices and a lack of understanding for the competitive environment can act as high barriers to entry. Supplier companies that are entering the North American automotive parts supply market have several alternatives, including:

  • Sales Representatives: Several supplier companies have agreements with North American-based sales agents for the sale of their components to North American vehicle manufacturers. These sales agents represent several non-North American companies simultaneously.
  • Corporate Strategic Alliance: By forming a strategic alliance with an existing North American supplier, suppliers can open up a new market for their products without establishing new production facilities and/or sales operations. By utilizing a North American supplier's existing relationships with a North American car maker, a foreign supplier can effectively derive profits from a new market with minimal costs.
  • Joint Venture: Forming a joint venture with an existing North American supplier company is yet another market strategy employed by several foreign suppliers. Several Japanese companies have successfully entered the North American market through strategic joint ventures with well-established North American parts suppliers.
  • Corporate Acquisition: Perhaps the easiest avenue to enter the North American market is through the acquisition of an existing North American parts manufacturer. By acquiring an existing company, suppliers can take advantage of existing customer relationships, product technologies and conveniently located production facilities. Although more costly monetarily than joint ventures or strategic alliances, acquisitions are the most effective way to capture immediate market share, product technology and existing customer relationships.
  • Greenfield Operation: This market entry strategy relies heavily on the volume of expected and/or contracted business. Before initiating a production facility in a new market, suppliers must have existing strong customer relationships to justify a "greenfield" production operation. Once a decision has been made to establish a new production facility in the North American market, site selection is the next critical step. Within the North American market, all major vehicle manufacturers require "just-in-time" supply of automotive parts. Being in relatively close proximity to a customer's production facility is necessary due to parts supply logistics.

Several essential data points need to be assessed when conducting production facility site selection:

  • Distance from vehicle manufacturer production facilities
  • Available local part transportation logistics (near major highways or railroad ramps)
  • Distance from sub-supplier production facilities
  • Established infrastructure including electrical, roadway and water access
  • Local labor availability
  • Local/state/regional tax rebate eligibility.

By analyzing these key factors, foreign suppliers can select a location that provides maximum benefit from logistical and economical points of view.

For old-line North American suppliers: Hold onto your hats, the winds of change are blowing at gale-force intensity. Either you adapt or you vanish.

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