For Automotive Suppliers Globalization

By Nichol Potts

Globalization of the automotive suppliers will present many difficulties for suppliers in this industry. Because auto manufacturers are expanding and shifting their focus to production facilities, automotive suppliers will probably follow. Usually, there are some supply businesses that have opened numerous production facilities in more countries in the thirty years. The lifespan of these production facilities is lessening. The problems that must be solved include:

How supply businesses will find locations that are suitable for production facilities.

How these business will monitor the performance of their facilities all over the world.

How these businesses will adopt these locations to the changing competitive conditions in the marketplace.

To address these problems, a study was recently published on the relocation problem of automotive suppliers. This study included 131 automotive suppliers in Europe, Asia, and North America and it examined how automotive suppliers monitor the consequences of such decisions as the locations of specific production facilities and the development of strategies for relocation. The study has determined that there's a need for a disciplined, integrated, approach for the management of the relocation.

The complexity of relocation decisions is frequently overlooked. Over one half of the businesses that participated in this study reported significant delays in the relocation process that frequently reflected insufficient local knowledge. The factors that are important may include the quality of the local supply base, the influence of the local trade union, the levels of the local wages, the availability of local labor, and the reliability of energy supplies. In spite of the investment decisions that are involved and the problems, there are only a few businesses that specialized relocation function. This study recommends that this kind of function would improve the methods of selection and learn from the lessons of previous relocation decisions.

Automotive suppliers are under a considerable amount of pressure to follow their customers, who are typically the manufacturers of automobiles, into new geographic locations in spite of the investment risk that are associated with such a relocation. The automobile manufacturer's proximity requirements are dependent on numerous factors. But, nearly all of the supply businesses in this study believe that the pricing expectations of their customers can only be achieved in the near term by increasing the pressure on their suppliers to provide at least some of the value in relocation with lower labor costs in order to keep costs at a minimum. Other factors that influence relocation strategies include real estate flexibility, government incentives, rigidities in the labor marketplace, and the flexibility to decrease or increase manufacturing capacities.

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