TRAVERSE CITY, MI – Mechanical inventions continue to play a key role in automotive success, judging by the accomplishments of Bishop Technology Group Ltd. of Australia.

The company, which spends 15% of its sales revenue on research and development, supplies its steering rack technology to 23% of the world’s cars.

Now, it is promoting a new invention, a rotary engine valve that cuts the weight of a 4-cyl. engine by up to 35 lbs. (16 kg) and reduces its height by up to 5.9 ins. (15 cm).

The fortunes of automotive suppliers are diverging, says Bishop Managing Director Bruce Grey, based on how they leverage their intellectual property, the efficiency of their research-and-development efforts and how well they stay focused when they grow.

In a presentation here at the Management Briefing Seminars, Grey cites a thesis by Massachusetts Institute of Technology student Patrick Steinemann, who studied 131 supplier companies over 10 years.

Steinemann determined small product-based companies earn more than large product-based companies, mainly because the larger ones often expand into areas that are not as profitable as their core product.

In contrast, large process-based companies are more profitable than small ones, because they benefit from economies of scale.

Grey urges American suppliers worried about the future to consider the situation in Germany, where labor rates are the highest in the world, unions are strong and taxes are high.

Nonetheless, Germany is the world’s leading export country, with $954 billion in exports annually, despite being less than a third the size of the U.S.

Some 500 small and midsize German companies have carved out niches for themselves in global markets, “and they defend them with innovation and an emphasis on quality,” Grey says.

German manufacturers keep the capital-intensive parts of their business in Germany and have labor-intensive components made elsewhere, he says.

Half the shares in Bishop are owned by the Bishop family, 30% by DaimlerChrysler AG and 20% by management, Grey says.

The company has a joint venture with DC, named BMB Steering Innovation GmbH, which makes steering racks in Germany. BMB is building a second plant in North Carolina.

Through some 20 licenses, including three recent ones in China, Bishop owns nearly a fourth of the global market.

Besides designing the rack, which changes the angle of the teeth to improve both highway steering feel and parking maneuvers, Bishop developed a forging process to manufacture it. The combination of developing both a part and a production process is particularly effective, Grey says.

He says companies often spend their R&D money unwisely. Of the 5.8% that goes to R&D in general among industrial companies, only about half actually is spent on developing new products, while an equal amount goes to incremental improvements or solving customer complaints, he says.

Only about 10% of the investment is used to develop genuinely innovative products.