TRAVERSE CITY, MI – Auto suppliers should go global only if it makes strategic sense – and sometimes it doesn’t, says consultant Kim Korth, president and owner of IRN Inc.
“Avoid being seduced into going global because everyone else is,” Korth says at the Management Briefing Seminars here. “There is a tendency by suppliers to think they must do that.”
Spurred by customers, parts producers can blunder badly overseas. “I’ve seen too many suppliers go into a region because customers pressured them,” Korth says. “You must ask yourself if it is in your best interest, and if the customer will live up to its commitments.”
She offers something of a suppliers’ survival guide abroad. Done for the right reasons, entering a new market can prove profitable. Done wrong, it’s like walking into a minefield.
“It needs to be strategic, rather than tactical,” Korth says, emphasizing the importance of long-term considerations and big-picture thinking.
“Have a clear point of view,” she advises. “Determine what it means to you, both now and over five years.”
Suppliers should avoid letting a fledging global initiative detract them from their home market. “Protect your core domestic business,” she says.
On the other hand, a “mental obstacle” to running an overseas operation is the failure of the home office to understand that things often are done differently elsewhere. “European businesses with North American offices know what I’m talking about,” she says.
Companies can vastly underestimate the amount of time top management must devote to entering new markets.
Korth cites earlier conference comments by Phil Martens, senior vice president at ArvinMeritor Inc., who spoke of marathon traveling and Herculean effort to create a joint venture in China.
“I never worked at that pace – and I work hard,” Martens said.
Many North American suppliers are looking to open facilities in China because of its tremendous economic growth.
But Korth warns: “All projections showing a steady, upward growth in China are wrong. It’s the fastest-growing region in the world but not at the levels and speeds being projected.”
Conversely, many suppliers have overlooked Mexico, which shows signs of significant growth in the next five to 10 years.
Korth tells of a supplier that relocated from Mexico to China only to regret it and consequently move more than 50% of the work back to Mexico.
She advises suppliers not to fret about their position on the food chain.
“Too many companies do that, (as) opposed to focusing on what they are really good at,” she says. “It doesn’t matter if sometimes you’re a Tier 1 supplier or sometimes a Tier 2. What matters is if you are good at what you do.”
Becoming a low-cost producer is “the name of the game,” she says.
Many suppliers address that by focusing on the shop floor, fixating on labor costs.
Instead, companies should control costs through product design and development, Korth says. “Anything you can do to shift to that is a huge competitive advantage.”
Successful suppliers are able to consistently launch new initiatives without having them become “projects from hell,” she says. “That is a primary supplier differentiator.”