Small suppliers take a global step; trend reflects what's happening in the upper tiers

Parts manufacturers are on a ma dash to establish local manufacturing capabilities in the key markets where their customer assemble vehicles. It's a hot topic, but it is not a new idea. in fact, it has been decade since the first automotive parts suppliers began establishing extensive manufacturing networks outside their domestic borders.

Companies such as TRW, ITT Automotive, Bosch, Valeo, United Technologies, GKN, Johnson Controls and other large, Tier I suppliers long have understood the value of expanding their global supply networks. In a new twist, this idea finally is making an impact on small and medium-sized suppliers.

Sales at small- to medium-sized automotive supplier companies typically fall between $25 million to $500 million with an employee headcount between 125 and 3,000. Why are companies of this size starting to show interest in going global? This trend appears to be a direct response to the OEMs' aggressive expansion into emerging markets and a simultaneous reduction in their worldwide suppliers.

While market expansion and a shrinking supply base are common to the Big Three and approximately 20 European automobile assemblers to varying degrees, Ford Motor Co.'s Ford 2000 initiative appears to be the impetus behind a disproportionate share of today's globalization activity. Globalization of the supply base is particularly relevant for those designated as "full service suppliers" by Ford because one of the criteria for this designation is a global manufacturing presence.

Collaborative arrangements among sup pliers can take a variety of forms. In recent months, the industry is starting to find out just how broad a range this includes. Common examples include licensing agreements (i.e., technology transfer), minority equity investment, joint venture, merger, acquisition and sale (see chart).

In general, the OEMS are flexible in allowing suppliers to define which means of collaboration is most appropriate -- as long as their goals concerning local, reliable, high-quality and cost-competitive suppliers are met. This flexibility has been a key factor in the rapid expansion of various collaboration arrangements over the past 18 months.

Engineers from around the world are gathering to review new technologies, present technical papers and discuss the current state of automotive engineering and the industry in late February at the Society of Automotive Engineers International Congress and Exposition in Detroit. Can you think of a more appropriate event to promote a trade mission whose objective is to increase collaboration and cooperation between small-and medium-sized automotive suppliers from the U.S. and Europe?

The European Commission (EC) is sponsoring just such a mission in conjuction with the State of Michigan Jobs Commission. It's called the European Auto Supplier Mission (EASM). The objective is to facilitate the building of cooperative relationships between Michigan auto suppliers and their EC counterparts'

An advisory group composed of purchasing and supplier representatives from approximately a dozen larger Tier 1, Michigan-based suppliers is working cooperatively with the Automotive Industry Action Group (AIAG) to facilitate introductions between approximately 70 European companies and an equal number of Michigan-based suppliers.

"Matches" will be made between pairs of companies from different nations based on multiple criteria, including process similarity, commom or complementary customers or products, and module/system product extension opportunities. Representatives from each of the paired organizations will meet and discuss business needs and priorities to determine the potential fit and interest in collaborative arrangements.

Plenty of "stakeholders" stand to gain from this matchmaking initiative. They include both European and North American OEMs looking for global supply capability by their best suppliers. Large Tier I auto suppliers have similar objectives and are always on the alert for innovative manufacturing processes and new products.

The accelerating pace of globalization by OEM customers is driving even small and medium-sized automotive suppliers to consider new ways of meeting customer demands for local manufacturing capability in numerous foreign markets. The European Auto Supplier Mission is a creative and potentially productive way to spark initial introductions leading to potential partnerships between North American and European suppliers.

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Craig M. Fitzgerald directs the Automotive Supplier Consulting practice and is a principal in the Manufacturing Consulting Practice of Plante & Moran, certified public accountants and management consultants. Mr. Fitzgerald held progressively more responsible financial, materials management and vehicle lauched management positions with General Motors Corp., Ford Motor Co. and Volkswagen of America. He is a recognized expert in the area of supplier strategy for medium- and small-sized auto suppliers. He earned a BA from the University of Michigan and an MBA from Miami (OH) University.