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Going Global

Which suppliers are truly global? Our survey picks the winners among 50 major parts makers. Here's some advice for automotive parts suppliers: If you want to expand operations around the world, it pays to specialize.

According to a survey by Automotive News International and consulting firm A.T. Kearney Inc., four of the world's five top global suppliers dominate their product segments.

The products themselves are varied, and the nationality of the companies - which include Takata Inc., the Freudenberg and NOK Group, Autoliv Inc., DuPont and Robert Bosch GmbH - are equally diverse.

But these companies do have something in common. They specialize in products - such as paint, airbags and antilock brakes - that have been consolidated to a few major suppliers.

The one exception is Freudenberg, which makes engine seals and gaskets. We believe the market in engine seals is ripe for consolidation.

Automotive News International developed its supplier-ranking formula - which we call our Global Quotient - using a statistical formula developed by A.T. Kearney.

Our formula ranks the 50 largest suppliers according to last year's sales of original equipment in each major world market: Europe, North America and Asia. The formula indicates which suppliers have the most balanced sales in each major region. If a supplier's sales in a region closely mirrored that market's share of total world auto production, the supplier got a high ranking.

But our Global Quotient does not compare raw sales of each supplier. For example, Delphi Automotive Systems Corp. - the world's largest supplier - dwarfs its competitors in sales. But Delphi ranks only 44th on our list, because most of its sales are in North America.

According to A.T. Kearney's analysis, Takata and Freudenberg ranked far ahead of the competition. Both companies have a remarkable balance of sales in Asia, North America and Europe.

Different strategies

While the top suppliers tend to be specialists, they adopt a variety of strategies to enter new markets. Autoliv, for example, forms joint ventures with local companies, then gradually assumes control. Freudenberg formed a close alliance with NOK, a Japanese competitor. And some, such as Takata and Bosch, acquire key suppliers.

Does overseas expansion guarantee high profits and happy investors? Well, no. The ranks of suppliers are littered with companies that tried - and failed - to go global.

One such example is FederalMogul Corp., a maker of engine components based in Michigan that wanted to become a $10 billion supplier by 2002. To do so, it embarked upon a buying spree that included the $2.9 billion purchase of T&N plc, a supplier based in the United Kingdom. Now, FederalMogul is struggling to resolve several hundred asbestos-related product liability lawsuits inherited from T&N.

None of our top five suppliers have made such a blunder - yet. Some, such as Bosch, Autoliv and Takata, have made major overseas acquisitions when it fit their strategies. But none believes in growth for growth's sake.

Will Takata, Freudenberg, Autoliv, DuPont and Bosch top our list in 2002? Given their strategies, they are likely to do well. We will check their progress in a year.

IT TAKES TIME

Conclusions? It's possible to expand into new overseas markets without forming joint ventures or buying a local supplier. But this do-it-yourself approach takes time - lots of time.

'If you have a decade to work with - and if you can follow your own customers - you can do it,' says Jim Mateyka, a vice president at A.T. Kearney. 'But it's very slow. If you don't make acquisitions, you have to follow your customers around the globe.'

In the following articles, we will explain each of the top five suppliers' growth strategies and the lessons to be learned.

You can reach David Sedgwick at dsedgwick@crain.com

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