In the last 10 years, automakers have responded to the fiercer pace of competition in many ways. They have targeted new markets and niches. They have focused on building brands. And they have outsourced.
Automakers' decision to purchase parts rather than build them has brought the biggest changes for suppliers. Many have responded by supplying a group of parts, or systems, instead of single parts.
But the promises of that strategy have not always been delivered. Before following it any further, suppliers should ask some vital questions.
Do they have what it takes to be big? Or should they play a smaller yet safer role?
They may find that the road with less glory may be a much more profitable one.
Not long ago, suppliers added 40 percent of the value to a new automobile. Today they account for 60 percent to 70 percent. And within the next 10 years, the average will rise to 80 percent, according to a study by management consultants Roland Berger. In addition, the suppliers' share of development will rise from 33 percent in 2000 to more than 50 percent in 2010. In the same period, the study forecasts, the number of suppliers will fall by one-third.
Against that backdrop, survival for most suppliers depends on a combination of greater specialization and globalization. Many suppliers have responded by making the transition from component supplier to system supplier. The idea was that by developing and supplying complete subsystems of components, suppliers would add value and build a close, lasting Tier 1 relationship with the automakers. Suppliers also would enjoy a matching boost in profits.