The auto industry must find ways to reward innovative suppliers, said Bosch CEO Hermann Scholl.
Scholl said that many competing suppliers are adopting a 'fast follower' strategy that reduces Bosch's ability to profit from its innovations.
'They use the experience that we and our customers have gained in the early years to produce a comparable product with a much smaller investment,' he said.
'I think if the innovations are really attractive, and if the customers are really interested in getting the innovations, they will probably also be ready to pay a certain premium for them.'
Bosch invested more than 150 million on Sensotronic Brake Control, or SBC, a system developed with DaimlerChrysler. SBC is used on the Mercedes-Benz SL and the new E class.
SBC uses electronics instead of hydraulics to control braking. The system uses sensors to pass the driver's braking commands to a microcomputer that, depending on the particular driving situation, calculates the optimum brake pressure for each wheel.
At a speed of 120kph, SBC reduces braking distance by an estimated 3 percent compared with a car featuring conventional braking technology.
Developing such new groundbreaking products is becoming more complex and expensive, Scholl said.
'Only this kind of new product can give us or our customers the competitive advantage so important for profits and growth,' he said. 'But what happens when the investment cycles get even shorter and the costs get even higher?'
Short exclusivity periods
The situation is a challenge for carmakers as well as Bosch, said Scholl.
'Both sides need and want innovation,' he said.
Scholl said the exclusivity on new products that suppliers give automakers is usually less than 12 months. But that's long enough for an automaker to position itself in the market as an innovator.
Neither automakers nor suppliers want long exclusivity agreements. The suppliers want higher sales while the new technology can command a premium from other automakers. Automakers want lower unit prices that suppliers can offer once they start selling to other automakers.
Bosch spent almost 1.9 billion on automotive research and development in 2001, about 8 percent of its automotive sales. Scholl expects the investment level to stay that high.
But he argued that suppliers must be adequately rewarded for innovative products or they cannot sustain r&d spending to develop new technology.