Whilst many expected that mature industries such as automotive would necessitate
strategic shifts in favour of low cost countries, we will demonstrate how the precise
opposite has occurred, with respect to Germany.1 We examined the investment and
value-creating activities of 20 non-German multinational automotive suppliers in the
German market and found that they invested $14 billion in Germany between 1987
and 1997. This discovery triggered our research to develop a conceptual framework to
explain the core motives behind these investment activities. Two critical strategic
propositions illuminate the activities: the first proposition tackles the pressure on
suppliers to grow and diversify in response to the global trend of restructuring the
value chain in the car industry. The second proposition uncovers the forces behind the
current trend why automotive suppliers adjust their strategies globally. This proposition
deals with the implications of the increasing use of global strategies in production and
single sourcing by major automotive customers such as Volkswagen or DaimlerChrysler.
c 2001 Elsevier Science Ltd. All rights reserved.
Globalisation and foreign direct investment in the car industry
have received considerable attention in international business
research and automotive studies. Most of the management studies
build upon the premise that stresses cost-based factors for
competitive success, yet cost factors cannot explain the high
foreign direct investment in Germany. Furthermore, most of the
studies deal only with the globalisation of automotive manufacturers,
so-called Original Equipment Manufacturers (OEMs),
while research on the suppliers and their strategies is weak,
especially for Europe and Germany. Although some studies
examine the globalisation in the automotive supply industry,2
most of the work is simply deduced by research on OEMs.3 In
this paper, we focus on the automotive supplier industry and
shed light on the globalisation strategies of multinational automotive
suppliers in Germany.
After a brief introduction to recent changes in value-added
strategies of OEMs we present our conceptual framework and
then explain why supplier companies globalise and diversify.
In the last decade, multinational suppliers have put considerable
efforts to make use of new opportunities provided by OEMs in
the German market. This required deliberate portfolio and
locational strategies which were, in turn, achieved by acquiring
German supplier firms who possess complementary technological
competence profiles and by greenfield investments to colocate
multinational supplier facilities and plants of major customers.
The management of multinational suppliers used acquisitions
as a means to complement existing competence profiles in order
to supply complete systems and modules. Acquisitions allow for
a rapid competence building as opposed to difficult in-house
competence building strategies. Especially in highly competitive
markets characterised by a small number of global, fast-growing
first-tier suppliers, such as, for instance, the brake systems business,
persistent consolidation pressures urge competitors to operate
aggressively. In this context, the German automotive supplier
landscape is ideal for as acquisitions because it is made up of
many technologically sophisticated small and medium-sized supplier
companies.
What also became clear was that multinational suppliers used
greenfield investments in virtually all cases where proximity to
customers was key. For instance, many suppliers invested in supplier
parks near manufacturing and assembly plants of OEMs.
The reason for greenfield investments as a market-entry strategy
is obvious: with greenfield investments, multinational suppliers
are more flexible with respect to location decisions and asset
specificities.
It is important to note that even in the relatively mature car
industry, cost factors play a subordinate role as a (de-) investment
motive vis-a`-vis modular innovations and services. For system
suppliers, technological innovation is key for competitive
success, while customer specific services play the decisive role for
module suppliers. Thus, a system supplier will always prefer to
invest in technological knowledge and may acquire companies
that possess complementary competencies. For module suppliers,
it is most important to set up production facilities close to OEMs
in order to deliver modules and related services.
As could be seen, the value chain redesign of Germany-based
OEMs and the corresponding opportunity to supply systems and
modules has attracted a significant amount of supplier capital to
Germany. Faced with the opportunities to develop businesses
and to generate cash-flow with innovative products, supplier
firms invested in this country despite high labour costs. At the
same time, many suppliers have shifted manufacturing and
assembly of simple, less innovative and price sensitive parts to
low cost countries. This may help to explain why some of our
sample companies invested in the German market and simultaneously
shifted the production of simple parts to South and
East European countries.
If innovation is such a powerful driver of investment in the
car industry, can the result of our study be transferred to other
mature industries? Clearly, the ability to transfer is limited to
industries with complex products where modular innovations and
customer services become important competitive factors,
examples being the aerospace and rail industry, the computer
industry, the gas turbine industry, or the waste-to-energy plant
industry. In these industries, supplier companies should understand
the logic and react to the strategic imperative resulting
from supply chain redesigns. An early, carefully developed strategy
of how to act when customers start to redesign their supplier
chains is a key success factor.
In our study, it also became clear that a company must already
be significantly large to carry out growth strategies. But many
small- and medium-sized companies do not possess the critical
size, management and financial ability to pursue foreign direct
investment strategies. In this situation, a good strategy is to
search for a partner to dance with. The success or failure of capital-
based alliances or even acquisitions depends on the strategic
fit of both partners. Some German acquisition targets have
already learned this lesson. Anecdotal evidence suggests that after
being acquired they very often serve more than simple technological
add-ons to fill existing competence gaps. Rather, they are
likely to take on more significant roles within the internal organisation
of the multinational supplier organisation as they evolve
to centres of excellence. In a considerable number of cases, the
multinational suppliers have relocated global product mandates
to their newly acquired German affiliates.