Results of a joint survey by Management Engineers and the Center of Automotive Management of top industry decision makers
The Chinese automotive market remains both attractive and incalculable to European suppliers. The automotive supply industry will once again noticeably increase production capacities in China over the next few years. This will take place regardless of the fact that the market dynamics are expected to gradually slow and competitive pressures to noticeably increase. European suppliers hope to rely on an offensive strategy and increasingly win over Chinese OEMs as buyers. To do so, they need to expand their innovation leadership in line with market requirements as well as overcome considerable obstacles – both political and legal in nature. These are the findings of the consulting firm Management Engineers and the Center of Automotive Management based on a joint study of 400 top decision makers in the European automotive supply industry.
The activities over the next few years will primarily be influenced by five lines of development:
·Expansion in China continues: European suppliers are resolutely pursuing their course of expansion in China – despite the fact that the majority expect the recent steep growth curve to level off. Two thirds of the companies state that they hope to scale up their production capacities in China by at least 30% over the next five years. These plans are motivated not least of all by the performance targets of European OEMs investing in China. They expect an accompanying commitment from their suppliers – say at least 95% of those surveyed.
·The up-and-coming competitors are stepping up the competition: Almost just as many see themselves facing additional cost pressures during the same period. European OEMs in China are already increasingly integrating local, Chinese suppliers in the value-add chain. This not only has a bearing on the revenue situation which will worsen – also due to the increasing cost of labor. This assessment is shared almost unanimously by the respondents.
·Innovation leadership ensures survival: European suppliers have to go on the offensive to safeguard their activities in China in the long term. The market demands innovations above all else that aim to make products and processes leaner and standardize them. This increases the chances of realizing higher volumes. The attendant economies of scale are indispensible given rising costs and declining margins. Innovations are at the same time to be increasingly generated close to the market in China. Over 80% of all European suppliers hope to have an established presence with R+D departments in China within five years. The current number is only 57%.
·The aim is to capture Chinese buyers: Business above all with Chinese OEMs is expected to grow strongly over the next five years – 87% of the surveyed European suppliers expressed this expectation. They base this expectation on their technology know-how on which manufacturer’s in the People’s Republic are expected to rely more and more in the future. This superiority in knowledge and ability is supported by greater customer loyalty through after-sales and service activities. Almost 70% of the suppliers plan on providing these services in China within five years. At the moment, only 46% do.
·External control when it comes to action – Unprotected when it comes to know-how: Development of Chinese buyers will almost necessarily have to take place by forming joint ventures or entering into other forms of cooperation. Even if these types of mergers afford more risks than opportunities as they view it, suppliers still see no other alternative. The primary fear is a loss of know-how (98% of the respondents) as well as limits to the range of entrepreneurial options to choose from when it comes to making decisions (85%). This is all the more the case given the fact that an exit from a concluded cooperation is very difficult (83%). European decision makers frequently have no clear idea how they can effectively protect their interests politically and legally.
Each of these five lines of development is both a challenge and an opportunity. To turn them into a market success, European automotive suppliers need a proactive strategy that looks to the future.
As Richard Viereckl, Partner and Head of Automotive at Management Engineers states: “This strategy must encompass product and process innovations as well as new forms of cooperation of legal interests. In this context, it is a matter of utilizing China as an “incubator” of modern mobility – a market in which the principle “Simplify Your Drive” is even more important than perfecting technical features.”
Prof. Stefan Bratzel, Director of the Center of Automotive Management, emphasizes: “Mobility in China is not just limited to four wheels. European suppliers need to shift their attention even more to the two-wheeler market than they have in the past. In addition to ever new forms of microcars, it is specifically e-scooters and e-bikes which will also influence the mobility of the future in Chinese cities. Our suppliers would do well to be at the forefront in these areas.”
also available in german