“Globalization” is one of those oft-utilized—and oft over-utilized— terms used to describe several regional shifts within the industry. It pertains to the approach of how vehicles are engineered, manufactured, marketed, and components are sourced. To be concise, globalization means devoting fewer overall resources to effectively cover more regions with a common design. Virtually every OEM touts this philosophy as investors are interested in the efficiency of the approach and consumers benefit from the ability to improve technology integration from a scale perspective.
Since the middle of last decade, the momentum behind global platforms has gained steam to a point where the vast majority (over 90%) of unibody vehicles currently built in North America are also built elsewhere. While the Japanese and Korean OEMs were first to bring these pan-region platforms to North America, European- and Detroit-based OEMs needed to move toward these structures from flexibility, speed and cost standpoints. In fact, in some cases we are entering the 2nd generation of global platforms, expanding the volume and body-style breadth. These started in the likely places of small and compact sedans/ hatchbacks, leveraging scale from Europe or Japan. Of late, midsize sedans, CUVs and even EU-designed full-size vans (Ford Transit and Ram ProMaster) have joined the parade of various offerings built in more than one region.
Global platforms have altered the way procurement occurs. In the past, when different vehicles were built in each region, the use of regional suppliers was justified. The engineering and design teams had full capability to handle their own procurement with little consideration for global scale. This began to change during last decade as several suppliers that wanted to stay regional in scope were forced to go global and follow their customers.
Just when you thought that many Tier 1 and 2 component suppliers read the memo about having to cover several regions to follow their customers, it seems that a few were able to fly under the radar and escape the pressure. Given the increasing complexity of future designs, the need for scale economies, the hesitation for OEMs to add the burden of working with multiple suppliers on the same component, and the need to react faster to market forces, OEMs started ‘persuading’ suppliers to support build or design outside their traditional region.
Suppliers have answered the globalization challenge with several solutions: Options range from reading the tea leaves and selling to a larger competitor; seeking manufacturing or R&D alliances with competitors in other regions to support design occurring elsewhere; or biting the bullet and carefully expanding the breadth of the manufacturing and Engineering/R&D support to other regions to follow customers. Increasingly, Tier 2 suppliers are joining the parade of suppliers requiring a global footprint.
How was the pressure for suppliers to globalize determined? While each OEM and segment was on a separate timeline, the pecking order was first determined by those components/systems where scale economies and technology and integration demands dictated substantial savings. Major interior systems such as seats, instrument panels, door panels, and overhead systems led the way. Others included suspension, electronics, fuel, driveline and steering systems, where close OEM-supplier coordination is critical. Other systems followed, leaving relatively few opportuni- ties to be a true ‘regional’ supplier.
Intertwined in the increased penetration of global platforms is the drive to reduce supplier count and the burden of supporting too many suppliers. This movement seemingly feeds the goal to sole-source global platforms systems and key components. Globalization is here to stay. How the supply base deals with the increased demands for capital, heightened risk and higher volume will determine their future profitability.
Michael Robinet has been a managing director of IHS Automotive Consulting since 2011. Prior to that, he was the director of Global Production Forecasts for IHS Automotive. His areas of expertise include global vehicle production and capacity forecasting, future product program intelligence, platform consolidation and globalization trends, trade flow/sourcing strategies, and OEM footprint/logistics trends.