As summer passes, the industry still is gritting its teeth amidst the restart from months of COVID-driven paralysis. OEMs and suppliers are bracing for a potential second wave, along with the impact of slower overall vehicle demand. Now is a good time for companies to revisit forward strategies. A critical element of any reboot is understanding the competitive landscape.
Too often suppliers build out their short and long-term strategies with little consideration of how current or potentially new competitors could impact strategic initiatives. This already was happening in the months prior to the global lockdown. Now, as the industry shifts toward electrified propulsion and rising penetration of automated driver-assistance (ADAS) content/functionality, knowledge of how well both the incumbent and emergent competitors are poised for the future is ever more useful.
What are the key considerations? Future strategic plans need to include how the competition may react to shifts in core market constructs. Too often, an ecosystem scan is completed without a thorough review of one’s competitors because many times, the view is outdated or incorrect.
Several elements need consideration: What are competitors’ true capabilities regarding product and process technologies? What about their global scope, footprint, alliances/partnerships, emerging customer relationships and locational advantages? What is the ownership structure and position? Are they in it for the long haul? These and other questions require solid answers when considering significant changes in business strategy.
In addition to the enormous investments in electrified propulsion systems, ADAS and self-driving technologies and lightweight materials, reduced production volumes alone will spur over capacity and the need for consolidation in the light-vehicle sector. According to the IHS Markit Light Vehicle Production Forecast (below), North American average production volumes for the next five years will be under 15 million units – a reduction of more than 2 million units compared with 2015-2019. A smaller market with more OEMs slicing the pie thinner will challenge all competitors.
As the industry feels the impact of ongoing trade tensions (China, EU, etc.) along with implementation of the new USMCA, will more sourcing shift to North America? And if so, will current players fill the void – or will non-NA OEMs bring tier 1 and tier 2 suppliers from their home markets to relocate here? And how will the still-to-be defined sourcing strategy of Stellantis, the FCA + PSA marriage, play out?
Several suppliers have globalized their reach without significantly shifting their risk profile. Through alliances and partnerships, several have access to new technologies and gain exposure to new customers or geographies. OEMs still are keen to reduce supplier count though global sourcing with local supply.
The use of multi-system leverage is growing. If a supplier has two or three key systems capabilities, an OEM may alter sourcing to drive ‘bundling’ with a single supplier. This could serve to freeze out traditional suppliers. Other elements such as vertical integration, upstream supplier alliances and in-house tooling and design capability all can serve to separate the competition.
In the end, a business strategy without consideration of the competition or potential competitive dynamics is unsound. Shifting market dynamics, reduced volume and the need to mitigate enterprise risk all underscore its importance in today’s dynamic and increasingly uncertain market.Continue reading »