When my editor sent me an outline of the content that was slated to appear in this issue, one item jumped out at me. It read, "An analysis on India, and how the country will increase its impact on the worldwide stage due to its outsourcing capabilities, as well as its large youth population."

For about the last six months, I've examined the rise of globally manufactured products from low-cost countries (LCC) and the impact on the North American aftermarket. Much of that attention had been focused on China, but I have made several references to the role India is playing in this ever-expanding global trend. It's not just about one country; and increasingly it's not just about the manufacturing capabilities that these off-shore suppliers represent.

I thought back 25 to 30 years and realized that we were talking about "globalization" even then. I now realize that while talking about it, we had literally no idea what it was all about.

At the time, it was more about "import cars" and how we would cope with making parts for them here in North America. If someone had told me then it was about making parts for Fords and Chevrolets in China and India, I would have thought him a lunatic. But the fact is the force of globalization is creating a new reality. It has been said that arguing against globalization is like arguing against the laws of gravity, and I believe that is true. Globalization is not something we can hold off or shout down. It is the economic equivalent of a force of nature. But there are, to my observation, too many aftermarket practitioners who are acting as if globalization is a fad they can wait out.

A 'sad joke'?

When past columns of mine have referenced the impact that LCC manufactured goods are having on the North American aftermarket, I received numerous e-mails that support this observation, a common theme being that while the quality of globally manufactured product has improved, it is still "a sad joke." Others imply that there is more to selling into our market than just presenting products that "will work" at "ridiculously low" prices. Really?

Let's examine the general attitude that came across in the language of some who shared their thoughts. I chose the comments in quotation marks in the previous paragraph because they represent much of what is wrong with the conventional thinking of many aftermarket manufacturers.

For some people, saying that a product "will work" is interpreted as "built to the lowest level of quality that will provide service." (I have heard even less-kind euphemisms for LCC products that cannot be printed here.) Most often these comments come from aftermarket companies that have overbuilt their products for decades. If you are a North American manufacturer, I ask you to take this quiz. (Answers are at the end of this article.)

Part 1. Our parts are built to satisfy: a. Our own product peopleb. An "industry standard" defined by a society of engineersc. Our distributors' buyersd. The technicians' needse. All of the above

Many aftermarket service parts are replaced when they still have significant useful life remaining (e.g. oil filters). And many replacement parts will outlive the vehicle in which they are placed (as with engine bearings). Our disdain for the "appropriate" quality of parts from LCCs is indicative of our penchant to overbuild. Why should anyone want to throw away useful utility? Is quality that exceeds need really quality, or is it excess?

The other observation that LCC prices are "ridiculously low" is also evidence of yesterday's thinking. Our pricing model historically has seen the manufacturer playing a significant role in defining channel pricing by setting the so-called jobber or "blue" reselling price. It appears this practice has created an attitude among many manufacturers that they are the ones setting prices. Time to continue the quiz.

Part 2. Selling prices in the aftermarket are determined by: a. Distributors and retailersb. Manufacturersc. The federal governmentd. The price customers will paye. None of the above

Recently a manager at a large manufacturer was telling me that one of his customers was complaining about a pricing problem. He explained to me that his company had done the market research, and that they didn't have a pricing problem. His logic? Since their blue sheet price was in line with his competitors, it could not be a pricing problem. When I asked just what the customer's problem really was, his answer floored me. "Well they think just because they can buy a similar product from overseas for less, we should lower our price."

I wasn't really sure how to respond to what he said. I remember thinking that a fundamental tenet of business competition is the idea that if one can get a "similar product" for less from another vendor, then the current vendor has the choice to meet the price, justify the difference or lose the business. I asked him if his company ever encountered a similar situation on the purchasing side, perhaps with a new supplier who could offer a raw material or service cheaper than the incumbent: "Well, this is different. They don't have the price problem they think they do." I had to think about what that meant.

After ruminating on that, I decided that his perception was that his company was entitled to make the margin it was accustomed to making and the customer should be happy with the margin he had historically made. He was stuck in the aftermarket pricing paradigm that says if your "suggested reseller" price is at parity with your North American competitors, then you are priced right, and your customers will happily take the margin that is defined by their discount from that price.

But along comes a non-traditional LCC with acceptable quality and no idea or concern about the suggested reseller price. They simply are offering a product with appropriate quality and satisfactory performance, which will enable the reseller to make additional margin. I pointed this out to my friend and he looked at me seemingly dumbfounded. This was not an unintelligent man with whom I was speaking, but his perception of reality was being challenged to the point that it literally was not computing. I knew this because he came back with, "but that product doesn't come from us, it doesn't carry our brand!"

That brings me back to those "other things" that are required to sell products in North America. Several people who responded to my previous observations on LCC products noted marketing, specifically promotion and branding, as part of the added value that North American manufacturers bring to the picnic.

"We have an established brand that the market prefers," wrote one manufacturer. "After nearly 100 years of providing high quality replacement parts to repair technicians, it is unlikely that they will switch allegiance for a few pennies." He may be right...but what about for a few dollars? At the very least, shouldn't he be thinking about at least two questions? Like, what is the price difference at which my customers will start using the LCC stuff? And, if the market gravitates to that price, can I compete and still make money?

Unquestionably, brands do have value. But their overall strength is diminishing. Consumers in general are much more comfortable with private label products than they were a generation ago, as they've discovered through personal experience that many house brands are the near equivalent of national brands. They "will work." This has created consumer willingness to experiment with house brands on an ever-expanding range of products. At some price threshold, an overwhelming majority are willing to trade the reputation of the brand for the value of a private label.

This is the situation that began emerging some time ago with repair technicians regarding replacement auto parts. They are being confronted with choices between brands they know at a substantial premium over ones they don't know.

Meanwhile, marketers on the LCC side are beginning to realize that there is gold in North America that can be mined only by being more than a competent manufacturer of a fit-for-use product. They are becoming very serious about marketing and are working to brand their products and promote them more aggressively. Some evidence I have encountered:

• About 4:30 a.m. one morning I'm lying in bed when I hear my office phone ringing from the other room. Realizing that I have at least one other insomniac client, I figure I better see if there is an emergency. I answer and hear a woman's voice with a heavy Asian accent speaking English with the preciseness of someone who has studied it for some time as a second language. Regretting that I ever allowed the editors to print my phone number in the masthead of this publication, I listened as the young woman asked about advertising rates and if my publication would be interested in writing about their precision manufactured "OE equivalent" products.
• I now receive e-mails from LCC manufacturers with at least the same frequency at which I used to get them from deposed financial ministers in Namibia wanting to split their substantial fortune with me. These e-mails come from companies in China and India who can make everything from diesel injectors to brake rotors and are willing to sell them in quantities as small as half-containers.
• While looking through a recent issue of Motor Age, our sister publication targeted to repair technicians, I was struck by what seemed to be an inordinate number of ads for brakes from LCC suppliers. So I decided to do the math. In this particular publication there were 10 ads for brake companies: one was from a traditional North American supplier; two were OEMs soliciting installer business; and seven were for brands created in the last three to seven years that are manufactured in LCCs.

It is clear that LCC companies see tremendous potential for their products in North America and are trying (sometimes by trial and error) to find ways to better access our marketplace. Take a minute to flip through the pages of the magazine you have in your hand. My suspicion is you will find several pretty slick ads for LCC products. This, while many North American manufacturers continue their denial that LCC product has even a remote chance of gaining marketplace acceptance.

There is a wonderful scene near the end of the movie "The Matrix" where Agent Smith has Neo (or Mr. Anderson as he prefers to call him) pinned to the subway tracks. He looks down at him and asks, "Do you here that, Mr. Anderson? That is the sound of inevitability...It is the sound of your death." For North American manufacturers who continue to misread their customers (especially those who answered either quiz question other than D), that sound you hear is the growing din of LCCs advancing.

Bob Moore is president of Bob Moore & Partners, a consulting firm that specializes in the automotive aftermarket. Moore can be reached at [email protected].