Footprints around the globe

Jan. 1, 2020
North American manufacturers adapt to a growing global marketplace and discuss who?s the next China.

The planet’s population continues to increase, but the world is steadily becoming a smaller place, at least in the world of business.

Alliances are formed between partners thousands of miles apart, trade barriers between countries dematerialize practically by the day and there’s a good chance a number of U.S. executives at this very moment are keeping close tabs on such remote locations as Eastern Europe and Asia.

The rules of business are ever changing, and in this global landscape, the key now is for companies to adapt to the new paradigm.

Many companies cite the cliché “think globally, act locally” to describe basic business strategy, but to even use the phrase “global” connotes a bit of a cliché.

Globalization is a fact of doing business, no matter who’s involved.

We recently spoke with some leading aftermarket suppliers to get their take on operating in a global marketplace and what that means for the industry.

Like other business sectors, it’s more than likely auto parts manufacturing will decrease in North America, a fact that is not necessarily a negative for the industry if U.S. companies form the proper alliances and get their business plans in order. 

Many suppliers, who have interests in both the OE market and the aftermarket, are simply following the automakers.

And while a number of companies are fanning out to overseas locales, there are others who plan to increase their operations stateside.

The whole world is on the phone

The global mindset engendered by today’s companies is probably best illustrated by a typical Delphi conference call, says Frank Ordoñez, president of Delphi Product & Service Solutions and vice president of Delphi Corporation.

“When I have a staff meeting, I have the whole world on the phone,” says Ordoñez, who adds this makes for some early mornings (or late nights) for certain employees.

Delphi is fully entrenched in global operations, with 164 manufacturing sites and 185,000 employees around the world, including North America, Asia-Pacific, Europe and the Middle East.

ACDelco, another prominent global player, is in nearly every continent, says Michael Durkin, director of business development, specialized distribution, SPO International.

“Every region has independent aftermarket representation in every country.”

The company has launched more than 600 ACDelco Service Centers in more than 20 countries since 1994, with more than 200 being initiated over the past two years.

A priority throughout the company’s globalization efforts is to maintain consistent messages and branding, says Durkin.

A recent initiative includes a series of training modules that local marketing managers can take to WDs in South America, Mexico and Asia-Pacific regions. Including brand establishment and consumer awareness programs, the modules make use of such materials as catalogs, brochures, e-business tools and point-of-sale materials.

“We need to have visibility in all warehouses around the world,” says Durkin.

SKF, which makes bearings and seals, is perhaps ahead of the global curve. The company planted its feet into the market as a global presence soon after its 1907 origins. Within five years of the company’s founding, it had a foothold in such countries as Russia, Argentina, Brazil, China and the United States, says Rutger Barrdahl, vice president of SKF’s Automotive Division.

The manufacturer now has a presence in 130 countries.

Terry McCormack, president and CEO of Affinia, says his company needed to adjust their global strategy as research showed the value of “made in America” had diminished among professional repair technicians, provided that the technology and quality were still paramount in the product.

“When that became prevalent, when that became a reality for us, that changed all of the sourcing rules from this point forward,” he says. “As long as we provide a quality part with OE fit, form and function, technicians are less influenced by country of origin.”

A diminishing U.S. presence?

Though the role of North America in the world of manufacturing is predicted to decrease, it will by no means go away. One thing the U.S. manufacturing industry still has in its favor is a sophisticated edge in research and development.

Ordoñez foresees technology-related parts still being made in more sophisticated countries such as the United States. “I think technology products that are still difficult to manufacture are going to remain in the developed countries.”

Other parts will simply follow the OEs, as these companies point out. “A lot of the interior parts and a lot of the heavy metal parts are typically (produced) next to the assembly plants,” says Ordoñez, who adds that electronic parts have basically become commodity items. “There’s no manufacturing of electronics in the U.S. that has survived in the long run.”

He says Delphi is expanding in other countries, especially China.

McCormack, from Affinia, says that although many manufacturing functions are now global, the United States is still the place for continued technology improvements, leaving many processes to be performed stateside.

The Timken Company is the only global bearing maker stationed in the U.S. However, about 40 years ago, six of the world’s top 10 bearing manufacturers were located stateside, according to Barry Harris, marketing manager, North and South America, for the company’s Automotive and Heavy Duty Aftermarket.

He says a strategy that has worked for Timken is not keeping all its eggs in one basket. The company has interests that go beyond the automotive industry, into the industrial and steel-making sectors.

Like others we spoke with, Timken has seen a sizable strategy shift in recent years, as well as some of the largest reorganizations in the company’s history. “Back when the company was founded, it was all about a very specific product, and all of the market that we were going after was built around how much product can we produce,” says Harris. “Our strategy has changed to focus on the value that we bring to customers.”

ACDelco, which, Durkin clarifies, is a supplier, not a manufacturer, plans to continue increasing its U.S. presence.

“We’re focused on increasing our presence here in the U.S.,” he says. “We’re expanding our product lines.”

SKF also plans to continue its U.S. expansion, says William C. Diggory, vice president and general manager of the company’s aftermarket arm. “We still feel that the U.S. is a very strong market, notwithstanding some difficulties.”

He adds the company is actively on the lookout for acquisitions.

Facing currency fluctuations

The news from the U.S. front is both good and bad. While recent reports indicate unemployment has reached a low not seen since 2001, the deficit last year was about $200 billion for each quarter, double the rate of 2000 and almost four times that of the deficit in 1998, according to the Chicago Tribune, which adds the federal debt is now $8.2 trillion, compared to $5.5 trillion seven years ago.

This financial outlook is inevitably good news for other countries, a number of which own U.S. Treasury securities.

The strengths and weaknesses of the dollar are periodic problems, says McCormack, but many of the currency-related issues are simply out of the manufacturer’s reach to remedy.

“We just have to be cognizant of what’s going on in the various countries we plan to do business in,” he adds.

To accommodate currency fluctuations, a successful company must be nimble and robust, but very agile, recommends McCormack. This includes “being able to go where the various customers are and react to foreign currency and open borders for trade.”

For Delphi, the currency discrepancy between the United States and other countries is balanced, says Ordoñez. “We buy as many euros as we sell in dollars. As a treasury strategy, we’re pretty balanced. Currency is something we’ve tried to keep balanced everywhere.”

Who’s the next China?

As anomalous as China’s worldwide ascendancy into this market has seemed, other countries are already poised to pick up where this Asian powerhouse will someday leave off.

So, who is set to command the industry much like present day China? Some of those we interviewed point to India, an opinion bolstered by industry statistics.

U.S. exports of motor vehicle parts and accessories to India increased almost 47 percent in 2003 and 2004, according to the Automotive Aftermarket Industry Association’s 2005/2006 Factbook, which adds that U.S. imports of these same parts and accessories from India increased nearly 43 percent within the same time frame.

“India is a huge market,” says Ordoñez. “In many ways, the human capital is more available really. You’re really starting to see the original equipment manufacturers establishing a major presence in India.”

Others say China is the next China: that there is no equal — and there won’t be — to the situation presented by the country.

“When you look at the mass, size, scale and scope of China, no one (else) would have the opportunity of growth,” suggests McCormack, who doesn’t see any other country, even India, having the same impact.

Barrdahl agrees, saying there’s lots of growth still to be realized in China. “We think the Chinese economy is going to grow and we’re going to grow with it.”

Diggory posits it’ll be another 20 to 40 years before the vast Asian country even begins to slow its development.

Overcoming worldly challenges

Competing against the products that come from low-cost countries has been on the forefront of many minds in the aftermarket.

But the fact is that low-cost competition is more than likely looking to turn around a quick profit, while a number of U.S. companies continue to offer full lines and program complements not provided by those companies in less developed nations.

And these U.S. companies say they’re in it for the long haul.

“At the end of the day, we’re not going to be successful competing on a price basis,” says ACDelco’s Durkin. “We’re selling a complete program.”

The specter of overseas competition “is something we face every day and it’s nothing new,” he adds.

Further, ACDelco, like many U.S.-based parts sellers, offers many added services, like cataloging, training and a national warranty, wherein you can return a part supplied by the company anywhere in the country.

Other global challenges, he points out, are finding the right talent and dealing with the fact that different countries are in different stages of development, so versatility is required on behalf of the parent company. For example, some facilities are high-tech and others are still paper-based, Durkin adds.

“We cannot just relax and think that product developed 10 years ago will always be successful,” says SKF’s Barrdahl.

He adds that to distinguish itself, SKF has to go beyond the components of the part. “The product we sell is not only the metal and rubber that goes into the part,” he adds, referring to a host of additional services the company offers, like cataloging, brand building and customer relationships. “That’s really what I see as being the total package.”

In fighting against value lines, suppliers need to inform their customers of the “total cost” of a product, he adds.

Affinia plans to combat the low-cost parts dilemma in a number of ways, says McCormack. First, the company will continue being a full-line supplier: providing the full range of products regardless of volume, while offering advertising support, tech bulletins, data awareness and training, among a host of other services. “Those are the things we can do in this country that the lower-cost countries don’t do and likely won’t.”

Secondly, “we’ll continue to make parts here in the United States. The footprint of our company will just change across time.”

For Timken, rapid infrastructure investment to support growing global markets has posed a challenge, says Harris, but it has also presented opportunities for the company’s steel-making business.

Think like the locals

Again referring to the “think globally, act locally” statement, Ordoñez says to be successful goes far beyond just establishing a presence in various countries. You must think like the locals to be successful. For example, one must adapt to a Chinese mindset in China and a European frame of mind when operating in Europe.

ACDelco has followed the same strategy, moving to more “in-country” management, says Durkin. “We’ve kind of decentralized in a sense some of our local activities. We want to have a global vision but still maintain that local representation.”

Diggory believes operating globally means having a shared fate. “What’s intriguing for me is no matter where you are in the world, there’s a sense we’re all in the rowboat together.”