The
global market for Automotive Component Outsourcing is projected to reach US$1.0
trillion by the year 2017, according to a new report from Global Industry
Analysts Inc. Growth will be primarily driven by healthy increases in the
production of passenger cars and commercial vehicles and increased transfer of
component design, development and manufacturing responsibility from OEMs to
suppliers. Margin pressures faced by OEMs in developed markets bode well for
outsourcing opportunities in low-cost developing countries in Asia-Pacific.
Globalization
has played a critical role in the development of automotive component outsourcing
by encouraging OEMs and their suppliers to develop and define a new
international division of labor. The trend has also been partially fueled by
the international re-location of auto demand from mature developed countries
like North America, Europe and Japan to emerging markets such as, Brazil, India
and China.
With OEMs
adopting a "produce where you sell" strategy as is reflected by the
growing number of supplier and OEM partnerships and shifting of manufacturing
plants to overseas markets, opportunities for component outsourcing has been on
a commensurate rise. Also, protectionist policies of governments in developing
countries that impose constraints and incentives on auto trade and
manufacturing coupled with cross border labor cost differentials have been
encouraging complete end-to-end outsourcing of component design, development
and manufacturing. The growing magnitude of outsourcing by auto OEMs still
continues to result in power shifts in favor of suppliers.
In the
upcoming years, growth in automotive component outsourcing will continue to be
encouraged by the competitive need to cut time to market, given its potential
to help OEMs steal a march on competitors. In this regard, outsourced
manufacturing of automotive subsystems will rise in importance given its key
benefit, which is reduction in total time required to develop, manufacture and
launch a new vehicle. In other words, reduction in lead times and higher
execution speeds will help enhance the flexibility of OEMs to rapidly adjust to
changing external market stimulants, giving them increased levels of new
product development abilities. As the automotive industry''s clockspeed continue
to accelerate, cutting down on the traditionally long
"Concept-to-Car" time will emerge to be the sharpest competitive edge
for automakers in the upcoming years. And outsourcing in this regard is poised
to benefit. As a case in point, the growing electronic content in an
automobile, of late, has pushed the automobile industry into a more dynamic
environment characterized by rapid change, and this thereby has pushed
outsourcing into a tool to stay on top of the opportunities.
The
2007-2009 recession also encouraged manufacturers to steadily shed full line
production processes and step up outsourcing in an attempt to free investment
capital. Given the current scenario where business disaggregation and
splintering of the value chain is the norm, outsourcing stands as a strategic
tool wielded by OEMs to increase production efficiencies and in the process,
profitability.
While the
automotive industry in most regional markets is steadily recovering, the
industry in Europe is running into fresh set of challenges. The industry in the
region currently continues to vacillate between optimism and fear, marring
sentiments in an otherwise recovering market. Nervous over the play out of the
sovereign debt crisis drama, the domestic industry is facing immediate hurdles,
such as, credit restriction, consumer indecisiveness, anticipated slowing of
vehicle sales, high labor costs, and possible collapse of consumer confidence
in the event of escalation in the severity of the debt crisis. The heat raised
by the Euro debt crisis in the auto industry in the EU is reflected by the
growing concerns voiced by auto majors like Ford, General Motors, Fiat, over
the volatile and fluctuating profits being recorded in the region.
At the
extreme pessimistic end of the spectrum, bearish market sentiments indicate
that multiple defaults by debt ridden economies could trigger a collapse of the
Euro as a common currency. The return to local currency, although currently not
seen as likely, can spell doom pushing the automobile industry into a complete
meltdown like the one witnessed during the 2007-2009 recession.
While no
easy and immediate solutions exist for Europe''s macroeconomic imbalances,
current economic data leaves room for hope. For instance, Germany''s relative
resilience in handling the euro zone crisis is helping strengthen confidence
levels. Given the yet encouraging outlook for the German economy, the largest
in the euro zone, it is not all gloom and doom as pessimists might view. Also
forced austerity measures implemented in Greece to reduce the country''s
widening deficits, are less likely to be adopted in relatively stronger
economies with lower debt loads like in Germany, Spain and Italy. This is
primarily because of the growing acceptance of the counterproductive
implications of such a strategy on GDP growth in an economy.
Immediate
production cutbacks in the region are not seen as likely, given the yet patchy
slowdown in auto sales. Currently, production continues to hold up even in the
face of weaker than expected growth and optimism remains with no downgrade in
the outlook for auto production. Although short-termed, concerns of the automobile
industry are currently alleviated with news about the governments in EU
legislating additional bailouts which in effect kicks the EU debt can further
down the road. Although these short-term measures do not provide a permanent
solution to the crisis and in reality indicates deferring of conclusive,
corrective action, market sentiments are nevertheless encouraged.
The
research report titled "Automotive Component Outsourcing: A Global
Strategic Business Report" announced by Global Industry Analysts, Inc.,
provides a comprehensive review of market trends, issues, drivers, company
profiles, and key strategic industry activities.