BCG: Emerging automotive-suppliers closing the gap
Emerging market players are growing rapidly towards surpassing the prime position currently enjoyed by multi-national corporations, research by the Boston Consulting Group shows. According to the consultancy, if the growth rates of emerging players remain as robust as in the past years, over the next thirteen years, three out of the top five positions in the automotive-supply industry will be emerging players.
Global competition is heating up, with more and more multi-national corporations (MNCs) that grew out of developed economies, finding themselves locked in competition with new corporates developing out of emerging-market players (EMPs). Over the past decade, EMPs with more than $1 billion in sales have increased significantly, tripling to around 1,700. Although many of these are not yet in the position to make inroads on the largest MNCs, their rate of growth is indicative that some these EMPs will take pole position in the coming decades.
In its ‘titled ‘Duelling with Dragons 2.0’* report, the Boston Consulting Group focuses on the automotive supply, construction equipment and chemical industries. A key finding of the research is that the automotive supply industry will reach a tipping point – when three of the biggest five suppliers are EMPs – in 13 years, while for construction equipment that point is 4 years away; and for chemical industry, that point has already been reached.
The fast lane
The automotive-supply industry has transformed significantly over the past decades. Traditional dominance of developed nation players, that were close to the traditional location of manufacture of vehicles, are seeing their power diminish as manufacturing move to the Chinese market. In 2008, emerging markets were producing 37% of global light vehicles**, or 25 million units, and by 2013, 50% of global production came from emerging markets. Of the emerging markets, China remains the world’s leading car manufacturer, producing 21 million units, as the country became the growth engine for the entire industry.
While manufacturing has moved to emerging markets, there continues to be some lag with respect to the supply side moving into the region. The average automotive-supply MNCs generate $29 billion in annual revenues compared to the average of $4.9 billion of the top 10 EMPs. EMPs have been growing rapidly, however, with annual growth of 21% between 2008 and 2014 while MNCs have seen growth rates of 4.7%.
Heading for the sun
The future of the industry has a number of different possible outcomes, with EMPs more or less dominant than they have been in the present period. In terms of the automotive industry, output is expected to hit 102 million light vehicles by 2020, much of which will be produced in emerging markets. China is expected to add a further 10 million units per year on its current rate of production – which represents more cars than the current Japanese output.
As a result of the continued rise in production in emerging markets, the automotive-supply side is projected to undergo changes as MNCs seek to bring their operations closer to manufacturers. The researchers also find that MNCs are looking to establish investment programmes that will globalise their enterprise closer to the home base of delivery.
According to BCG, however, in many places – particularly in China – there is a home base advantage to EMPs that may well allow them to continue their impressive growth trajectories into the near term. One of the BCG simulations sees EMPs encroach into the sales region of the top 10 MNCs in the coming five years, with a further 13 years required to upset three of the top five MNCs by EMPs.
* The research from the Boston Consulting Group involved more than 100 interviews with executives and experts in developed and emerging markets, including China, India, and Latin America.
** Which includes passenger cars, sports utility vehicles, and light and pickup trucks.
