Suppliers and medium-sized businesses
The German automotive supplier industry, with 300,000 employees, represents the spirit of innovation, global presence and high performance more than any other field. The industry is anything but homogenous. It includes family businesses and global corporations, chip makers and steel processors, companies with dozens of locations worldwide and small specialists that are tweaking the future of mobility with 100 employees. Just as each company has its own unique character, the questions of the future must be answered by each individual company.
Nevertheless, there are some similarities. This is especially true of Germany. It is and will remain the home of supplier companies and a center of production and development. Nevertheless, there is no longer an automatic answer to the question of location. The majority of parts that are assembled by vehicle manufacturers in German factories are already imported from other countries today. Astute economic policy must therefore address the fact that medium-sized companies are the actual backbone of the German automotive industry.
On the other hand, internationalization is essential for both automakers and suppliers. A recent study from the Center for Automotive Management and Prof. Stefan Bratzel demonstrated this. German manufacturers are seeing more and more international suppliers, especially at their foreign locations. This means that cooperation between German automakers and German suppliers is less inevitable than ever. Meanwhile, globally positioned suppliers can do business with new customers in Asia and the Americas.
The latest VDA location survey indicates that, with over 3,000 locations around the world, the supplier industry is as internationalized as the automobile manufacturers. Compared with the previous survey in 2010, this is a substantial increase of about 700 locations. VDA member companies have production in nearly 80 countries. This picture is dominated, however, by the 100 largest companies. Measured against the total number of suppliers participating in the VDA, this is just the tip of the iceberg. In order to secure economic success and Germany as a production location, it is therefore necessary for small and medium-sized companies to expand into new markets.
VDA promotes globalization
Local production locations in transitioning countries are often the most important prerequisite to establishing a foothold. The early entrants are often manufacturers, followed by suppliers who want to participate in the growth in sales. For Tier 1 suppliers, a comprehensive international production network has long been part and parcel of the business strategy. Small and medium-sized suppliers, however, hesitate to invest in foreign markets and establish new production locations. The risk of a failed investment bears much greater weight for them. In order to help small and medium-sized companies to nevertheless make the leap to developing and transitioning markets, the VDA has discussed the requirements and suggested solutions for long-term financing. Ultimately, two financing models were created in conjunction with the DEG and the IKB.
In addition to financing, a reliable information base is needed when taking the step into new markets. Besides conventional market data, the experiences of other companies are especially valuable. The VDA has set up “round tables” in the key markets of China and Mexico. Local CEOs of German suppliers and automakers’ representatives exchange information and experiences and discuss the potential for cooperation. Due to the enormous significance of China as a sales and production location, the VDA has also set up on office for its members in Beijing. The team has initially staked out a set of issues to be addressed regarding norms and standards, logistics and the aftermarket.
Another focal point is entry into the Russian market. This is made all the more difficult by the deep recession in which Russia finds itself. Regardless, the Russian government has been attempting to establish local production structures by means of protectionist measures. The VDA therefore started a supplier cluster for Russia back in 2013, in which 18 companies are currently participating. The companies joint efforts are focused on establishing a stable supplier network in Russia. The initiative remains open to new participants.
Innovations are the most critical key to survival for automotive suppliers in international competition. Working together with the Center of Automotive Management (CAM) of Prof. Stefan Bratzel, the VDA has investigated the innovative strength of the automotive industry and the innovation relationships between suppliers and manufacturers for the first time. The innovative power of automobile manufacturers was analyzed in an internal comparison on the basis of empirical innovation data. The starting point was over 7,000 innovations between 2005 and 2014 that were evaluated according to quantitative and qualitative criteria.
The study shows that the innovative power of German manufacturers has grown in comparison with their competitors across all technological fields in the last ten years. This was demonstrated by the analysis of 7,032 vehicle engineering innovations from 18 global automobile manufacturing companies. Because these innovations were produced by working together with suppliers, the cooperative relationships between global OEMs and global automotive suppliers were analyzed in more detail. The results show that the majority of innovations from manufacturers in Germany, the USA and Japan were indeed developed with suppliers from their own countries. In the most recent years studied, from 2011 to 2014, the pattern of cooperation became increasingly international, however, both among OEMs and among suppliers. Manufacturers are working significantly less on innovations with domestic suppliers. From 2007 to 2010, German automakers still produced more than two-thirds of their innovations with German suppliers. In recent years, this share has dropped to 47 percent. In the other direction, German suppliers implemented over 80 percent of their innovations with German manufacturers between 2007 and 2010. In recent years this share fell to 57 percent. German suppliers are working more with US manufacturers in particular.
Development service providers
Development service providers perform development work for manufacturers, contributing significantly to increases in innovation and improvements in efficiency along the entire supply chain. As a rule, they are focused on developing components, modules and systems for a vehicle, and cover the entire development cycle from early development to start of series production. The VDA provides a forum for these companies in the interest group for development service providers, with discussion of opportunities, challenges and problems with collaboration. Over twenty well-known development service providers participate.
The service provider industry is currently undergoing upheaval. The regulation of contracts for services and temporary employment, as well as rising liability risks with respect to manufacturers, have created a need for change. Even before the law was changed, manufacturers and development service providers adapted or revamped their processes. The VDA performed a thorough analysis of the challenges in a joint study with the Berylls consulting company. The study, titled “Automotive Development Service – Germany as a Future Location,” is available free of charge on the VDA website.
The German automotive supplier industry has strong regional roots. Regional cluster initiatives have therefore been formed in the federal states, offering various types of support to small and medium-sized suppliers. The VDA is in close contact with supplier clusters in the German federal states, and cooperates with them on joint events or as part of the IAA. In the VDA State Dialog, the automotive cluster initiatives from the federal states come together once a year with the economic ministers to exchange information. The VDA provides another service with the supplier database auto-world.org, in which VDA member companies and companies from various cluster initiatives are integrated. The focus here is on regional searches. The supplier database is a supplement to the VDA manufacturer verification.
Automotive industry and startups
The digitalization of all of its aspects has had a substantial influence on the automotive industry on the customer side, with new mobility services, networked or automated driving, and in production. The automotive industry is adapting to new players in the automotive supply chain. These especially include young, creative software and digital startups. The auto industry wants to collaborate intensely with these companies in order to make use of their innovations for “Made in Germany” mobility technology. The VDA has therefore pushed for cooperation between the automotive industry and the national and international startup scenes with dedicated efforts over the last two years. The association has used various projects and initiatives to establish a new platform for significantly intensifying the exchange between companies in the auto industry and startups.
VDA member companies and startups should have regular opportunities for making contact. To this end, a Digital Learning Journey has already been established, where medium-sized automotive companies can get to know many mobility startups. In the New Mobility World at the IAA, a “Startup Zone” has also been set up. The VDA is also working intensively with the German Startups Association, producing a joint position paper on traffic and innovation policy. In order for companies and startups to make more intensive contact, a cooperative effort with the German Tech Entrepreneurship Center (GTEC) has also been agreed on.
Medium-sized commercial vehicle industry
The commercial vehicle industry itself is – with the exception of a few large manufacturers – full of medium-sized companies, and is a significant overall factor in the German economy. The entire commercial vehicle industry has about 190,000 employees. Demographic changes, rising internationalization and increasing digitalization present new challenges for medium-sized German companies in the commercial vehicle business. The family companies, most of which have been led for several generations, are second to none in meeting the ongoing development needs of their products with respect to ecological and technical demands. No other country has such a high level of technological and quality thinking, as well as innovative ideas that flow quickly into manufacturing and innovative products in the trailer and superstructure industry.