Conquering new markets
Japanese auto parts manufacturers are moving quickly to conquer new markets. Alarming to some traditional European parts manufacturers, Japanese companies are moving forcefully into the CEE region.
With an eye to lucrative new markets, Japanese automotive suppliers are stepping up their expansion into Central and Eastern Europe (CEE). New predictions show that by 2015, the production of automotive parts in CEE will double, attaining a value of approximately EUR 40 billion, creating new incentives for investors. At the same time, the share of automotive parts manufactured in CEE that are used in European vehicles will rise from 23% in 2005 to 39% in 2015. Thus, over the period between 2005 and 2015, we could see Japanese suppliers in CEE tripling their sales from EUR 1.9 billion to EUR 6.2.
Why is the CEE market so hot? For one, the uncertainty of the profit situation in the North American market, which is key to many Japanese companies' profits, is redirecting their focus to other regional hubs. Other factors include the relatively low labor costs in CEE, the high quality of parts manufactured in the region and the yen's favorable exchange rate, which facilitates investment in Europe. Small wonder that analysts are predicting a wave of market entries and expansions for those companies already present in the market.But, given the diverse nature of the CEE region, Japanese companies should consider five key points of advice when looking to conquer this new market, a new study recommends. The study, conducted by analysts from Roland Berger's new Japan Desk in Germany, featured 44 Japanese automotive suppliers. Personal interviews with decision makers from eleven Japanese companies active in CEE complemented the findings. As a result, analysts outline five factors toward achieving success in the region:
With an eye to lucrative new markets, Japanese automotive suppliers are stepping up their expansion into Central and Eastern Europe (CEE). New predictions show that by 2015, the production of automotive parts in CEE will double, attaining a value of approximately EUR 40 billion, creating new incentives for investors. At the same time, the share of automotive parts manufactured in CEE that are used in European vehicles will rise from 23% in 2005 to 39% in 2015. Thus, over the period between 2005 and 2015, we could see Japanese suppliers in CEE tripling their sales from EUR 1.9 billion to EUR 6.2.
Why is the CEE market so hot? For one, the uncertainty of the profit situation in the North American market, which is key to many Japanese companies' profits, is redirecting their focus to other regional hubs. Other factors include the relatively low labor costs in CEE, the high quality of parts manufactured in the region and the yen's favorable exchange rate, which facilitates investment in Europe. Small wonder that analysts are predicting a wave of market entries and expansions for those companies already present in the market.But, given the diverse nature of the CEE region, Japanese companies should consider five key points of advice when looking to conquer this new market, a new study recommends. The study, conducted by analysts from Roland Berger's new Japan Desk in Germany, featured 44 Japanese automotive suppliers. Personal interviews with decision makers from eleven Japanese companies active in CEE complemented the findings. As a result, analysts outline five factors toward achieving success in the region:
1. Selecting the right region
For analytical purposes, Central and Eastern Europe can be split into two sub-regions: the so-called Visegrad 4 countries (Poland, Czech Republic, Slovakia and Hungary) and the Southeastern countries (Romania, Bulgaria, Slovenia, Serbia, Montenegro, Croatia, Bosnia-Herzegovina, Macedonia and Albania). The four Visegrad countries are well-positioned to produce capital-intensive parts, due, in large part to a steady influx of foreign direct investment (FDI) into the automotive industry there. More than USD 25 billion had already been pumped into that sector by 2006. By the end of 2005, automotive parts worth a total of EUR 18.4 billion were being produced in the four countries alone. The situation in the Southeastern countries is different, though not necessarily less attractive, if one approaches the situation with the right outlook. Here, - where FDI has been much more sluggish, at only USD 5 billion in the same time frame - the competitive advantage is in labor-intensive parts. Nevertheless, the production volume reached production reached EUR 1.6 billion by then end of 2005.
2. Choosing the right location
Following EU enlargement, many residents of the four Visegrad countries went West. As a result, these countries are suffering from a severe labor shortages. Thus, in preparing market entry, companies should - depending on their types of products - pay close attention to the degree of development in terms of industrial infrastructure and the number of well-trained workers available as local hires. For example, despite the general situation in the region, southeastern Poland still offers numerous suppliers as well as a sizable labor force.
For analytical purposes, Central and Eastern Europe can be split into two sub-regions: the so-called Visegrad 4 countries (Poland, Czech Republic, Slovakia and Hungary) and the Southeastern countries (Romania, Bulgaria, Slovenia, Serbia, Montenegro, Croatia, Bosnia-Herzegovina, Macedonia and Albania). The four Visegrad countries are well-positioned to produce capital-intensive parts, due, in large part to a steady influx of foreign direct investment (FDI) into the automotive industry there. More than USD 25 billion had already been pumped into that sector by 2006. By the end of 2005, automotive parts worth a total of EUR 18.4 billion were being produced in the four countries alone. The situation in the Southeastern countries is different, though not necessarily less attractive, if one approaches the situation with the right outlook. Here, - where FDI has been much more sluggish, at only USD 5 billion in the same time frame - the competitive advantage is in labor-intensive parts. Nevertheless, the production volume reached production reached EUR 1.6 billion by then end of 2005.
2. Choosing the right location
Following EU enlargement, many residents of the four Visegrad countries went West. As a result, these countries are suffering from a severe labor shortages. Thus, in preparing market entry, companies should - depending on their types of products - pay close attention to the degree of development in terms of industrial infrastructure and the number of well-trained workers available as local hires. For example, despite the general situation in the region, southeastern Poland still offers numerous suppliers as well as a sizable labor force.
3. Choosing how to enter the market
Of the 44 Japanese suppliers active in the CEE market that were surveyed for the study, 26 of them had chosen to expand to the region because they could easily enter as stand-alone players, ensuring quick and familiar decision-making processes. Only 4 companies had opted for an M&A prior to entering the market and 14 of them decided to engage in a joint venture to ease the difficulties of transferring the Japanese production system quickly.
4. Creating cost-effective, high-quality production facilities
Because of the lack of qualified workers in the four Visegrad countries, choosing the right location is as important as learning from the experiences of local and already existing foreign companies. For example, while local companies hire workers from other regions, they also arrange daily shuttles and/or dormitories to maximize time efficiency. Many of these firms have also introduced bonus systems based on attendance and performance to improve overall attendance rates.
5. Building your business in Europe
Many Japanese suppliers who have expanded their business in Central and Eastern Europe have been able to attract orders from Western European OEMs because of their knowledge of local needs and business practices at their R&D sites. In order to expand further, the study recommends that companies rethink the task distribution between individual branches in each country and their European headquarters to optimize procedures.
If you have questions or comments regarding this, or any other story, please do not hesitate to contact us:
Of the 44 Japanese suppliers active in the CEE market that were surveyed for the study, 26 of them had chosen to expand to the region because they could easily enter as stand-alone players, ensuring quick and familiar decision-making processes. Only 4 companies had opted for an M&A prior to entering the market and 14 of them decided to engage in a joint venture to ease the difficulties of transferring the Japanese production system quickly.
4. Creating cost-effective, high-quality production facilities
Because of the lack of qualified workers in the four Visegrad countries, choosing the right location is as important as learning from the experiences of local and already existing foreign companies. For example, while local companies hire workers from other regions, they also arrange daily shuttles and/or dormitories to maximize time efficiency. Many of these firms have also introduced bonus systems based on attendance and performance to improve overall attendance rates.
5. Building your business in Europe
Many Japanese suppliers who have expanded their business in Central and Eastern Europe have been able to attract orders from Western European OEMs because of their knowledge of local needs and business practices at their R&D sites. In order to expand further, the study recommends that companies rethink the task distribution between individual branches in each country and their European headquarters to optimize procedures.
If you have questions or comments regarding this, or any other story, please do not hesitate to contact us:
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