Automotive industry is going through a phase of continuous shift. Emerging markets are offering growth and OEMs are constantly reorganizing their international value chains to leverage on the growth. Volatility of oil prices and sudden events leading to fluctuations in exchange rates are putting pressure on OEMs to locate production facilities closer to markets and this trend is fuelling intense competition. Local players are capitalizing on their knowledge of consumer needs to maintain an edge over the international players by offering innovative models that addresses specific customer needs. Cost pressures are unequally affecting local and international players but the difference is converging as growing markets become concentrated. Local players have the consumer knowledge and OEMs have the blend of quality which needs to complement each other if players want to see sustainability in coming years.
On the other hand, premium segment is entering into emerging markets considering the preparedness of these markets. It is important to test the markets carefully so that the right timing for entry into these markets can be determined accurately.
Key trends shaping the industry
Segments in Segments: Customer needs are segmenting further driving the need for innovation from automobile manufacturers. In this state of transition, knowing customer needs and careful sub-segmentation will give an opportunity to leverage growth.
Environmental Sustainability: With emerging markets deploying equally stringent norms as the European Union, need for low emission and support for alternative fuels will drive growth in coming years. Breakthrough innovations in R&D for increasing efficiency of automobiles with renewable sources will open up a new dimension in future.
Emerging markets as export destinations: In addition to becoming growth markets, emerging countries are also becoming hub of exports for international markets due to low cost and matching skill sets. Cost pressures will pose a strong challenge for the export sector to maintain its current growth trajectory.
Challenges facing the players involved in the industry
Profitability and Cash Flow: Unrealistic cost structures came out in the open during the downturn and companies have now learnt to keep costs low even in small volume sales. But for betting in uncertain emerging markets and expanding in new opportunities it is important to cut costs further to absorb any unforeseen shocks. This would require redesigning of operational capabilities and sensible choice of channel partners.
Achieving Differentiation: Maintaining a unique image by differentiation is an uphill task faced by all players where it doesn’t take much time to convert a product into commodity. Innovation specifically targeted towards customer needs and creation of unique image by branding is going to be the key to creating demand pull.
Globally competitive landscape: OEMs are facing pressure in reorganizing their value chain suitable for global sourcing and delivery due to very different cultures and consumer preferences. It is critical to choose markets with sound knowledge base about technologies, cost structure and investments which will help in maintaining profitability.
Environment for Innovation: Evolving environmental concern, changing customer preferences and global uncertainty require an environment of change and capability to implement change faster to bring new products to market. Many players have already suffered risk of extinction before due to lack of consideration for change. Current scenario demands players to focus on organizational preparedness for change through transformation capabilities.
How can BMGI help?
BMGI has extensive experience in working with automotive players across the value chain and has developed rich experience in tackling issues facing the industry currently. BMGI’s expertise in tackling issues related to growth strategies, sustainability and operational efficiency has made it suitably positioned to deliver tangible value to its clients in dealing with cost pressures, partnering, sourcing and delivery capabilities.
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