by Amy Antenora
CHICAGO — While the U.S. economy struggles, many North American companies are increasingly turning to globalization as a way to balance out their portfolios, and tap into some powerful emerging markets.
One of the most talked about emerging markets today is China. Steve Ganster, managing director of Technomic Asia based in Shanghai, first spoke at GAAS four years ago, when he says China was more of a peripheral blip on the radar. Much has changed since then, said Ganster, who gave GAAS attendees a taste of what China’s aftermarket is like today.
The relevance of the China market is highly covered today as an opportunity for new growth. “Many of your customers are already doing business there,” said Ganster, author of a book called the “The China Ready Company.” It’s also an emerging market of new competition.” It’s a market that you need to proactively consider, he said.
Some key trends
Ganster said to expect expansion into second and third tier cities that may not be as well known. China has more than 170 cities with one million or more people, and there is a significant amount of untapped market potential from a consumer market and an automotive market perspective, said Ganster.
“China’s business focus is turning more inward,” said Ganster. “That’s having important implications, changing the competitive landscape and changing sourcing relationships.” However, the emergence of Chinese global companies is still in the very early stages, said Ganster. Western companies with a dual strategy of doing business in China and sourcing from China is a very interesting one to keep an eye on, he added.
The aftermarket in China is feeding off strong OE sales and is now becoming a size that is getting the attention of Tier 1 and Tier 2 suppliers. “When I spoke here four years ago, many of the companies did not have a dedicated executive for the aftermarket in China, and today, that is definitely not the case,” he said.
There are approximately 24 million vehicles in China, representing more than 200 vehicle models. Vehicle type is shifting from small sized sedans to mid-size sedans, which will be more than half the market by 2012, according to Technomic Asia’s predictions.
Ganster also wanted to dispel some myths about China today. Among those myths:
the so-called post-Olympics malaise, deteriorating trade that will undermine economy and companies abandoning China due to higher costs.
Ganster said that we should expect to see an increasing number of vehicles made by Japanese and Korean suppliers, which currently have more than 40 percent of the market share.
There are big opportunities that result from China’s explosive growth. “We are not only getting a high growth in the [vehicle] parc but also a better quality in the parc,” said Ganster. “Who has the power hasn’t been determined yet. The fluid structure and supply chain can be influenced,” he said.
Still, there are challenges price pressures, counterfeits, weak appreciation of branding and the difficulty of selling a premium brand in a cost-conscious culture.
On the final slide of Ganster’s presentation, the following line was emblazoned in red letters: “In China, all things are possible but nothing is easy.” There are some challenges to entering an emerging market like China.
Among the tactical considerations Ganster recommends when considering entering a new market, he suggests that companies carefully select its addressable market and focus its geographic coverage. Other tips: get your distribution model right, clarify your value proposition and price and control counterfeiting. Another consideration he offered: Explore acquisition opportunities to accelerate localization, and remember, “strategy before structure.”
Cleaning Up in the “Beautiful Mess”
Following Ganster’s presentation, GAAS attendees heard from Fotios Kastardis, managing director/CEO for TEMOT International Autoparts GmbH, a leading group of warehouse distributors based in Germany. TEMOT is also a member of Aftermarket Auto Parts Alliance. Prior to joining TEMOT three years ago, Kastardis spent 12 years with Robert Bosch GmbH and he began his career at AMOCO.
Kastardis’ presentation focused on the challenges and opportunities available in what he described as a “beautiful mess” Europe. The aftermarket in Europe is worth approximately 186 billion Euros and growing at about 1.5 percent annually. Globally, Europe has about 26 percent marketshare in the aftermarket.
The circulating fleet in Europe is getting older. Thirty-five percent of the car parc is 10 years and older. On the service side there are about 400,000 service outlets in Europe, 27 percent of which are independent service centers. Independent garages are increasingly buying parts from dealerships, Kastardis said.
Taking a closer look at warehouse distribution in Europe, there are about 20 WDs with turnover of 100 million to 1.2 billion Euros and thousands of smaller WDs with sales of 500,000 tsd and less. WDs in Europe stock anywhere from 25,000 to 50,000 SKUs, which turn four to five times. WDs in Europe typically make up to six deliveries per day and returns are at about 10 percent.
During his presentation, Kastardis also touched upon European legislation related to the challenge for access to service repair information and other issues of concern such as warranties. The entire repair process has become extremely complex, said Kastardis, from parts identification and cataloging to access to diagnostic tools and information, as well as training.
Overall, Kastardis said that the European aftermarket is complicated and recognizing the nuances of each market is important. Like Ganster, Kastardis noted that understanding the culture is of paramount importance.