My Take on Global Sourcing in the Auto Industry

With the coming of the “ Mega Competition ” era, the world auto industry is entering the wave of globalization. Companies are approaching the 21 century, and they are realizing that global thinking

and management are critical for the survival of the auto industry.

The contents of global strategy of auto industry consist of global car production and allocation strategy, global sourcing strategy, and global product development strategy. Managing globalization is also one of the key issue from the view point of making strategic decision. On the other hand managing globalization is closely related with managing localization. Pursuing global strategy, all of the auto companies have to solve this problem: how they can co-ordinate and connect their global strategy with their strategy of

localization.

The historical tendency of most of the world auto enterprises was consolidated organization of local companies such as U.S. Big 3 and some Europeans. Their local subsidiaries developed their differentiated local product by themselves and purchased local parts by their own way.

Since 1986, Japanese car makers set up local transplants by different ways in Western countries. In early steps of this process, Japanese car manufacturers tended to transfer their production and part procurement systems and their products with some local modifications. In 1990s, they were confronted with higher Yen' appreciation and the rationalization of their production. During this term their strategy has been changed gradually from local oriented one to more global oriented one. They tried to build a local production network linked to the international division of labour. The local production network tended to produce international products which can be exported to the world and finally to go to the global network.

These network global strategies were pursued not only by car assemblers but also by part suppliers. Japanese part suppliers supported car assembler' localization and later their global networking because they were also entering globalization. After 1990, this globalization has been more accelerated.

Within the context of the Japanese auto makers' plan for establishing a global network, western auto makers plan to strengthen their global networking strategy to greater localize their production and marketing, and to organize as a world-wide network particularly for auto exports. An aggressive stance toward the development of global strategy involves producing more goods locally and purchasing a greater number of parts internationally. US and European auto makers have taken the lead in global integration of product development and parts purchases. A few examples of such companies would be the new "World Car Concept", which combines global-wide automobile product development with global sourcing.

Of course some companies cannot use special term "world car" in their global strategy. There are several choices, however, in approaching the "world car", such the "localized design car". Even without a "world car", auto companies should consider the possibility of global sourcing. As auto companies strategy becomes more globalized, their parts sourcing strategy are evolving.

Global sourcing means purchasing parts and components from optimal places which are characterised by global bases. Why and how has global sourcing emerged? With the coming of borderless economy, we can now overview which area is most optimal to purchase some parts and components by quality, cost, delivery, and engineering capability. We can watch the cost disparity by each countries using computer

information data base. Although exchange rate and currency evaluation are still unstable, observing these data can show the best response and new choices of exchange rate free purchasing.

FUTURE PROSPECT OF "WORLD CAR" OR "ASIAN CAR", GLOBAL SOURCING AND CHANGING GLOBAL PRODUCT STRATEGY

The tendency of global networking for local production is spreading not only among Japanese car makers but among GM, Ford and European makers such as VW, BMW and Mercedes Benz. Among these makers the most attractive plan is Ford' ambitious "World Car strategy" and "Global Sourcing strategy".

Ford publicized Ford 2000 project as its 21st Century' grand strategy with new world car strategy. In this project Ford exhibited its grand design targets as follow:

• Advancing effectiveness by global integration of Auto R&D, Design and Production.

• Reorganization and vitalization of bureaucratic organization.

• Active entrance for new developing market like China, India, Latin America and ASEAN countries. Strengthening established market share.

• Global advancing R&D cost cutting and quality improvement by suppliers integration.

• For this global strategy, Ford has to integrate its R&D center globally, and introduced 5

Vehicle Centers.

Not only globalization strategies by Ford and GM but also by Japanese auto makers and global sourcing suppliers such as Mitsubishi and Denso are also interesting story with step by step approach with localization.