Like other global manufacturers, automotive companies once regarded emerging markets primarily as low-cost locations for routine operations. Now, attracted by the enormous business opportunities, and often encouraged by government policies, more automotive manufacturers are locating higher-value activities such as complex production, research and development (R&D) and sales/marketing operations in these rapidly growing economies. Yet, despite the enormous business opportunities in these markets, a surprising number of companies fall short of their goals. Indeed, Deloitte's Global Manufacturing Industry Group, which is made up of Deloitte member firm manufacturing industry practices, found in its "Innovation in emerging markets: 2007 annual study" that less than half of the executives surveyed in the automotive sector said their companies had been extremely or very successful in meeting either their operational goals or their revenue goals.

In the following interview, Steve Laughman, global automotive sector leader with Deloitte’s Global Manufacturing Industry Group and a partner with Deloitte & Touche LLP (USA), discusses the investment trends in emerging markets for OEMs and automotive suppliers.

Why are emerging markets so attractive to automotive manufacturers?
Steve Laughman: With the rapid growth of markets such as China and India, it’s hard to ignore these markets. Also, other markets within Eastern Europe and Latin America are growing fast. These emerging markets provide tremendous opportunities for automotive manufacturers to grow their top line and capture a new customer base. While reducing operating costs and access to lower-cost suppliers are still very important factors influencing the decision to invest in emerging markets, our study found that increasing revenues and market share are now the key drivers.

In which emerging markets will automotive companies invest in the future?
Steve Laughman: We anticipate that China will continue to attract the largest share of investments from automotive companies who are seeking profitable growth in emerging markets. In fact, our global study reveals that 78 percent of executives at automotive companies said they were extremely or very likely to locate or expand operations in China over the next five years, while 61 percent said the same about Eastern Europe, 54 percent about India, 52 percent about Latin America and 47 percent about Southeast Asia. 

Will the investment in emerging markets be limited to the production area?
Steve Laughman: No, not entirely. Other operating areas will be expanded.  In the last few years, OEMs and suppliers have stepped up their investments in emerging markets. And, it’s true that many have and will continue to expand their production capabilities to serve both local emerging market customers and to be a strategic operating base for supply to customers on a regional or global basis. A more recent trend is the increased research and development (R&D) in emerging markets. Many automotive companies are investing in R&D centers especially in locations such as India, China, Czech Republic and Hungary. It’s a strategic decision that is allowing these companies to be closer to the customer, to tailor their products for local market needs and to achieve faster time to market. 

What are automotive companies doing to succeed in emerging markets?
Steve Laughman: Succeeding in emerging markets is a challenge. Less than half of the automotive companies that we surveyed said that they are extremely or very successful in meeting their business goals in emerging markets. Why? Because it’s simply difficult to manage a growing and complex global operation, let alone navigating through the complexity of doing business in emerging markets. The OEMs and suppliers that are most successful have three things in common. First they are customizing their strategies to win the war for talent in each emerging market and in many cases emphasizing non-monetary rewards. Secondly, they are taking a comprehensive view across their business of the risks that will challenge their success. And, finally, they are adapting their operating models to find the balance between the efficiency and expertise provided by their global networks with the autonomy necessary to provide flexibility to local operations.

 Meet Steve Laughman
 Learn more about the "Innovation in emerging markets: 2007 annual study"
 View some of the key findings for the automotive sector in the PDF attachement below: