The automotive industry finds itself at a decisive crossroads in a very volatile global environment, marked by geopolitical upheavals, health crises, and economic challenges. Automakers, who historically relied on global supply chains, are now seeking to localize their suppliers, particularly in Asia. This transition marks a profound shift in a sector long dependent on offshored production and global suppliers.
The Traditional Supply Chain Model
Until recently, the structure of the automotive supply chain relied on globalization principles, widely adopted since the 1990s. Major Western and Asian automakers (Japanese, Korean) depended on international suppliers to produce at a lower cost in countries such as China, India, or Thailand. These Asian markets offered considerable advantages, including competitive labor costs and favorable regulatory environments.
Automakers relied on a well-established network of global suppliers capable of meeting international quality standards, ensuring the robustness of industrial processes. In case of quality containment issues, remedial actions were primarily corrective, focused on inspection and repair missions to address any quality issues without necessarily addressing the root cause. This approach, although highly effective, might be showing its limitations in the face of recent disruptions.
The Drivers of the end of the Traditional Model
The COVID-19 pandemic exposed the fragility of this globalized model, highlighting the lack of resilience in supply chains during global crises. Simultaneously, rising geopolitical tensions, particularly with China, reinforced the need to mitigate risks associated with excessive reliance on a limited number of suppliers located in geographically distant and sometimes politically unstable regions.
Another often-underestimated factor is China’s growing prominence as a producer and exporter of automobiles. Today, Chinese automakers such as BYD and Geely occupy a significant position on the international stage, exerting increasing competitive pressure on Western and Japanese manufacturers, forcing them to optimize their supply chains to maintain competitiveness. The recent examples of import taxes imposed by the U.S. and Europe on Chinese vehicles underline this dynamic.
The Supplier Localization: The Emergence of a New Model?
In response to these challenges, a new model seems to be emerging: the use of local suppliers. This trend involves favoring the development of local actors capable of supplying automakers with the necessary components while reducing dependence on global suppliers. In Asia, this model is gaining momentum, with a concentration in China, India, and, to a lesser extent, Thailand and other Southeast Asian countries.
In China, the depth of the automotive market and the well-established local ecosystem enable manufacturers to rely on a network of local suppliers. The recent joint venture of Stellantis and Leap Motors demonstrates the importance of this strategy in a cost-reduction and process optimization context as one of the aims of this strategic move is to gain access to LEAP MOTORS' supplier base and thus access “pure” local players.
However, these local players, while entrepreneurial and agile, are usually not used to traditional global car manufacturer standards. As a result, training and consulting initiatives are required to align their quality processes with the requirements of global car manufacturer.
India, also, is becoming a new favored destination for low-cost suppliers. Although its automotive ecosystem is not yet as developed as China’s, its economic dynamism and the Indian government’s support, driven by Prime Minister Narendra Modi, foster a conducive environment for the emergence of new local Indian suppliers. The recent decision by one of the leading Western car manufacturer to base its Asia purchasing function in India underscores this trend.
Implications for the Automotive Sector
The shift from global traditional suppliers to competitive local suppliers has major implications for the automotive industry. On the one hand, traditional automakers now have to work with less experienced local suppliers, requiring training and Supplier Development services to meet international OEMs quality standards. On the other hand, this transition presents significant opportunities for companies specializing in audits, Supplier Development, and training, which can support these new players in their skills and process development.
This is where TRIGO is adding value. By leveraging its global footprint across 28 countries and its network of auditors, experts and engineers, TRIGO is able to work alongside suppliers and help them work on their systems and processes so as to meet those international requirements.
Supplier development solutions combined with OEM quality standards knowledge, such as those provided by TRIGO, play a key role in this supplier base transition. These services go beyond simple inspection tasks, including audits of industrial processes and training in quality standards, enabling new suppliers to meet the expectations of major automakers.
Conclusion
The localization of suppliers in Asia is one of the strategic response to the challenges imposed by the globalization of supply chains. This new model, while promising, presents significant challenges for automakers and their partners. The ability to integrate these new suppliers while maintaining high-quality standards will be crucial for the industry's future competitiveness. For companies like TRIGO, this transition offers a unique opportunity to position themselves as key enabler of this industrial transformation.