Owner, Johannes Messer-Consulting GmbH
Article Series - Part 1
4 Challenges in Aluminum High Pressure Die Casting: Internationalization
The article series is dedicated to the changes and developments in the aluminum high pressure die casting industry. The first chapter deals with "Internationalization", as one of the four challenges, and its impact on booming new growth markets.
The internationalization of the automotive industry has gained considerable speed in recent years. The global growth regions are now occupied by all OEMs. Automobile manufacturers strategies (platform strategy, common parts strategy) means that identical components are needed at different locations around the world. Current sales forecasts for the automotive industry show that the growth of the next few years will take place outside the existing growth regions. The requirements e.g. in Europe, according to current forecast, will stagnate in the next few years.
If short-term declines in demand occur in the context of a stagnating economy (risk in Europe in 2019/2020), this can lead to serious result problems, especially for foundries. Figure 1 in the picture gallery shows forecasts for the classic planning approach and how EBIDTA will develop without additional quantities. In order to capitalize on global growth and offset fluctuations in individual regions, OEM-oriented foundries need appropriate long-term strategies. Because growth is necessary to be able to make new investments in the long run.
Internationalization is a key lever that foundries should use to equip themselves for the future, for two reasons:
- Spatial proximity
- Too high and rising wage costs
On the one hand, foundries should be as close as possible to the end customers. A long distance between supplier and manufacturer is not only uneconomical. The longer the supply chains, the greater the risks.
Excessive country-specific differences in wage costs force foundries to produce outside their existing locations. According to a survey by Eurostat in 2017, the lowest labour costs per hour were recorded in Bulgaria at € 4.90 and Romania at € 6.30. Denmark leads with € 42.50 per hour, followed by Belgium with € 39.60.1
The Big Market Participants in Internationalization
Figure 2 in the gallery shows the world's largest light metal foundries with their current locations. Nemak is the largest market participant with sales of more than USD 4.5 million in 2017; KSM Castings Group achieved sales of less than USD 600 billion in 2015.
Many of the major market players are investing heavily in internationalization and are proceeding similarly in implementation:
- The growth regions of China, India and Mexico are rapidly gaining in importance. Further information on the markets can be found in the following paragraphs.
- The large market participants are growing disproportionately and are investing in internationalization.
- Joint Ventures and partnerships with competitors, customers and suppliers are becoming increasingly important. Cooperation is particularly relevant for smaller foundries in order to remain competitive.
- In highly competitive markets, necessary cash flow can only be achieved in combination with low cost locations.
- Especially Tier 1 suppliers buy or invest in aluminum foundries (e. g. ZF Friedrichshafen, Magna International, Martinrea Honsel, etc.) and are strong new competitors. GF Automotive and the diversified manufacturing expert Linamar have also joined forces to jointly design lightweight construction solutions in aluminum and magnesium for the automotive industry.
The OEM-oriented foundries will not be able to avoid internationalization in the short term. For foundries below a critical size, joint ventures and partnerships (national and international) along the value chain are essential.
The Growth Region China
Provided that the economic policy and economic conditions in China remain stable, this market is expected to become increasingly relevant, as the "per capita quota" of private cars in China is still significantly below the ones in the triad markets. A reduction in Chinese import duties on cars can have a particularly positive effect on those German suppliers who are strongly linked to the plants of German manufacturers in the USA. A reduction in Chinese import duties of currently 25 % could lead to a further increase in demand for these already highly popular vehicles and thus fill the order books of the German suppliers concerned even more. Just like for many OEMs, China has become the most important sales market for many suppliers as well. For example, Webasto's sales of panoramic and sunroofs in China account for a third of the Group's total sales of € 3.5 billion. BMW exported over 100,000 SUVs from its plant in Spartanburg to China in 2017 and Mercedes-Benz more than 70,000 cars from their Tuscaloosa site.
If you want to know more about China's top suppliers, future areas and investments: Read now the whole interview with Jan Dannenberg and Tobias Keil.
The Growth Region India
India has already overtaken China. The south asian state is expected to become the world's largest two-wheeler market as early as 2020. So said Nirmal K Minda, President, Automotive Component Manufacturers Association of India at a machine tool event, “Over the years, the automotive industry in India has witnessed steady growth and today the industry is the fifth largest auto industry in the world and will soon be positioned at No 3." Indian Government’s Automotive Mission Plan envisages 3.9 million commercial vehicles and 55 million two-wheeled vehicles over the next ten years. In addition to South Korea's second largest automobile manufacturer, KIA Motors, Suzuki Motor Corp. also wants to increase its investments in the next three years. Due to this the automotive market scenario has thus opened up enormous opportunities for national and global automobile manufacturers.
India has already overtaken China to become the world’s biggest two wheeler market: find out more about the growing industry.
The Growth Region Mexico
In Mexico, too, growth of 8.2% is expected in the production of passenger cars. Many of the well-known automobile manufacturers already operate production facilities in Mexico or are successively expanding them. The supplier industry also benefits from this, with sales forecast to grow to over 80 billion US dollars in 2017. According to the Mexican Automobile Manufacturers Association AMIA (Asociación Mexicana de la Industria Automotriz), production of almost 3.8 million passenger cars and light commercial vehicles is expected in Mexico. This opens up interesting opportunities for suppliers of light metal foundries in particular to develop new business relationships. According to studies by the market research company Mordor Intelligence, the Mexican market for die-cast automotive parts will grow to a volume of 1.8 billion US dollars by 2020, with a growth rate (CAGR) of 8% expected for aluminium die-casting by 2020.
Learn more about Mexico and its automotive industry, infrastructure and work force: This whitepaper shows the potential of the favorable geographical position Mexico.
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