SME automotive suppliers in Germany, Austria, and Switzerland: Can they survive the turbulence?

By Felix Mogge, Thomas Schlick, Mortaza Nadjafi and Matthias Nagl

Trapped between falling margins, declining demand in Europe, and strategic challenges in the international markets, the automotive supplier industry is experiencing probably the biggest transformation in its history. Traditionally export oriented, SME automotive suppliers in Germany, Austria, and Switzerland are finding themselves particularly affected by the tectonic shifts in the global competitive landscape.

How likely are companies to survive under these intense conditions? Where do they see potential for growth and what challenges do they face operating in promising international markets? To answer these questions, we surveyed more than 200 decision-makers from automotive suppliers across Germany, Austria, and Switzerland for the fourth edition of our study on SMEs in the industry. The following is a summary of the key findings.

Europe's importance is waning

Although the survey respondents anticipate a recovery in global automotive production figures, they expect the domestic market to lose yet more relevance going forward. More than half of respondents believe Europe's automotive supplier market is also suffering from massive – and hard to correct – overcapacity. The majority of decision-makers expect changes in the global competitive landscape to lead to plant closures and job cuts. Almost three-quarters expect Europe's automotive supplier market to be hit by a wave of consolidation.

Opinions of growth opportunities in markets outside of Europe are considerably more positive, especially North America and China. India is also becoming a lot more interesting. SME automotive suppliers believe they are in a good position in North America – an assessment that often does not quite chime with reality in terms of the actual operational performance of their US business. There is room for improvement, especially in the way business operations in foreign markets are managed.

Management shortages

Many automotive suppliers from Germany, Austria, and Switzerland place great hopes in China. But here, too, skepticism is growing. More than nine in ten of those surveyed expect the further expansion of their operations in China to be restricted owing to growing geopolitical tensions. This makes it all the more important to guarantee absolute transparency over local business performance and operational decisions. In practice, however, this is often difficult given the problems many companies have with recruiting and retaining suitable local management.

What the survey highlights is that SME automotive suppliers in Germany, Austria, and Switzerland are feeling their ability to compete internationally coming under massive pressure due to the dwindling relevance of the European domestic market. To counteract this trend, companies must develop an effective management model for their international operations and invest in highly skilled management personnel. In addition, they will need to monitor the performance of their international plants continuously and establish long-term supplier relationships with local providers instead of relying on short-term lowest price procurement.What the survey highlights is that SME automotive suppliers in Germany, Austria, and Switzerland are feeling their ability to compete internationally coming under massive pressure due to the dwindling relevance of the European domestic market. To counteract this trend, companies must develop an effective management model for their international operations and invest in highly skilled management personnel. In addition, they will need to monitor the performance of their international plants continuously and establish long-term supplier relationships with local providers instead of relying on short-term lowest price procurement.

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