1 Actes du GERPISA n°22

GLOBAL STRATEGY AND GLOBAL SOURCINGIN THE WORLD AUTO INDUSTRY AND

JAPANESE PRESENCE. WITH SOME CASESTUDY

OF MITSUBISHI MOTORS AND NIPPON DENSO

Koichi SHIMOKAWA

With the coming of the “ Mega Competition ”era, the world auto industry is entering the wave ofglobalization. Companies are approaching the 21century, and they are realizing that global thinkingand management are critical for the survival of theauto industry.

The contents of global strategy of auto industryconsist of global car production and allocationstrategy, global sourcing strategy, and globalproduct development strategy. Managingglobalization is also one of the key issue from theview point of making strategic decision. On theother hand managing globalization is closelyrelated with managing localization. Pursuing globalstrategy, all of the auto companies have to solvethis problem: how they can co-ordinate andconnect their global strategy with their strategy oflocalization.

The historical tendency of most of the worldauto enterprises was consolidated organization oflocal companies such as U.S. Big 3 and someEuropeans. Their local subsidiaries developed theirdifferentiated local product by themselves andpurchased local parts by their own way.

Since 1986, Japanese car makers set up localtransplants by different ways in Western countries.In early steps of this process, Japanese carmanufacturers tended to transfer their productionand part procurement systems and their productswith some local modifications. In 1990s, they wereconfronted with higher Yen' appreciation and therationalization of their production. During this termtheir strategy has been changed gradually fromlocal oriented one to more global oriented one.They tried to build a local production networklinked to the international division of labour. Thelocal production network tended to produceinternational products which can be exported to theworld and finally to go to the global network.These network global strategies were pursued notonly by car assemblers but also by part suppliers.Japanese part suppliers supported car assembler'localization and later their global networkingbecause they were also entering globalization.After 1990, this globalization has been moreaccelerated.

Within the context of the Japanese auto makers'plan for establishing a global network, western auto

makers plan to strengthen their global networkingstrategy to greater localize their production andmarketing, and to organize as a world-widenetwork particularly for auto exports. Anaggressive stance toward the development of globalstrategy involves producing more goods locally andpurchasing a greater number of partsinternationally. US and European auto makers havetaken the lead in global integration of productdevelopment and parts purchases. A few examplesof such companies would be the new "World CarConcept", which combines global-wide automobileproduct development with global sourcing.

In this paper I will describe the emerging globalsourcing strategy and the global productdevelopment integration strategy with a focus onUS automakers. I will also compare the US auto-maker' global strategy with their Japanesecounterparts because there are some interestingcontrasts on their approaches. I will describe someavailable cases of Japanese assemblers andsuppliers for their globalization strategy such asMitsubishi and Denso (Nippondenso). Finally Iwill discuss the significance of the background ofglobal sourcing and the changing situation ofglobal suppliers, the future prospect of the worldcar and the Asian car, and the changing productstrategy contents in the global base.

EMERGING GLOBAL SOURCINGSTRATEGY

As I mentioned above recent discussion aboutthe "world car" are closely related with globalsourcing and global product developmentintegration under the new dimension of globalstrategy by global auto companies.

Of course some companies cannot use specialterm "world car" in their global strategy. There areseveral choices, however, in approaching the"world car", such the "localized design car". Evenwithout a "world car", auto companies shouldconsider the possibility of global sourcing. As autocompanies strategy becomes more globalized, theirparts sourcing strategy are evolving.

Global sourcing means purchasing parts andcomponents from optimal places which arecharacterised by global bases. Why and how has

global sourcing emerged? With the coming ofboarderless economy, we can now overview whicharea is most optimal to purchase some parts andcomponents by quality, cost, delivery, andengineering capability. We can watch the costdisparity by each countries using computerinformation data base. Although exchange rate andcurrency evaluation are still unstable, observingthese data can show the best response and newchoices of exchange rate free purchasing.

In considering global sourcing in the autoindustry, it is quite important to examine theexperiences of other industries, with companiessuch as Wallmart, IBM, GE, Otis, P&W, Boeing,and the Semiconductor Industry andMicro-Computer Industries. They are stillperfecting global sourcing, expanding their world-wide regional business to new markets. Throughthis expanding world-wide business experience,they can easily find available suppliers in optimumplaces. More advanced distribution and informationlogistics are more helpful than ever before. Theseactivities are greatly affecting automotive suppliercompanies in global base - and thus, autoassemblers too.

Among automotive suppliers, there is soincreasing number of global suppliers. Afterexpanding auto maker' global business and theirglobal purchasing strategy, many suppliers havebeen choosing their global oriented business andregional production base network. In generally,they have a more systematized supplier capabilityto respond to more parts modulation, and they areestablishing an outside global network with mutualcomplement supply with many strategic alliances.We can imagine as these global suppliers as Bosch,GM Delphy, Denso, Calsonic, Ford A.C.G.,Johnson Control, Yazaki, etc.

Recently, many auto makers are decreasingtheir number of platforms and reorganized numberof part suppliers with classified simple tiers. Thistendency is eminent in U.S. and Europe. In U.S.along with the cutting modular of platform types,the Big 3 are in process of rapidly reducing theirparts suppliers. GM is aiming for 600, from a peakof several thousand. Ford has cut the number of itssuppliers by more than half, from 2,500 to less thanl,000, and says it plans to purchase maincomponents exclusively from only about 180 firmsin the future. Chrysler also plans to focus on about150 firms, down from 1,500.

Narrowing the field to only system and modulesuppliers leads to purchase from suppliers withhigh technical capability who can operate on aglobal scale.

Reducing the number of suppliers will alsopromote the integration and restructuring of sub-system makers, promoting a tendency wherebysmall and middlesize suppliers - who cannottransform themselves into global players but haveoriginal techniques - can join in global networks.Of course not all suppliers can transformthemselves into a global supplier. Transforminginto a global supplier, for first tier suppliersparticularly, can be risky because of the necessaryhuge R&D and overseas investment. In general, carassembler still needs their local suppliers. But theauto-maker' behavior will be more global,decreasing number of suppliers and concentratingon available system module suppliers. If so, themost independent and capable supplier should beglobal supplier who has organized other localsupplier networks.

GLOBAL PRODUCT DEVELOPMENTINTEGRATION STRATEGY

Along with increased tendency for globalsourcing and decreased number of suppliers forreorganizing supply chain, the auto maker' productdevelopment system is going to integrate globally.Of course, each car maker product developmentsystem has special characteristics because of theirproduct strategy contents. Some companies aretrying to do more centralized and others arelooking more localized in respect to their productdevelopment system. But there are commontendencies such as platform integration by each carsegment, elimination of dual R&D efforts, thereduction of R&D cost, the shortening ofdevelopment lead time, effective and efficient co-ordination in the R&D activities, and thestrengthening more higher simultaneous productdevelopment engineering with design-in suppliers.

Currently, the U.S. Big Three have gone a stepfurther and are streamlining the types of platformsthey use and cutting their suppliers while reformingproduct development processes. The cutback stemsfrom an international point of view and,consequently, are not concentrated in any specificregion. For example, Ford, which boldly publisized

its global strategy under his "Project 2000", hasconcentrated his product development organizationtoward five vehicle centers. It has concentrateddevelopment center for luxury car, big size car, midsize car, and commercial vehicle, to the Dearbornhead-quarters. Small car development is delegatedto the UK. As a result Ford is now going todecrease number of platforms from 24 to 16 afterplatform integration. And GM is going to cut onethird of its 96 platforms. The company wants todevelop its car products on the base of 8elementary platforms in the future. Among the midsize and small car segments it is now going tointegrate its platform with Opel. Chrysler, whichdoesn't have overseas development center, wants todecrease its number of platforms from 12 to 7 or 8.

As a result of advanced three-dimensionalcomputer-aided-design (CAD) techniques, avariety of car bodies can now be designed usingone platform. This integration has eliminatedoverlap in new car development, allowing for shortcuts in costs. As I noted above, Ford is developinga new "world car" strategy, where global productteams use a single platform to design for saleinternationally. The plan is revised to increase thenumber of models per platform while meetingdemand unique to each region.

While the Big Three are employing strategies ofinternational unification and are focusing ondevelopment and purchases, Japanese are engagedin an active shift of production abroad and haveincreased their purchase of overseas parts.

Generally speaking, Japanese auto-makers havealso tried to eliminate duplication by cutting backon the variety of platforms and expanding localdevelopment systems abroad through restructuring,while simultaneously strengthening theirinternational purchasing network.

Comparing U.S. with Japan, we see commonand contrasting features in each strategic approach.Both countries are cutting back or decreasingnumber of platforms and commonizing use to thesame platform. Historically Ford and GM's world-wide product development approach wascompletely local. Their North American R&Dcenter and European one work independently eachother. Before the early 1970s, the German Opel andFord, and the British Ford and Vauxhall developeddifferent cars. Now they are concentrating theirR&D power to unify one organization or to co-ordinate completely, eliminating duplicated jobs in

the global base. Ford and GM's global productdevelopment strategy is essentially moving from alocalized to centralized integration approach.

Contrasting with GM and Ford, the Japaneseauto maker' approach has generally been one ofcentralized R&D systems changing to a localizedone. Their essential R&D power is still keepingcentralized system in their home country, but yearby year their portional local R&D power has beendeveloping with expending local parts purchasing.Among Japanese auto makers there are manydifferent approaches in their R&D localization.This issue will be more discussed further nextchapter.

JAPANESE AUTO MAKER' GLOBALSTRATEGY

In early 1980s the auto trade friction becamemore intense and local production was appearing asa key of Japanese strategy. In early step localproduction started as a primitive localizationapproach of how the Japanese could simplytransfer the Japanese system (such as theproduction system and part purchasing system) toother countries and adapt to the local situation. Inthis stage, local production was an export substitutebecause they couldn't increase car export. Basiccomponents such as the engine, transaxle, platformand so on were exported from Japan and assembledin each transplant. After 1985 G5, the Yen'appreciated radically, leading to increased localproduction and part local contents. It became clearthat car categories would be available for eitherexport or local production. Basic mass producedcars were produced for local production and highpriced luxury car or sporty roder such as nicheproducts became export oriented. This outcomesignalled that the Japanese car makers had started anew strategic approach which changed from exportorientation to local production internationalnetwork orientation.

Strengthening this trend, product developmentlocalization by Japanese companies also advancedwith increasing local contents ratio in their localplants. They established local R&D center andhired local designer and design engineer. Thiscenter started from body design which could beadaptable for local needs, and soon it produced aprototype. During this early step, R&D localization

had the basic motive to evaluate local parts forlevel up local parts quality and engineeringcapability and to reflect the car design in acorresponding Japanese R&D center. Soon thisstep moved to more globalizing productdevelopment and production system, which clearlydifferentiate the car developed and produced inJapan, introducing more local compatible conceptalong with local production ratio enhancing.

After the second radical appreciation of the yen,in 1990s, the globalizing R&D production, andparts procurement network, became more dominantas the new strategy to decrease car export withincreasing local production in the continuingrestructuring of auto industry in Japan. In NorthAmerica, Japan's biggest market and productionbase, Toyota, Nissan and Honda, enhanced theirlocal contents ratio almost same as U.S. Big Threewith engine local production, and their productioncapacities also expanded up to 600 thousands or700 thousands. In U.S. their R&D system hasdeveloped further and their R&D center launchedoriginal car models -- medium size car and stationwagon which completely differed body design,interia, axle and so on, but still commonized withJapanese model. In addition to the Honda Accordwagon, Toyota Camri wagon, Toyota Abaron,Honda Accord, Nissan Altima are mainlydeveloped by their U.S. R&D center and producedin local plants. Some of them are exported toJapanese market, Europe or Latin America andother Asian markets.

Localization and global networking wereaccelerated by the Yen' more continuousappreciation, and on behalf of Japan-U.S. autonegotiation Japanese auto makers decided theirglobal vision; it became more decisive. In thisvision, they proclaimed that they would cut offtheir car export and basically they still respond forlocal market with their local produced car. Theywould also strengthen product developmentlocalization and local parts procurement. Thisglobal vision showed that Japanese auto makerswanted to solve auto trade in balance with U.S. andinitial big stream of globalization in the businessworld. They would try a new challengeablestrategy in which they could organize world-widewith optimum location and optimum production ina global network. In this strategy they wouldmutually supply their cars and components -developed and produced in locations determined by

the market for both home use and export. After all,Japanese auto-makers want a grand strategic aim inwhich they can respond to the exchange ratechange in every region.

Under this grand strategy Japanese auto maker'R&D systems are going to more globalize withstrengthening local R&D center. In general they arenow using a common platform world-wide, but theHonda Accord for example, is developing morelocally. Only a few platforms are like this, but incase by case it may soon follow. If the trendbecome more popular, as I have described before,and essential R&D power is not centralized anymore, how they will co-ordinate home centralizedR&D power and local R&D power will beinteresting. Of course among Japanese autocompanies the contents of global product strategyand global R&D network are different each other.

Generally speaking, as I have noted, Japaneseauto makers have also tried to eliminate duplicationby cutting back on number of platforms andexpanding local developing systems abroad. Onedifference between U.S. and Japanese auto makerscan be seen in the attitude towards suppliers.Japanese makers have established orderly,hierarchical relations with parts manufacturers overthe years. As opposed to limiting dealings with justa few parts makers, they encourage suppliers toparticipate in the planning and development of carsat the design and engineering stages. The goal is tocut back on redundant designs and parts and sharecommon components between different cars.

They are now also moving towards increasingthe number of overseas parts makers with whomthey do business, while evaluating their capacitiesand the costs and quality of their products. Thoughthe Japanese will design fewer platforms, theoverall number of suppliers should growinternationally. Special emphasis is being placedon expanding local development (main body andinterior design) and parts procurement for theiroverseas operations in an effort to meet the diverseneeds of the U.S. European and Asian markets.

Related to the development of global strategy isthe highlighted international division of the work inAsia - especially ASEAN, where they haveresponded to the localization policy with SKD orCKD. Auto market in this area is still expanding,and some of the Japanese auto makers like Toyota,Honda publicized their new trial of "Asian Car"last year. Toyota already has been producing

"Kijan" which is popular commercial vehicle asoriginal ASEAN model especially for Indonesia.The company also announced that it wouldintroduce small popular passenger " Soluna " basedon Tarcel model in this area particularly forThailand. Honda publicized a new popular smallpassenger car for the ASEAN area called "City"based on "Civic" model. Nissan also publicized itsAD Van, produced by almost all ASEAN countrieslocal production network.

Japanese car makers are very cautious toprevent synonym of cheap car with the special term"Asian Car". They want these model to evolve asreasonable but also as something new in terms ofits quality. In the ASEAN area, as the result oftechnology transfer, local based division of workcomplementation such as Brand to BrandComplementation, and the development ofautomotive market synergized - and localproduction, international division of work becomemore dominant than before.

Of course, Japanese car maker' strategies varyfrom one auto maker to another. For example, towhat extent should local development be pushed?Should different platforms be adopted by region?Should companies go the route of" World Car " or" Regional Car" ?

Basically, for the time being Japanese automakers will promote localization in production,development and purchases independently in eachmain region. In the same time, they are slidingtoward the promotion of mutual supplementation ofcars and parts between regions from aninternational perspective, although the pace hasbeen slow.

GLOBAL STRATEGY OF MITSUBISHIMOTORS AND DENSO (NIPPON DENSO)

Mitsubishi MotorsAs I mentioned above, the Japanese auto

companies are going to move from theirinternational localization age to globalization agein their way of strategy. In this chapter I willdescribe Mitsubishi Motors' global strategy andDenso' global strategy as the case study. Throughthese case studies we can confirm some way of theJapanese auto maker' global strategy and theJapanese global sourcing supplier' global strategy.

Mitsubishi Motors'( M.M.C. ) global strategyconsist of three parts mainly. One of the majorparts is North America, second major part is Asia,and third one is EU. If we want to understand itsglobal strategy contents, we should summarizeMitsubishi Motors' historical background andbusiness contents.

Historically M.M.C. had higher engineeringcapability in its engine technology and productiontechnology. Its shortage was in marketing areaespecially to its domestic market. Therefore, thiscompany has pursued many strategic alliances andbusiness group support. Most eminent case werethe collaboration with Chrysler and Mitsubishigroup especially Mitsubishi Shoji (TradingCompany)' fully support. This company is nowproducing fully covered cars and truck segments,from minicar to 3,5 liter passenger car and frommini truck to heavy duty truck. The company isnow producing 1,28 million cars and trucks (1996).It also produced about 9 hundred thousands carsand trucks overseas. And it sold 8.2 hundredthousands cars and trucks in domestic market andexported 4.6 hundred thousands cars and trucks.

In general Mitsubishi's most important key issuein its global strategy is the reconstruction of NorthAmerican transplant MMMA (Mitsubishi MotorManufacturing of America). This plant originallywas established as the joint venture business withChrysler in 1985 so called Diamond Stars (DSM).This plant started car production in 1988. Thisplant at first produced small car Mirage forMitsubishi channel and Eclipse for Chryslerchannel. In 1991 Chrysler wanted to sell its stockownership of the plant to Mitsubishi because of itscash flow shortage. Then Mitsubishi bought it andDSM changed its company name as MMMA with100% owned by Mitsubishi.

Still now MMMA is producing and supplying50% Chrysler brand cars by OEM. And MMMAand Chrysler are still continuing collaborationrelationship in parts and components procurementarea. This plant' annual production capacity was 1hundred thousands in early stage and nowexpanded 2.4 hundred thousands. The plantinstalled 470 robots in its body and final assemblyline and, so called total final assembly automationratio is 20% as the top class not only in U.S. butalso in Japan. The plant also introduced FMS line,therefore, which can respond for 5 or 6 mixturecars production.

MMMA produced 21 hundred thousands cars in1995 as the top record but it still improved itsprofitability not yet. Its accumulating red figure is$ 80 million in 1995. Its amount of over debt was $40 million same year. In 1996 Mitsubishi investedadditionally $ 54 million. Using this new investedmoney MMMA paid MMMA' total debt. MMMAalso cut their R&D cost about 20% e.g. almost $ 20million. It is also cutting parts purchasing cost, thenMMMA's final target is decreasing break-evenpoint down to 1.9 or 1.4 hundred thousands numberof vehicles per year.

What is the reason which explains whyMMMA's profitability become bad? Main reasonscome from huge burden of initial investment andmarketing power shortage. MMMA's plant inIllinois is most modernised plant but its total initialinvestment with higher automation is too muchhigh. The plant introduced flexible manufacturingline but its operating ratio experienced too muchfrequent change. Especially introduced new car,such as from Mirage to Galant exchanged modeland fully model change of Eclips, tended toproduction line trouble and longer time forproduction line change. After all, FMS line did notoperate completely. On the other hand Mitsubishi'car marketing power in North America is not sostrong because Mitsubishi has too much delayed itsestablishment of own channel on behalf of oldMitsubishi-Chrysler agreement. Chrysler'marketing channel in late l980s and early 1990shad also weak point. This marketing weak pointreflected to MMMA' plant operation ratiodeclining. But after reconstruction strategy startedMMMA's profitability in 1997 is going to improvefor one year. Even though MMMA is stillconfronting hard time not only by sexualharasment trouble but also by marketing in USmarket.

Nevertheless in spite of in spite of its businessdifficulty in US, on the other hand, Mitsubishi'sAsian strategy is going on very successfully. In thisarea, especially ASEAN area, Mitsubishi'spresence has been quite important such as Toyotaafter the 1970s. On behalf of its agreement withChrysler, Mitsubishi lost its business chance inNorth America until early 1980's, then M.M.C.strengthened its Asian strategy. Basically, its Asianstrategy consists of four parts, Korean, Taiwan,China and ASEAN countries. In Korea M.M.C.started engine technology transfer to Hyundai

Motors in 1975 then Mitsubishi invested 15 %ownership of this company with Mitsubishi shoji in1982. In this time M.M.C. assisted carmanufacturing technical know-how to Hyundai.Some model of the Mitsubishi such as Grangerwhich is one of the luxury model was directlytransferred to the Hyundai by giving technicallicence base. In this alliance it was given toavailable licence fee to Mitsubishi for a while.Soon or later, Hyundai developed is car by itselfwith lessen help by Mitsubishi.

Comparing with Korea, Mitsubishi's fullysupport for China Motor Company (C.M.C.) is avery successful business in Taiwan. In early stageMitsubishi assisted C.M.C by light truck and smallR.V. But year by year C.M.C' business situationhas been promoted and Mitsubishi transferred itspassenger car technology. After all C.M.C. totalmarket share became number one in TaiwanMarket as 15%. But Taiwan auto market wereopened to western auto makers and competitivesituation became very tough. After all, Mitsubishiand C.M.C. have a plan to invest main land China.This project, however, is established not yetalthough Mitsubishi is still keeping its technicallicence agreement with several Chinese companies.But in the near future some possibility in C.M.C.new investment for Fukan with collaborating withMalaysian Proton still exists. C.M.C. has alreadyentered Mitsubishi's ASEAN division of labournetwork. In ASEAN area Mitsubishi's strategy hasbeen very aggressive because its North Americanstrategy was enlimited by Mitsubishi-Chryslercollaboration agreement until 1982. In this regionMitsubishi developed its CKD production bases ineach ASEAN countries and established its partsand components division of labour network. From1970 on Mitsubishi followed in each ASEANcountries auto industry its local promotion policy,collaborating with local government and capital; itfounded many local joint venture companies in;each country to produce SKD and CKD, assemblyplants, main components, engine, transmission anddie-casting parts, and so on.

Mitsubishi's ASEAN business contents are :

• In Malaysian Proton company M.M.C. isjointly producing press parts, die-casting,

engine assembly, and body and finalassembly.

• In Indonesia M.K.M. company and othersproduce press parts, and assembly engine

and body of Mitsubishi's vehicle,• In Philippines PAMCOR and ATC

company produce parts, and assemble body

and transmission.• In Thailand MSC company assembles

engine, body and vehicle.Among these plants in ASEAN countries

Mitsubishi complementary supplies parts andcomponents each other on the base of B.B.C.(Brand to Brand Complementation) schema. After1996 the AICO (ASEAN Industry CorporationOrganization) agreement being started, Mitsubishiis going to change from B.B.C. base to AICO base.AICO schema includes supplier based division oflabour network in which supply parts andcomponents complementary in ASEAN area. Fromnow, therefore, Mitsubishi's ASEAN strategy maybecome more comprehensive including globalsuppliers.

This year Mitsubishi introduced new Asian car.This car is a van typed family wagon with 1.5 literengine, and produced in Taiwan, Thailand andPhilippines on the base of complementarycomponents supply. In this project Mitsubishi willuse AICO schema with enhancing local contentsratio; pursuing this way Mitsubishi will educatestrongly its local vendors with world-wide specialquality guarantee by Mitsubishi.

Soon or later Mitsubishi's total production ofthis area will become 6 hundred thousandsincluding Australia.

Mitsubishi third important production base isHolland NED Car company in Europe. This plantis the joint venture business with Volvo. Manypeople are much interested in the encounter ofVolvo production system and Mitsubishiproduction system. Nevertheless, NED Car's mainproduct depends on Mitsubishi small car, thenMitsubishi production system becomes dominant.Its car production capacities are one hundredthousand and some of them are exported to Japan.

In general, Mitsubishi has developed its productby centralized R&D center in Okazaki. It has thedesign center in U.S. and Europe. Bothorganizations supported Okazaki center. AndOkazaki center is everytime watching and benchmarking local parts Q.C.D.E level from the point ofview of global sourcing.

Denso (Nippon Denso)Denso is a typical Japanese major global

sourcing supplier with high engineering capabilityand production technology. Now its world-widesales volume ranking in global suppliers becamesecond place.

This company started from on 1949 on byseparating Toyota' auto electrical parts division. Inearly time the company produced radiator,distributor, starter, spakplug and so on. It suppliedmainly Toyota in early stage. Now its percentageof supply to Toyota becomes less than 60%. It isnow supplying almost all of the Japanese automakers except Nissan. Its supply chain network isalmost fully covered with foreign major automanufacturers such as U.S. Big Three.

This company now earned net sales $ 13.81billion by consolidated base and $ 11.94 by nonconsolidated base. Its net income is $ 483 millionand $ 929 million each other. Its overseas net salesand net income, therefore, are $ 1,87 billion and $154 million. This means Denso's overseas businessearned 13 % total net sales and contributed almostone third of total net income. This companyalready organized global business network. It has29 overseas plants for 16 countries such as U.S.,Mexico, Brazil, Argentina, U.S., Spain, Italy,Australia, Thailand, Indonesia, Korea, Malaysia,India, Taiwan, China, and Philippines. Denso alsohas 13 sales and administration subsidiaries. Theseoverseas plants and sales organizations areadministrated by three regional head-quarterscompanies, such as Denso International America,Denso International Europe and DensoInternational Singapore. The company hired 56,300total number of employees, including 15,500foreign employees. Denso main products nowcontain car air conditions and heaters (33.9% fortotal net sales), electrical automotive andelectronic control products (28.4%), fuelmanagement systems (16.6 %), radiators (5.8 %),meters 4.4%), filters (3.2) and other products (7,7).

Why did this only local parts supplier in Toyotagroup become world-wide global supplier? Themain reasons in summary are following:

• Denso has been long time in partnershipwith Toyota and this relationship

guaranteed their long term trusteeship withadvancing quality, cost, delivery, andengineering capability. Toyota was highly

educated for Denso's quality guaranteesystem, just-in-time production technology,

and simultaneous engineering, e.g. design-in capability.

• Although its tight relationship with Toyota,

this company decided its business strategyby himself especially its internationalstrategy. In early stage the company was

only subordinate subcontractor for Toyotabut year by year it expanded its business toother Japanese auto companies such as

Honda, Mitsubishi, Matsuda etc. Of courseit has been keeping its responsibility as theO.E.M. supplier.

• Denso has been pursuing R & Dengineering oriented company. Itestablished many technological licences in

the world. It developed its R & D capabilityin which covered many fields of parts andcomponents elementary technology. Its

early stage of engineering priority wasmachine manufacturing area such asradiator, meter, filter and fuel pomp. Then it

developed more systematic product like airconditioner. Finally, it tried more high techoriented engineering fields especially

electrical and electronic parts such as E.F.I.,sensor, and semi conductor. Its main streamof R&D development suited exactly with

car electronics technology.• Denso has highly talented production

technology. Its production technology too

much contributed its refining process ofpractitionizing for its introduced technicallicence from western companies, such as

Robert Bosch, Bendix, Texas Instrument. In1960s and 1970s it introduced manytechnical licences but soon later Denso

modified them and given these practicallicences to its licensers. Denso got Demingprize in 1961 four years earlier than Toyota.

They introduced Toyota production systemin 1974. After all its production technology

become excellent level. And using itsproduction technology Denso developed its

machine engineering capability especiallyrobots and factory automation system.Denso' main factory such as Takatana and

Koda plants are fully installed Denso' selfmade robots and F.M.S. This machine andautomation system is fully supported by

talented Kaizen activities with T.P.M.activities by shop floor level.

• Denso has been strengthened in strategic

alliances with many western majorcomponents manufacturers. The companygot important components' basic elementary

technology by giving licence agreementfrom Bosch, T. I., GM, GE etc. as Imentioned above. But the company returned

its modified technical licence and newlicenses to its alliances as its licenser. AndDenso established many joint venture

business with its world partners includingtheir licensers. For example the companyestablished Bosch-Denso's venture business

in Tennessee and Valeo-Denso's jointventure-business in Spain in late 1980s.

• Denso did its commitment for

internationalization at a very early stage.Especially after late 1960s, Mr. Tanabe,who became vice chairman later, joined

with Denso from Mitsuibussan (generaltrading company), Denso' strategy becamemore internationalized. The company

established overseas subsidiaries very early.For instance, Denso established NipponDenso Los Angeles in 1971, Nippon Denso

Thailand and Australia in 1972, and alsoNippon Denso Europe in 1978. Thosesubsidiaries were export sales office and

reason office of its licensers. But soon orlater the company invested smallmanufacturing plants which produced spark

plug and air conditioner etc. for after marketin each country.

• When after 1980s Japanese car maker's newtransplants emerged, Denso invested more

huge money for its transplants. After itsnew trial for transfer technology andproduction system, these overseas plants

became more profitable and nowadays theyestablished R&D center in each region.Denso' internationalization as the global

supplier was ahead and advanced more thanToyota because Toyota' strategic decision ofinternationalization started from 1983 after

its decision for NUMMI which is jointventure business in Fremont California.

• Denso has well organized its excellent

suppliers. The company has given highlyeducated engineering capability. Startingfrom quality guarantee system by each

supplier, the company strengthened itsleadership for the supplier with highproductivity. Then it induced just in time

delivery system by adapting Toyotaproduction system. Even if small, itssuppliers enhanced their technical capability

to respond multiple various production withsmall lot. Its suppliers also accumulatedmany Kaizen activities and these enhanced

technical capability supported Denso'flexible production system.Considering Denso' globalization strategy, we

can see two cases of Denso transplant new way ofproduction system in Battlecreek Plant inMichigan, and European Denso' strategy.

Denso' Battlecreek plant is producing radiator,heater at first, then come cleaning units, condenser,evaporator. Among these production items therewere two types products in which suited for massproduction and non suited for it with small lotproduction. Then, the plant was deeply concerningfor control of delivery system and tight linkagewith its vends.

About its delivery system, for example, inheater assembly lines were separated five lineswith 26 docks in the stockyard, and supply orderlyto suit delivery lots and frequency with keeping theracks. And disposable Kanban used for CKDcomponents and in-house manufacturing products,

then inhouse production schedule and its resultscould make sure by each process. This systemtended to be usable for contrasting schedule withreal performance and stock control.

This plant has expanded local contents ratiofrom 45% to 70% with much trouble to localvendors. The local venders disliked small lotproduction order, using special new materials. Itsquality and delivery tended to be good for theirtesting process but if the process moved to massproduction their response was getting worse. Thelocal vendor' top people could be understandableits necessity of Kaizen but it tended to beimpossible to penetrate its way of thinking byitself.

Beyond these trouble this plant now expandedits business area and sales volume with stableprofitability. After all in l988 Denso established itsnew plant in Tennessee to produce starter,alternator and meter etc. In 1989 Denso openednew joint venture plant with Bosch in Tennessee toproduce fuel pomp.

In North America Denso's strategy is veryaggressive to expand its big manufacturing plantsnetwork. On the other hand, its European strategyis more cautious and contrastive. In Europe it hadlong time alliance with Bosch as the relativerelationship between licenser and licensee. In itsmaking strategy for Europe Denso consideredwelcoming entrance by its partner and competitor.

Evading direct competition with local partsmakers in Europe, not only with Bosch, Densochose its advanced products fields in which used itsR&D and production technology with high qualityand management capability. This way couldcontribute to European parts supply industry.Therefore, Denso specialized for the product fieldsuch as evaporator and radiator in U.K. and airconditioner in Spain. Another specialcharacteristics of Denso's European strategy is thatthey thought never brought over-capacity after itsEuropean investment because there were manyauto makers and parts makers. Its Europeaninvestment started by M&A or the joint venturebusiness with European companies. Two plants inU.K. were purchased by Denso for local plants.Denso' plant in Spain started as the joint venturewith Valeo then Denso purchased Valeo'ownership by its asking.

What is the reason why Denso' priority inEurope is based on U.K.? Main reason came fromU.K. government' eager support for Japaneseinvestment for U.K. especially in manufacturingfield. The other reason came from Japanese automaker's investment concentrated for U.K. In U.K.Denso' plant designed as the midscale plant withnot so big and small. It is very interesting story thatDenso invested medium sized plants to keep withavailable profitability and is establishing itspresence to penetrate for the weak point ofEuropean parts makers with strategic alliance.

CONCLUSION: FUTURE PROSPECT OF"WORLD CAR" OR "ASIAN CAR",GLOBAL SOURCING AND CHANGINGGLOBAL PRODUCT STRATEGY

The tendency of global networking for localproduction is spreading not only among Japanesecar makers but among GM, Ford and Europeanmakers such as VW, BMW and Mercedes Benz.Among these makers the most attractive plan isFord' ambitious "World Car strategy" and "GlobalSourcing strategy".

In 1994, as I mentioned above, Ford publicizedFord 2000 project as its 21st Century' grandstrategy with new world car strategy. In this projectFord exhibited its grand design targets as follow:

• Advancing effectiveness by globalintegration of Auto R&D, Design andProduction.

• Reorganization and vitalization ofbureaucratic organization.

• Active entrance for new developing market

like China, India, Latin America andASEAN countries. Strengtheningestablished market share.

• Global advancing R&D cost cutting andquality improvement by suppliersintegration.

• For this global strategy, Ford has integrateits R&D center globally, and introduced 5Vehicle Centers. The development center

for large, mid size, luxury and commercialvehicle is concentrated at the DearbornHeadquarters; small car are also centralized

(Dagenham in the U.K.), and thedevelopment of power-train is in Köln,

Germany. This integration of R&Dorganization will cut the number of humanhour of product development, which was

duplicated by regional based developmentseparately. With this strategy Ford willglobally unify the basic platforms and

components of its cars, which will beproduced and sold in Europe, NorthAmerica, Asia and Latin America. By

pursuing this strategy, the "World car",which needs to be developed and producedworld-widely, can be truly realized. Ford

already publicized its midsize car MondeoMystique series as its "world car". NowFord' international product strategy will

proceed, focusing on the "world car" withplatform commonization. Of course this"world car" strategy is closely relating with

parts international optimum procurementstrategy by global sourcing. It is natural thatthe integration of world-wide suppliers

under project 2000 is also closely relatedwith global sourcing.A "world car" developed and produced with a

global strategy and allocated locally with a globalnetwork of suppliers by global sourcing is Ford'sglobal strategic plan for the 21st century. Peoplesaid this "world car " project is very risky becauseGM's "world car" concept 1980 was unsuccessful.It is true that among the other auto makers exceptFord there is question whether or not the localcompatibility responding to regional customerneeds can be attained with "world car" productdifferentiation. It is not impossible, though, tointegrate product development under a globalstrategy, and to differentiate car body design usingthree dimension CAD/CAM with speedyinformation exchange. As opposed to a decade ago,it has became much easier to have a world-widechoice and integration of suppliers and theirnetwork now that we have better informationtechnology. A world-wide distribution system,closely integrated with the information revolutionhave aided in the globalization of development andpurchases. Databases for the development parts

purchasing systems, as well as the quick utilizationof accumulated information through networking,have helped in this regard. It is true thatinternational logistics of parts and componentsmutual supply became less risky rather than beforewhen information technology advanced not somuch. Ford's "world car" strategy will becomemore changeable in its contents, as shown by Ford2000 catch-phrase "Think Globally, Act Locally,with Agility". This strategy, however, differentfrom GM "world car" before, may have somehowpossibility towards future success. If this ambitiousstrategy can realize, it will have a big impacttoward world automotive society.

Not only with Ford 2000, but also in theworld automobile industry major auto makers -whether or not using the name "world car" -are moving towards world-wide car productionand supply networking based on global productdevelopment and platform commonization,connecting with their home country with overseaseminent markets, and production bases. Theinternationalization of development and purchasescan also serve as a buffer to lessen the impact ofexchange-rate fluctuations through the flexiblenetworking of supplying parts between regions.German auto makers, whose labour costs are quitehigh, as well as the Big Three, have displayedgreat interest in these types of internationalpurchases, among others. Different regions offerdifferent advantages for the purchase of autoparts, such as lower distribution costs. In aglobalized network, goods will be purchase basedon cost comparisons of the optimum product in aprime location. Even GM is moving toward globalnetworking strategy almost similar to Ford strategicbehavior in its core elements. Japanese auto makerswho have begun to get on the right truck for theirlocal production, and European auto makers, whoare challenging the global strategy, are followingthese behavior or taking a more independentapproach. As the automobile industry becomesinternationalized, it is necessary to built a globalnetwork for developing and supplying cars, as wellas the purchase of parts, while avoiding exchangerisk as much as possible. With a decrease in thenumber of suppliers internationally, the questionof how they should merge and how localizationwill balance with globalization is the mainchallenge facing the auto industry.

Not only globalization strategies by Fordand GM but also by Japanese auto makers andglobal sourcing suppliers such as Mitsubishiand Denso are also interesting story with stepby step approach with localization.

13 Actes du GERPISA n°22

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