Focusing on Global Strategy

If adversity is the best teacher, the Great Recession should have been a prime learning opportunity for companies worldwide. It certainly was for many companies in the Automotive After-Market industry, small and large, traditional and trend setting.

This is particularly challenging for small companies who garner as much as 90% of their royalty and license income from abroad, these company’s face challenges that were compounded by a strong Euro that cut deep into profits coming and going. Coming because sales into dollar based economies were impossible due to high prices, and going because now that the dollar has firmed up substantially, their currency losses for GAAP reporting are substantial – so substantial in fact that they wiped out singularly the entire second quarter profits of some of the best run companies. For some these represent mere paper losses of course where most of the purchases for raw material and research are European based – but still not designed to favor motivation among wall street traders that have unjustly clobbered the industry and its publicly traded members.

“We learned valuable lessons and gained a healthy sense of crisis” said the communications officer of one such company located in New Jersey.

As one would expect, the tactical practice orchestrated by the survivors requires a mindset totally different than that practiced in the industry previously. Management and the entire global distribution network of these companies had to realize that business as usual was not an option. Changing an industry’s ingrained distribution culture was not easy, yet some companies were able to accelerate a program of structural reform. “We consolidated overlapping functions and shortened supervisory processes” one executive explained. “Now we’re leaner, more reactive and able to provide stronger support for members of our distribution networks.”

The revamp also extended to the manufacturing units of these companies. Traditionally the industry had routed different research and productions in separate, dedicated plants and facilities. To improve efficiencies the trend is now to create multipurpose production units to manufacture chemicals and impregnated accessories such as wipes. Workers switch between different roles in the assembly process. The new composite system delivers such significant productivity gains and cost savings that industry executives involved are now keen to roll out the process globally. “The financial crisis taught us that we can’t control our environment. What we can do is have a culture that adapts to circumstances” an executive told me. The lesson to be drawn: Ultimately it’s the adaptable who survive.

To ensure that these companies grows and prospers over the next decade,some companies have devised a plan for the next stage of globalization. The multipronged strategy involves building up the product lines, expanding the reach, and moving even more aggressively into the emerging markets of China and other Asian countries, and not to be forgotten, diversifying into new lines of business, notably disinfection and medical care.

If the rapid success of companies with pipelined products is anything to go by, That part of the industry looks to be well on its way to meeting enviable targets. Aggressive product conceptions are shaking up the market. Products renowned for their convenience, portability and usability have attracted large new audiences; notably women where the purchase rate has tripled, and the middle aged, two groups generally ignored by the traditional industry players.

In medical and disinfection products companies are announcing goals which are equally clear. They wants to grow this rigid business by around 70% in the next five years. Social and economic trends are aligning to support this bold vision. Eager to expand, but aware that developing the business almost from scratch would require a huge investment, industry players are taking the bold step of going on the acquisition trail targeting small to medium sized companies in Chemicals, wipes, and related productions.

Of course the relative economic robustness of developing countries vis-à-vis the developed world is another major post-recession paradigm shift that no company can afford to ignore. Those companies with no debt and an effective distribution network, will experience growing market demands for their product conceptions.

Expanding into new business areas is as important as expanding into new countries. Thus, the industry leadership which is more so represented in the small to medium size corporate players, devotes a significant proportion of the roughly, on average, 10% of revenues they commits to research and development every year to move into promising new business areas.

But just as important to a company’s success is its policy on corporate social responsibility. Whether aligning itself with the UN’s Global Compact for sustainability and responsible business practices, or creating green products in environmentally responsible ways, all initiatives should be inspired by the “Social IN” philosophy. This helps people worldwide lead healthier and more fulfilling lives, and maintains that the value of a company that does right by its shareholders and society at large will inevitably rise.