STANDING ON THE VERGE OF MOMENTOUS CHANGE: AUTOMOTIVE SUPPLIER INDUSTRY IN TURKEY JANUARY 2020 - PWC
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Standing on the Verge of
Momentous Change:
Automotive Supplier Industry in Turkey
January 2020
In Partnership With
Contents
Introduction 04 Global Trends in Automotive Industry 06 Automotive Suppliers in Turkey 12
Changing Nature of the Value Chain and Capabilities 06 Understanding the Problem of Technology Adoption 14
New Partnerships and Increasing Volume of M&A’s 08 Exploring the Right Direction: Firm and Country Level 16
Strategy Requirement
Conclusion: Opportunities on the Horizon and 18
Key Lessons
4 | Standing on the Verge of Momentous Change: Automotive Supplier Industry in Turkey
Introduction
After several years of continued growth, Exhibit 1
revenues and margins for OEMs and
automobile suppliers are now under ∑Sales of Top 11 OEMs1 (Billion EUR) ∑Sales of Top Suppliers2,4 (Billion EUR)
pressure (Exhibit 1). Companies are
now dealing with deep-rooted shifts in +3% Top 2018
-1%
the value chain and are being forced +6%
to play outside their traditional fields +1% Top 2017
of expertise. Facing with competitive 1,423 1,472 1,508 1,498 +7%
pressure from technology companies, 1,197 1,248 899 922
821 856
OEMs and suppliers are now looking
675 700
to reducing their cost base, making 7,8% 7,0%
8,0%
investments in technology and building 7,8%
7,2% 7,8%
up new competencies. 6.1% 5.7% 5.0% 5.7% 6.0% 5.2% 64% 64%
60% 64%
58% 58%
6,7% 6,9% 7,0% 6,8% 7,1% 6,4%
2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018
Sales OEMs1 Sales of 40 system integrators Sales of other top supplier3 CAGR of sales CAGR of top suppliers 2017 EBIT-margin
1
Top OEMs: VW, Toyota, Daimler, GM, Ford, FCA, Honda, BMW Group, Nissan, Hyundai, SAIC Motors
2
Sales are partly based on extrapolations / estimates
3
Among others Bosch, Continental, Denso, Faurecia, Hyundai Mobis, Magna
4
Joyson Group/Tenneco with sales growth 2017-2018 (purchase of Takata and Federal Mogul respectively)
CAGR: Compound Annual Growth Rate
Source: Strategy& analysis
5
Major trends, signaling the future of Exhibit 2
the industry are clustered around
connected, autonomous, shared and Country Comparison of OEM’s Partnerships1 Purpose of OEM’s Partnerships1,2
electric-drivetrain (CASE) technologies.
These trends are inducing the value
chain to alternate, and capabilities are 119 56%
transforming. New competitors, mainly
8
software-oriented companies, are coming
86 91
into play and new forms of partnerships 35
are emerging (Exhibit 2). To address the 13
23
new market reality, suppliers are in need 25 12
of a solid understanding of the changing 41 20%
33 15%
landscape and conclusions on whether 2 26
64 9%
and how to adjust their existing business 14
10 18
models. 27
15 12
2015 2016 2017 2018 Electrified Autonomous Shared Connected
America Asia Europe Germany Electrified Autonomous Shared Connected
1
Cooperation with an OEM as initiator was considered
2
Sample from > 100 companies
Source: Strategy& analysis
6 | Standing on the Verge of Momentous Change: Automotive Supplier Industry in Turkey
Global Trends in the Automotive Industry
Changing Nature of the Exhibit 3
Connected Electric Automated Shared
Value Chain and Capabilities
Technology-driven transformation is
inducing upward and downward mobility
Refocus: Shift: New role: New role:
across the value chain by promoting
formerly Tier 2 or 3 digital companies to 1. Concentrate on product ideation 1. Reduce ICE production capacity due 1. Focus on partnerships and close 1. Shift towards selling to mobility
and design, and outsource non-core to electric powertrain shift (motor/ collaboration with tech companies providers to supply vehicles for their
OEM
Tier 1 and causing OEMs to lose their back-end/R&D/technology solutions battery cell production outsourced and suppliers to reduce investment car-sharing service (B2C to B2B)
strategic standing. Thus, suppliers are in as little opportunity for differentiation, costs in, for example, R&D
2. Move into direct-to-consumer and high price pressure)1 2. Maintain customer-facing role as a
a position for exploring new software and services instead of offering them 2. Maintain close interaction with shared mobility/fleet provider
service opportunities as their present- through a dealer network 2. Enter partnerships for sourcing customers by being a mobility
battery raw materials provider
day core processes are becoming
gradually irrelevant. At each point on the
automotive value chain, including R&D,
production, distribution, marketing &
New role: New role: New role: New role:
sales and aftersales/customer services,
Supplier
we expect to keep observing up/ 1. Fill the opportunity gap left by 1. Independently and/or in partnership 1. Enter into deeper co-operation 1. Work directly with customers in
OEMs by providing independent with OEMs, enter market for R&D/ with OEM’s R&D processes, with co-operation with a mobility/fleet
downstream movements and changing back-end/ technology solutions manufacturing of battery cells, stronger end-product responsibility provider to offer enabling services
business models as illustrated (Exhibit 3). leveraging scale benefits (e.g. digital packs and electric motors2 (e.g. digital services for mobility
infrastructure) 2. Take on a customer-facing role by provider)
2. Enter partnerships for raw material building fully assembled automated
2. Provide customer solutions B2B2C sourcing to secure supply (e.g. shuttles and/or enabling services 2. Enter fleet operating services by
(e.g. vehicle features on demand) lithium) (e.g. digital services for fleet managing all service tasks for
operators) mobility providers
Automotive supply chain including: R&D, production, distribution, marketing & sales, aftersales/customer service (adjustable per case) Reduction/extension/shift of supply chain down-/upstream
Core business today (still relevant tomorrow) Core business today (different strategic approach tomorrow) Core business today (irrelevant tomorrow) Potential new business tomorrow
1
Alternatively: extension into e-motor and battery cell production possible 2
Note: high necessity to refocus for traditional IC-focused suppliers
Source: Strategy& analysis7
Exhibit 4
Five New Ways to Play for Auto-Industry Suppliers
Particularly, for suppliers who are
1 Smart Infrastructure 2 Automated Shuttle 3 Platform Provider 4 Mobility Intelligence 5 Vehicle Feature on
operating over traditional internal Enabler Manufacturer Provider Demand Provider
combustion-focused business, we are Digitally-enabled traffic Fully assembled shuttle Platform-as-a-service Mobility software Product-as-a-service
estimating an increasing number of R&D solutions for integrated for public and corporate for business partners services and centralized for end consumers
mobility systems to institutions (e.g. city (e.g. OEMs, (public) data analytics for fleet through e.g. mobility
activities with OEMs over battery cells, governments/ institutions councils/ shuttle service mobility providers, fleet operators and mobility providers, allowing for
packs and electric motors. Additionally, (e.g. city councils) provider) operators) service providers direct monetization
we present five potential new ways to
x x x x x
play for suppliers to shift their business
in the near future, together with success Hardware Software Service Hardware Software Service Hardware Software Service Hardware Software Service Hardware Software Service
factors, which are necessary but not Success factors1: Success factors1: Success factors1: Success factors1: Success factors1:
sufficient (Exhibit 4). • Technology excellence • Production excellence • Agile development • Real-time data • Partnership
• Integration capabilities • Cost efficiency / lean • Flexible & open domain analytics management
• System adaptability SC2 • Customer centricity • Service integration • Customer centricity
• Fast time-to-market • Customer centricity • User experience
Example: Intelligent Example of international Example of global Example of German Example of
traffic-management automotive supplier: industrial supplier: OEM’s mobility manufacturing
system for a Chinese autonomous, electric, PaaS3 for the Internet of service company: fleet company/ supplier:
city that integrates shared people mover Things with end-to-end management software fully automated “valet
transport information for in co-operation with solutions incl. hardware, for intelligent mobility parking” (parking and
all travel options mobility start-up and software and services solutions car return upon user’s
system provider request via app)
Low to high focus areas
1
Outlined success factors are most relevant ones but not limited to these 2
Supply chain 3
Platform-as-a-service
Note: x = key success factor
Source: Strategy& analysis, Siemens.com, Alphabet.com, Boschservicesolutions.com, Microsoft.com, Continential.com, Zf.com, Mahle.com8 | Standing on the Verge of Momentous Change: Automotive Supplier Industry in Turkey
New Partnerships and
Increasing Volume of M&A’s
In order to gear up for the new era,
acquisition of software competencies or
partnership agreements are becoming
more and more widespread among the
industry players, namely OEMs, system
integrators and auto suppliers. Yet, the
underlying reason is now different than
aggressive sales growth or geographical
expansion. Henceforth, M&A activities
are targeting portfolio extensions towards
software and electrics / electronics
intensive areas, ultimately leveraging the
acquired know-how to make existing
products fit for the future. The intertwined
figure (Exhibit 5) illustrates how leading
system integrators are opening up
new business areas through strategic
acquisitions. In Turkey we can also
observe similar partnerships (e.g., around
the national car project).9
Exhibit 5
Continental has Became part of Continental announced the
the Continental acquisition of Quantum Inventions
Cooperation Autonomous Driving & Future Mobility completed the
acquisition of Elektrobit Elektrobit Software
Automotive Group, a subsidiary
specialist for innovative
software solutions.
Sensor heating Protect your customers and Expanding mobility services and
Automotive for autonomous drivers from higher susceptibility strengthening position in the USA
Identification and diagnosis diagnostic cars on ice and associated with connected and Continental acquired the LIDAR
of safety risks of electronic technology snow autonomous vehicles Development of advanced camera Research on business of Advanced Scientific Enhancement of map and
components in the vehicle detection technology required for autonomous vehicles Concepts (ASC) to complete its location data with sensor
Significant contribution to safe self-propelled systems range of environmental sensors data from vehicles
Development of an image the company’s latest Series Hyundai Mobis and KT started for driver assistance systems
B financing round. Valeo acquired the German company developing 5G-based Smart and automated driving. Development of state-of-
recognition technology
peiker, a major provider of onboard Connected Car technology the-art technologies for
that uses image
telematics and mobile communications driverless vehicles and
processing technology Development
solutions. The acquisition will allow Valeo acquired the German development of new fields
and is dedicated to deep of integrated
Valeo to expand its range of connectivity start-up company gestigon, which of competence
learning. control software
used for related products specializes in the development of
3D image processing software for Development of ultrathin Focused on the enhancement of motion
Development of software automated
the cabin of the vehicle. augmented reality head-up control systems and drive components
for control units in driving, Improvement and
displays for automated driving
automotive engines vehicle motion personalization of
control and vehicle comfort and Introducing a new feature called “Turo Go”
Comprehensive strategic cooperation
other related safety for drivers and that allows users to book, locate and unlock
Internet of Things (IoT)-based Development and supply in the areas of automated driving,
functions. their passengers vehicles using the Turo smartphone app
manufacturing, advanced driver of next generation networked vehicles and intelligent
mobility services Continental
assistance, automated driving and more. Automated networked cars and
announced
driving and mobility services
cooperation with
electromobility NTT DOCOMO Providing world-
Advanced in-vehicle systems Development and promotion of a new safety class Intelligent
to develop 5G
used for automated driving standard for autonomous vehicles (AV) based Transport
Drive the localization, perception, technology for
and other control actions on Responsibility-Sensitive Safety (RSS), Systems (ITS)
and route planning functions for a networked cars
Mobileye’s mathematical safety concept. solutions to meet
completeautonomous driving system
the growing
Valeo joined Apollo, the market demands Strengthening Accelerating innovation
Bosch has partnered with Canadian startup Provision of connectivity Bosch and TomTom autonomous ecosystem of Baidu Valeo announced a partnership in China of position as a for mobility services
Mojio to wirelessly connect more vehicles to solutions for its electric cooperate on innovative agreement with start-up company major supplier of
a variety of digital services, from insurance car Sion mapping technology for Ellcie Healthy to accelerate the cockpit systems
development of intelligent networked Production of modern assistance
companies to emergency responders automated driving
eyewear for motoring. systems and autonomous driving
functions for cars, commercial vehicles
Ensuring a seamless Robert Bosch GmbH and e.GO Mobile AG and off-highway applications
connection between vehicle and have announced a cooperation in the areas of
everything(vehicle-to-everything -V2X) connectivity and after-sales services. ZF has partnered with Mobileye to offer next-generation Development of interior and
camera systems to major automotive manufacturers safety technologies for self-
Bosch and Baidu sign framework driving cars, known as the
agreement on strategic cooperation to “cockpit of the future”
jointly develop intelligent mobility in China Development of the
first blockchain-based
Development of AI self-driving systems for mass automotive transaction
market vehicles platform for mobility
services
Using information collected by Bosch Accelerating the
Digital mapping
radar and video sensors in vehicles development of
company jointly Challenges to the vehicle seat shown
to create and update maps Offer car electronic solutions for
controlled by the car by designs for the future car and the
pools to your the networked vehicle.
Secure hypervisor manufacturers BMW, inclusion of autonomous driving
base for the ETAS employees Daimler and Audi.
ZF has signed a (AI) -based New joint mobility solution by
RTA-VRTE software
cooperation agreement vehicle control integrating the autonomously powered
solution that includes
with the long-distance unit (ZF ProAI) e.GO Mover Shuttle with Transdev’s
the AUTOSAR Adaptive
mobility provider for automated operating system.
Platform Standard
FlixMobility to develop driving
new target groups. applications
Source: Strategy& analysis (Strategic) partnership Strategic investment (e.g. M&A) Investment Others10 | Standing on the Verge of Momentous Change: Automotive Supplier Industry in Turkey
Historically, companies investing in cost Exhibit 6
leadership have always gone for M&A
to achieve economies of scale through High-Level Overview of the Consolidation Trend
industry consolidation. In conjunction Amount of Mega Deals and Deal Value
with the rising new trends explained 2009 – 2019 YTD 18 18 Fiat Chrysler and
above, our observations suggest that the 17 Peugeot owner PSA
amount of mega deals are increasing in 1 1 Group have announced
16
1 1
the industry (Exhibit 6). It is also worth 2 the merger of two
1 14 companies on October
mentioning that supplier sales growth is
31, 2019.
often accelerated by M&A in all markets
across the globe including countries that The deal would create
9 7 the world’s third-largest
have historic organic industry growth. 8
9 7 automaker and help
However, targeted expansion of the
spread the huge cost of
product portfolio, concentrating on the developing electric and
positioning in the future, has already 6 autonomous vehicles
started to be considered as strategically 5
much more important than revenue 4 2 9
growth through M&A. 3 3 1
7 7 7
6
1 1 3
4 4
1
1 1
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
YTD
Closed Ongoing USD 10+bn USD 5bn - USD 9.99bn USD 1bn - USD 4.99bn USD 0.5bn - USD 0.99bn
Source: Strategy& supplier database (data status 2010 – 2018), Thompson Reuters, Cap IQ, Mergermarket.com11
12 | Standing on the Verge of Momentous Change: Automotive Supplier Industry in Turkey
Automotive Suppliers in Turkey
The Turkish automotive industry faces 1. Firstly, suppliers in Turkey are facing Exhibit 7
similar challenges as is the case globally: several challenges in the adoption
declining volumes and margins. The of new technologies, resulting in low Top 10 OEM Sales1 – Turkey (Billion USD)
downward trend at the center of the value value-added products and drop in
chain is spreading out to lower levels in profits given increasing demand for
-0.7% CAGR
recent years. technology-based products globally.
2014-18
In 2018, sales from production went 2. Secondly, there is a lack of strategy CAGR 25.9 25.7
+11.1%
down by 0.7% and 2%, compared to on a firm and country level. The lack 7% 9% 24% Other OEMs2
22.4 7%
2017 for OEMs and auto suppliers, of strategy results in trying to get 7% -3%
6% 9%
respectively. For the period between through the day, but not considering 18.9 19.1 7% 9% 2%
2014 and 2018, Top 10 auto supplier’s on which market positioning (way 5% 5% 10%
17% 14% 7%
sales having even dropped by 1.6% to play), capabilities and products 12% 10%
annually on average (Exhibits 7&8). are required in the future to remain 11% 12% 19%
competitive. Investments are either 17% 16% 1%
Export volumes experienced negative 15% 16%
not made at all or are still not made 17%
growth in the first half of 2019, compared in the right areas. 26%
21% 19% 20% 20%
to the same period in 2018. In this period,
17%
exports of auto suppliers dropped by 3%. 11% 9%
According to our discussions with 24% 25% 7%
26% 28% 24%
industry leaders, there are two underlying
reasons that hinder the future growth and 2014 2015 2016 2017 2018
pave the downward trend for automotive
suppliers in Turkey: 1
Sales from production
2
Otokar, BMC, Honda, Man - They make less than 10% of Top 10 OEMs Sales
Source: Istanbul Chamber of Industry, Desktop Research, Strategy& Analysis13
Exhibit 8 Exhibit 9
Top 10 Automotive Supplier Sales1 – Turkey (Billion USD) Export Volumes of OEMs and Suppliers (Billion USD)
CAGR 31.4 CAGR
CAGR CAGR
-1.6% 2012-18
2014-18 8.4%
4.7 28.4
4.6
4.4 4.4 4.5
10% 6% 34%
5% -18% 24.2 5%
6% 7% 8% 6% 22.8 CAGR
7% 3%
6% 6% 6% 21.6 21.6 34% -5.8%
9% 7% 5%
6% 9% 9% 19.3
8% 8% 5% 37%
8% 6% 8% 16.3
7% 8% 9% 1% 42% 42% 15.3
9% 7% 40%
9% 9% 9% 0% 43%
9% 8% Suppliers 34%
10% 9% 35%
9% 10% 1%
8%
8% 9% 10% 5% 66% 11%
8%
15% 66%
14% 12% 12% 13% 63%
-4% 58% 58% 60%
OEMs 57% 66% 65%
25% 25% 24% 23% -5%
22%
2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018 2018 H1 2019 H1
Exports / Vehicle
production 67% 72% 74% 71% 75% 85% 76% 76% 86%
(Volume)
Source: Turkish Exporters Assembly, Turkstat, Automotive Manufacturers Association, President of the Republic
of Turkey Investment Office, Strategy& Analysis14 | Standing on the Verge of Momentous Change: Automotive Supplier Industry in Turkey
Understanding the Problem of Technology Adoption
The transition from traditional systems The problem involves multiple actors Thirdly, government-backed funds As these incentives and funds provided
to high-tech systems is the primary and their interaction with each other. and incentives have not been utilized to companies have not created the
challenge for the Turkish automotive Firstly, OEMs in Turkey are either direct by companies in a way that enhances expected impact from innovation
suppliers, mainly producing mechanical investments of global OEMs or joint innovation level in the industries. Mainly, perspective, governmental funding
systems. Our discussion with industry ventures. This leads the decisions on the government is providing funds mechanisms has recently been shifting
players reveals that suppliers in Turkey technology and innovation to be led by and incentives in two forms: 1) tax to be provided for mid-high and
are notoriously timid in engaging global organizations rather than the local incentives and supports, which enable high technology level products and
R&D activities. In particular, they entity. Furthermore, local production is companies to pay lower tax, social technological development itself. In order
are concerned to face potential mainly based on combustion engines and security premiums and 2) cash grants, to create an innovative environment,
technical challenges and to spend not EV/Hybrid technology. which are direct and non-refunding cash it is also critical to increase the level
time and resources to overcome them. injections for approved project(s) of the of education, adopt supportive
Additionally, as the process of adopting Secondly, it is the input / factor market companies. Generally, the most common organizational / management structure,
new technologies takes time to adjust that speeds up or hinders the technology form of government-backed funds and and facilitate access to relevant funding
and monetary returns are only realized in adoption of Turkish automobile suppliers. incentives is tax incentives, and this has – particularly the access of small-scale
subsequent years, the shift to innovation On the labor side, auto suppliers are not provided the desired level of impact companies and start-ups.
tends to be put on hold, causing a low now competing for talent with digital for fostering innovation. In terms of cash
technological progress observed among companies and the market is running grants, support is provided either for
the Turkish supplier companies. short of skilled-labor. Furthermore, the the improvement of a (current) product
current level of collaboration between or production process improvement
suppliers, universities and start-ups is purposes.
not sufficient to create an efficient and
sustainable innovation environment.15
Exhibit 10
Turkish Auto Suppliers’ Product Portfolio Focus
Bolded part types are Turkish Auto Suppliers’ Focus Portfolio
Technological progress (in points along CASE1 framework)
Competitive future market Stars
Driver Information & Assistance
4 Cockpit Infotainment Chassis Electronics Battery and Energy Storage
Body Electronics
Electrical Distribution Systems
Way to Play: Technology leader Body Structures
3 Price premium through R&D E-Motors & Generators incl. ISG
Power Converters and Controls for Hybrid
Cabin Safety Systems
Suspension Links & Knuckle Assy’s
Lighting / Exterior Trim Transmission
2
Poor dogs Door Systems Brakes Climate Systems Cash today question mark tomorrow
Way to Play: Last Man Standing
Price- and quality leader in not Wheels, Tyres,
1 technology-intense market segments Jacks & Equipment Steering Springs, Dampers, Frames & Powertrain Mounting
Anti-Roll & Levelling Air Intake Powertrain Controls Switches & Climate Controls
Fuel Systems Driveline
Engine Systems Glasshouse & Lids
Seating Exhaust Cooling Power Supply
0
19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1
Intensity of Competition
• How can Turkish auto suppliers change their focus from «poor dog» and «cash today» parts to «star» parts?
• Should Turkish auto suppliers continue to focus on part groups that generate high cash to stay competitive? (in number of competitors
per product group)
Body Interior Body Exterior Chassis
Electrical Powertrain Hybrid and BEV tech.
1
Along the dimensions: Connected, Autonomous, Shared, Electric (CASE)
Source: Strategy& Analysis16 | Standing on the Verge of Momentous Change: Automotive Supplier Industry in Turkey
Exploring the Right Direction: Firm and Country Level Strategy Requirement
As competitive pressures mount and new Exhibit 11
players show up with new competencies,
auto suppliers are left with hard choices Focusing on Selected Capabilities
– about what products and services to
keep or cut, what customers to serve “Industry workforce will be Need for omni-channel excellence: e.g. more
and what capabilities to invest in. Our than 70% of train tickets are already bought
cut by at least 50% by 2030 and Ambi-dextrous
discussion with industry players indicates employees who remain will need very organization Immersive
online (via app, computer) 4
that the future way-to-play will be either different skills”1 channels
technology leadership or cost leadership.
Yet, auto suppliers are not focusing Need for collaboration to stem high Suppliers show strong growth
on their differentiating capabilities and costs: tech companies have on of +450% in M&A activity for
determining strategic options. Performing
average a 10% higher
partnerships software related competencies 5
The Turkey’s Automobile Joint Venture R&D spend than auto Smart
Group unveiled its first domestically- suppliers2 technology
produced electric vehicle “TOGG” in
December 2019, stating that it aimed to One German OEM aims to have Need for optimized global
produce up to 175.000 electric vehicles half of its revenue coming from
per year in a project experted to cost
Mixed Hyperlocal
sourcing as labor costs make up
USD 3.7 billion over 13 years. This project digital offerings by 2020 3 portfolio footprint
~30% of total interior parts costs when
shows Turkey’s direction for electric manufactured in Western Europe6
vehicle production and therefore, in order
to keep up with this strategic direction, 1
PwC Strategy& report “Transforming vehicle production: How shared mobility and automation will revolutionize the auto industry by 2030”
suppliers should adapt innovation-based 2
Strategy& analysis based on annual reports of several technology companies and suppliers; average R&D spent as percentage of revenue in 2018: 16% tech. vs. 6% supplier
strategies going forward. 3
Strategy& analysis based on OEM press releases
4
Tagesspiegel press release on Deutsche Bahn tickets
5
Strategy& analysis
6
PwC Strategy& report “Capabilities-driven restructuring – A manufacturing footprint strategy for a commodity automotive supplier industry”17
Turkey as a country is not alone with Exhibit 12
a requirement for a clear vision and
strategy. Even those countries that are Turkey’s Research & Development Landscape
leaders in automotive industry have the
Turkey R&D Personnel and R&D Spending Development - Automotive
same problem: the future is not clear.
(Headcount, Million USD)
Nevertheless, they take initiatives to
assume leadership in some areas. Turkey
is already positioned as an important
9,321
hub for global players that invest in 7,696 7,594
6,874 7,101
engineering and R&D; such as AVL, FEV,
Idiada and Ricardo. Additionally, there are
multiple R&D incentives in actions and
companies are increasing the number
of R&D personnel. Yet, the problem
143 automotive R&D
lies in that there is no unifying force, centers (in 2018)
partially backed by the government,
to induce roles and responsibilities
on the value chain. Without such 27 automotive design
structures or forces, the production centers (in 2018)
market ends up in “everyone-fighting- 27
with-everyone” industry model and 2013 2014 2015 2016 2017
companies are operating with a low level
of specialization. R&D Spending Number of R&D Personnel
Source: Turkstat, President of the Republic of Turkey Investment Office, Strategy& Analysis18 | Standing on the Verge of Momentous Change: Automotive Supplier Industry in Turkey
Conclusion: Opportunities on the Horizon and Key Lessons
Opportunities
OEMs: Existing close relations with local Location advantage: Turkey is well- Building on existing capabilities: In Strong Labor market: To attract global
and global OEMs and understanding known with its strategic location. There the last decade, Turkish auto suppliers auto suppliers looking for cost reduction,
their future needs plays a crucial role are two important takeaways for Turkish gained an important experience on the Turkish labor market has a lot to offer.
for Turkish automotive suppliers. Our auto suppliers. Firstly, companies how to develop products and vehicles. On average, a Turkish engineer with the
discussion with industry players reveals from South Korea, Japan and China Furthermore, the industry already similar skill set costs up to %66 less
that the subsystems of motor, electronics which are targeting EU market can be achieved standardized quality levels. compared to its peers in EU. Additionally,
and software are becoming new focus addressed to create joint ventures. They By choosing the right partner for joint Turkish workers are not reluctant to work
areas. Particularly, OEMs are demanding are looking for regions of production ventures, Turkish auto suppliers can aim overtime and have better absenteeism
autopilot, battery cooling systems, having close distance to assembly for extending their product portfolio to rate compared to Europe that makes
electronic and body control unit, camera plants in EU region. Thus, Turkey offers a technology-intensive products. hourly labor cost very competitive.
sensors and electric motors to be great place to produce and Turkish auto
produced locally. suppliers have a remarkable chance to
increase their know-how through having
partnership with companies from East
Asia. Secondly, Turkish auto industry has
a huge potential to serve EMEA region
and to penetrate the market with urgent
delivery features, especially given also
the customs union with the EU.19 Key Lessons Strategy on Firm Level: Auto suppliers Strategy on Country Level: Government Roadmap Design: Firms should engage Partnerships: Firms should be open to should decide on their strategy over cost and companies should work together in roadmap planning, setting target levels new partnerships with digital / technology leadership or technology leadership. to set up the value chain positioning and implement commitment to these companies, learn from them and update Changing product portfolio and opening and organize division of tasks in order levels. The measure of success should be their cultural mindset accordingly. up new product lines require reallocation to prevent «everyone-fighting-with- clear. (E.g. investing significant part of the of resources and solid evaluation of everyone» industry model. Tax incentives sales revenue in R&D, while maintaining future financing plan together with or subsidy policies should be set out the level of the international competitors timeline assessment for required to increase firm-level granularity on the in terms of EBIT margins). competencies. value chain.
20 | Standing on the Verge of Momentous Change: Automotive Supplier Industry in Turkey
Strategy& PwC TAYSAD
Strategy& is a global strategy consulting At PwC, our purpose is to build trust in Established in 1978, TAYSAD is the sole
business uniquely positioned to help society and solve important problems. and most competent representative of
deliver your best future: one that is built We’re a network of firms in 158 countries the Turkish automotive supplier industry.
on differentiation from the inside out and with more than 236.000 people who With more than 450 members, the
tailored exactly to you. As a part of the are committed to delivering quality in association represents 65% of the output
PwC network, every day we’re building assurance, advisory and tax services. of the automotive supplier industry and
the winning systems that are at the heart Find out more and tell us what matters to 70% of the industry’s exports. 80% of
of growth. We combine our powerful you by visiting us at www.pwc.com.tr members operate in the Marmara region;
foresight with this tangible know-how, 12% in the Aegean region and 8% in
PwC has been providing services to
technology, and scale to help you create a other regions of Turkey. 450 TAYSAD
the Turkish business world since 1981,
better, more transformative strategy from members employ more than 200,000
with five offices located in four cities;
day one. people.
Istanbul, Ankara, Bursa and Izmir. With
As the only at-scale strategy business a professional staff of 1.700, we provide 25% of members have foreign partners
that’s part of a global professional services to create the value that our who hold varying levels of shares.
services network, we embed our strategy clients look for. TAYSAD is a member of CLEPA, the
capabilities with frontline teams across European Association of Automotive
PwC to show you where you need to go, Suppliers (www.clepa.be). In addition,
the choices you’ll need to make to get the association has a reference
there, and how to get it right. position within Turkey for domestic and
international OEM’s, Tier 1 Suppliers
The result is an authentic strategy process
and institutions being the representative
powerful enough to capture possibility,
of Turkish Automotive Parts and
while pragmatic enough to ensure
Components Suppliers.
effective delivery. It’s the strategy that
gets an organization through the changes TAYSAD holds ESCA Silver Label and
of today and drives results that redefine ISO 9001 Certificates.
tomorrow. It’s the strategy that turns
vision into reality. It’s strategy, made real.21
Automotive practice service offerings
• Distribution and retail strategy (offline and online) • Mobility-as-a-service strategy and ways-to-play
• Dealer business model and direct sales • Capability requirement definition, development &
Marketing, sourcing (incl. supplier selection)
• Market entry strategies for new players
Sales Future of • Go-to-market, pilot set-up, launch support and scaling
• Ownership vs. usership models & Aftersales Mobility
• Development and realization of value creating
• Digitization strategy and target picture Digital inorganic strategies
• Digitization of core processes (e.g. predictive Enterprise & • Enterprise portfolio review
maintenance, digital supply chain, RPA1) Transfor-mation Enterprise Value
• Improvement of strategic positioning and business
• Digital transformation acceleration (e.g. org set-up, Architecture
performance
governance, KPI’s, tracking) (EVA)
• Optimization of balance sheet and tax structure
• Product and service strategy, opportunity sizing &
• Organization, product & process maturity assessment proposition design
• Enablement through preventive, reactive and Extended
Integrated • (Digital) unit set-up, capability building and talent
sustained solutions Enterprise
Product • Roadmap, risk assessment and (digital) portfolio
Enablement (EEE)
• From supplier nomination to End of Production & Service management/ divestiture
Strategy
• Risk analysis along product lifecycle Product • Transparency over cost and customer value
• Prioritization of risk mitigating measures (Technical) Value • Technical and commercial opportunities for cost
Compliance Management reduction and value creation
• Implementation of best practice technical compliance
management system to ensure conformity with (PVM) • Creation of holistic PVM organizations (i.e. strategy,
technical compliance standards operating model, methods & tools, resources)22 | Standing on the Verge of Momentous Change: Automotive Supplier Industry in Turkey
Your Contacts
Tolga Baloğlu Kağan Karamanoğlu Henning Rennert
Partner, PwC Turkey Partner, PwC Strategy& Turkey Partner, PwC Strategy& Germany
+90 212 326 53 34 +90 212 326 63 09 +49 160 95553583
tolga.baloglu@pwc.com kagan.karamanoglu@strategyand.tr.pwc.com henning.rennert@strategyand.de.pwc.com
Jonas Seyfferth Ethemcan Bakırlıoğlu Kaan Kurt
Director, PwC Strategy& Germany Director, PwC Strategy& Turkey Associate, PwC Strategy& Turkey
+49 89 54525596 +90 212 326 60 60 kaan.kurt@strategyand.tr.pwc.com
jonas.seyfferth@strategyand.de.pwc.com ethemcan.bakirlioglu@strategyand.tr.pwc.comwww.strategyand.pwc.com/tr
© 2020 PwC Turkey. All rights reserved. PwC refers to the Turkey member
firm, and may sometimes refer to the PwC network. Each member firm is a
separate legal entity. Please see www.pwc.com/structure for further details.
2019-0320
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