Nurturing the automotive supply chain in emerging markets

While the automotive industry is facing extraordinary challenges like increasing regulation, cost pressures and the advent of driverless and electric cars, it is still booming with more than 80 million passenger cars produced in 2017 alone. A revolution is occurring, however, when it comes to the focus of this growth.

In 2017, China accounted for 29 per cent of all cars produced and according to McKinsey’s analysis of the global industry, emerging markets will make up approximately two-thirds of the automotive industry’s total profit. In particular, BMI Research predicts that Asian sales will grow by 4.7 per cent in 2018 – it suggests that China’s incredible growth will slow slightly now that tax incentives have been scaled back but the Japanese market will accelerate. It also expects Russia to be a major force in 2018 with vehicle sales jumping 11 per cent.

Much of this growth has been fuelled by the rise of the middle class and increased domestic consumption, better infrastructure and roads, and the continual roll-out of new cars by car manufacturers eager to tap into the potential of the market.

As manufacturers focus on these new and emerging markets, they are facing numerous challenges. For example, at the moment, the location of current production and supply bases is not sufficiently aligned to future sales. Therefore, a key priority for OEMS is establishing a local supplier base, building an enhanced supply chain and bolstering supplier capacities in these areas of the world. Nurturing a new supply chain takes time but whether it’s Asia, Russia or Latin America, it’s vital manufacturers have full confidence in their suppliers because a business is only as strong as the weakest link in its supply chain.

Chain reaction

In fact, the rate of supplier failure is alarming. Research conducted last year by Tungsten Network, in conjunction with Forrester, found that eighty-four per cent of businesses have suffered from some form of supplier failure in the past two to three years. The most common impact of supplier failure identified in the research was financial, with 30 per cent of firms reporting a loss in revenue or business partners. Other impact areas reported by more than 22 per cent of buyers were higher insurance premiums, damaged reputation, as well as significant legal and regulatory fines.

Know your supplier

To protect themselves from supplier failure, companies are increasingly pulling together comprehensive records on their suppliers and using integrated digital solutions such as our new service Mastercard Track. We’ve teamed up with Mastercard to create the offering for Tungsten Network customers – Mastercard Track helps customers maintain, retrieve and exchange key information relating to themselves and their trading partners through the Track Trade Directory, a secure repository of more than 150 million company registrations worldwide.

This central directory integrates feeds from more than 4,500 compliance lists into one place, making the screening and on-boarding of suppliers more efficient. Tungsten Network customers are able to set alerts and receive regular reports on any changes in trading status of their suppliers and means that they can trade confidently, knowing that their vendors are being monitored for changes in compliance or registry status.

As OEMs expand into unknown territories, it’s becoming more and more vital that they have deep insight into their supply chain, especially during the onboarding phase. On their own, this could be a daunting task but if they are a part of a global digital network, they can get support navigating the minefield of fiscal and legal compliance regulations, while also checking their suppliers thoroughly before embarking on a business relationship. Also, through Tungsten Network’s digital platform, OEMs can make timely payments in multiple currencies and jurisdictions, which also helps improve cashflow and collaboration throughout the supply chain.

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