Shedding Light on Mexico’s Value ChainSat, 09/01/2018 - 10:07
Q: How is OSRAM adapting to the arrival of new OEMs and Tier 1 suppliers into the Mexican automotive industry?
A: OSRAM has three strategies to target Mexican and foreign automotive companies. The first is to improve its LED OPTO Semiconductors (OS) sales division. Two pillars support our corporate strategy: specialty products and OS. Bringing together these two areas under the same umbrella helps us to target the traditional lighting market as well as the growing demand for LED solutions, which are increasingly relevant to our overall portfolio as we introduce new applications for areas such as self-driving technology. For example, we are working on a LiDAR-based monitoring system that tracks eye movement patterns using infrared LEDs. It will take a while for this system to reach the market but OSRAM’s OS area is growing at a fast pace thanks to our focus on systems rather than just components.
The second strategy relates to our joint venture with Continental. We have great growth expectations for this company. It focuses on developing intelligent and dynamic lighting solutions with integrated electronics and targets the automotive industry. OSRAM-Continental started operations in July 2018 and is projected to employ 1,500 workers in 16 locations with its headquarters in Munich. OSRAM’s third strategy focuses on gaining greater value from mature markets for traditional products, such as Xenon, halogen and incandescent headlamps. We expect moderate growth in these segments as our competitors start to abandon them. OSRAM will achieve its growth goals by introducing products that cater to all needs and by having a much broader product offering than its competitors. The idea is to maintain our presence in mature markets as we develop new products for automotive lighting.
Q: How is OSRAM planning to insert its lighting solutions into the assembly lines of newly-arrived OEMs?
A: As a Tier 2, OSRAM does not directly target OEMs; we target Tier 1 suppliers like HELLA and Valeo. Our strategy is to remain close to our customers and help them provide OEMs with a comprehensive product offering that solves their lighting requirements. As more European companies arrive to Mexico, we expect to continue growing alongside them. We also see many opportunities to collaborate with Asian companies. For instance, OSRAM is already collaborating with South Korean groups present in Mexico such as Hyundai MOBIS, as well as Japanese companies like North American Lighting, which is part of the Japanese Koito Group.
Q: What are the main advantages that Mexico offers to potential German investors?
A: Mexico’s labor costs remain a competitive advantage. This is particularly true for component manufacturers that require large amounts of manual labor. Looking ahead, the country needs to support companies in the process of adding value to components so they can be considered within NAFTA rules on regional content.
Education and training of Mexico’s young population continues to be essential for strengthening production operations. The country also needs to increase support for R&D through the generation of incentives from the federal and state governments for technology development. Companies do not need the government to offer solutions for their problems nor do they require government subsidies to grow. What we need is a business environment that allows for the generation of alliances between different business elements that benefit each player and help spur growth. As long as the country generates a positive business environment, Mexico will remain an attractive destination for foreign direct investment and the country will keep its positive image among automotive companies.
Q: How do you expect the automotive lighting market to evolve toward more innovative systems?
A: OSRAM is focused on strengthening its lighting system division, which we expect will gradually displace our mature markets. Products in OSRAM’s traditional segments, such as halogens and incandescent lighting, have little room for technological development, so the company is targeting new products with increased efficiency. Light bulbs with a useful life of 1,000 hours will be substituted for others with twice that lifespan. Our traditional division is focusing on capturing market share in a technology area that already exists and in which we are very strong.
Q: What milestones has OSRAM reached by introducing more LED, OLED and other innovative products to the Mexican supply chain?
A: We have only included OLEDs in a few business platforms as we believe that OSRAM’s future is in LED illumination, OS components integrated into automotive systems and self-driving technologies. We want to increase our participation in LED solutions oriented to illumination, signaling and movement detection, both with visible and invisible light. Our solutions for self-driving technology are important for OSRAM and will continue to be for the next 20 years, but other segments are key for the short term. For instance, OSRAM focuses on developing interchangeable LED products through the standardization of LED-based light technologies through its Exchangeable Light Source (XLS) line. XLS will make the design and application of LED products less expensive and more efficient for OEMs.
Q: What challenges is OSRAM México facing in the current economic and political environment?
A: Uncertainty is having a heavy impact on the automotive market. Part of our business is oriented to the aftermarket, which has taken several hits from the troublesome political and economic environment reigning in Mexico. Some of our clients have stopped or reduced their investments in inventories because they do not have a clear image of what the future holds. In terms of original equipment, depressed vehicle production in the NAFTA region has impacted our releases of mature products. To counter this, OSRAM is focusing on the development of new OS products. We are pursuing an aggressive growth strategy in the original equipment segment. We should grow between 3 and 4 percent in original equipment, including both traditional and OS production oriented to the NAFTA region.
Q: What is OSRAM’s strategy in the face of US tariffs on automotive imports and potential stricter rules of origin within NAFTA?
A: Our strategies target improved cost-competitiveness. OSRAM was already working to reduce its costs but President Trump’s rhetoric has enticed us to pay greater attention to this area. OSRAM is also adding value to LED products made in Malaysia and incorporated into lighting systems here. This strategy could help us dodge the 25 percent import tariff that the US has levied on some Chinese products. By importing them to Mexico and adding value to them before exporting them to the US, we may be able to meet the necessary regional content to enter the US without paying tariffs. We are not letting NAFTA influence our decisions for the Mexican market, as we are working under the expectation that the deal will continue.
Q: What role will OSRAM play in Mexico’s long-term automotive industry?
A: OSRAM is in Mexico to stay. We are planning and implementing long-term projects in the country, for which we would like to see a business environment not plagued by uncertainty. We are aware that government changes are a normal part of the business environment and companies need to learn to navigate around them to find new opportunities. OSRAM México is interested in knowing the next federal administration’s plans to collaborate with the private sector and what are its plans to promote industrial growth. We want to hold a larger share of the market so we will continue working to increase our participation in the Mexican market with the goal of becoming leaders in this country, as we are in others.