Harvard Case - Arvin Exhaust Thailand: Building An Asian Supply Base
"Arvin Exhaust Thailand: Building An Asian Supply Base" Harvard business case study is written by Edward W. Davis, John W. Wehrenberg, Sandon Moore. It deals with the challenges in the field of International Business. The case study is 24 page(s) long and it was first published on : Mar 28, 2001
At Fern Fort University, we recommend that Arvin Exhaust Thailand (AET) adopt a multi-pronged strategy to establish a robust Asian supply base. This strategy will leverage AET's existing strengths and address the challenges of globalization, emerging markets, and international business.
2. Background
Arvin Exhaust, a US-based manufacturer of exhaust systems, sought to expand its global footprint by establishing a manufacturing base in Thailand. AET was established in 1995, aiming to capitalize on the growing Asian automotive market and leverage Thailand's favorable manufacturing environment. However, AET faced challenges including:
- Competitive pressures: Low-cost Chinese competitors were emerging, threatening AET's market share.
- Supply chain complexities: AET relied heavily on US-sourced components, leading to high transportation costs and potential supply disruptions.
- Cultural differences: Navigating Thai business practices and building relationships with local suppliers proved challenging.
Main Protagonists:
- Arvin Exhaust: A US-based multinational corporation (MNC) seeking to expand its global reach.
- AET Management: Faced with the challenge of establishing a sustainable supply base in a complex and competitive environment.
- Thai Suppliers: Potential partners for AET, offering opportunities for cost reduction and supply chain optimization.
3. Analysis of the Case Study
Strategic Framework: Porter's Five Forces Analysis provides a framework to understand the competitive landscape and identify opportunities for AET.
Competitive Forces:
- Threat of New Entrants: High, due to the ease of entry into the automotive parts manufacturing industry in Thailand.
- Bargaining Power of Buyers: Moderate, as AET's customers (OEMs) have some leverage due to the availability of alternative suppliers.
- Bargaining Power of Suppliers: Moderate, as AET depends on a limited number of specialized suppliers for certain components.
- Threat of Substitute Products: Moderate, as alternative exhaust systems are available in the market.
- Rivalry Among Existing Competitors: High, due to the presence of established local and international competitors.
Key Insights:
- AET needs to differentiate itself from competitors to maintain market share.
- Building a strong local supply base is crucial to reduce costs and improve responsiveness.
- AET must navigate cultural differences and build strong relationships with Thai suppliers.
4. Recommendations
1. Develop a Multi-Tiered Sourcing Strategy:
- Tier 1: Core Components: Maintain strategic partnerships with key US suppliers for critical components.
- Tier 2: Regional Sourcing: Partner with qualified Thai suppliers for non-critical components.
- Tier 3: Local Sourcing: Explore opportunities to source basic materials and components locally, leveraging Thailand's robust manufacturing ecosystem.
2. Implement a Supplier Development Program:
- Training and Capacity Building: Invest in training Thai suppliers to meet AET's quality standards and technical specifications.
- Technology Transfer: Share knowledge and best practices to enhance the capabilities of Thai suppliers.
- Long-Term Partnerships: Develop mutually beneficial relationships with Thai suppliers, fostering trust and collaboration.
3. Foster Strong Business and Government Relations:
- Engage with Thai Authorities: Build relationships with relevant government agencies to understand regulations, access incentives, and address potential challenges.
- Promote Corporate Social Responsibility: Demonstrate AET's commitment to sustainable practices and community development, building a positive brand image.
- Participate in Industry Associations: Engage with relevant industry groups to stay informed about industry trends and foster collaboration.
4. Leverage Technology for Supply Chain Optimization:
- Invest in IT Infrastructure: Implement robust information systems to manage inventory, track shipments, and ensure real-time visibility across the supply chain.
- Embrace Digitalization: Explore e-procurement platforms and digital tools to streamline communication and collaboration with suppliers.
- Data Analytics: Utilize data analytics to identify bottlenecks, optimize logistics, and improve supply chain efficiency.
5. Implement a Strategic Marketing Approach:
- Target Key Customer Segments: Focus on building relationships with major OEMs in the Asian market, emphasizing AET's local manufacturing capabilities and commitment to quality.
- Develop a Strong Brand Identity: Promote AET's brand as a reliable and innovative supplier of exhaust systems, highlighting its commitment to environmental sustainability and social responsibility.
- Leverage Digital Marketing: Utilize digital channels to reach potential customers, build brand awareness, and generate leads.
5. Basis of Recommendations
Core Competencies and Mission:
- AET's core competencies in exhaust system manufacturing and supply chain management are leveraged by building a strong local supply base.
- The recommendations align with AET's mission to expand its global reach and provide high-quality products to customers.
External Customers and Internal Clients:
- The recommendations address the needs of AET's customers by offering locally manufactured products with competitive pricing and reduced lead times.
- Internal clients benefit from a more efficient and responsive supply chain, leading to improved operational efficiency and profitability.
Competitors:
- By developing a multi-tiered sourcing strategy and fostering strong relationships with Thai suppliers, AET can gain a competitive advantage in terms of cost, quality, and responsiveness.
- The focus on sustainability and social responsibility differentiates AET from competitors and enhances its brand image.
Attractiveness:
- The recommendations are expected to improve AET's profitability by reducing costs, increasing efficiency, and expanding market share.
- The long-term benefits of a robust Asian supply base outweigh the initial investment costs.
Assumptions:
- The Thai automotive market will continue to grow, providing opportunities for AET to expand its business.
- AET will be able to successfully identify and develop qualified Thai suppliers.
- The Thai government will continue to support the automotive industry and provide a favorable business environment.
6. Conclusion
By adopting a strategic approach to building an Asian supply base, AET can overcome the challenges of globalization and emerge as a leading player in the Asian automotive market. The recommendations outlined above will enable AET to achieve its strategic goals, improve profitability, and ensure long-term sustainability.
7. Discussion
Alternative Options:
- Full outsourcing: AET could outsource all manufacturing to Thai suppliers, but this could lead to quality control issues and loss of core competencies.
- Joint venture: AET could form a joint venture with a Thai company, but this could lead to challenges in managing cultural differences and sharing control.
Risks and Key Assumptions:
- Political instability: Political instability in Thailand could disrupt business operations and impact the supply chain.
- Economic downturn: A global economic downturn could reduce demand for automotive parts, affecting AET's sales and profitability.
- Currency fluctuations: Fluctuations in the Thai baht could impact AET's pricing and profitability.
Options Grid:
| Option | Benefits | Risks | Assumptions |
|---|---|---|---|
| Multi-tiered sourcing strategy | Reduced costs, improved responsiveness, enhanced competitiveness | Potential quality control issues, cultural differences | Thai suppliers can meet AET's quality standards, government support for the automotive industry |
| Full outsourcing | Lower manufacturing costs, access to local expertise | Loss of control over manufacturing, potential quality issues | Thai suppliers can meet AET's quality standards, reliable supply chain |
| Joint venture | Shared risks and resources, access to local market knowledge | Potential conflicts of interest, cultural differences | Compatible partner, successful integration of operations |
8. Next Steps
Timeline:
- Year 1: Implement a supplier development program, identify and qualify potential Thai suppliers.
- Year 2: Begin sourcing non-critical components from Thai suppliers, gradually increasing the sourcing volume.
- Year 3: Establish a robust Asian supply base, with a mix of US and Thai suppliers, optimizing the supply chain for cost and efficiency.
- Year 4: Expand AET's presence in the Asian market, leveraging the established supply base and strong local partnerships.
Key Milestones:
- Develop a comprehensive sourcing strategy.
- Establish a supplier development program.
- Negotiate long-term contracts with key suppliers.
- Implement IT systems for supply chain management.
- Develop a marketing plan to target key customer segments.
By taking these steps, AET can successfully establish a robust Asian supply base, achieve its strategic goals, and secure its position as a leading player in the global automotive market.
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Case Description
A U.S. automotive supplier follows a major customer to Asia, and forms a joint venture with a Thai company to build and operate a new manufacturing plant. Key parts are also sourced from the Thai partner's existing plant. The Asian currency crisis causes devaluation of the Thai currency as well as problems for the joint venture, requiring the restructuring of the joint venture and the resourcing of parts from another company. Issues in the case include the recovery of tooling and equipment from the joint-venture partner and cost analysis to determine the best sourcing alternative. An optional Excel template is available for use with this case.
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