The Aftermarket in the Automotive Industry - Unipart Logistics

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The Aftermarket in the Automotive Industry - Unipart Logistics

Contents1 Executive Summary 42 The Aftermarket in the Automotive Industry 63 Characteristics of the Aftermarket 84 Investments Into Key Initiatives in the Aftermarket 135 Performance in the Aftermarket 166 Management Approach for Winning the Aftermarket 177 Conclusions 34The Aftermarket in the Automotive Industry3


1 Executive SummaryExhibit 1: Global Revenues and Headquarters of ParticipantsGlobal revenue distribution of participating companies35%30%25%20%15%10%5%0%31%27%5bnThe automotive industry isexperiencing significant changes inglobal market volumes, with flat salesin Western Europe and increasingimportance of the emerging marketsof Eastern Europe, Russia, China andIndia. This growing importanceincludes not only new car sales, butalso the aftermarket. Given the factthat the aftermarket business createsattractive revenues and margins,aftermarket activities are on themanagement agenda in bothestablished and emerging markets.Winning the aftermarket is far fromeasy, since it entails significantcomplexity, a large number ofmaintenance and parts activities, andcrucial supply chains.To identify key patterns about how tobest operate in the established as wellas in these fairly new markets,Capgemini Consulting, together withthe University of St. Gallen (ITEM-HSG), conducted an aftermarketHeadquarters of participating companiesAmerica13%Rest of Europe31%Asia Pacific9%Germany47%Capgemini Consultinganalysis. The main aim of thisanalysis was to develop a framesetthat allows automotive companies tobest prepare for challenges in theglobal aftermarket business. Theanalysis is based on an in-depthsurvey in combination with additionalinterviews with over 150 aftermarketmanagers of the world’s leadingautomotive companies.Based on the results of this study, thefollowing key conclusions can bedrawn for the aftermarket:1.The Western Europeanaftermarket is a rather maturemarket with flat aftermarketvolumes. The competitive intensityremains at a high level and will befurther accelerated by newregulations and competitors.2.Improvement of marketing andsales activities is the maintrigger to remain competitive inWestern Europe. Because of theflat nature of the WesternEuropean aftermarket, marketingand sales activities mustconcentrate on keeping thecustomer loyal to dealers andrepair shops across the carlifecycle.3.Emerging markets offerattractive growth rates withrelatively moderate competitiveintensity in Eastern Europe,Russia and India but with highcompetitive intensity in China.In the future, the competitiveintensity is expected to increase toa similar level as in WesternEurope. To benefit from theattractive growth rates requiresimmediate managerial action,before the growing competitionmakes it more difficult to succeedin the aftermarket. Still, lowperformingcompanies in particularneed to focus on selected marketsthat best fit their strategy and theircurrent capabilities.4


4.Each emerging market (EasternEurope, Russia, China and India)is specific in terms of thecompetitive environment andcustomer needs. The differentcharacteristics of the marketsrequire a localization of theaftermarket. Companies trying toexploit the aftermarket with astandardized global approach willmost likely fail. Finding anindividual approach becomesessential.■ Surprisingly, most companies arenot prepared to exploit thepotential of the EasternEuropean aftermarket and no onereaches high performance. Themajority of companies areconfronted with improvementactivities across marketing andsales, sourcing, distribution,planning and reverse-logisticsprocesses.■ Russia’s geographic expansionrequires improvements in thedistribution processes. A moredense distribution network wouldenable a stronger penetration ofthe Russian aftermarket beyondthe major cities.■ China is the most challengingemerging market. To succeedhere, major improvements arenecessary in marketing and sales,sourcing, distribution andplanning processes to become andalso to remain competitive.■ In general, India is a ratherneglected market for WesternEuropean car manufacturers andis increasingly being led by topperformingAsian companies.Western European companiesmust learn from the successfulaftermarket practices of theirAsian competitors.The results of the study led to thedevelopment of a model designed byCapgemini and the University ofSt. Gallen that evaluates the overallaftermarket performance (CHAMP –Capgemini’s Health Check forAftermarket Performance). Themodel visualizes the currentperformance and development needsof a company by identifying threedifferent phases to optimize theaftermarket performance in WesternEurope and the emerging markets.This model helps companies to betterposition themselves and developstrategic options to boost theiraftermarket performance in therespective markets to the point wherethey can become a global aftermarketchampion. To accomplish this, themodel uses three different levels: theexploration, exploitation and finallythe aftermarket champion phaseleading into the global aftermarketchampion phase.In each of these levels companieshave to focus on differentimprovements in their aftermarketoperations. Most companies have leftthe level of exploration in WesternEurope, but have re-entered this levelin the emerging markets. Companiesshould strive to become emergingmarket champions in theiraftermarket activities in the next fiveyears. Of course, not every companycan and will succeed, but the pace ofprogress towards that objective willmake the distinction between marketshare losers and gainers, not only foraftermarket revenues and profits.In the final level companies shouldalign their strategy and operationstowards a vision in which globalaftermarket champions concentrateon a control-tower type of supplychain operation. In this case, thecompany takes over full end-to-endresponsibility for the supply chainfrom its suppliers up to itscustomers. Global aftermarketchampions operate optimized multiechelonnetworks of warehouses anduse worldwide benchmarks totransfer best experiences amongwarehouses, dealers and repaircenters.The Aftermarket in the Automotive Industry5


2 The Aftermarket in the AutomotiveIndustryThis section provides an overview ofthe automotive industry’s aftermarketto set the scene for further analysis.Growth rates in the different regionsare discussed as well as how basicvalue propositions are set in thisindustry.Aftermarket VolumesAftermarket operations have a verybroad scope and contain all activitiesrelated to maintaining a car after itsinitial sale and until the end of itslifecycle. The relevant activities arealso referred to as aftermarket partsand services. The aftermarketencompasses all parts and servicespurchased for light- and heavy-dutyvehicles after the original sale,including replacement parts,accessories, lubricants, appearanceproducts and service repairs. Thisdefinition also includes anyadditional innovative services thathelp to optimize the use of thevehicle.Exhibit 2 summarizes the maincomponents of the automotiveaftermarket and also gives an outlineof average margin expectations percomponent. In addition, theillustration shows how the valuechain of an OEM (OriginalEquipment Manufacturer) and OES(Original Equipment Supplier) isstructured and where the after salesactivities are based in the chain.Globally, aftermarket volume,including retail sales, is growingrapidly and becoming increasinglyimportant to automotive companiescompared to new car sales due to theExhibit 2: Value Chain of OEM/OES and Focus of StudyUpstreamDownstreamProductDevelopmentLogisticsManufacturingNew CarSales*FinancialServicesAfter SalesUsed CarSalesRecyclingPartsServicesAccessoriesAppearanceProductsLubricants& TiresReplacementPartsServiceRepairsTelematics/NavigationEntertainmentOEM/OES MarginOEM/OES MarginNew car sales is relevant for OEMs only. For OESs the* The relevancy of the different elements varies forequivalent is parts/components sales to OEMsOEMs/OESs due to the nature of their meaningCapgemini Consulting6


higher margins. As can be seen inFigure 3, the Western Europeanaftermarket is more or less flat, whileattractive growth rates exist inemerging markets such as EasternEurope. The average growth rate peryear is estimated at about 1% inWestern Europe, whereas in EasternEurope it is about 5.3% per annumover the past seven years. AmongWestern European markets with atotal aftermarket volume ofapproximately 165 billion euros,Germany has the highest sales with48 billion euros and thus contributedabout 30% of the overall WesternEuropean aftermarket sales in 2008.Aftermarket Revenue andProfitsInnovative services such as telematicsand mobility service bundles offeradditional opportunities to generatebusiness and revenue improvementsand account for a growing share ofthe aftermarket. These services areincreasingly embedded into newtechnologies. In addition to morecomplex parts, they can compensatefor the declining share of traditionalparts, repair and maintenanceservices during a car’s lifecycle due tohigher general quality and reliabilityof cars and parts. Considering thetotal revenue stream of a typical 13-year car lifetime, 1 only 37% of thetotal revenue stems from the new carsale. The aftermarket businessaccounts for the remaining 63% inWestern Europe. 2In 2007, the aftermarket businessaccounted for about half of theprofits of European automotiveOEMs/OESs, compared to 26% fornew car sales and 18% for carmanufacturing. In the aftermarket,the turnover for car and partsmanufacturers has increased to about63 billion euros and operating profitsgrew from 13 billion euros to 16billion euros, compared with theprevious year. 3 In 2009/2010 this isexpected to level off due to the effectsof the vehicle scrapping programs,such as the Abwrackpraemie inGermany, on the service and partsbusiness in the major markets inWestern Europe. In addition, the costof warranty is expected to increaseover the next three years.Exhibit 3: Automotive Aftermarket Growth in Western and Eastern EuropeAutomotive aftermarket retail value in billion EURin Western Europe aAutomotive aftermarket retail value in billion EURin Eastern Europe bIncrease 5%Increase 27%180.0160.0140.0120.0100.0157.962.0158.862.3158.862.2158.762.0160.762.6163.664.0165.464.810.09.08.07.06.05.06.32.46.72.57.12.77.42.87.83.08.23.18.63.380.04.060.040.095.996.596.696.798.199.6100.63.02.03.94.24.44.64.85.15.320.01.00.00.020022003200420052006200720082002200320042005200620072008LaborPartsLaborPartsa) Based on data from Germany, UK, France, Italy, Spain, the Netherlands, Belgium, Norway, Portugal, Sweden, Austria/Switzerlandb) Based on data from Poland, Hungary, Czech RepublicDatamonitor, Capgemini Consulting1 The automotive passenger car lifecycle model splits the average use of an automotive passenger vehicle over a period of 13 years into three phases. The first phase runs fromone to four years of the car’s age, mainly through the warranty period of the car. Phase two describes the years from four to seven. Finally the third phase describes the yearsfrom seven to typically 13. This model is relevant for the management of the automotive aftermarket business as it can be used to describe the usage patterns of endcustomers in their consumption of parts and services over the different phases. Typically, the older the car gets, the more sales of parts at OEM-owned retail and franchiseddealerships decrease in favor of independent retailers. OEMs are continually seeking solutions to minimize this situation as the parts business offers attractive margins.2 Capgemini Consulting, internal research3 Capgemini Consulting, internal researchThe Aftermarket in the Automotive Industry7


3 Characteristics of the AftermarketKey FindingWestern, Eastern Europe andRussia will increasingly betreated as “one” commoninvestment region, whereasChina and India are still focusedon independently.Key FindingWhereas the Western Europeanaftermarket is in the maturitystage, strong annual growthrates of 5% to 15% are expectedfor the emerging EasternEuropean, Russian, Chinese andIndian markets.To establish a management guide, thecharacteristics of each aftermarketfirst have to be defined. This sectiondescribes the competitiveenvironment, market growth andpotential as well as the marketspecifics. Differences across marketsdo not only occur between themature Western Europeanaftermarket and the aftermarket inthe emerging regions but also amongthe different emerging marketsthemselves.Market Potential and GrowthThe Western European aftermarketis a rather mature market with flatvolumes. However, with 165.4billion euros in 2008 it remains thebiggest of the study’s markets when itcomes to volume. 4 In the research,54% of the respondents expectincremental growth of up to 5% until2013.Competitors that are able to utilizethe new European Union BlockExemption Regulation in 2010(BER2010) 5 for their own purposecan expect additional growth rates of5% to 10%, compared with themarket average. BER2010 will notonly help companies to shape theircompetitive edge but should alsofurther increase competition in theaftermarket. The regulation will mostprobably attract more suppliers tothe aftermarket, since original partscan command a premium andinsurance companies often requirethem for repairs. This means thatOEMs and OESs will face significantprice competition from copymanufacturers. They need to showstrong operational excellence andmarketing and sales capabilities tomaintain their market position inlight of the increased competition.Moreover, the market will likelywitness the emergence of additionaland changed business models.On average, OEMs’ parts revenue isexpected to decline by up to 5% inthe next three years, indicating thatmargins could come under increasedpressure. On the demand side ofstandard high-volume parts, specialtychains and fast fitters such as Kwik-Fit, PitStop and A.T.U. will benefitand have more power to negotiateprices. Independent vendors,supplying, for example, Bosch RepairCenters, may also increasinglyreplace OEMs in the aftermarket.These shifts may result in lowerprices for standard and high-volumeparts by 10% to 15% in the next fiveyears. This means that most marketplayers except for copymanufacturers and specialty chainswill face a reduction in overallturnover. Additionally, margins aswell as profits will be squeezedthroughout the industry.Total aftermarket volume in EasternEurope is low compared to WesternEurope (see Exhibit 3). The region’smarket volume is estimated at8.6 billion euros. 6 But with an annualgrowth rate of more than 5%anticipated by the study’s participantsin the next few years, the overallgrowth is expected to be considerablyhigher in Eastern than in WesternEurope. The aftermarket developmentin Poland, Hungary and the CzechRepublic is the main growth driver.4 Datamonitor, Germany – Total Aftermarket Value 2008, 20095 The Block Exemption Regulation 1400/2002 restructured the automotive sales and after sales market and led to an increase in competition. For the aftermarket this meantseveral changes such as, for example, more liberal access to relevant service information for independent dealers. This regulation will end May 2010 and be replaced by anautomotive aftermarket specific regulation (BER2010). This will continue to further liberalize the automotive aftermarket and increase competition in the parts and servicemarket. Source: Capgemini Consulting, internal research; European Commission, SEC(2009) 1053, 20096 Datamonitor, European Aftermarket Houseview 2009, 20098


The Russian car market, in general,was expected to surpass the Germanmarket in 2008. Within the first sixmonths of that year, about 1.64million new cars were registered inRussia, resulting in 100,000additional cars compared toGermany. However, the Russianautomotive market has been heavilyhit by the financial crisis, leading to adecline of more than 50% in the lastmonths of 2008. 7 The total after salesmarket volume in 2008 wasestimated at about 8.2 billion euros.The expected growth rates are onaverage similar to Eastern Europe.However, in our researchrespondents were split about equallyin expecting that the growth rateswould be up to 5%, 5% to 10%, andbetween 10% and 15%. This equalsplit indicates uncertainty about howmuch the Russian aftermarket willgrow.The Chinese aftermarket has alreadyachieved relatively high volumes andthis success story is expected tocontinue. The vast majority of thecompanies surveyed expect growthrates to be higher than 5% and halfexpect growth rates to climb up to10% to 15% within the next threeyears. The total volume of theChinese aftermarket is about 5.1billion euros. 8In general, India is a rather neglectedmarket for Western European carmanufacturers. The country is stilldominated by three carmanufacturers, namely MarutiSuzuki, Tata Motors and Hyundai,which account for 75% of the marketshare. Aftermarket volume is about 2billion euros, but the aftermarketshare for Western Europeancompanies is relatively small. 9 Thegrowth rate in the Indian aftermarketis lower than in China, but stillexceeds most mature markets. In ourresearch 70% of the participantsexpect the aftermarket in India togrow between 5% and 10%, and24% anticipate growth rates between10% and 15%. Only 6% assume agrowth rate of less than 5%.Competitive Situation in theAftermarketSimilar to market potential andmarket growth, the current andfuture competitive situation in theaftermarket differs depending on theregion.In Western Europe, the competitiveintensity is currently at a rather highlevel, according to the respondents.They categorized the market as beingone of the two most challenging interms of competitive activity (theother being China). All participantswere almost certain that WesternEurope can be considered a maturemarket, and on average they expect amoderate increase in the competitiveintensity.The picture for Eastern Europe isdifferent. Here, it was noted that onaverage the current competitiveintensity is somewhat moderate butwith future increases anticipated.This can be seen in Exhibit 4, whichshows the positioning of the marketsin terms of their estimatedcompetitive intensity.Exhibit 4: Current Competitive IntensityLevel of current competitive intensityLow Medium High Very HighAverage(1 = low; 4 = very high)WesternEurope7%0% 100%45%0% 100%23% 25%2.70% 100% 0% 100% 1 4Eastern6%Europe 0% 100%60%0% 100%26%0% 100%8%0% 100%2.31 4Russia10% 62% 23% 5%2.20% 100% 0% 100% 0% 100% 0% 100% 1 4China0%0% 100%9%0% 100%65%0% 100%26%0% 100%3.21 4India9%0% 100%47%0% 100%30%0% 100%17%0% 100%2.61 4Capgemini Consulting7 Ibid8 Datamonitor, 2008 – 2012 Global Aftermarket – Recession and Growth Beyond, 20099 IbidThe Aftermarket in the Automotive Industry9


Exhibit 5: Market Growth and Competitive IntensityMarket Growth4.03.53.02.52.0(bln EUR)1.5Constant165.4 Western EuropeChina5.1India2.0Expert’s QuoteChristian Hummel, CapgeminiConsulting China: “China’sautomotive market generally isfairly young and mainly driven byfirst-time buyers. So theaftermarket will see high growthrates soon. And due tocustomers’ high expectations,the installation of a dense andprofessional service chainbecomes a criticaldifferentiation factorfor market success.”IncreasingEastern Europe8.6Future Competitive IntensityRussia8.2Strongly IncreasingCapgemini ConsultingRussia will make an important leapwith regard to competitive intensity.Today, the participants estimated thecompetitive intensity on average asbeing the most moderate of allmarkets. This is likely due to theexisting weakness of the domestic carmanufacturers. Russian carmanufacturers such as AvtoVAZ andGAZ still have strong disadvantagescompared to internationalmanufacturers due to theirorganizational infrastructure.In the future, the competitiveintensity will increase dramatically,according to the participants. Theincrease in competitive intensity isexpected to come from the marketentry of nearly all international carmanufacturers. This includes theexpected strong presence of Chinese,South Korean and Japanesemanufacturers in Eastern Russia,with the Western Europeanmanufacturers concentrating not onlyon major cities such as St. Petersburgand Moscow, but also on the morerural areas in Western Russia.very high level. The majority of theparticipants considered this marketto be even more competitive thanWestern Europe. In the future,competition in China, along withIndia, is expected to increase furtherbut with less momentum than inRussia, according to the respondents.The main rationale for thisdevelopment stems from two factors.First, there are an increasing numberof local Chinese car manufacturerscompeting successfully withinternational car manufacturers.Examples include Chery, Geely,SAIC 10 and BYD 11 for cars, andYutong, Dongfeng and Beiqi Fotonfor commercial vehicles. Second, alot of local suppliers still substituteoriginal with imitated parts meaningthat traditional OEMs will experiencefurther pressure in their aftermarketactivities.Through the dominating role of thebig three market players in India –Maruti Suzuki, Tata Motors andHyundai – the current competitiveintensity is rather low. However,because other market players aremotivated to break through thedomination of the three mainplayers, the competitive intensity isexpected to increase in the future.The majority of the participants ratedIndia similar to China, meaning thatthe competitive increase through thenext years will be high, however stilla bit less than in Russia.Exhibit 5 summarizes thecharacteristics of the differentmarkets by combining the marketgrowth, market volume andcompetitive intensity.The competitive intensity in theChinese aftermarket is already at a10 SAIC: Shanghai Automotive Industry Corporation11 BYD: Build Your Dreams, Chinese automotive manufacturer in Shenzen10


Achieving CompetitiveAdvantageWhen it comes to the parts business,the way to achieve competitiveadvantage is very similar acrossmarkets, according to the findings.Regarding business opportunities forcar manufacturers, parts sales aretightly linked to their respective carsales. Moreover, price is thedominant factor especially in highlycompetitive markets. Both factors canbe seen as hygienic factors thoughthe main differentiating factors areparts availability and originality ofspare parts. When respondents wereasked about the service business, itbecame clear that factors thatdifferentiate the service offering varysignificantly for each market.In Western Europe, the main factorsfor differentiating the serviceofferings are innovative services, thehigh emphasis on specific customerrequirements and customization ofservices. In line with the importanceof customization, proximity tocustomers and offering services forattractive prices play an importantrole as well. This is even moreimportant during times in whichcustomers are increasingly buyingparts on the Internet or fromindependent repair centers.Outstanding service quality, quickresponse and reaction times, andbranding of service can no longer beconsidered as differentiating factors.Furthermore, companies unable tolive up to these commodityrequirements will fail.Eastern Europe is similar to Indiawith regard to branding andinnovative services. These are notdifferentiating factors. The sameapplies for service quality and quickresponse and reaction times. As longas prices are attractive, customers aresatisfied with relatively low servicelevels and more or less standardservices, according to respondents.Customization of services is also ofExhibit 6: Importance of Factors Differentiating the Service Offering1 Emphasis on service requirements2 Customization of services3 Outstanding service quality4 Quick response and reaction times5 Branding of the services6 Originality of spare parts7 Price of services8 Proximity to customers9 Innovative services10 Parts availability11 Proximity to dealers12 Proximity to workshopsAverage per marketNote: 1 = low; 4 = very high1111111111111WesternEurope4444444444411111111111EasternEurope4444444444411111111111Russia44444444444ChinaIndia4 14 14 14 14 12.4 1.8 2.1 2.2 1.9 2.14 14 14 14 14 11111111111144444444444111111111114444444444411111111111AverageAll MarketsCapgemini Consulting4444444444444The Aftermarket in the Automotive Industry11


Key FindingThe large Russian territory drivesaftermarket champions to adoptnew distribution networkstrategies. Russian customersalso look for high-quality brandsand are less price sensitivecompared to other markets.little interest to most customers,resulting in few differentiationopportunities. For marketcompetitors this leads to a lowmargin per unit sold, but profit canstill be made by either cutting coststhrough limiting the service offeringand quality of service or by achievingeconomies of scale.Russia is particularly demandingwhen it comes to branding ofservices. 12 Prices are not consideredto be a differentiator for serviceofferings as price sensitivity forservices seems to be relatively low.More important is that reasonableprices are in line with sophisticatedservice quality and close proximity tocustomers. Russian customers do notfully value quick response andreaction times, as shown in Exhibit6, limiting this as a differentiatingfactor. The sheer size of Russiacombined with customers’ serviceprice sensibility is leadingaftermarket champions to changetheir network strategy to set up highqualitydealerships in close proximityto their target customer groups’accepted locations such as bigshopping centers. Thanks to lowerRussian price sensitivity, participantsexpect companies to be able toachieve a reasonable margin if theyprovide good marketing and logisticsservices. Achieving high volume doesnot seem to be as critical.In China, the price of services is themost important factor to achievemarket differentiation. However,besides attractive prices customersrequest quick response and reactiontimes and sufficient service quality. Inaddition, the service level is relevantfor Chinese customers as well asbranding of service, although priceshave to be quite attractive. The maintarget groups are less demandingwhen it comes to innovation andcustomization of services. Comparedto Western Europe these factors donot provide sustainable competitiveadvantage. This means that theChinese market is challenging ashigh price sensitivity together withhigh requirements for logistics,marketing and service quality doesnot provide an attractive margin. Inaddition, the effort to satisfycustomer requirements is higher thanin other markets. Maximizing marketpenetration therefore requiressignificant economies of scale.As shown in Exhibit 6, India seemsto be the least ambitious market interms of differentiation. Neitherservice innovation, service quality,branding nor service levels seem tooffer significant differentiationopportunities. The most importantways to achieve differentiation areservice price and availability of parts.Furthermore, there seem to bespecific service requirements that aremost relevant to Indian consumers.Emphasizing these specificrequirements is a potential way toachieve differentiation. In this marketcompanies can be profitable byutilizing a strong logistics networkthat helps them maintain a highservice level and by a focus on costcutting and basic service offerings,while keeping an eye on customers’specific service requirements.12 In addition to the results described in this study please also refer to Capgemini Consulting, Cars Online 08/09:Besides a very high Internet affinity for online car and after sales research, both Russian and Indian consumersare rather ambitious in selecting their after sales services.12


4 Investments Into Key Initiatives in the AftermarketTo respond to the variouscharacteristics of the markets, thestudy participants developed keyinitiatives and implemented themdifferently according to theirindividual assessments. Thefollowing section outlines theinvestment behavior into theaftermarket, the different strategicinitiatives as well as companies’readiness for the aftermarket.Total Amount of Investments inthe AftermarketAccording to Exhibit 7, theinvestments in the aftermarket tendto be quite low. As a consequence,only a few participants consider theiractual investment level to besufficient, and no one stated that theinvestments are fully sufficient. Thefindings indicate that, at least untilnow, the aftermarket appears not tohave received appropriate topmanagement attention when it comesto evaluating future businesspotential and making strategicinvestment decisions. Thus,according to their own judgment,with the current budget spent, theparticipants are hardly prepared forfuture regional market developmentsand risk their future profitability inthe aftermarket.Main Strategic Initiatives andDirection of InvestmentsThe participants were also asked toprioritize strategic initiatives thatshould help them compete in theaftermarket. Four initiatives wereidentified as most important:■ Improving and extending theservice offering■ Adapting service offerings to localrequirements■ Increasing the local marketpenetration■ Optimizing the planning processesExhibit 7: Investments in the Aftermarket and Evaluation of the Investments100%Investments in the aftermarket% of companies % of companies100%Estimate of actual amount of investmentscompared to required80%78%80%82%60%60%40%40%20%0%3%11%8%20%0%3%15%HighMediumLowVery LowVery SufficientSufficientNot SufficientCapgemini ConsultingThe Aftermarket in the Automotive Industry13


Exhibit 8: Key Initiatives Assessed as ImportantKey initiatives to exploit the potential of the aftermarketAmount of investments in aftermarket initiativesImproving and extending the serviceoffering33%1Adapting the service offeringsto local requirements3.5Adapting the service offeringsto local requirements21%2Increasing the market penetrationby setting up local organizations3.4Increasing the market penetrationby setting up local organizations20%3Improving and extendingthe service offering2.7Optimizing the planning processesamong central, regional anddecentralized organizations20%4Improving the relationship withdealers and workshops1.7Improving the relationship withdealers and workshops3%Improving the relationshipwith wholesalers1.6Improving the relationship withwholesalers3%Establishing cooperation toachieve competitive advantages1.4Establishing cooperation to achievecompetitive advantage0%0% 20% 40%Optimizing the planning processesamong central, regional anddecentralized organizations1.41 2 3 4Very LowHighCapgemini ConsultingKey FindingTo really be successful in theaftermarket, companies’investments need to bedrastically increased.In the next step, participants had todetail their investment budgets forthese initiatives. Interestingly, bothamount and order of investments donot correspond to the priority ofinitiatives, as can be seen in Exhibit 8.The direction of investments reflectsroughly the participants’ assessmentof the overall key initiatives toexploit the aftermarket potential.However, improving and extendingthe service offering, which wasevaluated as important by manyrespondents, receives significantlylower investments compared to othertop-ranked initiatives. Furthermore,optimizing the planning processeswas among the most importantinitiatives but receives the lowestinvestments.As a consequence, there is a large gapbetween required and actualinvestments. The reasons might bethat the current situation calls for achange of investment directiontowards new strategic initiatives orformer initiatives that need revision.For example, optimizing theplanning processes seems to havegained in importance because itrepresents an essential factor for aglobal aftermarket business withcentralized and decentralizedorganizations. Additionally, industrychallenges such as increasingcompetition, price erosion, highercustomer requirements and financialuncertainty may have sensitizedmanagement to rethink thetraditional business. These factorsmay have caused managerialattention to switch from marketingand customer relationship topicstowards more seriously consideringthe exploitation of the aftermarketpotential. The major focus is onincreasing efficiency in global supplyprocesses.Companies’ Readiness for theAftermarketThe lack of investment correspondsto companies’ insufficient preparationfor regional market developments.This is particularly true for EasternEurope, Russia and India. In all theseregions only 35% of the participantssaid that companies are prepared forregional market developments. Incontrast, more than 50% indicatedthat they are at least largely preparedfor regional market developments inChina. And more than 80% said theyare largely or fully prepared forregional market developments inWestern Europe.14


Exhibit 9: Companies’ Preparedness for Regional Market Developments“We are fully prepared for regional market developments”% of companies100%10%8%9%26%20%16%Does Not Apply80%60%20%51%30%19%63%Rarely AppliesLargely AppliesFully Applies40%20%0%62%Western Europe25%15%Eastern Europe36%8%Russia43%18%China10%11%IndiaCapgemini ConsultingThe lack of preparation in most ofthe emerging markets is evident invarious statements. Because theinvestments are rather low,companies only act reactively in theemerging markets. They do notapproach the aftermarketsystematically and not in strategicresponse to changing customerneeds. As a consequence, newcompetitors seem to increasingly winmarket share. This is in principleconfirmed by more than 60% of thestudy participants.The next goal was to betterunderstand how this investmentbehavior leads to low marketpreparation and finally results inincreasing competition. Here, theindicated loss of market share anddecreasing revenues and margin areaccelerated by a poor fit betweenexisting service offerings and theactualcustomer requests. This poor fit isdriven by the companies’performance in the main elements ofa service offering. According to theanalysis of the study results, theseelements are basically the type ofservices offered on site – servicequality as well as service innovation.For example, more than half of theparticipants indicated that existingservice offerings often do not fit tolocal requirements. The respondentsalso do not recognize the importanceof pushing new service innovationsto protect their existing market shareand/or to regain lost share. Finally, interms of service quality offered, againmore than half of the participantsindicated that the quality offered issubstandard to customerrequirements.Key FindingHigh and low performers need toapply different market strategiesdue to their specific learningcurves. Whereas high performers’development is evolutionary,low performers need to berevolutionary in order to catch up.15


5 Performance in the AftermarketKey FindingEven companies that performrelatively well in Western Europestill do not achieve mediumperformance in the emergingmarkets, indicating strongpotential for improvement.It is fundamental to understand acompany’s current marketperformance in relation to its peers.Interestingly, the performance differswidely across markets and across thecompanies represented by the studyparticipants. These points arediscussed in the following sectionand lead into clustering high and lowperformers to start examining lessonslearned.Regional PerformanceConsistent with the different degreesof preparation for marketdevelopment, the performance in theaftermarket differs between WesternEurope and the emerging markets.Participants also rate the currentexploitation of the financial potentialin the aftermarket differently inWestern Europe than in the emergingmarkets.As can be seen in Exhibit 10, theparticipants stated that highperformance varies considerably:Whereas in Western Europe 67% ofrespondents said they were highperforming, no one seems to be ahigh performer in Eastern Europe. Incontrast, 17% said they were a highperformer in Russia, 4% in Chinaand 7% in India. This reflects astrong focus on excellence inestablished markets while the newermarkets are currently left for thelocal or regional competition.Established Western OEMs and OESsneed to react soon if they areplanning to take a share of thisbusiness potential.The right graphic of Exhibit 10shows that average performance isnot consistent. Companies achieve arelatively high performance inWestern Europe (3.7). Interestingly,even companies with highperformance in Western Europe donot achieve even mediumperformance in the aftermarket inemerging regions. Across all markets,companies show considerableimprovement potential for theaftermarket. Specifically, theperformance in Eastern Europe issurprising because companies shouldbe able to transfer their successfulWestern European aftermarketpractices to Eastern Europe. Theresults indicate that this transfer is farfrom easy and not a straight road tosuccess.High- and Low-PerformancePeer GroupsThe performance of the participants,based on their self-estimation, varieswidely across markets. Nevertheless,as pointed out earlier, the analysisuncovered a dichotomy betweenhigh- and low-performing groups.Also, the results of the study show adirect relationship between theseperformance groups and theiractivities in the markets.The following section examines themarket behavior of high-performingcompanies and identifies what lowperformers must do to become highperformers. These results areexamined by market, as the group ofhigh performers can vary per market,with a few exceptions.Exhibit 10: Detail and Average Performance in the Different MarketsPerformance in Western Europe and in emerging marketsAverage performance in Western Europe and in emerging markets100%80%% of companies % of companies2%6%Western Europe30%31%3.752%Eastern Europe2.160%89%28%69%Prone toIssuesRussia2.340%67%25%27%MediumChina1.720%0%WesternEurope11% 17%EasternEuropeRussia17%4%China18%7%IndiaGoodHighPerformanceIndiaProneto Issues2.3Medium Good HighPerformanceCapgemini Consulting16


6 Management Approach for Winning the AftermarketThe following section presents amodel designed to help companiesmanage the challenges in theaftermarket and providesrecommendations on how to bestpursue these markets.6.1 Capgemini’s HealthCheck for AftermarketPerformanceDespite their high potential,aftermarket operations in theemerging markets are fairly young.There are examples of first moverssuch as Honda, Nissan and Toyotawith their initiatives in high-speedand off-road test track camps open tocar owners. Other examples includeDaimler’s telematics joint venturewith Deutsche Telekom, GeneralMotors’ former investments in U.S.dealers, or Renault’s joint venturewith Autobacs Seven to establish anautomotive accessories retail chain inEurope. Examples in the emergingmarkets include Maruti Suzuki’sinvestments into Maruti DrivingSchools 13 or Mahindra & Mahindra’sinvestments in early aftermarketcustomer loyalty programs. 14Clearly, approaching the emergingmarkets is not a short-termmanagement trend, but a keyelement in a manufacturer’s longtermstrategy. Still, aftermarketoperations in emerging markets areimmature. Only 7% of theparticipants say they have a globalapproach that is already operational.Approximately one-third have animplementation in progress, and56% indicate they are at best still inthe planning phase.Given the link between aftermarketperformance, service managementactivities and benchmarks to thedevelopments in other industries, itis likely that most companies willdecide to professionalize their servicemanagement operations in theemerging markets and to developfrom a cost- to a profit-centeroriented organization. Together withcontinual and incrementalimprovements in Western Europe,companies will be able to takeoptimal advantage of theopportunities in the globalaftermarket.To help companies achieve thisobjective Capgemini’s Health Checkfor Aftermarket Performance(CHAMP) has been developed. Thismodel indicates the level thatcompanies have reached on theirindividual path to aftermarketexcellence in the different marketsand serves as a vital guide to furthersharpen companies’ competitiveedge. This model helps companiesunderstand their current positionand plot the actions required toexploit the opportunities in theaftermarket. Because of the strongdifferences in the performancebetween mature and emergingmarkets, the model distinguishesamong the markets. For each distinctmarket, the data suggest three levels:explorer, exploiter and aftermarketchampions.■ Explorer level means thatcompanies have created their firstexperiences in the aftermarket andare mainly in the planning phasewith some early, but limited returnsfrom the aftermarket.Key FindingTrue global aftermarketoperations are still in their infantstate. But the aftermarket offerssignificant potential andpromising opportunities.13 Asian joint venture Maruti Suzuki is a main facility for obtaining driving licenses in India (e.g., 500,000 mostlycommercial driving licenses are sponsored by Maruti Suzuki).14 Mahindra & Mahindra’s daughter company First Choice, India’s largest multi-brand used car provider, offers abroad choice of good quality used cars and services such as different warranty packages for engine andtransmission (e.g., silver service level: three months and 5,000 km warranty, or gold service level: 12 months –three months for free plus nine months – and 12,000 km warranty).The Aftermarket in the Automotive Industry17


Exhibit 11: Model for Approaching the AftermarketCHAMP – Capgemini’s Health Check for Aftermarket PerformanceAftermarketChampionStage 367%0%Stage 617%Stage 7: GlobalAftermarket Champion6%4%ExploiterStage 2Stage 511%11% 25%17%7%ExplorerStage 1Stage 418%22%89% 58%79%75%WesternEuropeEasternEuropeMature Markets Emerging Markets %Russia China India% of participating companiesassigned to this stageCapgemini Consulting■ Exploiter level involves leaving theplanning stage and trying toimplement a broad scope ofaftermarket activities. In this level,the aftermarket creates higherreturns than in the explorer level,but there is still strong potential toimprove the aftermarket activitiesand create additional benefits.■ At the level of the aftermarketchampion, companies havesuccessfully implemented efficiencyimprovements and are exploitingaftermarket opportunities.Aftermarket champions areconscious of continually improvingtheir aftermarket activities.As illustrated on the vertical axis inExhibit 11, companies can be still inthe stages of exploring or exploitingthe aftermarket potential in anemerging market and already anaftermarket champion in WesternEurope. This model in principle isintended to be a guide to optimizethe performance in any of the focusmarkets regardless of the origin ofthe OEM/OES and does notrecommend a market sequence onwhich to follow up.Western European AftermarketStage 1: Exploring the WesternEuropean AftermarketIn stage 1, companies havediscovered the strategic opportunitiesin the aftermarket. Companies arestarting to set up an aftermarketinfrastructure and develop processes.According to the aftermarketperformance, companies achievesmall returns on their activities. Theaftermarket approach is still in theplanning phase and few activitieshave been implemented.Stage 2: Exploiting the WesternEuropean AftermarketIn stage 2, companies can beconsidered as exploiting the strategicopportunities in Western Europe.The aftermarket approach has movedfrom the planning phase and is nowunder implementation. Activitiesrelated to various issues such asorganizational and network design,IT support and operational functionsare not fully implemented. As aresult, performance is only at amedium level. Of course, given thematurity of the Western Europeanaftermarket most companies havealready left the exploring andexploiting levels.18


Stage 3: Optimizing the WesternEuropean Aftermarket (MatureAftermarket Champion)Mature aftermarket champions haveincreased their performance over thelast years and are now in the stage ofoptimizing aftermarket activities.These companies have stronglyintegrated with dependentdealers/repair centers. They keepconsumers loyal for most of theproduct lifecycle. If customerschange to independent repaircenters, the goal is to sell parts tothese repair centers. Matureaftermarket champions strive tocontrol the whole breadth ofdistribution channels.Aftermarket in Emerging RegionsThe three levels of explorer, exploiterand aftermarket champion also occurin the emerging markets.Stage 4: Exploring the Aftermarketin Emerging RegionsExplorers in the emerging marketsperform key functions such as R&D,sourcing, manufacturing and sales inemerging countries, but theaftermarket presence is still in theearly implementation stage. Thisincludes defining operationalactivities for marketing and sales,sourcing, planning, distribution andreverse logistics as well asconsiderations for the whole supplyand distribution chain.Stage 5: Exploiting the Aftermarketin Emerging RegionsExploiters in the emerging marketshave succeeded in their firstimplementation efforts, but theaftermarket presence still can beimproved and optimized.Nevertheless, the early implementationeffort has proved the aftermarketapproach to be successful and hasled to defined operational activities.Cost considerations limit exploitersto operate a central warehouse ineach emerging country and a smallnumber of dependent dealers/repaircenters. Compared to the maturemarkets, these dealers and repaircenters offer only a narrow selectionof preliminary defined services tomeet local requirements. Theoperations are kept under tightcontrol by the central aftermarketunit.Stage 6: Emerging MarketChampionBesides performing key functionssuch as those already listed, essentialaftermarket operations are alsoinstalled in emerging markets. Theseare relatively independent from theheadquarters to adapt aftermarketapproaches to specific localrequirements. Emerging marketchampions complement centralwarehouses with decentralizedwarehouses (local parts distributioncenters) for optimizing partsavailability and delivery times. Inaddition, they strongly penetrate theemerging markets with dependentdealers and repair centers. They lookfor integration in planning andpurchasing processes betweendeveloped and emerging markets andadapt local service offerings to thespecific customer requirements.As illustrated in Exhibit 11, stages 4to 6 are repeated for each emergingmarket.The percentage of companiespositioned in each of the stagesindicates that achieving the“emerging market champion” level intheir aftermarket activities will be theprimary driver behind manycompanies’ “global champion”initiatives in the next five years. Theresults indicate that failing to reachthe local champion position meansrisking global aftermarket successand losing traction in the race tobecome a true global aftermarketchampion. Of course, not everycompany can and will reach thatlevel and that is where the markets inEastern Europe, Russia, China andIndia will automatically make thedistinction between market sharelosers and gainers.Stage 7: Global AftermarketChampionAs global aftermarket champions,companies maintain optimizedaftermarket activities in variousregions/countries and integratedifferent local approaches into agreater regional or one globalaftermarket approach. They operateoptimized multi-echelon networks ofwarehouses and use worldwidebenchmarks to transfer best practicesamong warehouses, dealers andrepair centers. The centralaftermarket unit employs majorintegration of central anddecentralized warehouses, andoptimizes planning and purchasingprocesses across the network of localwarehouses. At this final level, globalaftermarket champions concentrateon a control-tower type ofaftermarket operation whereby thecompany takes over full end-to-endresponsibility for the supply chainfrom suppliers up to customers.As stated before, the performance ofparticipating companies helped toshape a profile of high and lowperformers. Low performers areassociated with the exploring level.In more detail, explorers are thoseparticipants rating their performanceas medium or prone to issues. Incontrast, exploiters are thoseconsidered to be strong performers.Finally, high performancecorresponds with the level ofaftermarket champions in WesternEurope, various emerging markets oreven on a global scale. Note thatcompanies can be at different stagesof performance in different markets.The Aftermarket in the Automotive Industry19


Exhibit 12: Dimensions in the Aftermarket ModelOperational Excellence LeverStrategic and operational excellence in the management of the value chainPlanningSourcingMarketing & SalesDistributionReverse LogisticsOrganizational Design LeverControl levels selected by the companyNetwork LeverStructure of warehouse, wholesaler and service center locationsCooperationControlAutonomySupplier/Manufacturer Wholesaler Retailer Repair Shops/CustomerInformation Technology LeverIT for coordinating and supportingthe processes in the aftermarketPlanningSourcingMarketing & SalesDistributionReverse LogisticsCapgemini ConsultingPerformance Levers in theAftermarket ModelAs a result of the analysis, this studylays out four levers that are essentialto all the participants in order tooperate successfully in theaftermarket (see Exhibit 12). Theyform the basis for CHAMP and serveas a guide to allow positioning of thecompanies in the model.1.Operational Excellence: Thislever represents indicators forfunctional excellence in variousoperational activities. Theseinclude sourcing, planning,marketing and sales, distributionand reverse-logistics processes.2.Organizational Design:Organizational design indicateshow the relationship betweenorganizational entities anddecision-making authority isstructured. Decentralizationcharacterizes the managementwithin the aftermarket units. Thisincludes decision-making authoritybetween central aftermarketfunctions and market units.3.Network Excellence: The networklever represents the inter-firmcollaboration with suppliers,wholesalers, distributors anddealers/repair shops, and thuscovers all partner relationshipsboth in the supply chain and indistribution chains.4.Information Technology: Thislever is a key business enabler andis essential to run the aftermarketbusiness. The most common usageis automation and coordination ofprocesses with high opportunitycost. That cost occurs in organizingthe process other than with thesupport of ERP or planningsoftware. Also, it is used toincrease transparency both inprocess execution as well as on themanagement level. Typicaldecisions include the usage ofstandard or individual software.The four levers in the aftermarketmodel essentially enable performancemanagement in the aftermarket.Aftermarket champions seem to havereached a distinctly different maturitylevel in the operational excellenceperformance lever, compared withcompanies performing at a relativelylow level. Similarly, organizationaldesign, network and IT also seem tobe potential differentiators forexplorers and aftermarketchampions. In the following sections,the main levers for both low andhigh performers are described. Thelevers are further detailed accordingto the strategic initiatives with afocus on the most important ones.20


6.2 Aftermarket Model forWestern EuropePerformance LeversThe profile of the operationalexcellence lever attributed to bothgroups suggests which processesshould be improved and what areascompanies should further develop.Both explorers and aftermarketchampions share similarities in thepotential and priority attributed tothe marketing and sales process.Improvements in sourcing,distribution, planning and reverselogisticsprocesses are of low priority,and seem to have low potential foraftermarket champions.Exhibit 13: Comparison of Operational Excellence Levers Between Explorers andAftermarket ChampionsHighPriorityLowMarketing& SalesLowPotentialHighSourcing Distribution Planning ReverseLogisticsIn contrast, to change from low tohigh performance, explorers typicallyput a high priority on reverselogisticsprocesses, which only entailsmedium potential for their businesssuccess. In addition, changing fromlow to high performance requiresfurther reducing the emphasis onsourcing, distribution and planningprocesses and freeing up resources tofurther push marketing and salesactivities. For explorers, theseprocesses currently are givenmedium priority and offer mediumpotential for improvements.Interestingly, aftermarket championsin the Western European markets donot run the densest networks. In fact,confronted with stagnant WesternEuropean markets, these companieshave already started to restructuretheir network and distributionGroup of Explorers(Low performers/33% of participants)channels. This leads to more costeffectivewarehouses, wholesalers andservice centers. The balance betweencosts and customer proximity leadsto improved performance. Accordingto the IT lever, aftermarketchampions concentrate on acombination of standard andindividual IT solutions. Explorershave invested in individual softwaresolutions, but the higher costsassociated with individual softwaredo not seem to create thecorresponding higher returns.That means that changing from lowto high performance primarilyrequires a more cost-efficientnetwork, leading potentially to areduction in the density ofwarehouse locations, wholesalers andservice centers.Group of Aftermarket Champions(High performers/67% of participants)Expert’s QuoteCapgemini ConsultingFrank Tennstedt, Vice President,Strategic Service Management,Capgemini Consulting:“Decreasing product-orientedprofits, the tendency to bulkcommodity, and intense globalcompetition have compelledexecutives to increasingly rely onpost-sales service to stimulatecorporate growth. It is no longerregarded as an inevitable cost ofdoing business, but as an activelever to drive revenue, profit andcustomer retention. It representsa fundamental shift in howservice operations are managed– moving away from a tacticalcost-center approach tomanaging it as a strategic profitcenter.”The Aftermarket in the Automotive Industry21


Exhibit 14: Comparison of Network and IT Levers for Explorers and Aftermarket ChampionsComparison of network for explorers and aftermarket championsWhich IT solution(s) do you use for coordinating processesin the aftermarket? (multiple answers permitted)TargetWarehouse LocationsCurrent PerformanceMedium Dense Very Dense50%40%44% 44%Wholesaler LocationsMedium Dense Very Dense30%26%25%20%Service CentersMedium Dense Very Dense10%15%16% 16% 14%0%Explorers(Low performer)Aftermarket Champions(High performer)StandardBest of BreedExplorersIndividual SoftwareCombinationAftermarket ChampionsCapgemini ConsultingKey FindingHigh performers reducedistribution network density andoptimize cost. They also managetheir distribution based on fewerorganization levels adhering tothe subordination principle.To analyze the organizational set-upand control mechanisms of the wholedistribution chain, the studyparticipants were asked when to bestuse integrated organizational and ITsystems. These systems are defined asa main lever to increase transparencywithin the supply chain and to allowbetter control and realization of endto-enddecisions. The mainassumption here is that the moreelements of the chain are controlled,the higher the trend to centralizedecisions and to allow local groupsless flexibility in self-management.The study shows that aftermarketchampions control fewer levels in theaftermarket. The local decisionmakingauthority is stronger in highperformingcompanies. In contrast,explorers restrict local initiatives andagree to only limited local decisionmakingauthority. From this it can beconcluded that controlling thedistribution chain up to the very endExhibit 15: Comparison of Organizational Design Lever for Explorers and Aftermarket ChampionsFor which levels of the aftermarket do you use integrated systems?35%30%25%20%23%30%26%21%32%13%Explorers(Low performer)Aftermarket Champions(High performer)15%10%13%16%14%12%5%0%Central and localwholesalersCentral,decentralizedwarehouse andwholesalersCentral, decentralized/regional warehouseand wholesalersCentral, decentralized/regional warehouse,wholesalers anddealersCentral, decentralized/regional warehouse,wholesalers andworkshopsCapgemini Consulting22


is time consuming and difficult tomanage, whereas the potentialbenefits, which are increasedtransparency and commonlyimplemented decisions, do not seemto outweigh the disadvantages.Therefore, through well-plannedchange-management activitiesfocused on the organizational design,explorers should take steps to reducetheir control and allow moreflexibility. 15 This helps enable localadaptation of centrally madedecisions.Strategic InitiativesBesides the performance levers, thestrategic initiatives introduced inchapter 4 play an important role inmanaging the aftermarket business ofthe study participants. In most cases,the strategic initiatives arecontributing to multiple levers at thesame time – a straight one-to-onerelationship could not be identified.For example, “adapting the serviceoffering to local requirements” mainlyaffects the sales and marketingprocess, but it might also involve therepair center infrastructure necessaryto provide local services and the ITintegration to manage relevant data.Contrary to this, “increasing themarket penetration by setting up localorganizations” can be linked to thelever of distribution and supply chainnetwork definition.Aftermarket champions and explorersdiffer essentially in the strategicinitiatives. These are listed by theirdiscriminating power and withdecreasing priority:1.Adapting the service offerings tolocal requirements2.Improving the relationship withwholesalers3.Improving the relationship withdealers and workshops4.Improving and extending theservice offeringThese strategic initiatives are drivenby nearly all aftermarket champions,whereas only a few explorers focuson them. Others – such as increasingthe market penetration by setting uplocal organizations; optimizing theplanning processes among central,regional and decentralizedorganizations; and establishingKey FindingHigh performers win by regularlyinnovating new services that canbe customized to localrequirements and by runningintense loyalty programs for boththe wholesale and retail levels.Exhibit 16: Strategic Initiatives Implemented by Aftermarket Champions and ExplorersAdapting the service offerings to local requirements31%89%Improving the relationship with wholesalers23%78%Improving the relationship with dealers and workshopsImproving and extending the service offering29%34%74%81%Increasing the market penetration by setting uplocal organizations48%75%Optimizing the planning processes among central,regional and decentralized organizationsEstablishing cooperation to achieve competitive advantages39%44%53%58%0% 20% 40% 60% 80% 100%Aftermarket ChampionsExplorersCapgemini Consulting15 Change-management activities play an important role in transformation projects and should be thoroughlyplanned. Often those activities are given lower priority than functional-oriented work streams. For furtherinformation please also see: Martin Classen/Felicitas von Kyaw, “Warum der Wandel meist misslingt” (“Whychange mostly fails”), Harvard Business Manager, December 2009The Aftermarket in the Automotive Industry23


Expert’s QuoteProf. Dr. Heiko Gebauer,University of St. Gallen: “In theautomotive industry highperformers increasinglyconcentrate on successful globalaftermarket operations. Winningin these markets requiresmanaging both a creative andefficient service innovationprocess that is one corecomponent to satisfy thegrowing customerrequirements.”cooperation to achieve competitiveadvantages – have less discriminatingpower. The difference in thepercentage of companiesconcentrating on these last threeactivities is relatively small comparedto the first four initiatives. To movefrom the levels of exploration andexploitation to local aftermarketchampions, companies need tobalance both prioritization as well asinvestments into key initiativesaccording to the level they areplanning to enter.The prioritization was obtainedsubjectively from the participantsand does not reflect the effectivenessof each strategic initiative. Whereas,for example, increasing the marketpenetration by setting up localorganizations and optimizing theplanning processes create mid-termcost reductions and revenue increase,improving the relationship withwholesalers, dealers and workshopsmost probably creates long-termbenefits.The four main initiatives requirefurther analysis, starting with theadaptation of the service offeringsto local requirements.As can be seen in exhibit 17, the mostimportant element of this initiative isto focus on innovating new services.Here, major changes can be seen indefining improved options to makeuse of the vehicle more enjoyable overits lifetime and improving theadaptation of existing service offeringstowards local customer needs. Themain objective is to be able to furtherdifferentiate from competition. Thiscannot be achieved by improvingservice quality only, since quality as acharacteristic of either services orphysical goods starts to become acommodity. Service innovations aredriven by offering customer-specificsolutions and professionalizingproduct-related services (forexample, inspection, maintenance,spare parts and insurance). In anycase, customers’ requirements haveto be known quite well.The participants rated down- andupsizing service offerings to localrequirements as the second mostimportant item of this initiative.Quite often, OEMs centrally seem tobundle services into packages thatare not yet ready to be locallyimplemented. Therefore, the localorganization, as mentioned before,must have deep insights about theircustomers to optimize thelocalization of these offerings.In summary, it can be said that thecompanies will achieve a competitiveadvantage if they regularly use theirservice marketing to gain insightsabout customers’ requirements andtheir perception about the currentlevel of services. Here, aftermarketchampions frequently integraterepresentatives of both the valueExhibit 17: Required Changes for Adapting the Service Offerings to Local NeedsInnovating new services21%78%Downsizing the service offering to local requirementsUpgrading the service offering to local requirementsAdapting service levels37%43%52%61%67%71%Adapting service quality52%71%0% 20% 40% 60% 80% 100%Aftermarket ChampionsExplorersCapgemini Consulting24


Key FindingSuperior Western OEMscontinually push retail programsto drastically improve servicesales and delivery capabilities onthe retail level. This positivelybenefits the OEM’s parts andservice business. Understandinglocal requirements andimplementation time is key here.which are already mature, the retaillevel has been ignored so far, at leastby explorers. Similar to the currentdevelopment on the wholesale level,changes in the service quality andservice programs for dealers andworkshops and the usage andadaptation of integrated IT systemsfor dealer and workshop relations areless relevant. Associated costs ofimproving the dealer integration intoIT systems do not seem to pay offcompletely. The expected returns aretoo low. Other changes offer a moreattractive cost/benefit ratio and createsignificant returns with relatively lowinvestments.The last major strategic initiative,improving and extending theservice offering, is closely related tothe first initiative in terms ofadapting the service offering to localrequirements. Similar to thatinitiative, focusing on serviceinnovation is the most critical topic.Furthermore, companies have tosupport their wholesalers inimproving service quality and level.Few changes are necessary to qualifytheir own service personnel andconcentrating on premium services.The results of the study imply thatpremium services are basic and arenot a differentiating factor anylonger. Premium services tend toturn into commodity services amongproviders and do not guaranteecustomer loyalty. Instead, premiumservices have reached a stage ofmaturity. Here, it is important tounderstand that explorers still put ahigher emphasis on providing theseservices compared to aftermarketchampions.Summarizing the key implicationsfrom the management perspectiveleads to the following conclusions:■ Overall, improvements in the fieldof service offerings are the mainbundle of strategic initiatives onwhich explorers shouldconcentrate. Within this bundle,managers have to emphasize theinnovation of new services, insteadof simply focusing on the servicesalready offered.■ For both wholesalers and dealers,IT integration creates relatively littlecorresponding return, leading to arelatively low importance of ITrelatedinitiatives. Loyalty programsand service levels are moreimportant and create quick wins.Their ratio between investmentsand return is much better than forIT-related initiatives.Exhibit 20: Required Changes for Improving and Extending the Service OfferingInnovating new servicesSupporting wholesalers to improveservice quality and levelImproving the adaptation of existing service offeringtowards local customer needsImproving the service quality through offeringcustomer-specific solutionsImproving the service quality through professionalizingproduct-related services (e.g., inspection, maintenance, spare parts)Improving the service quality through offering different servicelevels (e.g., basic, extended, premium)Improving the service quality through professionalizing customersupport services (e.g., consulting, training, financial solutions)Improving the service quality through better qualifyingown service personnelConcentrating on premium services18%24%23%24%31%38%52%43%29%23%43%56%83%82%78%75%73%66%0% 20% 40% 60% 80% 100%Aftermarket ChampionsExplorersCapgemini Consulting26


Exhibit 21: Profiles of Operational Excellence Levers for the Emerging MarketsEastern EuropeHighRussiaHighPriorityPriorityMarketing & SalesLowLowPotentialHighLowLowPotentialHighSourcingChinaIndiaDistributionHighHighPlanningReverse LogisticsGroup of Aftermarket Champions(High performers)PriorityPriorityGroup of Exploiters(Low performers)Group of Explorers(Low performers)LowLowPotentialHighLowLowPotentialHighCapgemini Consulting6.3 Aftermarket Model forthe Emerging MarketsThe aftermarket model for theemerging markets is similar toWestern Europe. It also covers themain levers that were alreadydescribed. In addition, the mainstrategic initiatives play an importantrole, similar to Western Europe. 17Performance LeversOperational Excellence LeverUsing a similar approach withaftermarket champions and explorersfor the emerging markets also leadsto specific profiles for each market.The characteristics of the profilescorrespond to the market featuresoutlined in the section onaftermarket characteristics.In Eastern Europe, a strong majorityof companies are still in theexploration phase and no companieshave achieved high performance, asshown in exhibit 21. Therefore, inthe following discussion explorerswill be compared to exploiters in thismarket. Still, exploiters, althoughbeing the best performers in thismarket, need to drastically improveto turn into high performers. Toachieve this, the results indicate theimportance of learning from WesternEuropean aftermarket champions asthis is the market with the closestgeographic reach and fewest culturaldifferences. Also, in a direct peer-topeermarket comparison, the Westernand Eastern European markets showthe most similar requirements forcustomer service offerings. This canbe seen in Exhibit 6. This impliesthat the actions taken in WesternEurope require fine adaptation toEastern European marketrequirements.Explorers are concentrating stronglyon improving the marketing andsales activities. Less improvement17 The following initiatives are relevant for Western Europe: Adapting the service offerings to local requirements,improving the relationship with wholesalers, improving the relationship with dealers and workshops, andimproving and extending the service offering.The Aftermarket in the Automotive Industry27


Expert’s Quote:Nick Gill, Global Leader ofAutomotive, CapgeminiConsulting: “Foreign highperformers have an ongoingchance to further develop theRussian automotive aftermarketdue to the weakness of the localOEMs. One critical componentfor these market share gainers isto develop the retail servicecapabilities to both servicetechnologically advanced foreignvehicles and simultaneously tocover the existing localstandards throughout the wholecountry while keeping an eye onthe Russian customer servicerequirements.”Key FindingThe challenge for explorers is tounderstand their corecapabilities per market and tofocus on dedicated topics theyare good at. This requires astrictly managed strategicdevelopment process thatconsiders the market specifics.potential is associated withimproving sourcing and distributionprocesses, but the priority of theseimprovements is very high. Thatmeans that explorers are still in thephase of setting up the basics forthese processes. Implementing thebasics will not directly lead toincreased market share, but ratherenable them to maintain theirexisting performance levels.Even for exploiters in EasternEurope, improvements in marketingand sales hold high potential.Nevertheless, at the current state, thepriority assigned to suchimprovement activities is quite low.This indicates that changes inmarketing and sales are mostprobably long-term initiatives takinginto account potential synergies withWestern Europe. In addition to these,planning processes seem to be mostrelevant for exploiters, indicating thatthe efficient supply of the market is akey competitive component.Explorers should consider this aswell when budgeting initiatives thatare planned for implementation.In Russia, explorers are on the edgeof losing the markets. The prioritiesof all improvement activities wererated very high. Without a broadscope of improvement activities,explorers seem to risk losing marketshare to competitors. Therefore, theexpansion and focus on thedistribution process is estimated ashaving the highest potential. This isin line with the former reasoning thatdespite quite a few market entriesalready, the competitive intensity isexpected to increase dramatically inthe next few years. High performershave achieved considerable successesin terms of market penetration andshare. Improvement activities aremore long term and concentrate ondefending an existing competitiveposition. They also have the potentialto gain market share wheneverexplorers are struggling or are toolate in their improvement efforts.In China, low-performing companiesconcentrate on improving allfunctional processes. Theimprovements are assigned highpriority and potential. Even currenthigh-performing companies haveimprovements in marketing andsales, sourcing, distribution andfinally the planning process on theirmanagement agenda. However,aftermarket champions have alreadyimplemented elements of necessaryimprovement activities tosuccessfully exploit the aftermarket.The marginal rate of aftermarketexploitation is decreasing andadditional investments in processescreate only limited increases in theexploitation of the aftermarket.Nevertheless, aftermarket championsfocus the most on reverse-logisticsprocesses. This could link back todemanding customers who are usedto returning parts at the smallest signof malfunction. In general it alsocould be a clear symbol of qualityissues combined with low cost ofrepair as well as an effort to generallyimprove margin wherever possibledue to the tight market situation. Incontrast, explorers can still increasetheir aftermarket success by makingimprovements in any kind ofprocesses that already show a highpriority.Finally in India, there is a generalbalance between priority andpotential associated withimprovement activities. Explorers areconfronted with multiple challengesin the marketing and sales,distribution, sourcing and planningareas. Aftermarket champions seemto have already positionedthemselves and to have overcomemost of the initial challenges such assetting up local warehouses anddealer networks as well as integratinglocal warehouses and dealernetworks into their planning,sourcing and reverse-logisticsprocesses. Additionally, the Indianmarket does not provide significantvolume nor very demandingcustomers. This indicates that effortsin the operational level can bemanaged with cost focus and thataftermarket champions prioritize28


their efforts in this market accordingto the current market maturity stage.They seem to hold back until thismarket really becomes attractive.Organizational Design LeverSimilar to Western Europe, eachemerging market requires a specificorganizational design. Theorganizational design starts withintegration and control of differentlevels. Whereas in Western Europethe existing industry structure makesit difficult to control all levels, thestructure in the emerging markets isnot fixed and companies can try tocontrol more levels efficiently. Thisstarts with setting up a centralwarehouse, participating in wholesalechannels and investing in own repairand service shops.The difficulty comes from the costintensiveset-up and control of thevarious levels. But as the comparisonof aftermarket champions andexplorers indicates, this createsessential competitive advantages.Specifically in Russia, China andIndia the number of control levelsdifferentiates aftermarket championsand explorers. In these markets,aftermarket champions tend to favormore control levels than explorers.To a lesser extent, this also appliesfor Eastern Europe.Supply Chain and DistributionNetwork LeverIn the emerging markets, setting up adense network seems to be adeterminant for success. Thisespecially applies for service centers.However, in Eastern Europe andChina, the difference in the densityof service centers betweenaftermarket champions and explorersis smaller than in India and Russia,as shown in exhibit 22. This meansthat in both India and Russia,aftermarket champions and explorersoften cluster their network aroundfirst- and second-tier cities and havenot strongly penetrated the morerural areas in both countries. Incontrast, Eastern Europe and Chinaare characterized by high performerscovering not only first- and second-Exhibit 22: Network Structure in the Emerging MarketsWhat is the structure ofwarehouse locationsin the aftermarket?What is the structure ofwholesaler locations inthe aftermarket?What is the structure ofservice centers in theaftermarket?Eastern EuropeRussiaChinaIndiaEastern EuropeRussiaChinaIndiaEastern EuropeRussiaChinaIndiatier cities but also third- and fourthtiercities due to either regional scopeor very high customer requirements.Further differences can be found inthe warehouse and wholesalerlocation structure. In addition to thefact that high performers run adenser warehouse, wholesaler andservice center structure, companiesapproach the aftermarket in differentways. Here, infrastructure as well asdistance from the central warehouseseem to play an important role.Whereas Western, Eastern Europeand Russia are easier to reach, theAsian markets are harder to supplyfrom Europe and suffer from a lowerqualityinfrastructure.The described trend of density ofwarehouse and distribution networkis contradictory when it comes tosales and distribution networks.Companies can either use existingand proven sales channels anddistribution networks or create newchannels and networks, dependingon their current situation. Highperformers often start by setting up ajoint venture with a partner, whoDensity of the network structureLowAftermarket Champions(High performer)MediumExploiters(Medium performer)Key FindingDenseExplorers(Low performer)Capgemini ConsultingThe early market phases of theemerging markets offer a uniqueopportunity to control morevalue levels and to collaborateintensively with wholesalers.This helps to build a customercentricorganization to finallyturn into an aftermarketchampion.The Aftermarket in the Automotive Industry29


Key FindingExhibit 23: Design Networks in Emerging MarketsIn early market entry phases,companies should avoidinvestments in own saleschannels, but should rather relyon joint ventures with access toproven sales channels.Use existing and provensales channels anddistribution network andimplement in the newmarketUse existing sales channelsand distribution network foradapting and installing anown networkPercentage of companies concentrating on the outlined concepts0% 50% 100%0% 50% 100%Create new sales channelsand distribution networkdownsized to market needs0% 50% 100%Aftermarket Champions(High performer)Explorers(Low performer)Capgemini ConsultingKey FindingStandard IT solutions have asuperior cost-benefit ratio overindividual IT solutions and aresupportive in building up awinning governance structurethat gives transparency andsimultaneously allowsflexibility on themarketside.runs those networks. In addition,they also invest in adapting thesenetworks to fit their own needs.In contrast, explorers oftenunderestimate the investmentsneeded to create complete new saleschannels and distribution networksor simply are forced to make theseinvestments because of difficulties in,for example, finding the right partnerto deal with, as illustrated in exhibit23. The high investments are notlikely to lead to corresponding higherreturns. Thus, the study recommendsusing existing sales channels and adistribution network as a marketentry for the aftermarket inemerging regions.After asuccessful entry, companies shouldstart to adapt the existing network.Information Technology LeverEven if the emerging markets showunique characteristics, companies donot necessarily have to invest inindividual IT solutions. Bothaftermarket champions and explorersrecognize that standard IT solutionsoffer well-accepted and beneficialfunctionality. Also, individual ITsolutions might create furtherbenefits, but those do not outweighthe higher costs for implementationand maintenance. Standard andindividual IT solutions do notdifferentiate aftermarket championsand explorers, but all participantsseem to agree that using standard ITsolutions is a road to success in thedeveloping regions.30


Strategic InitiativesCompanies often face limitedfinancial and personnel resources.Thus, it is important for them tounderstand which strategic initiativesthey should invest in to best allocatepeople and budgets.Exhibit 24 illustrates that each regionrequires a different set of strategicinitiatives. This map can serve as abasic investment guide since thepriorities of the various initiatives canbe identified.Further evidence arises from thepreparation for exploiting the marketgrowth in various emerging regions.Participants also were asked toevaluate the ability to fullyparticipate in the market growth inthe various emerging regions. Here,aftermarket champions and explorersresponded differently. Most explorersindicated they were not reallyprepared for exploiting the growth inthese markets whereas aftermarketchampions said they were fullyprepared. This explains why ingeneral the importance of theimplementation of the followingstrategic initiatives is relatively highacross all four emerging markets.Exhibit 24: Investments in Aftermarket Initiatives Across Different Emerging MarketsEastern EuropeRussia4 A4AG3BG3B2211FCFCScale: 1 = very low to 4 = highLegendChinaEDExploiterExplorerIndiaEDAM ChampionExplorerAImproving and extending the service offering4A4 ABOptimizing the planning processes among central,regional and decentralized organizationsG3BG3BCImproving the relationship with wholesalers22DImproving the relationship with dealers andworkshops11EFGIncreasing the market penetration by setting uplocal organizationsEstablishing cooperation to achieve competitiveadvantagesAdapting the service offerings to local requirementsFEDCAM ChampionExplorerFEDCAM ChampionExplorerCapgemini ConsultingThe Aftermarket in the Automotive Industry31


Key FindingHigh performers have alreadytransformed or at leastare transforming their after salesbusiness from a cost- to aprofit-and-loss-centeredorganization. Explorersneed to evaluate whetherthis organizational change is arelevant option as well.The results of the study make it clearthat each market profile of the mostimportant initiatives in which theaftermarket champions allocate theirbudgets shows similarities, but eachstill can be considered a unique setup.The exceptions are Russia andIndia where the set of the four mostrelevant strategic initiatives appear tobe the same regardless of the order ofinitiatives within the set. The majoroverall difference is the priority theseinvestments are given. Whereas therespondents’ investments in thestrategic initiatives were, on average,the highest in the Chinese market,the average investments in the othermarkets were ranked somewhatlower, with a difference of 15% to35%. Again, Eastern Europe isdifferent in that no aftermarketchampions could be identified.As indicated before, due to thespecific situation in the EasternEuropean market the studyconcludes that explorers shouldorient towards business practices ofexploiters, which, in turn, shouldrefer to aftermarket champions inWestern Europe. If strong explorersfollow the practice of the exploiters,this could be a shortcut for explorersand provide them with a chance toform the future group of aftermarketchampions. This requires a strongfocus on marketing to be able toanalyze customer habits and totransfer these findings in theadaptation and creation of newservice offerings.The participants weighted thepriorities for Russia somewhatdifferently, yet the same initiativesstill apply:1.Adapting the service offerings tolocal requirements2.Improving the relationship withdealers and workshops3.Improving and extending theservice offering4.Improving the relationship withwholesalersIt should be noted, however, that thestudy participants weighted items 2and 3 the same and the differencecompared to item 4 was only veryminor. This indicates that thestrategy for the Russian marketincludes a mixture of market shareincrease and stabilization with a cleartendency towards stabilizationorientedinitiatives, as again the lastthree initiatives are more oriented tomarket share stabilization.Russia is the only emerging market inwhich explorers already follow thestrategy of the high-performingcompanies in terms of initiativeprioritization. They only need toincrease the effort to follow up. Here,they can make up for competitivedisadvantages if they increase theireffort in adapting the serviceofferings to local requirements byalmost 40%.The Chinese market shows a slightlydifferent set-up when it comes to themain initiatives:1.Improving the relationship withwholesalers2.Adapting service offerings tolocal requirements3.Increasing market penetrationthrough setting up localorganizations4.Improving and extending theservice offeringThe main difference is basically thesequence of selected initiatives andthe inclusion of building up an ownlocal organization to better penetratethe market. The strategy is a mixtureof securing increased market shareand winning new share through thethird initiative. As explorers arefocusing on adapting service offeringsto local requirements, which is also amarket share stabilization strategy,they are advised to change theirfocus to better improve therelationship with their wholesalers.32


Finally, in India the focus of theparticipants is to shape anestablished platform from which toconquer additional market share. Thefirst three initiatives again are typicalmarket share stabilization strategiesand only the fourth is somewhatmore expansion oriented:1.Improving the relationship withwholesalers2.Improving the relationship withdealers and workshops3.Improving and extending theservice offering4.Adapting the service offerings tolocal requirementsAs can be seen, a similar situationapplies for India as for Russia. Thepicture is again a mixture ofstabilization as well as expansion,although the focus shifts to morestabilization-related topics whenconsidering the first three initiatives.Only the last one focuses on marketacquisition. Furthermore, theintensity to follow up the initiativesis almost 10% lower in India,compared with Russia. Explorersmight need to rethink theirinvestment behavior since theirhighest priority is on improving therelationship withdealers and workshops, which isvoted second by the aftermarketchampions. And of course their pushin these investments is very differentsince they basically invest with anaverage prioritization factor of 2.6,compared with 3.2 for theaftermarket champions.Summarizing, the study indicatesthat, on the one hand, explorers arewell advised to follow up oninitiatives that help stabilize theirmarket position, as aftermarketchampions on average paid the mostattention to balancing their effort toboth stabilize increased market shareas well as to expand their footprint.On the other hand, explorers alreadyset basically the right focus becausethe initiatives they paid the mostattention to regularly are chosen byaftermarket champions as well. Thebiggest difference in this case is theconsequent push that is required toimplement these initiatives. It’s clearthat explorers have to improve quitea bit in order to become aftermarketchampions and reach a higherposition in CHAMP.Key FindingIn the beginning, explorersshould consider a tightpartnership model to leverageeconomies of scale and build astrong execution model.33


7 ConclusionsBringing together the findings onhow companies can strengthen theirposition in the mature WesternEuropean aftermarket and also canchallenge in the emerging regionsleads to the following keyimplications:In Western Europe, markets aremature and most respondents’companies have already reached theexploiter or aftermarket championlevel. Nevertheless, the position of anaftermarket champion has to bedefended daily and requires strongefforts in innovating new services.New service innovations should gobeyond traditional offerings andconcentrate on the emergingtechnologies in the field oftelematics, navigation andentertainment. The expectedstagnation in the traditional demandfor repair, maintenance and partsservices will most probably require aconsolidation of the sales anddistribution channels and networks.In addition, keeping existingwholesalers and dealers loyal can beaccomplished through fundamentalloyalty programs based on improvedservice quality, customization ofservices and service branding.Explorers should focus on their keystrengths, know their customers’requirements in order to catch upwith champions and try to build upgovernance structures to bettermanage the organization. This courseof action can also be applied to theemerging markets. Whereverpossible, partnering models shouldbe applied to profit from economiesof scale.Exhibit 25: Summary of the Aftermarket Approach in Western EuropeAftermarketChampionExploiter• Innovate new services• Restructure sales and distribution channels• Implement loyalty programs for wholesalers and dealers• Improve service quality and service customization at dealer and repair shop levels• Create brand awareness for services• Reduce the network density• Improve service quality of repair shops and parts logistics performance• Increase the density of dealer and repair shop network• Extend the breadth of wholesaler activities with independent dealers and repair shops• Increase the usage of standard IT solutionsExplorer• Set up basic infrastructure at a central organizational level• Define marketing and sales processes for services• Establish cooperation with wholesalers• Create a network of dependent repair shops• Define basic logistics functionality for planning, distribution and reverse logisticsStrategic Initiatives in Western EuropeOperationalExcellenceOrganizationalDesignNetworkInformationTechnologyCapgemini Consulting34


Exhibit 26: Summary of the Aftermarket Approach in Emerging MarketsAftermarketChampion• Run and control dense networks of dealers and wholesalers beyond first- and second-tier cities• Adapt standard IT solutions to more dense networks and extended service offerings• Continually improve the planning, sourcing, distribution and reverse-logistics processes• Let the local aftermarket management break free from headquarter formalitiesExploiter• Try to break free from former joint venture partner and invest in own networks of dealersand wholesalers• Adapt service offerings to specific requirements of each market• Redesign the marketing and sales processes and consider advanced and adaptedservices offerings• Optimize the warehouse network, parts availability and service levelExplorer• Set up central warehouses to guarantee basic parts availability• Establish joint ventures to penetrate the geographically disperse emerging markets• Define basic services offered in each emerging aftermarket• Define planning, sourcing, distribution and reverse-logistics processes• Define preliminary sales and marketing processes• Introduce standard IT solutionsStrategic Initiatives for the Emerging Markets of Eastern Europe, Russia, China and IndiaOperationalExcellenceOrganizationalDesignNetworkInformationTechnologyCapgemini ConsultingTypical pitfalls on the way fromexploiting the aftermarket toaftermarket champion come fromemphasizing individual IT solutionsand trying to control too many levelsof the value chain. The additionalbenefits offered by individual ITsolutions do not seem to cover thecorresponding higher costs. Thehistorical development of theWestern European aftermarketindustry with strong players andfragmentation limits companies tocontrol every level of their valuechain. Instead of trying to penetratethe aftermarket with an ownorganization it seems to be moreimportant to cooperate withwholesalers and dealers. Thecooperation should be focused onimproving their loyalty by stronglyemphasizing a loyalty program.A similar summary can beformulated for the emerging markets.The main dimensions such as IT,network or organizational designhave strong global attention and donot entail specific solutions for eachregion. Across all emerging markets,it is sufficient to set up standard ITsolutions in the early stages ofexploring and exploiting theaftermarket. In addition, aftermarketchampions across all emergingregions have strongly penetrated themarket and try to control the variousvalue levels starting with central toregional and ending up at adecentralized level. For explorers andexploiters to catch up they have tocarefully plan their investments dueto limited resources and shouldadapt the aftermarket champion’sstrategies wherever meaningful.In any case, these companies shouldtry to avoid taking the same learningcurve as aftermarket champions andrather try to identify shortcuts ordevelopment leaps. This is a complextask.Differences across the emergingmarkets can be found in theoperational layers. AftermarketThe Aftermarket in the Automotive Industry35


champions in Russia have to respondto customers’ strong brandawareness, whereas Eastern Europeshould be approached with anaftermarket model focusing on costs.China seems to be the mostdemanding market where allprocesses including marketing andsales, sourcing, planning, distributionand reverse logistics are designed toachieve low costs and high servicelevels. Finally, all respondents arewaiting for India to show significantgrowth rates. Customers there seemto honor a strong focus onstandardization through theirprioritization of service requirementsand an attractive price/benefit ratio.These various activities lay thefoundation for achieving globalaftermarket excellence. As globalaftermarket champions, companiestransform into a profit-centerstructure and maintain optimizedaftermarket activities across variousregions/countries fitting theirindividual set-up. They also integratedifferent local approaches into agreater regional or one globalaftermarket approach. They operate,for example, optimized multiechelonnetworks of warehouses anduse worldwide benchmarks totransfer best practices amongwarehouses, dealers and repaircenters. The central aftermarket unitincorporates a major integration ofcentral and decentralizedwarehouses, optimizes planning andpurchasing processes across thenetwork of local warehouses, anduses worldwide quality standardsacross local dealers/repair centers.With regard to future marketdevelopments, both the results of thisstudy and the current economicsituation highlight that there is notraditional path for achieving success.Market players have to break throughtheir traditional course of action andfocus more on developing trueunique selling propositions –simultaneously making sure theydon’t lose focus on the consumer’srequirements. One key element inthis can be looking for newcollaboration that opens up the valuechain either horizontally or verticallyand especially focusing oncontinually developing serviceinnovations – for example, throughcollaboration with insuranceproviders.Whatever the future scenario of theautomotive industry will be, astronger investment in theaftermarket is imperative. OEMs andOESs will be continually challengedto defend and even more to furtherdevelop their business models. Beinga global aftermarket championbecomes a vital success factor fordelivering outstanding businessresults.36


ContactsFor more information please contact:CapgeminiFrank Tennstedt+49 162 - 2344589frank.tennstedt@capgemini.comUniversity of St. GallenProf. Dr. Heiko Gebauer+41 (71) 224 72 42heiko.gebauer@unisg.chSteffen Elsässer+49 162 - 2343646steffen.elsaesser@capgemini.comRalf Betke+49 162 - 2343168ralf.betke@capgemini.comAbout CapgeminiCapgemini, one of the world’s foremost providers ofconsulting, technology and outsourcing services,enables its clients to transform and perform throughtechnologies. Capgemini provides its clients withinsights and capabilities that boost their freedom toachieve superior results through a unique way ofworking, the Collaborative Business Experience.The Group relies on its global delivery model calledRightshore ® , which aims to get the right balance ofthe best talent from multiple locations, working asone team to create and deliver the optimum solutionfor clients. Present in more than 30 countries,Capgemini reported 2008 global revenues of EUR 8.7billion and employs over 90,000 people worldwide.Capgemini Consulting is the strategy andtransformation consulting division of the CapgeminiGroup, with a team of over 4,000 consultantsworldwide. Leveraging its deep sector and businessexpertise, Capgemini Consulting advises andsupports organizations in transforming theirbusiness, from strategy through to execution.Working side by side with its clients, CapgeminiConsulting crafts innovative strategies andtransformation roadmaps to deliver sustainableperformance improvement.About Capgemini’s GlobalAutomotive PracticeCapgemini’s Automotive practice serves 14 of the world’s15 largest vehicle manufacturers and 12 of the 15 largestautomotive suppliers. The sector generates value forclients through global delivery capabilities andautomotive-specific service offerings such as Marketing& Sales Optimization, Strategic Service Management,Supplier Transformation, Optimization of Dealer-FocusedOperations, Global Emerging-Market Sourcing,Organizational Development as well as Operating Cost-Cutting Strategies.For more information: www.capgemini.com/automotiveAbout ITEM-HSGFounded in 1989, the ITEM-HSG operates a programfocusing on the development of problem and applicationorientated research concepts and using the “St. GallenManagement Concept” as a holistic reference framework.The ITEM-HSG maintains close links to the industrythrough intense collaboration with Swiss and Europeanorganizations by means of major research and consultingprojects. Results from publications and theses flowdirectly into courses while students can develop realworld research through collaboration in the institute’sindustry projects.For more information please visit www.item.unisg.chMore information is available atwww.capgemini.com/consulting38


www.capgemini.com/automotivewww.item.unisg.chArgentinaColectora Panamericana Este 1925B1609ECM - San Isidro, Buenos Aires+54 1147358000BrazilRua Samuel Morse, 120 Conjunto 7104576-060, Sao Paulo+55 1135250100China11F, Azia Centre133 Yin Cheng Bei Rd.Lujiazui, Shanghai, PRC 200120+86 21 6105 3888FranceCoeur Défense Tour A110, esplanade du Général de Gaulle92931 Paris La Défense Cedex+33 (0)1 49 67 30 00GermanyNeues Kranzler EckKurfürstendamm 21D-10719 Berlin+49 (0)30 88 703 0IberiaAnabel Segura, 14Arroyo de La Vega28100 Alcobendas, Madrid+34 (91) 657 70 00IndiaSEP-2, B-3, Godrej Industries ComplexEastern Express HighwayVikhroli (E)Mumbai 400079+91 22 6755 7000ItalyI portici del lingottoVia Nizza 262 int.2710126 Torino+39 011 65 38 11RussiaTriangle Consulting/Capgemini16 Bolshoy Ovchinnikovsky Per.Moscow 115184+7 495 980 97 96SwedenMölndalsvägen 36-38412 63 Göteborg+46(8) 5368 5000United Kingdom1 Forge EndWoking, SurreyGU21 6DB+44 (0) 1483 764 764United States25925 Telegraph RoadSuite 350Southfield, MI 48034+1 248 233 3101©Shutterstock.com/Diego Cervo (cover & page 33)/Mikael Damkier (page 2)/Sudheer Sakthan (page 5)/Dana Bartekoske (page12)/Buket Bariskan (page15).©Istockphoto.com/Sumbul (page 30)/Gene Chutka (page37)/Juergen Sack (page39).Capgemini Consulting is the strategy and transformation consulting brand of Capgemini Group.The information contained in this document is proprietary. No part of this document may be modified, deleted or expanded by any process or meanswithout prior written permission from Capgemini. Copyright © 2010 Capgemini. All rights reserved.Rightshore ® is a trademark belonging to Capgemini.

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