Article

Why European Supplier Launches Continue to Face Challenges in the U.S.

Do European suppliers really struggle more during launches than their U.S. counterparts?

In short, yes.  European suppliers face numerous challenges when launching in the U.S. for their first and subsequent launches.  The root causes of these issues can vary but can be boiled down to three main concerns:  People, Commercial and Technical.

Leadership and People Factors

It’s easy to point to cultural differences in general for European suppliers, but the issues are more nuanced. 

Tier 1 and 2 suppliers headquartered in the U.S. have more direct high-level communication with their North American customers than their European based counterparts, whose leadership structure at the top and most experienced levels tend to remain in Europe.  Frequent European leadership staff rotations in and out of the U.S., along with top management distance, lead to a lack of high level, deep, and frequent U.S. based customer communication.  For those supplier leaders in Europe, priority is often given to local high prestige European customers which leads to U.S. projects not being given the same priority for resources, capital or talent. Delays in decision making and reaction time further lead to distrust and poor synchronization. 

Cultural differences - management style, process, communication styles are very different. If an EU company retains decision-making authority in EU vs. USA - then this will slow down the speed or ownership of decisions at USA based launches. Also, frequent EU staff rotations in America cause problems with the local workforce.”

-Respondent in Seraph survey 'Differences in U.S. and European Leadership Structure'

Workforce differences: EU leadership has higher workforce talent expectations than U.S. counterparts from their experience with robust and prolific European apprenticeship and technical training programs. This difference leaves leadership unprepared to deal with an undertrained U.S. workforce.  The rotation of leadership adds to the strain. 

EU suppliers also must deal with a low U.S. unemployment rate (3.6% vs 6.3% in EU28) and an American culture less focused on job loyalty (U.S. employee turnover rate 3.8% vs 1.6% in EU) adding to the training and experience gap.

2019 U.S. and European Job Turnover

Source: Job Openings and Labor Turnover Survey, U.S. Bureau of Labor Statistics and Eurostat Statistics, European Commission

Commercial Factors

European suppliers struggle to fully understand American customer’s needs, product and processes, instead they often rely on prior experience and expertise from Europe.  This is a major issue when dealing with a highly flexible U.S. market.

Specifications for North American products are less defined than those planned in Europe creating several design loops, late changes, and delayed tooling kick-offs.   While this gives the U.S. customer advantage in terms of final product flexibility, the supplier must be equally as agile or face unexpected costs and delays.  This assumption of launch requirements similar to that of EU customers leaves suppliers unprepared and increases the likelihood of reduced profitability.

Earnings impact: Tier 1 analysis shows EU suppliers have lower EBIT Margin (8.4% vs 7.1%), creating supplier financial pressure and increasing risk factors.  Lack of understanding of the workforce and the above-mentioned requirements for change contribute to this issue.

Technical Factors

Delocalized European management and product development make an interdependent product development process challenging for the U.S. market.  Europeans with strong matrix organizations are less flexible dealing with U.S. project needs and high rate of change requests. 

Issues are further exacerbated as communications break down outside of the engineering team’s native language.  Lack of expertise in supplier’s regional branches and delays in information flow hurt a supplier’s ability to react.  Product phases are only given lip service in at-risk launches as the focus is placed on launching on time and under budget.

Automotive Launch and Development

Ultimately, and as a result, suppliers end with delayed launches, untested processes, and products that are not customer-ready, the natural loss of which is customer satisfaction, return on sales and profitability.

How can European suppliers overcome these issues?

Suppliers must understand that launches in the U.S. will require a different level of preparation and that prior EU launch experience won’t address some of the U.S. issues discussed.  Partnering with local experts to get a better grasp on the pitfalls and upfront challenges of starting or procuring operations in a particular region, or with a particular customer base, will aid in avoiding phase and timeline delays.

Development of local talent and more in-depth understanding of the regional workforce and skill level will avoid the later turnover, lack of urgency and loss of communication.  While employee turnover is higher in the U.S., it can be drastically improved through proper training, skill development, and leadership.  This doesn’t mean suppliers shouldn’t focus on competitive compensation packages and benefits, it means they need to focus on both.  Most critically, development of and trust in localized leadership, empowered with decision-making authority, to keep communication and collaboration ongoing with top levels of customer management as well as engineering and change management teams. 

Close and collaborative relationships with customers at the local level from a development and engineering perspective will keep changes from becoming issues, as these changes will become part of the normal process for the localized teams.

Finally, if issues can’t be avoided earlier in the process, forceful crisis management is needed at the facility level.  Utilization of internal or external consultants with strong local operating experience can help to avoid impact to the customer, saving relationships and ensuring future business.

Written by Jennifer Sullivan, a Senior Consultant at Seraph

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Seraph’s team of operational managers and senior consultants intercede on our clients’ behalf to fix a crisis that is putting the business at immediate risk; turnaround a situation that is damaging the bottom line; or to restructure to improve the balance sheet.

Seraph specializes in Engineering Program Management, M&A Advisory, Crisis Management, Relocation/Consolidation, Leadership and Employee Development programs and Value Chain Management.

Seraph has successfully delivered projects in the following regions: Americas, Europe, China, and India. Seraph's Industry Expertise Includes: Aerospace, Automotive, Energy Infrastructure, Healthcare and Medical Devices.

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27 February 2020