How trends influence current industry developments and impact company strategies- A case study of the German automotive industry

Adapting to Market Trends. How trends influence current industry developments and impact company strategies- A case study of the German automotive industry

It is no surprise that automotive suppliers or companies within the German automotive industry are currently tackling a multitude of challenges. The German automotive industry is experiencing the greatest upheaval in its history. New players are entering the area, the demand for alternative drive technologies is growing, and at the same time, increasing digitization is intensifying structural change and causing a decline in jobs. On top of that all, the automotive suppliers, in particular, are considerably noticing effects of the COVID-19 pandemic.

Which trends are shaping this substantial market development in the automotive sector?

There are a number of trends that are reshaping the automotive industry. Some trends are more influential than others, some trends are new, and some have been identifiable for a number of years. This article will focus on three of them.

1. Expansion of the Competitive Environment

Not only does Germany‘s well-developed automotive industry suffer from overcapacity between automotive manufacturers and suppliers as is; now with the integration of software and digital companies, the competitive environment has expanded to companies that were not originally part of the automotive industry, such as Google. Price and regulatory pressures mean that OEMs in the established markets of Germany, for example, have little margin of error when it comes to making the right decisions on how to differentiate themselves.

2. Separation of Hardware and Software

The automotive industry is transitioning from producing a driving machine to producing a driving computer and, as a result, the relevance of software key technology demands is increasing rapidly. Where the engine was the center of development for the last century, in today’s market, software is the key to unlocking innovation in efficiency, connectivity, and new mobility solutions. Trends will decide the direction in which the development of software will go. To be proactive, companies are positioning themselves across the automotive industry’s digital value chain to take advantage of upcoming innovations enabled through software.

3. Cross Industry Partnerships

But what enables a company to have little margin of error, when the market is requiring them to differentiate themselves fast and to transition themselves from their traditional hardware business to software services? Cross industry partnerships. There is a higher tendency for cross industry partnerships in today’s market so that established companies are able to go new ways at once, without giving up on their initial direction of business. In other words, it is becoming a market norm for reputable companies to either partner or overtake start-ups in the software industry in order to gear themselves better towards market demands.

What do these trends mean for suppliers looking to enter the German automotive market?

The current disruption in the automotive industry currently requires a high willingness to adapt. This willingness to adapt is primarily defined by investments that are made, especially to promote the development of know-how in new areas. One way many companies try to close a lack of know-how is by acquiring innovative start-ups. This can be observed particularly in the areas of digitization and autonomous driving. Due to the increased dynamism and the emerging competitive pressure from new players entering the automotive market, many automotive companies are also ready to enter into projects in the field of new technologies. For this purpose, the market is constantly screened in order to identify suitable cross-industry partners. The market drivers in the automotive sector are clearly the topics of AI and software as well as alternative drive technologies. If a supplier stands out in this area with special services or products, the opportunities of cooperation increase many times over.

What can other industries learn from this?

The automotive industry is not the first and will not be the last industry to experience such upheaval. Innovation, efficiency, and sustainability all require change, regardless of the industry or product. What the change will end up being and the rate that the change accelerates is heavily directed by trends. The winners throughout the shift of the automotive industry have been continuously larger suppliers who can afford high R&D budgets. To be proactive and aware of disrupting market trends, investments in research and development should include identifying which factors are driving your industry currently and if those will be the same factors in the next 5 and 10 years. By analyzing the development of market trends, not only will you better understand the future state of your industry, but you learn more about customer behavior, competitive advantages, or lack of, and potential threats to your business. Most importantly, by understanding the trends that will shape the future market environment, you are be able assess the alignment of your company strategy and adapt accordingly.

Need support in identifying critical market trends, attaining detailed market insights, or developing a market entry/expansion strategy?

If you need consulting support when entering a new market, or if you would like to know how your business can adapt to trends and benefit from current markets developments, please feel free to reach out to our team at DTO. We will be happy to discuss opportunities with you, as well as research designs that will enable you to optimally align yourself with the future markets of this world.

Text written by Sophia Dietsch and Rickmer Görner