JAPAN: Tagging along as automakers expand abroad pays off for Denso
Denso wants to grow even faster than Japanese automakers as it follows them overseas and snares business away from local rivals in those markets.
"We're not fixated on ranking or size," Koichi Fukaya, president and CEO of Denso, ranked among the world's top four auto parts suppliers, told Reuters in an interview.
"But we do want to expand at a pace exceeding that of car makers," he told the news agency.
Reuters said Fukaya's stated goal demonstrates a confidence that most of its peers - ever mindful of car makers' constant nagging to lower prices - are loath to display but is understandable.
Denso's arsenal of the latest must-have electronic controls and other technology has powered double-digit growth in revenue and profits and most analysts expect the rapid growth to continue in the medium term, the report added.
Denso, affiliated with the Toyota Motor group, had revenues of 3.188 trillion yen ($28.8 billion) in the year ended 31 March - more than either Suzuki or Mazda - while its market capitalisation of $33 billion placed it second in the world among listed parts suppliers and is larger than the value of General Motors and Ford combined, Reuters noted.
Fukaya, who joined Denso 40 years ago, told the news agency the parts company draws its strength from its ability to stay ahead of the curve by developing next-generation safety, environmental and other value-added technology that top auto makers need to stay competitive themselves.
"The most important thing is to become a company that car makers can't do without," he reportedly said. "It's the difference between coming up with better products and imitating what's already out there to offer them more cheaply."
Reuters noted that Denso, which trails Robert Bosch and bankrupt Delphi by revenue, is a leading provider of hybrid systems, as well as common rail and other diesel engine fuel injection technology.
The report said that Denso's spending on research and development has climbed at a steady pace over the past several years, while expenditures on facilities mushroomed in the year ended 31 March by 50% from four years ago to 288.71 billion yen - roughly equivalent to 9% of revenue.
Fukaya told Reuters Denso would keep its R&D outlays at around 8% of sales despite criticism from the investment community that it was too steep, but conceded that spending on facilities should be lower.
The report said Denso owes its string of record earnings largely to the strength at Toyota, which, along with units Daihatsu and Hino, accounts for just under half of Denso's revenue.
As Toyota and other Japanese car makers set up production facilities overseas to meet growing demand, Denso has followed in their footsteps to reap similar benefits, Reuters added.
Fukaya told the news agency car assemblers' overseas expansion had its pitfalls since political and other considerations meant Japanese transplants would seek business with local suppliers too. "We can't and don't expect to get 100% of the business. It's unfortunate, but something that can't be helped."
The flip side of that was a chance to capture more business from home-grown parts makers to supply local brands.
"We expect the ratio of our overseas output, especially in the United States and Europe, to rise sharply (from 35% now)," Fukaya told Reuters. "With our value-added products, it's relatively easy to get work from high-end brands."