ST 007-13 2013-03-20

Regionalized cost engineering: home advantage in all markets

Dr. Karl Tragl, Chairman of the Executive Board at Bosch Rexroth AG

Machinery construction was able to market the concepts developed in its home markets around the world without any changes for many years. But this success model no longer works in the globalized economy. The regions in the triad of Asia, the Americas, and Europe are diverging in terms of production philosophies. Machine users are demanding economically and technically tailored solutions specifically designed to meet their regional needs. The cost engineering necessary to make that happen must target the key requirements: acquisition costs in Asia, transaction costs in the USA, and lifecycle costs in Europe.

Let us take China, for example. The market segments are increasingly converging in this world's largest machine market. The former strong low-price segment is shrinking. The high-price segment predominantly dominated by European manufacturers is also only experiencing weak growth. At the same time, the middle segment holds the largest potential for growth. This is the point at which Chinese and European manufacturers are increasingly colliding. For machine users, acquisition costs are exclusively what counts – the primary objective for cost engineering in Asia – with precisely defined performance features. Components, modules, and machines designed in Europe are even then too expensive when manufactured in China without any changes. The target costs for the middle segment can only be achieved for versions of global product platforms with a high degree of local added value developed in the region itself.

By contrast, an entirely different strategy is dominant in Europe. Machine users turn to a high degree of flexibility in order to individualize their products. Above all, lifecycle costs play a role in purchasing decisions. Cost engineering takes hold here with the levers of energy efficiency and downtime reduction through fast refittings. To do so, machinery manufacturers are moving an increasing number of functions to software and turning to innovative technical solutions. In the USA, the third largest market, machine users above all demand standardization to reduce transaction costs, from procurement to operations and from service to repair. Cost engineering predominantly simplifies ordering and logistics processes.

Companies can only meet such differing regional market requirements by establishing systematic production and development capacities in the target regions. In China, Bosch Rexroth bundles all development activities at its own R&D center, and in the USA it is increasing R&D capacities. Local plants undertake the production of these regional products and solutions with a high percentage of local suppliers. With such cost engineering regionalized to the key factors of acquisition, lifecyle, and transaction costs, Bosch Rexroth is creating a home-field advantage for itself across all markets in the triad – and is thereby laying the foundation for above-average global growth.

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