Detroit, 'Motor City', is the epicenter of the American automobile industry. What opportunities are there for European suppliers and what approach is needed to get a foothold there? Ward Vleegen of our Transport & Mobility Technology Club brought a list of interesting questions to the table with Will Butler (Detroit Regional Partnership) and Piet Morisse (Flanders Investment & Trade). Watch the video here!
Ward: Hi Will, Hi Piet, good morning to you. I have known both of you for quite some time now, but it would perhaps be a good idea if you can say a brief word about who you are and the organization you work for.
Will: Hi everyone. My name is Will Butler and I'm a senior business development manager at the Detroit regional partnership. We’re the regional economic development agency for Metro Detroit -- the Detroit region. Our job is to help companies that are looking into exploring this market and setting up new locations and facilities in Detroit.
Piet: Good Morning. My name is Piet Morisse and I'm the Trade and Investment Commissioner for the Flanders Investment & Trade office based in Chicago. We’re one of the six offices that FIT has in the US. I'm responsible for the Midwest and our two missions are helping Flemish companies in doing business in the US and trying to convince foreign companies to come to invest in Flanders.
Will, can you say something about your organization: what is the link with automotive industry and how do you see your activity for that sector?
Will: Sure. So, we are the designated regional economic development agency. Essentially, we try to serve as much as possible as a one-stop shop right to handhold companies as they're coming to the U.S. looking to set up p an initial office or some sort of facility. We work in a variety of different clusters and industries not just in the automotive sector, but I think people know Detroit as the Motor City, and rightly so, for it is our foundational industry and heritage. So, I would say about 75% of the work and the projects that we have is related to the automotive industry.
What are some typical questions or even misunderstandings that you encounter in your job?
Will: Typical transactional questions that come to mind are: “How do I go about approaching the U.S. market?” “How do I set up a corporation? “ “What our tax rates at the federal and the state level”. You know it's a totally free market because each state in the U.S. is almost like a country in terms of its laws and regulations. We're not one monolith so you have to learn the regulations in Michigan as well as in Ohio and Indiana and kind of understand the differences. So, I think that's a big thing to start with such transactional questions which are often front, back and centre. More specifically, Detroit is a global brand and a global name, but it means different things to different people. On the one hand it has this identity as the Motor City, the epicentre of the North American automotive industry, but in truth y people know it for its challenges as well, and I think a lot of times we're trying to explain the reality on the ground. This region and Detroit in particular have witnessed a pretty impressive resurgence in the past ten years, so we're constantly trying to get that story out there as much as possible.
What about you, Piet, do you see things the same way?
Piet: Well I can relate a lot to what Will said, that companies are coming to us and they say well you're responsible for those regions so you must have some very good contacts in Detroit. How can I get a contact at Ford or GM and can you arrange a meeting with the person responsible for this? It's not that easy actually. They may think it's so easy, but that's not the way things are. They are not waiting for us to come knocking on their door just for the sake of it so that's why it's important to try to do some things together and that's why we have good relations with the Detroit Regional Partnership and with other organizations or all the people in Detroit, to try to help our companies but we have to educate them quite often and to explain what the reality is and what's the best way to do business.
For us often Detroit is very strictly linked to the big three: Ford, GM and FCA. But I believe there's much more. Could you explain a little bit?
Will: Yeah… I mean of course we're known for the big three and you know, we love the big three, but I also think that is one of the misunderstandings or misperceptions we often have to talk about. People don't realize the breadth and density of the automotive industry here. You know, there are actually 21 OEM and Tier-1 headquarters: global headquarters, North American headquarters or technical centres in the Detroit region. That's the greatest global presence of OEMs in the world in fact; and yet on top of that, 96 of the top 100 suppliers have facilities here. So if you're looking to get into the North American automotive industry and break into that market there's not going to be a better place where you'll have proximity to engineering and leadership with some of the largest OEMs and Tier-1s in the world. This is really the entry point for the North American industry. But I would agree completely with Piet that it is not easy to get into these companies and it takes investing in a long-term relationship built over years many years so I'd completely agree with you Piet.
Piet: Yeah, I also think that sometimes our companies say well, I'm going to send you some information, just go it through and things like that. But it doesn't work that way so you have to come, you have to show your face, you have to convince them that you have a product which is completely new. They are not waiting for you, but you need to come to present it, to show and to sell it.
Some companies I am in contact with here in Belgium tell me “well we have so many opportunities in the automotive sector in Europe, we don't see a need to start a business in the US;” and then I have to try to convince them. Why would they need to consider taking this step anyway?
Will: I find that question funny,… You know, why would I go after a new customer? Why would I go after new growth, internationalizing or exporting our products and services? I mean, not only can you boost profitability without any doubt, but I think the most important thing is that you're gaining more resilience. And we can look at a moment in time I think, when those companies that are more diversified across the markets that they're involved in and engaged with are going to be more resilient in downturns. So, I think that is incredibly important over and on top of just profitability that getting into a new market can drive up. I'd also say the more innovation by the right companies involved in more markets the greater their capability to access more technologies and partners than when they're just in their backyard. So I think there's certainly a market and you know there's an opportunity in Europe but in order to continue the life cycle of your products and your companies, you have to be looking abroad and you have to be looking at the U.S., where as you know we are one of the major markets in the world.
Piet: I totally agree with you. First of all, three out of four companies in Belgium are working for export. Our internal market is way too small. The European market is a good start but if you really want to extend internationally and especially in the automotive sector you have to come and you have to go to Detroit and you have to go to the Midwest. I also understand that a part of the big three that is and still going to be in Detroit, in the Midwest region. You have the south of the US that's expanding a lot also for assembly but that's mainly for foreign companies, and something that I hear quite often is that you need to be where the decisions are made and I think that is something which with all the headquarters that you mentioned, Will, it means that there's really decision-making power also not only with the R&D engineers but also the managers and the CxOs who are in Metro Detroit.
Will: The example I often cite is Toyota. They undertook a big reshuffle of their presence in North America. They moved from California to Texas and a few other centres shifted, but what stayed in the Detroit region in Michigan was all of their engineering R&D and most importantly also purchasing; and it's exactly what you need if you want to be selling and in front of leaders. I think not only do you have to start or have some sort of presence in the Detroit region, but kind of go along with people saying localization is just as critical. You can only do this so much flying in and out. If you don't have a sort of boots on the ground presence every day is going be really difficult to gain traction and I think that's something of a chorus saying continually to companies who are looking at starting in this market.
And how do you get that localization right? What are the critical points for success?
Will: I would say one of the things that we constantly preach is that there's a support network out there to help you do this right. Don't go in it alone. Rely on support and on experts. That starts with organizations like the Detroit Regional Partnership, like Flanders investment and trade. Reach out to Piet, reach out to me. We are free resources to start this discussion and to get expertise. So, don't go it alone. Start with that support network and then you know you're going to have to bring on service providers to set you up correctly. I think a lot of that upfront homework and relying on experts and the support network is what leads some companies to success and while others may have to struggle. I think the first hire is crucial. That first person who's representing your brand in the new country, a new market is the most crucial hire you'll ever make.
Piet: You must also come with something new. Something that is not on the market, something that the companies will be interested in. So, I always say “don't go to Mexico and try to sell tequila”.
So how is the situation with the coronavirus nowadays?
Piet: Production has restarted and obviously there have been a few moments. I know Ford had sometimes where they had to stop as they maybe had an outbreak of Covid-19 at a particular plant. There's been an effort here in Michigan where a major tier 1 interiors and seating company released a safe workplace playbook for manufacturers. So companies that are learning this or have been through this in their plants in China or other locations are releasing that knowledge and we are collecting it in a database for companies so as to have a playbook when they start going back into production, so they know how to do this and what the best practices are.
And do you also expect a coronavirus effect on foreign investment?
Piet: Yeah undoubtedly. We’ve had such a great economy in the past few years and there's been a lot of growth but I think there is bound to be a pause, a decrease in new expansions happening across the country and across the globe. We're still out there doing business development and talking to companies constantly every day, every week. I think what I'm hearing is there's still significant interest but there are some real hurdles about how they physically implement a new office or a presence in a market. And that's a new world -- something we haven't had to deal with before. I'd say for Belgian companies in particular, you know, Belgium has a particular expertise in automation and that's what I really see. You think about having to implement social distancing inside a production floor. Companies were moving towards automation in any event, and I think this COVID-19 crisis is only going to accelerate investment or deployment of automation technologies even beyond the OEMs and tier ones, sort of down the supply chain and this is where I think Belgian companies have an opportunity.
The major concern in automotive industry today in Europe is market demand so the plants are operational again. Perhaps in one shift instead of three and maybe not in in full capacity but for instance in Germany Volkswagen restarted after COVID-19 and they had to shut down two plants again due to a lack in demand. One thing I wanted to come back to. Will you mentioned and Piet you agreed that one of the critical factors for being successful in this localization is the first person you hire. Is that something you all support in finding candidates and doing interviews or how does that work in the US?
Piet: I can speak for Metro Detroit and in Michigan where we do help with that. There is a specific entity here called Michigan Works which is the government workforce development agency and they can post jobs, hold job fairs and send you resumes by way of complimentary service. They'll do a lot of that upfront work for you. On our side right we can help with university connections if you're willing to hire someone coming out of college and we'll also market your position and direct you to the right job boards where you need to be advertising your position. And the other thing too – and again I'm kind of relying on experts -- there are recruiting firms and staffing firms who specialize in placing mid management executives and it's our job to try to put you in contact with those partners and those connections so that's kind of how we help. You know it's also a lot of the soft service where we're trying to put you in touch with the people who really are the experts in recruiting and hiring that first representative.
How much time does it take to start a business if a company decides to set up a representation and look for one representative to hire?
Will: I don't think there's one firm answer to that. On the transactional side I would say that actually setting things up can be fairly simple and easy. Here in the U.S., a corporation can be set up in a day. I mean really, in a matter of hours, and you know on our side we've tried to set up a lot of programming to lower those barriers and costs. Free or subsidized office space for those first -- or first handful of – employees, plus a number of programmes to give you a base to start with an address. So those programmes exist to make it as easy as possible but even if some of that transactional stuff is simple, I think knowing your plan of action and starting the strategy process early on is really important. In all honesty, I would say from my experience that I think the initial kind of sales office presence takes six months to a year to get off the ground properly.
Piet: what we also recommend to a lot to small companies who want to start is just to rent a virtual office. This will give you a couple of months to see how your business is evolving without making a total big investment at the outset, so that's something that we are also promoting.
Will: Due to Covid-19 right now, we’re seeing a decrease in just pure demand for new vehicles, so it’s difficult to see an opportunity. But what we're hearing from a lot of our large corporates here in Detroit is that they're going to be looking to duplicate supply chains across all markets because they don't want a crisis. As you know, when China shut down it shut down crucial parts of their supply chain. What we're hearing is they now want a fully North American market supply chain making them reliant for North America and then they want to duplicate that across the globe. So, I think that is going to be one effect of Covid-19. As we emerge there's going to be an increased demand for presence across the globe.
Wow, that's different than what we hear here in Europe. Two weeks ago I was in an online conference and there was somebody speaking from the purchasing department of Jaguar Land Rover working in Slovakia and the question was “do you think that now with Covid-19 there will be an increase in local sourcing?” and the person said “I don't believe that because that would require us to set up double tooling, double quality checks, double validation and the cost would be so much higher that you will probably stick to a single supplier that we have already”. But maybe the Americans think differently but I think here in Europe we will not really see this localization effect out of Covid-19. So the final question: our planned automotive mission for December: what do you think will happen?
Will: We want to have a mission in person if possible and bring everyone to Detroit and build those partnerships and economic bridges, but if we have to do it virtually we'll find a way to do it. We are committed to holding it in some form. So, we're committed to finding some way to make this happen.
Piet: It's a matter of executing it in a safe and sound manner and that's most important and we depend on the OEMs. They have to allow us to come in and we have to be allowed to travel. But I think that people from Belgian and Austria will still be very much interested in coming to Detroit as they were earlier this year.
Will and Piet, thanks a lot for this interesting talk and let’s stay in touch!
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