BY: EDITH BACHMAYER

Arndt G. Kirchhoff

Arndt Kirchhoff is a business and engineering management graduate and has headed up Kirchhoff Automotive since 1990. Since then the 50 year old has been mentoring the company’s process of internationalisation.

Mr. Kirchhoff, Kirchhoff Automotive has been active abroad since 1992. Was this a necessary step as part of increasing internationalisation by the competition or rather a forward-looking strategy to open up new markets?

Like many other component suppliers we initially followed a customer, in order to subsequently open up the local market. Worldwide we employ around 2,600 people, 45% of whom are abroad. The number of employees has risen constantly both at home and abroad. In the markets we have now reached the position where we supply all the manufacturers in Europe and America in all vehicle segments.

What are the company’s success factors and strengths?

Certainly we should mention the strengths of medium-sized family-run businesses, such as a long tradition, flexibility, long-term thinking, a commitment to employees and location. In addition a  100% focus on the auto industry, especially on the OEMs and concentration on a very significant technology – sheet metal deformation. We want to be leaders with this technology, in all components for bodies and chassis, in all grades of material, from aluminium and steel through to ultra high-strength steels, in all deformation processes, using tried and tested  joints and corresponding surface engineering processes. Meanwhile there is no component manufactured using our technology, whether large or small, which we do not deliver to some manufacturer or for some vehicle or other, right up to almost entire vehicle structures. This is dependent on the vertical integration and strategy of our customers.

Which opportunities did Kirchhoff recognise correctly? Where are the challenges in opening up new markets in the future?

The challenges for us lie rather less on the capital side, but much more in the development of our employees. Expansion and profitable growth, especially in new markets will only succeed if we have enough qualified employees. To find such people and to develop them is where the greatest challenge lies, especially when you consider that we have to operate in many different cultures. A basic principle of our group is that we do not work with expatriates, but essentially with local staff up to top management and only offer support services from Germany.

How is Kirchhoff coping with increasing pressure from the OEMs?

We form a performance partnership together with our customers, the OEMs, and  thus we both have a stake in offering a high quality, well-engineered, innovative and also inexpensive product, which secures market success. In this performance partnership we use the tools of continuous improvement, refining, substitution of materials and processes, process controls, development and innovation, in order to be able to offer more inexpensive and cost-effective products. Here the term  “pressure” is relative. It is more a question of how we deal with each other and of a common obligation to do profitable business.

Where do the strengths of the German component suppliers lie?

German component suppliers certainly have highly trained workforces and are very innovative, which is ultimately reflected in the fact that expenditure on research and development in the entire German automotive industry represents nearly one third  of all German R&D expenditure. Thus it is a permanent challenge for German component suppliers to be that much better in the same proportion as they are (unfortunately, given their location) more expensive. Getting foreign countries involved helps a lot, and currently 43% of the added value in German cars is generated abroad. Here, especially amongst the German family businesses, there are quite a few – some not always so familiar - “beacons”, who supply the OEMs with world-class technologies.

What would you advise medium-sized enterprises, when venturing abroad for the first time?

First of all it is important to know exactly what the customers abroad require; even better to have accepted orders for going abroad with a production location report. Here the Chambers of Commerce, embassies, accountants, lawyers and other consultants are especially helpful. Furthermore there are guidelines and very useful information available from the Federal Ministry of Economics or the Ministry for Foreign Affairs, also in the form of checklists, so that you do not forget anything. Furthermore it is very important to locate in an area, where there is potentially enough suitably qualified personnel, with as much training in the basic technologies that one wants to develop as possible.

What effects are the current high raw materials prices having on your international business?

The high prices for raw materials are a problem for all component suppliers and incidentally for the entire industry. Extraordinarily strong growth in the world’s economy has not been accompanied by corresponding growth in capacity, especially not in the case of steel and oil-dependent products. This has led on all sides to price increases, which we as component suppliers have generally been able to negotiate fairly with our customers. Furthermore the unions have shown sensible moderation, which has prevented interruptions to the supply chain throughout the entire industry, which would have led to standstills in the car plants or to an above-average number of bankruptcies.

Despite a high degree of internationalisation, Kirchhoff has invested two thirds of its total investment in its facilities in Germany. How do you manage the balancing act between maintaining  facilities in Germany on the one hand and advancing internationalisation on the other? Can other companies in Germany learn something from this?

The emphasis is hence on investment in Germany, because here we naturally only stand a chance if we have the most modern technologies and manufacturing processes at our disposal. Manufacturing in Germany must be so capital-intensive, since you know that while a process can be managed by one person in Germany, in Poland at least seven people are involved. Therefore processes must be designed in such a way as to generate a competitive component price from a combination of labour utilisation, availability of machinery, choice of technology and investment figure. Every company in Germany can do these calculations. Finally one should also not forget logistics costs. There is here an enormous potential for savings, especially amongst manufacturers, who are generally carriers of freight.