Honda to Use Emerging Markets' Parts Suppliers

Automotive manufacturers are looking for possibilities to reduce costs as the global financial crisis continues to threaten their economic situation. One of the oldest global cost cutting tricks in the book is switching from the use of developed countries labor force to relying on nations which are ready to offer their services for a significantly reduced amount of money, as they are willing to complete the development pathway.

This is exactly what Honda Motor Company plans to do, by planing to terminate its current automotive parts acquisition contracts and use emerging countries for this activity, as Reuters reports, citing the Nikkei business daily.

The company aims to consolidate acquisitions in order to cut costs by 10 percent. The initiative is expected to produce estimated annual savings of $1.08 billion. This figure will be gradually increased as the shifting process expands.

Honda currently runs 25 production sites in 16 countries and regions and uses parts from around 2,200 sites worldwide. Each type of parts is received from seven to eight factories. The new plan will see this process being simplified, as Honda will only use three to four plants for each component type.

The automaker is expected to expand its collaboration with suppliers based in China, India, Southeast Asia, Brazil and other emerging countries.

The cost-reducing scheme will debut next year, when Honda will begin selecting new part and components suppliers and should see a complete shift form suppliers in developed countries to those in emerging nations by 2013.