Depo Poised to Become Taiwan's Top Auto-lamp Maker

After several decades in the business, Taiwan's auto-lamp manufacturers have established a firm position in the world market with their wide product range, high quality, and reasonable prices. They are helped by strong R&D, constant investment, strong manufacturing capabilities, and mold and die production that is much cheaper than Japan's and offers much higher quality than China's.

The Depo Auto Parts Ind. Co. is one of the two biggest Taiwanese manufacturers in the line, and has already outstripped its long-term rival, the TYC Brothers Industrial Co., to take over the top position in 2005.

Starting out as a small maker of side mirrors and truck lights three decades ago, Depo has grown into one of the world's major suppliers of auto lamps with a product line that encompasses headlights, tail lights, auxiliary lights, fog lights, side lights, and other exterior lamps. Its catalog now contains over 14,000 items.

The company's revenues have increased by more than 10% annually over the past several years, to about NT$6.3 billion (US$188.06 million) in 2004. In the first 10 months of 2005, sales totaled NT$5.8 billion (US$173.14 million).

Sales manager Michael Hu has helped Depo develop a sales network that covers several dozen countries.

After establishing a solid foothold in the domestic market, Hu explains, Depo decided to escape the constraints of that limited market by focusing on the export aftermarket. It continues to supply lamps to a few domestic automakers, but thinks that own-brand sales in the international aftermarket have far more potential. The firm also realizes the importance of developing an image for quality by developing sales of OE (original equipment) products.

No Over-dependence on the U.S. Market

"Our correct marketing strategy allows Depo to develop sales all over the world instead of concentrating on only a few major markets," He comments. "This is different from other major manufacturers in Taiwan, most of which rely on the United States alone for over half of their sales." For most of Taiwan's exporters in the line, the development of exports started with the American market; Depo, by contrast, started exporting mainly to Asian countries and gradually expanded into the Middle East, Europe, and only then to the U.S., which even now accounts for no more than 35% of overseas sales.

A strategy of market segmentation, says Hu, helps Depo to extend its global reach by maintaining stable ties with existing buyers while developing new customers at the same time. "We've been quite successful in the European market, where dozens of cultures and languages make up a very complicated regional market requiring intensive evaluation and the adoption of different sales strategies," the sales manager explains. "Some other aftermarket parts suppliers tried to transplant a strategy that had proved successful in the homogenous U.S. market to Europe, but failed."

The company invests constantly in the development of molds and dies in order to keep its product range growing. Recently it has been spending NT$550 million to NT$750 million (US$16.37-22.32 million) per year for this purpose because, Hu stresses, the more products a company can offer, the more markets and customers it can acquire.

Besides drawing customers in with one-stop-shopping service, Hu goes on, Depo's wide product range also serves as a high barrier to keep the competition at bay. Nevertheless, he concedes, "We can't escape global competition, especially competition from rivals in low-cost countries, but we have an unrivaled advantage on the small-batch, large-variety production model we've built up over the past 30 years. If somebody wants to challenge us, it will take them 30 years of mold and die development."

Another advantage for the company is its focus on its core business, auto lamps. "We've seen some big aftermarket auto-lamp suppliers try to diversify into other product areas such as radiators, condensers, and side mirrors in order to strengthen their one-stop shopping service capability," Hu comments. "But we haven't done that, and we expect to continue focusing on our core business."

Unrushed Expansion

While forging ahead aggressively in market, customer, and product development, Depo holds a conservative attitude toward expanding its manufacturing facilities overseas. It is easy to add more overseas factories, Hu explains, but it is not so easy to find competent personnel to man them. This is a situation that can threaten their very existence.

Anyway, the manager goes on, Taiwan is an ideal place for the production of auto lamps because of its internationally respected high-quality work force, strong development and innovation capabilities, and good manufacturing and management abilities. The island's small-batch, large-variety production also helps.

Depo operates two plants with more than 1,000 workers in Taiwan and two in mainland China (where the focus is on OE sales to car manufacturers), as well as a branch responsible for North America, three inventory warehouses in the U.S., and six distribution bases elsewhere around the world.

Two of the Taiwan factories are being expanded to meet global demand, an indication that the company plans to keep its roots on the island while using the facilities in China to provide for a more efficient allocation of resources.

Hu expects a market surge in the years ahead. "All of the conditions," he says, "point to expanding aftermarket sales in the world's two biggest markets, the U.S. and Europe."

One of these conditions is the final court ruling in the State Farm case, which is expected to lead to expanded use of aftermarket parts by both auto insurance companies and motorists in the U.S. Aftermarket parts currently account for only about 15% of all crash parts (parts, such as head and tail lights, bumpers, hoods, and fenders, that are replaced after a collision) used in the U.S., so there is plenty of room for growth as insurance companies adopt aftermarket parts to cut costs.

Another factor favoring the expansion of aftermarket auto-lamp sales in the U.S.-the world's largest market-is a decision by the Certified Automotive Parts Association (CAPA) to list lamps as one of its certification categories. "The sale of aftermarket auto lamps in the U.S. was growing steadily even before the CAPA decision," Hu notes, "and now we see even greater growth momentum ahead. The more lamp models are certified, the stronger the growth momentum will be, because the insurance companies will have more choices of parts to substitute for OE parts."

In Europe, Hu goes on, "the competition is much fiercer than in America for Taiwanese auto-lamp makers, because all OE auto-lamp suppliers there also supply the OES (original equipment service) market, where replacement parts are distributed under the automakers' own brands and through the automakers' maintenance networks. In addition, aftermarket parts are used in only 2-3% of the cases in Europe because of customer habits, historical reasons, and the attitudes of auto insurance companies. But with the passage of the new Automotive Block Exemption Regulation (BER) there, we can expect consumers in Europe to push the insurance companies to adopt more cost-saving, qualified aftermarket parts in the future."

Major European brands have also been outsourcing OES auto lamps in increasing volumes, Hu observes, and this also means growing opportunities in the market there.