Clarion acquisition enhanced Faurecia’s capabilities

In 2018, the French automotive supplier, Faurecia, announced that it planned to acquire the Japanese automotive interior supplier, Clarion and the transaction was completed in March, 2019. In automotive industry, not only Original Equipment Manufacturers (OEMS) and suppliers but also related companies are facing the game-changing disruption such as Electrification, Autonomous Driving and Connectivity. Therefore, every company and every management will make a decision and take actions to survive. For example, when OEMs want to achieve autonomous driving and electrification be themselves in order to keep their competitive advantages, they need tons of Research and Development investments. As a result, those companies seek cost reduction and enhance their organizational capabilities so that merger and acquisition is one good option to do so. In this sense, Clarion acquisition is without exception.

Who is Faurecia?

Based on its homepage, the company profile of Faurecia and its strategy are describe as follows.

Company Profile

With 248 industrial sites, 37 R&D centers and 100,000 employees in 37 countries, Faurecia is a top ten global automotive supplier.

Faurecia’s mission is to develop technologies for Sustainable Mobility and to create personalized experiences for the Cockpit of the Future. At the same time, we offer solutions to meet the challenges of future generations in line with our Convictions.

Company Strategy

Faurecia is deploying a strategy aligned with the automotive megatrends and focused on developing innovative solutions for Sustainable Mobility and the Cockpit of the Future. The Group is uniquely positioned to do this through its four activities – Seating, Interiors and Clean Mobility and Faurecia Clarion Electronics.

From energy efficient and zero emission technologies to connected and predictive cockpits, Faurecia is creating long-term value by providing solutions for Sustainable Mobility and the Cockpit of the Future and meeting the needs of future generations.

Who is Clarion?

According to its homepage, the business outline of Clarion is described in the following way.

Our business environment is rapidly changing, with new players from the IT sector and other industries entering the automotive industry, and expanding customer requirements such as autonomous driving, automatic parking and other driving aids. Within this market environment, Clarion has developed the Smart Cockpit concept as part of our plan to transform our business from an “In-Vehicle Information Device Manufacturer” to a “Solution Provider for In-Vehicle Information Systems” offering added value by connecting the car to information. This combines our own technologies, including car navigation, HMI, cloud services and vehicle cameras.

What we can learn from this acquisition?

We can learn two important theories, which are economies of scale and economies of scope, from this acquisition.

Economies of scale

Economies of scale basically means that cost per unit of output is decreasing while scale of output is increasing. For example, we purchase material A and manufacture product B from material A by making use of a semi-automated factory. The more material A we will purchase, the more power to negotiate we have. As a result, the cost of material A per unit is decreasing. In addition to this, we can reduce the cost of production. Let us imagine that we manufacture 2 million product B or 1 million product B and 1 million product C. Even if the manufacturing cost of either product B or C is almost same, we need additional cost to change manufacturing process from B to C.

As we see the title of the presentation, “”Acquisition to strengthen Faurecia presence in Asia and allow a breakthrough with Japanese OEMs”, Faurecia can increase its customer portfolio and manufacture the same products for more different customers thanks to this acquisition. Therefore, this benefit based on economies of scale.

Economies of scope

Another important economies of scope, which basically means that efficiencies increase not by enhancing volume but variety. As we see the title of the presentation, “”Complementary know-how and competences for innovative and disruptive solutions”, Faurecia is able to take advantage of both its and Clarion’s know-how and physical assets to manufacture various products.

As we discussed in the beginning, we expect that more mergers and acquisitions will be happened in automotive industry to seek economies of scope and scale.