Subcontractors and the need to diversify

With the difficulties encountered by major industrial sectors such as automotive and aeronautics, many subcontractors have seen their business decline as a result. The current crisis underlines more than ever the need to diversify its production. And if finally the health crisis was an opportunity for some to find other outlets? When audacity and adaptability become real productivity assets .

What about outsourcing in France in 2021?

In this strategy which consists in entrusting part of the process of its industrial production to an external company, we find in France many companies from the sector of public works or industry. If aeronautics and automotive are particularly affected by this outsourcing operating mode, this is explained by the variety of design, development, manufacturing and maintenance operations implemented throughout the manufacturing of the finished product. Thus, having recourse to an external service provider for the performance of a specific task in which the company is an expert, makes it possible to provide a quality service that the ordering company does not have to perform internally.

Contrary to the public works sector where we speak of capacity subcontracting, we will speak for aeronautics and the automobile of specialty subcontracting. Indeed, suppliers of solutions in the transformation of materials, electronics, microtechnology, IT and services to industry thus offer their know-how to manufacturers, equipment manufacturers and assemblers who are looking for specific know-how, solutions to meet their concrete projects. .

For example, today, all of France's aeronautics subcontractors and equipment manufacturers represent 70 to 80% of the sector's added value, made up of a pool of 10,000 to 20,000 companies. [Olmos Sanchez, 2016].

The activities of subcontractors, whatever their fields, therefore essentially depend on the dynamism of orders.

Why should subcontractors in the automotive and aeronautic sectors diversify?

The global health crisis caused by the Covid-19 epidemic has had direct consequences on several sectors of activity. This is particularly the case of the automobile, where some manufacturers have posted alarming results. Today, at the end of 2021, contrary to what one might think, it is no longer the customers who are lacking but for months, the industry has had to face a serious shortage of raw materials, in particular semiconductors, essential to the automotive industry.

Suddenly going from strong and sustainable growth, with the main problem of increasing production rates to a major sectoral recession, the players in the aeronautical ecosystem are also going through an unprecedented zone of turbulence with serious consequences for their business model. .

Faced with the crisis and faced with empty order books, many French subcontractors have therefore decided to diversify.

To avoid depending on just one principal or one industry, it is essential to diversify your activity. The Covid 19 pandemic has shown the extent to which whole sections of the industry could be at a standstill and take their entire industry with them. The wait-and-see attitude to this situation, which in the past could prove useful, has, in this specific case, shown its limits: slow recovery, re-containments...

And it must be recognized, diversification can be scary because it is often synonymous with major changes... an anxiety for SMEs. And yet, business expertise in aeronautics or automotive can be easily reproduced in other sectors, such as logistics, mobility, health, etc.

From diversification to independence

As Le Monde Economique points out, “contrary to what one might think, diversification is not just product diversification, but it can also be geographic. The success of any company depends both on the nature of the products/services it offers, but also on the markets and geographical areas in which it operates. It is possible to choose total diversification, which consists of taking an interest in both new products and new markets. Diversification can take the form of an international opening, the creation of new fields of activity, the development of new products.

Don't put all your eggs in one basket

By deciding to diversify, the company will spread its financial risks, conquer new markets, expand its portfolio of activities, reduce its costs over the medium/long term and thus ensure a better competitive position. Diversification is therefore unquestionably the most effective growth strategy.

The implementation of a diversification strategy (of products/services or geographic) implies, however, the realization of a precise study to define its strategic objectives and its goals in the short, medium and long term. It is also a question here of minimizing the risks.   It is therefore important to define the right orientations because they will involve structuring choices in order to deploy actions that will ensure rapid diversification. (The Economic World).

To help companies make this diversification transition, the Technical Center for Mechanical Industries (CETIM) offers a methodology adapted to SMEs/SMIs.

For Pierre-Marie Gaillot, Architect of Business Transformation 4.0, Cetim “The first step will be to establish with the manager and his inner circle, the different stages of the diversification project:

-Strategic directions

- Business process

- Company assets

- Targeted monitoring and identification of leads

- Levers of success

- Synthesis of leads and action plans

Being accompanied in its diversification makes it possible above all to avoid pitfalls that we do not necessarily think of. A machine used in aeronautics with similar processes in the medical field, will not allow similar marketing of the products produced. The standards and requirements are indeed different depending on the sector of activity.

Examples of SME diversification actions

-            Organization and strategy (innovation, internal organization, commercial activity, etc.)

-            Commercial (website adaptation, marketing of the offer, etc.)

-            Vision of the market (monitoring…)

-            Management (preparing salespeople for new products, etc.)”

Diversification: an agile organization and methods to support your transformation

Forms of diversification according to Igor Ansoff

It was in 1957 that Ansoff's matrix made headlines for the first time. A certain Igor Ansoff, a Russian-American professor, publishes an article entitled “Diversification Strategy” in the Harvard Business Review. He details a tool for analyzing strategic business management that he has developed: the Ansoff matrix.

For this specialist, the success of product diversification depends on several factors, but above all on a logical approach:

• Horizontal or linked diversification , the easiest to implement

This is to expand its range, develop new products similar to those already marketed.

• Vertical diversification , towards new markets

The company expands its activities in its main sector by modifying its value chain. It develops its commercial know-how to offer current products to new customers.

• Conglomerate diversification requires new resources and skills

The company launches into one or more new businesses by carrying out distinct activities, relating to separate markets.

·          Geographical diversification implies adaptability to local rules

The company is setting up in a new area, whether locally, nationally, continentally or even globally, depending on its size. How to succeed in a diversification strategy?

A diversification of opportunity or survival

To overcome the shortcomings directly linked to the pandemic, many French companies have decided to adapt their production.

This was the case of the company Odiora, which specializes in the manufacture of jewelery for hearing aids, which decided a few months ago to convert to the manufacture of transparent masks and since then its order book has been constantly filling up. (The Business Journal.)

The French group SPHERE, European leader in household packaging, with 8 production sites in France, has reorganized part of its production to help French hospitals by supplying nearly 10 million gowns and cuffs. (Sphere.eu)

Based in Maine-et-Loire, Manulatex, a specialist in personal protective equipment for the agri-food industries and the agricultural sector, has adapted to the Covid-19 context to supply the health sector. The production of its aprons with sleeves, validated by the AP-HP, has been doubled thanks to the installation of a second production line. (My-Angers.info)

If the tools present on the Lisi site in Hérouville, in Calvados, are usual for the historical market of the group: fasteners for the automobile and aeronautics, these are now intended for the manufacture of hip prostheses. and knee. So many skills that the Lisi group lacked before entering the medical field in 2007. Then buying the Hérouville factory from the American Stryker (now its main customer), three years later. "Beyond the similarities of the metallurgical trades - forging, the health of the material, the surface condition - and the processes, working in the medical field requires specific skills, which we have obtained with the factory", explains Lionel Rivet (Usine Nouvelle).

Soplami , a specialist in plastic thermoforming located south of Toulouse, is the winner of France Relance for an amount of nearly €900,000, on an investment of €2 million aimed at conquering new markets and limiting its dependence on aeronautics. In addition to the thermoformed parts used in the manufacture of aircraft cockpits and cabins, it now produces body parts for electric vehicles, agricultural machinery and even for a converted van… their new projects.

Help to position yourself on the markets of the future

To encourage the resilience of the French industrial fabric, professional and state organizations have entered the battle, with financial aid and support programs.

France Relance is €100 billion in investments implemented over two years to revive the economy and promote employment. As industry has been particularly affected by the crisis, the government has mobilized unprecedented means to support the sector from September 2020 by proposing a third amending finance law, voted by parliament on July 23, 2020. This finance law makes it possible to put implemented several support measures for the industry that are part of the priorities of the recovery: to include all French companies in the ecological and digital transitions and to make them more resilient.

For example, the DGE has put in place acceleration strategies on the markets of the future: hydrogen, sustainable cities, health, biotherapies, cybersecurity, very concrete measures are proposed to help companies develop the products or new production capacities.

Ademe is launching numerous calls for projects as part of the implementation of the national hydrogen strategy, which has a budget of 7 billion euros.

The Fonds Avenir Automobile 2 (FAA 2) is an investment fund of nearly 525 million euros created on the initiative of French manufacturers – Groupe PSA and Renault – and Bpifrance, joined by the State for sub- automotive contractors of all sizes. This fund aims to invest in the capital of automotive subcontractors in order to accelerate their growth, their capacity for innovation and their diversification, organically or through external growth.

Thus, as Darwin so aptly said, “ The species that survive are not the strongest species, nor the most intelligent, but those that adapt best to change . Anticipating, innovating, gauging, acting and seizing all opportunities are therefore the levers of successful diversification.