The aftermarket embedded navigation industry emerged in China to supply look-alike navigation systems for a fraction of the price of OE systems. This industry is evolving quickly as consumer demand for feature-rich in-car navigation and infotainment grows. Aftermarket suppliers are in many ways now leading the innovation within the Chinese navigation market. This innovation is not only focused towards hardware and software features (e.g. handwriting recognition for Chinese characters) but aftermarket suppliers are also taking the next step towards developing 3rd generation systems that offer advanced telematics services. Over the last 12 months, aftermarket suppliers have started to create the necessary partnerships for telematics services, and in some instances have even developed telematics data centres and call centres in-house.
Aftermarket systems have often been dismissed as low-quality and low-cost systems. They continue to be low-cost, but are increasingly offering more advanced functionality than many OE navigation systems. Furthermore, if aftermarket suppliers are able to successfully launch telematics services, it will eliminate one of the last remaining competitive advantages that vehicle manufacturers have held. The risk for vehicle manufacturers is clear. They are being under-cut and out-featured within the Chinese navigation market. If the automotive industry does not react, it will not only lose the revenue from selling navigation, but also the ability to control the end-user navigation and infotainment experience.
Continuing with the same OE strategies will not work for China
Strategies for managing these threats are likely to vary by vehicle segment. Manufacturers of premium-segment cars will come under more pressure to offer navigation as standard across all their models and to follow the lead of Toyota and GM in launching OE telematics services.
For volume manufacturers the strategies are not as simple, and will depend on the value that each vehicle manufacturer places on controlling the sale of navigation to end-users. In order to retain some level of control and revenue for navigation, the most promising strategy will require vehicle manufacturers to engage and collaborate with aftermarket suppliers.
In order to develop these closer relationships, the needs of each part of the value chain will have to be carefully balanced to ensure that there is a win-win for everyone. Unfortunately, some of the needs of vehicle manufacturers and aftermarket suppliers are incompatible (e.g. both will want to retain brand control). Others, however, can be complimentary and vehicle manufacturers should leverage these in order to develop the right partnerships.
Collaborations with non-traditional suppliers of navigation is not common within the automotive industry, and is particularly uncommon in China due to concerns that partners may be unable to meet OE high standards for quality. Developing collaborations that enable a win-win environment for all parties involved will be even more challenging. However, in China it may be the only way for vehicle manufacturers to ensure that they retain their role in providing navigation to their customers.
For more information on Look-alike aftermarket navigation in China and counter strategies for OEMs please contact Juanita Appleby on jappleby@sbd.co.uk
