Asian Auto Industry Stands at Center of Global Stage
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Cover Story The Asian automobile industry is changing. While carmakers in advanced Continuous Evolution and Change: countries falter, Chinese car manufacturers are growing rapidly, contributing to the expansion of the Asian auto market as a whole, and in the process Asian Auto Industry Stands bringing about not only quantitative changes but also qualitative changes. Chi- nese car carmakers have advanced into Southeast Asia while Western com- at Center of Global Stage panies have also set foot in China’s compact car market. Meanwhile, ASEAN is emerging as the next auto manufacturing base after China. Let us take a look at the present and future of the rapidly changing Asian auto market. Shim Sang-hyung, Chu Ji-mi Global Carmakers to Capitalize on China as a Platform, Asian Car Market Undergoing Change _P12 Ryu Ki-chun China is Now the World’s Largest Car Market and the Focus of Global Strategies _P20 Cho Chul Southeast Asia Emerges as a Post-BRICs Auto Market _P28 Cover Story | Changes in Asia’s Auto Production System Research Institute Shim Sang-hyung _ Senior Principal Researcher, POSCO Research Institute [email protected] Chu Ji-mi _ Researcher, POSCO Research Institute [email protected] Global Carmakers to Capitalize on Expansion Strategies in Asia by Country China as a Platform ※Automobile production and export statistics for 2012 Asian Car Market Undergoing Change Chinese carmakers enter the Southeast Asian market Japanese companies • Chery: Malaysia (10,000 units), strengthen strategies for the Philippines (10,000 units) Chinese market •Geely: Indonesia (30,000 units) •Shift to local sourcing and •SAIC Motor: Thailand (50,000 units) active technology transfer •Great Wall: Thailand (50,000 units) Global automakers based in China • SGMW: India (10,000 units), 994 Indonesia (40,000 units) • Shanghai Volkswagen: Indonesia The leading management guru Peter Drucker (50,000 units) 1,927 456 Korea 480 called the automobile industry “the industry of in- 317 Japan dustries.” That may be because the car industry China has significant economic importance and impact and represents the development level of a coun- try’s manufacturing industry. Autos are closely linked to a wide range of industries from steel, chemicals, and textiles to electricity and electron- ics, machinery, and finance. Therefore, the auto India industry contributes significantly to job creation. Southeast 101 The industry accounts for 12% of total employment Asia Japanese companies control 85% of the Southeast Asian market and continue to in Japan and France while it comprises 7-8% of to- 415 416 expand production capacity •Japanese companies consider Southeast 64 120 tal employment in the U.S. and Korea. That is why Asia a manufacturing base for low-cost emerging countries are eager to promote the auto models designed for emerging markets industry. Korean and Japanese Because a car is composed of nearly 30,000 companies export compacts to Europe, the Middle East, components, it is important for car companies to and Africa via India use auto parts that are competitive in terms of SGMW produces car models cost, quality, and delivery time. In addition, auto developed in China companies must have the ability to establish and operate complex systems in which those parts are assembled, which is one of the reasons why ad- Production Export vanced countries are leading the global auto in- dustry. Stock Shutter 13 SPRING 2014 VOL.14 POSRI Chindia Plus Quarterly 14 Cover Story | Changes in Asia’s Auto Production System Research Institute Asia accounts for more than half of global car production. The Asian auto industry is undergoing structural changes as China grows. Automobile 795.1 China’s auto output and sales. China’s car produc- 800 (47,199) Ownership per Global Automobile Production by Region tion increased 10 million units within only four 1,000 people (2011) years from 9.3 million in 2008 to 19.27 million in 597 ※ ( ): per capita GDP, USD, 2011 600 (42,831) 559.7 57.01 million units (2001) 2012. Considering that global auto production (Unit : Vehicle) (40,152) 0.1 Middle East grew 13.34 million units from 70.76 million to 84.1 376.4 Africa million during the same period, China contributed 400 370.4 (20,757) (8,373) to 75% of the total increase. During 2009-2010, the 31.2 35.2 Chinese government attempted to promote do- 200 164 Asia (4,608) Europe mestic sales by offering subsidies for car purchas- 69.4 69.6 % es, leading to sharp increases in China’s compact (4,428) 19.4 (2,946) 29.4 (2,140) 0 (2,946) car sales. This provided Chinese carmakers with 31.7 Korea Japan China India Indonesia Thailand Malaysia Philippines U.S. Germany Americas growth momentum. But since the subsidy pro- gram expired in 2011, car sales have declined. However, China’s market for compact cars has locally while minimizing technology transfer. 69.22 million units (2006) become one of its largest markets as young and 0.8 Structural changes fueled by However, global companies have begun to ex- Middle East middle class urban dwellers have chosen com- Asia’s rapid growth: pand production facilities in China significantly Africa pacts as their first vehicles. Even though carmak- Asia accounts for 50% of global and have also transferred their R&D operations. ers have been able to sell their products to those auto production Their efforts to localize parts sourcing have also 27.5 living around cities and in rural areas without rely- allowed them to transfer car component tech- Americas ing on sophisticated strategies thanks to Chinese % 40.7 Over the past four or five years following the 2008 nologies to China. Asia government subsidies, they may need to differenti- global financial crisis, the world auto industry has In the meantime, Chinese local carmakers and 30.9 ate the designs and brands of their compact cars seen emerging countries, including China, rise U.S. and European companies have recently ad- Europe as they are being sold to China’s urban middle sharply while advanced countries have fallen. vanced into the Southeast Asian auto market, class. However, with the U.S. and Japanese economies where Japanese firms have long been active and Global joint ventures, which specialize in sell- showing signs of recovery since last year, carmak- have built high entry barriers. The structure of divi- ing mid-size and large cars to higher income 84.10 million units (2012) 0.7 ers in advanced countries are expected to grow sion of labor in the ASEAN region, which was Middle East groups, have pushed ahead with the production Africa while those in emerging markets are likely to see formed by Japan, is likely to change as well. India and development of compact cars while increas- slower growth in the short term. has also emerged as an important export base for ing local production of luxury vehicles. As global Currently, Asia accounts for more than half of global car companies attempting to supply prod- 23.6 car companies must compete with Chinese local Europe global auto output. Over the past five years, ucts to the Middle East and Africa. % 51.9 automakers in the compact car market, they along with quantitative growth, a number of Asia should pursue cost competitiveness, and to that changes have occurred in Asia’s auto produc- 23.8 end, should localize parts sourcing. Toyota, which tion and competition among automakers. In the Global carmakers eager to tap into the Americas is set to launch new sedans and hatchbacks at past, advanced carmakers entered China in the Chinese compact car market prices approximately CNY 20,000 lower than those form of joint ventures and used the Asian coun- Source: OICA, POSRI of existing models in China, plans to raise the pro- try only as a manufacturing base to sell products We should take notice of the sharp increases in portion of local parts supply from 60% to 98% in an 15 SPRING 2014 VOL.14 POSRI Chindia Plus Quarterly 16 Cover Story | Changes in Asia’s Auto Production System Research Institute Kia Motors attends the Wuhan Motor Show 2013 held last October in Wuhan, China. (JoongAng Photo) effort to secure cost competitiveness. Nissan and Honda have also increased compact car produc- tion with a goal of using 100% local automobile parts. Since General Motors discovered that 40% of its sales came from the Asia-Pacific region largely due to increased sales in China, it has targeted mid- and low-priced cars through SAIC-GM-Wuling (SGMW), a joint venture between SAIC Motor, General Motors, and Liuzhou Wuling Motors. The U.S. carmaker aims to increase its production ca- pacity to two million units per year by the end of 2015 by expanding existing plants in Liuzhou, a city in the Guangxi Zhuang Autonomous Region, and building new plants in Chongqing. With the establishment of R&D centers, plants located in Li- uzhou are expected to become comprehensive passenger car manufacturing bases, producing and developing cars and procuring parts. Ford is also developing low-priced compact cars in its Chongqing plants while investing in the develop- ment of luxury models in Hangzhou. Intense competition in the Chinese market: Local companies focus on exports while global companies begin to transfer technology Global carmakers eye China’s compact car market, Competition among global auto companies and Chinese companies target overseas markets their respective China strategies have led to mean- ingful changes in the Asian car market. Since glob- 17 SPRING 2014 VOL.14 POSRI Chindia Plus Quarterly 18 Cover Story | Changes in Asia’s Auto Production System Research Institute al carmakers have joined the competition for the market.