The auto industry in Southeast Asia began with CKD assembly for Japanese automakers in the 1950’s. With the formation of ASEAN in 1967, division of labor in parts manufacture was promoted, then proceeding to production of finished cars and development of automobile manufacture as an export industry after the Asian Foreign Exchange Crisis.
Though the market for automobiles in Southeast Asia remains relatively small, with a volume of just under two million in 2009; it should be noted that Southeast Asian economies continue to grow and the presence of countries like Indonesia, the fourth most populous country in the world, gives the region a huge population base. In addition, two (Thailand, Indonesia) out of three (Thailand, Indonesia, Malaysia) largest markets in the region are looking forward to motorization in the near future, thus pointing to enormous future potential for Southeast Asia’s automobile market. Southeast Asia is widely expected to rise as the next major market for automobiles, after the BRICs countries.
In addition, a major transformation in pending in terms of the region’s industrial policy, as major countries in Southeast Asia are moving away from the pre-Crisis focus on intra-regional division of labor. The auto industry was oriented towards exports in accordance with a policy shift from focus on parts to finished cars. This comes in the wake of efforts to nurture and secure the capacity to develop their own automobiles in the 2000s. These efforts are being spearheaded by Thailand, which recently succeeded in turning itself into a production and export base for 1-ton trucks, with Indonesia following on its heels and Malaysia actively seeking partners for technical cooperation. As for the Philippines and Vietnam, where the pace of industrial development has been slow, they are attempting to secure capacity for domestic production and seeking intra-regional cooperation in auto parts manufacture.
The supply structure for the automobile market in Southeast Asia has been presently dominated by Japanese producers. Japanese companies have attained a monopoly over the said market ever since Japanese companies took part in assembly production and consequently became the main driving force in division of labor in parts manufacture, thereby exerting enormous influence over the industry in Southeast Asia. Thailand owes its recent success in becoming a production and export base in one-ton trucks, in large part, to strategies of Japanese automakers. Major auto companies like Toyota and Nissan are nurturing Thailand and Indonesia as bases for production and export of small cars, while simultaneously pursuing a complementary strategy within the region between different production models. As a result, Japanese firms will retain their paramount position in Southeast Asia’s auto industry for the foreseeable future.
As Southeast Asia will likely emerge as the next major automobile market after the BRICs countries, active consideration needs to given for Korea’s entry into that market. But given the significant price competitiveness of products produced within the region, local production has the advantage over exports in competition.
But since much variation exists among the countries in terms of market potential, strengths/weaknesses in industrial development, opportunities, and risks; a comprehensive assessment of the above factors must precede any serious attempt at selecting a base for local production. Initial comparison and analysis of strengths and weaknesses by country reveals Thailand to be the best choice as a production base for finished cars in the short to middle term, while Indonesia is the best option for the long term. Though underdeveloped in terms of the auto industry and markets, Philippines and Vietnam could receive consideration as bases for auto parts manufacture.
As Korean automakers are currently concentrating investment in the US and BRICs countries (China, India, Brazil, etc), substantial investment into Southeast Asia will have to wait until the latter part of 2010’s. This means that for the short and middle term, it would be best to focus on bolstering production systems in existing facilities through gradual expansion of currently small production bases maintained by Koraen automakers in Southeast Asia, as well as assignment of models based on complementarity between countries. It is advised that a strategic choice be made by assigning Indonesia as a key production base for the long term, and begin preparatory measures such as development of low-cost models and establishment of parts supply network.