01/06/1995

Japanese Automakers Eye the ASEAN Market as the Third Largest Market by 2000

Mashu Kato 

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Summary
  1. The shift to overseas production that Japanese automakers began in the 1980s is now entering its fourth stage. The first stage of export substitution in the early 1980s occurred in response to trade friction with North America. Stage 2 occurred after the Plaza Accord in the late 1980s: production capacity was boosted in the U.S. and Europe as the strong yen pushed down profits, while the "bubble economy" spurred an increase in production capacity at home as well. In Stage 3, automakers reacted to the sharp appreciation of the yen since 1993 by localizing production and increasing local content in the U.S. and Europe; domestic and overseas production were a tradeoff. In Stage 4, a major offensive is being aimed at the ASEAN market. While the automakers will be recovering their investments the U.S. and Europe, they see the ASEAN market as their third biggest market by the year 2000 after Japan and North America--a crucial market that will determine competitiveness in the 21st century.

  2. Having had a long had a presence in the ASEAN market, Japanese automakers have established a solid parts procurement system and an overwhelming competitive position. Yet the small market size has not been conducive to developing international competitiveness. This competitiveness is expected to improve in the near future as ASEAN nations adopt cooperative and market opening policies to bolster the region's international competitiveness. We expect massive and intensive investments in parts supplies, and the entry of parts suppliers and supporting industries.

  3. Due in part to direct investments since the late 1980s, ASEAN nations have been industrializing and their income levels rising. Some areas have reached the critical threshold for motorization--a per capita GDP of $3,000--and the ASEAN market as a whole is expected to double in size by 2000. However, the region still lags with respect to development of infrastructure to support motorization, including road systems, supporting industries, and skilled technicians and managers.

  4. We forecast that production in the ASEAN market will reach 12 million vehicles in 2000 and 19 million vehicles in 2010, of which ASEAN production will comprise 2.3 million and 4.4 million vehicles respectively. Thus in 15 years, the production capacity of Japanese automakers in the ASEAN market will exceed their present capacity in North America. Not only will the region become a base for development, production and supply of "Asia Cars" uniquely tailored to the needs of each nation's market, but a supply base for power train components to the rest of the world.

  5. While the growth of the ASEAN market will increase the region's autonomy as a development and production base, the role of Japan's present domestic bases will decline in relative importance. In the short term this will appear as a detrimental sign of the "hollowing out" of industry; but over the long term it will benefit the Japanese auto industry, particularly parts suppliers who are suffering from a labor shortage. To benefit, however, automakers will have to cooperate closely with ASEAN and tailor their growth strategy to Asia. Above all, they will need to decentralize operations and practice "consolidated management" that includes personnel.

Mashu Kato

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