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Asia emerging as a global automotive hub
The automobile industry is one of the fastest growing sectors in the world. It has dynamic growth phases explained by the nature of competition, product life cycle and consumer demand. Today, the global automobile industry is concerned with consumer demands for styling, safety and efficiency; and with labour relations and manufacturing efficiency. The industry is at the crossroads with global mergers and relocation of production centres to emerging developing economies. As the automobile industry is becoming more and more standardised, the production base of most of the giant auto-companies is being moved from the developed countries to developing countries. Standardisation is making production more profitable in developing countries due to low cost of labour. Thus, many developing countries are making a serious effort to grab this opportunity that include Asian countries such as Thailand, India and China. Rising competition and increasing global trade are the major factors in improving the global distribution system and has forced many auto-giants such as General Motors, Ford, Toyota, Honda, Volkswagen and Daimler Chrysler to shift their production bases in different developing countries which help them operate efficiently in a globally competitive marketplace.

During the second half of the 1990s, the globalisation of the automotive industry has greatly accelerated due to the construction of important overseas facilities and establishment of mergers between giant multinational automobile manufacturers. Many players have also developed commercial strategic partnerships with each other.
Moreover, the supply chain of the auto-industry has completely changed over the years. Major players worldwide are increasingly focusing on basic design and assembly operations as well as servicing the after-sales market and prefer to deal with a smaller number of large suppliers. Consequently, the supply chain is morphing into sub-system integrators, component makers and commodity players. The segregation is increasingly defined by ‘risk-sharing’, which was earlier defined by only ‘cost pressure’. Tier 1 suppliers — concentrating on system supply, module assembly and sub- supplier management— are taking increasing risk from major players shifting the cost pressure to Tier 2 supplier who concentrate only on production of sub-components.
Exports of automobiles including components from Asian countries are increasing by leaps and bounds. Countries like India, China and Thailand are being identified as future auto-hubs for their expertise in producing and exporting automobiles.
Different countries are specialising in different segments, for example, China is specialising in body components, and other critical components, whereas India and Thailand is specialising in full vehicles. This specialisation is also reflected in the nature of export.
During the period 2000 to 2004, China’s export of auto-ancillaries — mainly body components and other critical components—rose substantially (40% during 2000-04). In the case of India, the export of vehicles increased drastically (42%) during the same period.
The point to be noted is that the export of components—mainly critical components like bumpers, brakes, clutches and safety component—from India has also been risen, indicating that slowly India is also specialising in this sector.
Thailand’s automotive industry is well on the way to solidifying its status as the Detroit of Asia with a growth rate of 17% during 2000-03. Thailand is already the world’s second largest pick-up truck market after the US and ASEAN’s largest automotive market and also assembler. Thailand mainly focuses on full vehicles export (with 27% growth).
China’s major exporting destinations are the US, Japan and Canada, while its main importing sources are Japan, Germany and the US. In the case of India, our major exporting destinations are the US, UK, Germany and Bangladesh, while our major importing sources are Japan, Germany and Korea.
Thailand is exporting heavily to Indonesia, Japan and Malaysia, whereas major importing sources of this country are Germany, Japan and the US.
The demand for automobile — full vehicles as well as auto-component— from Asian countries is very high in developed countries and also in ASEAN.
The governments of these countries are also offering several incentives through industrial policies to boost the automobile industry. In general the incentives are in the form of liberal FDI regime, reduction of duties to import technology and development of infrastructure.
Companies from around the world are currently investing in South-East Asia. Many MNCs like Audi AG, BMW Group, Daihatsu Motor Company, DaimlerChrysler AG, Fiat automobile, Ford and Honda have their production base in China. The major foreign automobile manufacturers in India are Honda, Toyota, Ford, Fiat and Daimler Chrysler.
Toyota is the biggest foreign producer in Thailand, followed by General Motors, Nissan, Isuzu, Auto Alliance, Mitsubishi and Honda. In China most of foreign multinationals are run under joint ventures, whereas in case of India the ownership structure is fragmented into Japanese and Indian players separately. In Thailand, foreign multinationals, mainly Japanese car manufacturers dominate the automobile industry.
China is currently making an effort to super-specialise in auto-component sector. The demand for auto-components produced in China is very high in domestic as well as international markets. India’s major part of production goes to vehicles section.
The demand in domestic market is rising significantly every year and export of India’s vehicles has increased the most, compared to components. However, India still lacks in efficiency in the component sector, which gets reflected in rising imports of components.
The backward linkage of automobile sector in India requires immediate attention to take the leverage getting unfolded in the international trade. It may be pointed out that less production activities and mainly assembling activities by many auto MNCs are also inhibiting the growth of the domestic auto component sector.
On the contrary, Thailand has specialised in exporting full vehicles, which is dependant on a robust component sector. In future, India may face high competition from China in the case of auto-component in global markets.