A new study from KPMG on the automotive and components markets in Asia forecasts that passenger car assembly and the production of components in the region will become more closely integrated, which "will result in countries specialising the production in specific areas along the supply chain" the study authors say.
The most likely scenario to the development of the industry in the region is for a division of labour within the region with technology driven components and design work centred in locations such as India, South Korea, China and Taiwan "while more labour-intensive, lower technology components will be manufactured in emerging countries such as Vietnam, the Philippines and Indonesia
"Vehicle assembly is likely to be concentrated in the major demand centres of Japan, China, India and South Korea, say the study authors.
The KPMG researchers say the Asia-Pacific market will see strong growth over the next five years, "with China becoming a market the size of Japan today". Asia-Pacific will account for over half of forecast global passenger car sales of around 7 million units between 2004 and 2009, say the researchers, and Asian passenger car production volumes are expected to equal Europe by 2010. India is forecast to grow to 1.8 million passenger cars by 2009, overtaking the South Korean market. ASEAN countries are expected to reach 2.5 million units by 2008, with Thailand reaching just under a million cars a year. The region is expected to see a pickup in exports as the new and emerging markets follow Korea and Japan along the industry's growth path.
The KPMG report says that today Asia-Pacific is a much less homogenous market than North America or Europe, but despite its large geographic area, this is changing.
The idea of freer trade within Asia-Pacific has been around for decades the researchers say, with limited effect, and the region has often made two steps forward only to take one step back. Malaysia for example reduced import tariffs to 20% in line with AFTA, but then raced excise duties on all new cars to offset an expected fall in revenue, and both Indonesia and Malaysia have sought to delay lowering their import tariffs to provide more time to their local industries to adapt. But the move to trade integration is growing. The region is in the middle of a wave of new FTAs that could transform local economies, according to KPMG:
In addition China and Australia are fast tracking a bilateral FTA and Japan and Korea are working on bilateral agreements with each other as well as with ASEAN countries. Despite some delays and request for exemptions there is almost a competitive scramble among the countries to liberalise and "it appears increasingly likely that Asia on balance will see much freer trade going forward" the report says.
Already 30% of passenger car production in Thailand is exported, and India, Malaysia and Indonesia are all expected to move from exporting just 10% or less of their passenger car production to 30% "over the coming few years". KPMG says that the most countries and vehicle manufacturers in Asia, exports or a strategic necessity to provide critical mass or operations were local demand is still low. The growth in trade will provide a powerful stimulus to the emergence of better economies of scale at suppliers in Asian emerging markets, and accelerate the investment of Japanese, the South Korean and Taiwanese suppliers in the emerging Asian economies.
While KPMG expect that to have a serious impact on smaller Asian suppliers which will "quickly find themselves with no place to go", it will result in a component sector that will be "the cost efficient source of components to the rest of the world".