the automotive supply chain global trends and asia

ECONOMICSANDRESEARCHDEPARTMENTERDWORKINGPAPERSERIESNO.3FranciscoVelosoRajivKumarJanuary2002AsianDevelopmentBankTheAutomotiveSupplyChain:GlobalTrendsandAsianPerspectives43FranciscoVelosoiswiththeMassachusettsInstituteofTechnology.RajivKumaristhePrincipalEconomistoftheOperationsCoordinationDivision,EastandCentralAsiaRegionalDepartment,AsianDevelopmentBank.ThisbackgroundpaperwaspreparedforRETA5875:InternationalCompetitivenessofAsianEconomies:ACross-CountryStudy.ERDWorkingPaperNo.3THEAUTOMOTIVESUPPLYCHAIN:GLOBALTRENDSANDASIANPERSPECTIVESFranciscoVelosoRajivKumarJanuary2002ERDWorkingPaperNo.3THEAUTOMOTIVESUPPLYCHAIN:GLOBALTRENDSANDASIANPERSPECTIVES44AsianDevelopmentBankP.O.Box7890980ManilaPhilippines2002byAsianDevelopmentBankJanuary2002ISSN1655-5252Theviewsexpressedinthispaperarethoseoftheauthor(s)anddonotnecessarilyreflecttheviewsorpoliciesoftheAsianDevelopmentBank.45ForewordTheERDWorkingPaperSeriesisaforumforongoingandrecentlycompletedresearchandpolicystudiesundertakenintheAsianDevelopmentBankoronitsbehalf.TheSeriesisaquick-disseminating,informalpublicationmeanttostimulatediscussionandelicitfeedback.PaperspublishedunderthisSeriescouldsubsequentlyberevisedforpublicationasarticlesinprofessionaljournalsorchaptersinbooks.47ContentsPageI.Introduction1II.MajorDriversoftheAutomotiveIndustry1III.AssemblerStrategies6IV.TheNewSupplierRoles12A.FirstTierSuppliers14B.ComponentSuppliers19V.FocusonAsia22A.ProspectsfortheAsianMarket22B.MajorTrendsinRegionsandCountries261.India262.People’sRepublicofChina283.RepublicofKorea304.AssociationofSoutheastAsianNations(ASEAN)315.Taipei,China34VI.UnderstandingAutomotiveSupplierPerformance35A.FocusoftheStudy35B.EvaluatingManufacturingExcellence36C.AnalyzingInnovationCapabilities39References411I.IntroductionTheobjectiveofthispaperistoprovideanoverviewofthemajortrendstakingplaceintheautomotiveindustryacrosstheworld,withanemphasisontheAsianmarket.Itisnotacomprehensivereport,butratheraninformedviewoftheissuesandapanoramaofthebehaviorofthemajorplayers,bothautomakersandsuppliers.Inthefinalsection,thepaperpresentssomesuggestionsonhowtomeasurefirmcompetitivenessinthisfastmovingindustry,focusingonautomotivesuppliers,particularlythesmalleronesthatmakeupmostofthelocalautopartsindustryinAsia.Besidesthisinitialintroduction,thepaperhasfiveadditionalsections.Thesecondsectiondescribesthemajordriversoftheautoindustry.Itexplainshowtoday’sfastchangingbusinessenvironment,wheretheclientisincharge,thetechnologyevolvesatbreathtakingspeed,andregulatoryissuesarepressing,isalteringtheindustrycharacteristics,strategies,andproducts.Thethirdandfourthsectionsaddressthebehaviorofthemajorplayersintheindustry.Thethirdsectionfocusesontheresponsesoftheautomakers.Thesefirmsaretheleadactorsintheindustryandhavebeenonthefirststageofindustryevolution.Thesectionsummarizesthemajorstrategiestheyhavefollowedintherecentpast,aswellasthoseforecastforthenearfuture.Thefollowingsectionlooksattheautocomponentssector.Oneofthecharacteristicsoftheindustrytransformationisanincreasingresponsibilityandimportanceofthesuppliers,someofwhichhavebecomeaslargeasanautomaker.Thissectionhighlightsthenewrolesthatarebeingtakenoverbythesefirms,particularlythosethatarefirst-tiersuppliertotheautomakersanddescribesthechallengesthatthesmaller,lower-tierfirmsarefacingtoremaininthesector.ThefifthsectionfocusesonAsia.Firstitpresentsthegeneralprospectsfortheregionasawhole,pointingtocommontrendsandsimilarissues.ThenitdescribesinmoredetailthekeycharacteristicsofeachofthemajormarketsoutsideJapan.Thelastsectiondiscussesimplicationsofthemajorissuesreportedintheprevioussectionsofthepaperandsuggestssomeperspectivesonhowtomeasurefirmcompetitivenessinthisfastmovingindustry,focusingonsmallerautomotivesuppliers,thefirmsthatmakeupmostofthelocalautopartsindustryinAsia.II.MajorDriversoftheAutomotiveIndustryManyinfluentialfactorsaffectdecisionsmadeintheautomotiveworld.Consumerpreferencesdeterminethecurrentstyles,reliability,andperformancestandardsofvehicles.Governmenttrade,safety,andenvironmentalregulationsestablishincentivesandrequirementsERDWorkingPaperNo.3THEAUTOMOTIVESUPPLYCHAIN:GLOBALTRENDSANDASIANPERSPECTIVES2formodernizationandchangeindesignorproduction.Competitiverivalriesandcorporatestrategiesprovideequallyimportantimpetusforresearch,designinnovations,andchangesinthemanufacturingprocess.Allautomakersareconstantlyunderpressuretoidentifyconsumerpreferences,nationalbiases,andnewmarketsegmentswheretheycansellvehiclesandgainmarketshare.Theirabilitytobeflexibleenoughtoquicklyrespondtoallthesepressuresisdeterminingtheirfutureintheindustry.Theimplicationsofthesefactorsarevastandpropagatealongthesupplychainoftheautomakers.Inthefollowingparagraphs,wereviewsomeofthesecriticalissuesandhowtheymightaffecttheindustry.Oneofthemajorcompetitivefactorsisthepatternofdemandfornewcars.InanyoftheTriadregions(WesternEurope,Japan,andUnitedStates[US])originalequipmentmanufacturers(OEMs)havebeenfacingamaturemarketforthepast10years,withstagnantdemand,productproliferation,andstiffpricecompetition