ASEAN: Regional Trends in Economic Integration, Export ... - USITC

Japanese automakers. Their suppliers, many of which are located in the region to support
their automotive customers, have a similarly prominent role in many of the region’s
industries, helping to develop the competencies of the local manufacturing industry
(box 7.1).
BOX 7.1 Automotive industry background
The motor vehicle parts industry serves two markets: original equipment manufacturers (OEMs, or automakers)
and the aftermarket (e.g., dealers, retail parts outlets, repair facilities). Industry production ranges from labor
intensive commodity products, such as brake rotors, to more sophisticated, capital- and R&D-intensive goods,
such as wiring harnesses. Components for the OEM and aftermarket are often produced by different firms (or
plants within the same firm) because of the more stringent manufacturing and material specifications required of
the OEMs.
The automotive industry typically pursues a regional approach, a whereby automakers produce in their target
markets to be responsive to local customers, reduce foreign exchange rate risk, and meet local vehicle pricing
levels, for example. b In the initial stages of local production, automakers often export knocked down c kits of
components and parts to the local market for assembly into motor vehicles. With greater production volumes,
automakers According typically to a shift group to within local manufacture the ASEAN-Australia and parts sourcing. Development Because Cooperation of automakers’ Program, specific when product,
material, and quality requirements, they often purchase components from established producers with the
necessary certifications, reputation, and experience to meet their quality, cost, and delivery (QCD) capability
standards. Automakers’ preference for sourcing many components locally to further benefit from just-in-time
delivery and supplier support often means that their global suppliers will invest in greenfield operations or form
joint ventures with local manufacturers.
Automakers and global suppliers also seek to develop a local supply base to help increase local content and
lower manufacturing costs, and will help develop local producers’ manufacturing and technical skills. Parts
producers will also expand to foreign markets to diversify their customer base and tap expanding markets. In
addition, local development of automotive parts allows automakers to produce and update vehicle models that
are best suited to the local community. Automakers may continue to rely on imports of more high-tech
components or signature systems (e.g., engines and transmissions) unless (or until) a reliable local supply base
is established.
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a Industry official, interview by USITC staff, Singapore, March 9, 2010.
b One parts industry representative indicated that its suppliers followed it to the ASEAN region. The firm must
localize production to minimize its costs and reduce exchange rate risk. Industry official, interview by USITC
staff, Singapore, March 9, 2010.
c The term “knocked down” essentially refers to an unassembled vehicle; with kits, all or some of the
components and systems necessary to build a vehicle are packaged together and shipped by the automakers to
the target market for assembly into a vehicle. Depending on the content of the kit, additional components may
be necessary to procure for assembly of a complete vehicle.
Most of Thailand’s nearly 700 Tier One 15 parts producers are members of Japanese
keiretsu groups supplying their own customer base, whereas the majority of the domestic
component manufacturers, numbering around 1,100 firms, are considered to be secondand
third-tier suppliers. 16 In Malaysia, more than 350 firms manufacture automotive
components, including local companies and subsidiaries of multinational parts
15 OEM parts makers are commonly referenced by their position in the industry “tier.” Tier One
producers are generally large multinationals that supply components, systems, and modules directly to
automakers. In addition to manufacturing, these firms may undertake supply chain management, inventory
control, systems integration, foreign investment, and extensive design and R&D. Tier Two and Tier Three
suppliers, which number in the tens of thousands, are generally smaller in size and product/function scope
and are often less likely to have the financial resources and customer base to support significant foreign
investment. Tier Two suppliers generally provide parts and materials for finished components/assemblies to
Tier One producers, whereas Tier Three suppliers often provide raw materials or parts to a wide variety of
industries, including the motor vehicle sector.
16 WTO, Thailand Trade Policy Review (Revision), February 6, 2008, 115.
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