production networks, trade and investment policies, and regional cooperation in asia: a case study...

Concurrent Session: Regional Production Networks and Implications for(Domestic) Trade and Investment Policies and Regional Cooperation in East Asia

1

The 6th ADRF General Meeting, 2004 Bangkok, Thailand

Production Networks, Trade and Investment Policies, and RegionalCooperation in Asia: A Case Study of Automotive Industry inThailand

Samart ChiasakulFaculty of EconomicsChulalongkorn University, Thailand

Abstract

This paper intend to investigate the production network of automotive industryin Thailand, by connecting up the organizational dimension of MNC network (bothinternal and external) with the geographical dimension. The periods under analysis,are divided into 3, per-1991 period, liberalization & deregulation period, industrialrestructuring for closer regional.

The pre-1991 period, the production networks was limited by small domesticmarket, limited model of vehicle, high tariffs. This led the MNCs auto assemblers toreorganize its networks inside the companies to supply CKD parts to its subsidiary inThailand. It was only in 1971 when parts and component industry were promoted andoverseas operations seen as integral part of complex network of flows of parts andcomponents, products, resources, people information among interdependent units.

The liberalization and deregulation policies adopted by the government haveprovided new environments for automotive industry such as lowering import tariffs,allowing more models of vehicle, and promoting supporting industries, and etc. Thepolicies have strengthened the local production networks in preparation for thechanging trend in global sourcing. Complementary products have been exchangedthrough the networks of auto assemblers under the Asean’s AICO programme.

The industrial restructuring period started immediately after the eruption ofcrisis in 1997 when fall-out in demand left the expanded capacity underutilized, andmany SME’s parts and component suppliers went out of business. Abolishment oflocal content requirement have encouraged more production of automobile for export.

Intra-trade among members of Asean member countries have enabled themarket expansion in the regions, with more types of vehicles traded among leadingauto assemblers. It is expected that the tariff rates among member countries will bereduced to 0.5% in 2010. Thailand proposed that the tariff reductions beimplemented sooner (in 2005-2007) in order to promote more investments and tradewithin the Asean region.


Contents

Page

I. Introduction 1

II. Structure of Thai Automotive Industry

2.1 Number of Auto Assemblers and their production capacity 2

2.2 Parts and Components Industry 4

2.3 Locations of Automotive Industrial Networks in Thailand 6

2.4 Employment in the Automotive Industry 8

III. Changing Production Networks in Automotive Industry

3.1 The Creation of the Auto Industry Production Network in

Thailand (Pre-1991 period)

11

3.2 Liberalization period 12

3.3 Industrial Restructuring For Closer Regional Networks (Since

1997)

15

IV. Performance (Production and Export Structure of Thai

Automotive Industry)

4.1 Production and Domestic Demand 19

4.2 Thailand As a Production Base of 1 ton Pick-up 20

4.3 Capacity utilization 22

4.4 Thailand Vehicle and Part Export 22

4.5 Prospects of External Trade of Thai Automotive Industry 27

V. Industry Trend

5.1 Consolidation and Strategic Alliances 29

5.2 The Module System Approach 29

5.3 Persistent price pressures 30

5.4 Shifting design capabilities 30

5.5 Emphasis on R&D initiatives 31


page

VI. Government’s Roles and Policies

6.1 Government’s Roles and Production Network in Automotive

Industry

31

6.2 Changing roles of the government 32

6.3 Government’s policies on regional Cooperation 35

6.4 Comparison of Tax structures in Automotive Industry 36

6.5 Free Trade Area Agreement 37

6.6 Clustering system 37

Conclusion and Recommendation 40

References 41


1


I. Introduction

The automotive industry in Thailand had started in 1962, and experienced atransformation. Four key influences govern the change. Firstly, the globalgeography of the industry is being transformed by the rapid growth of automotiveproduction and consumption in emerging markets. Over the next decade, the majorauto companies are expecting much of the global industry to come in the largeemerging markets namely, China, India and the Asean. Secondly, relationshipsbetween assemblers and suppliers are being restructured and globalized. Thedevelopment of global supplier networks is increasing the centralization of designactivities in the core operations of the leading component producers, whiledecentralizing production activities around the world. Thirdly, liberalization policieshave greatly freed up the flow of capital into Thailand, since 1991 when Thaigovernment under the close cooperation with Thai Automobile Industry Association(TAIA) has gradually deregulated the formerly protected and inward focusedindustries and integrated into broader regional and global networks of production andconsumption. Fourthly, the financial assistance extended by the major assemblers totheir subsidiaries, as well as to their part-makers in Thailand, in order to keep them inoperations during the crisis. Moreover, the capital inflows had enabled theutilizations of expanded production capacity, which integrated them into the Aseanregional programs of brand-to-brand exchanging projects under the regionalproduction networks.

This paper intends to examine the transformation of automotive industries inThailand, where roles of government has been closely linked with the privately-runinstitutions, namely Thailand Automotive Industry Association (TIA) and ThailandAutomotive Institute, in promoting the automotive industry. The Thai automotiveindustry has shown enormous dynamism in 1990s, when the policy of liberalizationand deregulations were adopted to comply with the period of global sourcing in theproduction networks. Economic crisis in 1997, followed by deep recession in 1991led to major restructuring as some Japanese companies had rescued part andcomponent suppliers in their production networks in Thailand, and also used regionalnetworks to promote capacity utilization and economies of scale of the newly-expanded production capacity of the Thai automotive industry.

The paper is organized to answer the main research problem, with the followingobjectives:

(1) To examine the evolution of production network in Thailand during theperiods which are divided into 3 periods, firstly, pre-1990 period (the creation ofautomotive production-network in Thailand). Secondly, the liberalization and globalsourcing period. Thirdly, the industrial restructuring for closer regional networks.

(2) To investigate the changing pattern of intra-trade and investment in theAsian region, and Asian countries with China.

(3) To analyze the changing trend of global automotive industry, shifts ofproduction base to Thailand, and possibility of achieving the vision of Thailand"Detroit of Asia".

(4) To analyze the policy of setting up of "Automotive Clustering" and its


2 http://www.adrf.org

Asian Development Research Forum

implications of promoting part and component suppliers, trade and investments in theregion.

II. Structure of Thai Automotive Industry

2.1 Number of Auto Assemblers and their Production Capacity

The automotive industry in Thailand emerged from the import substitutionpolicy adopted in 1960, when the government had enacted the Industrial PromotionAct, providing incentives for foreign investors to set up automobile plant in Thailand.As a result, the first automotive assembly plant, Anglo-Thai Motor Company openedits plant in Thailand, which started operation in 1961.

After more than 40 years of development, the number of assembly plant inThailand increased to 12, of this Japanese assemblers accounted for 50%. These autoassemblers represent various global brands; as given here;

(1) European brand : BMW, Volvo, Daimler, Volkswagen, Citron, and Peugeot.

(2) USA : GM, Chrysler, Ford.

(3) Japan : Toyota, Honda, Isuzu, Nissan, Mitsubishi, Hino, Mazda.

The production capacity is 1.2 million units per year, of this one-ton pock up,the production champion of Thailand accounted for 54.5% of the total.

Details of production capacity in 2004 are given in Table 1.

Table 1 Production capacity of Thai Automotive Industry in 2004

PC 1 Ton P/V CV Total1. Toyota 126,000 170,000 38,000 334,0002. Mitsubishi 50,000 100,000 20,200 170,2003. Isuzu - 150,000 20,000 170,0004. Auto Alliance 2,700 132,300 - 135,0005. Honda 120,000 - - 120,0006. Nissan 35,200 66,400 2,400 102,0007. General Motors 60,000 40,000 - 100,0008. Hino - - 28,800 28,8009. Daimlerchrysler 16,300 - - 16,30010. YMC Assembly 12,000 - - 12,00011. BMW 10,000 - - 10,00012. Volvo 10,000 - - 10,000

Total 440,200 658,700 109,400 1,208,300Source : Thailand Automotive Industry Association.Note : PC-passenger car CV - commercial vehicle

PV - pick-up

2.2 Parts and components Industry


3


In 1971, the government made a series of announcements to progressivelyincrease localization. There was a boom in auto parts and components productionoperated mainly by Japanese and local sub-contractors. However, the localizationpolicy was not effective enough due to inadequate tariff incentive for CKD assemblyto complete with CBU import. Moreover, too many car model made the localassemblers run the plant at below the economies of scale production level.

In order to increase the economies of scale for local production, the governmentproduction of auto parts and components, prohibiting the establishment of newassembly plants for passenger vehicles, imposing ban on imports of CBV passengercars, reducing number of model for passenger cars, raising import duty on CKD kitsfrom 50% to 80% and simultaneously revising local content requirement ratiosupward. The local contents are settled at 54% for passenger cars, and 62% forcommercial vehicles.

Structure of Thai auto parts and component industry and classified byrelationship-tier, characterized by the relationships in terms of ownership, technicalassistance and nationality, as illustrated in Fig 1.

Fig 1. Structure of Relationship between Auto-Assemblers and Part ComponentSuppliers

Source: Thailand Automotive Industry Association.

Structure of Thai auto parts and component industry;(1) First-tier of parts and component industry comprises 709 companies, with

40% of these are owned by the majority of foreign companies, 100% Thai-ownedcompanies constitutes 50%. Moreover, it is interesting to observe that, the value of1st-tier contract works extended to Thai companies was limited to only 8-10% of thetotal, reflecting the lower technical capacities possessed by Thai subcontractors.Local subcontractors were also in a commercially disadvantageous position.Subcontractors are commercially controlled, particularly in the case of exclusivesubcontracts. It was because of this asymmetric relationship that parent companies ofauto assemblers interfered with production cost details and demanded cost cut, andwere able to create competition among subcontractors. Many subcontractors claimedthat the relationship between sub-contractors and auto-assemblers is an unfair one.

(2) The second-tier suppliers are mainly Thai companies, with the total number

ForeignJ/V

ForeignMajority287 Co.

ThaiMajority68 Co.

PureThai354 Co.

LSEs

Assembler(Car 12 companies)

Tier 1(709 companies)

Tier 2, 3 Lowers(1,100 companies)

Local suppliersSMEs




of 1000. They are mostly family owned and inward looking, even they producequality components. They are already feeling the pressure from the local assemblerswhich have endless calls for price reduction.

Table 2, show the number and percentage share of 1st-tier suppliers,categorized by parts functions, and nationality of equity owners. It is clearly seenthat foreign owned companies are engaged in base engine and safety parts in the localcontent requirement.

Table 2 First Tier Suppliers categorized by Parts FunctionsUnit : %

Group PureThai(%)

ThaiMajorit

y(%)

ForeignMajorit

y(%)

Total

(%)

TotalNumber

1) Engine parts 33 13 55 100 632) Electrical parts 29 19 52 100 523) Drive, Transmission and

steering parts33 12 55 100 52

4) Suspension and Brake part 37 3 60 100 355) Body parts 48 14 38 100 1196) Accessories 46 5 49 100 397) Mould & Die 36 5 59 100 22

Total 1-7 39 12 49 100 3828) Other 63 7 30 100 327

Total 1-8 46 10 44 100 1,091Source: Thailand Automotive Institute.

2.3 Locations of Automotive Industrial Networks in Thailand

Investment promotional privileges and relocation incentives provided by thegovernment, coupled with their production and procurement system had put theautomotive networks at the existing locations. These areas are sometimes carproduction base, or cluster of automotive industry. One area (in Samutprakarn)which is the production network of the leading Japanese auto-assemblers and calledby some logistic expert as the Automotive Industry cluster of Thailand. According tothe mapping of locations, automotive assembly plants, parts and components arehighly concentrated in the provincial areas, within the 70 kilometrs radius of theBangkok. After 1997, the newly promoted automotive assemblers had invested in thenew industrial estates in the Eastern provinces of Thailand which are around 230-250kms from Bangkok.

Table 3 Location of Automotive Assembly Plants in Thailand


5


Chonburi Samatprakarn Samutsakorn Bangkok Chachoengsao Rayong- MMC

Sittiphol(Mitsubishi)

- Toyota MotorThailand

- Isuzu Motors- Siam Nissan

Automotive- Siam V.M.C.

Automobile- Thai Auto

Work

- Thai RungUnion Car

- Thai Swedish(Volvo)

- ThonburiAutoAssembly

- BangchanGeneralAssembly

- Hino Motors(Thailand)

- ToyotaMotorThailand

- AutoAlliance(Thailand)

- GM(Thailand)


Concurrent Session: Regional Production Networks and Implications for (Domestic) Trade and Investment Policies and RegionalCooperation in East Asia

Table 4 Location of Automotive Part and Component Suppliers

Chonburi Bangkok Rayong Samutprakarn PathumthaniTotal Supply = 55 Total Supplier = 232 Total Supplier = 41 Total supplier = 158 Total supplier = 39Body part = 25% Body part = 9% Body parts = 24% Body parts = 22% Body parts = 18%Engine parts = 22% Engine parts = 6% Engine parts = 15% Electrical parts = 15% Engine parts = 13%Drive Transmission &Steering part = 15%

Electrical Parts = 6%Drive Transmission= 6%

Drive Transmission &Steering Part = 15%

Engine parts = 8%Drive Transmission &

Electrical parts = 13%Suspension parts & brake parts =10%

Electrical parts = 9% Steering part = 6% Suspension & brake part =12% Steering parts = 8% Drive, Transmission and steeringAccessories = 5% Accessories = 6% Electrical parts = 10% Suspension & brake Parts = 5% parts = 8%

Suspension & brake parts=4% Accessories = 7% Mould & Die = 4% Accessories = 8%Mould & Die = 4% Mould & Die = 2% Accessories = 3% Other = 31%Other = 16% Other = 15% Other = 3%

Source: Thai Auto-Part Association.


7


2.4 Employment in the Automotive Industry

Automotive industry which comprises automotive assembly plants, parts andcomponent industry, motorcycle assemblers and other related industries, are currentlyemploying 113,512 workers. Small and medium sized enterprises account for 36.2%of the total employment. They are mainly the 2nd-tier parts and componentssuppliers.

Table 5 Employment in the Thai Automotive Industry

(1)Large-scaled factories 52,319 workers- Auto-assembly plants 17,119- Auto parts and components 21,668- Motor-cycle assembly plants 8,402- Modify-plants 7,297

(2) Small-to-medium factories 41,606 workers- Auto-parts and components 11,344- Other factories 20,262

(3) Plastic-parts for automobile 2,663 workers(4) Inner-tube for auto-tyre 5,986 workers(5) Mould and Die makers 10,938 workers

Total Employment = 113,512 workers

Source: Thai Automotive Institute




III. Changing Production Networks in Automotive Industry

Production network, is part of industrial network, established by MNCs inmanufacturing sector, which seek opportunities to expand market, achieve sustainablegrowth in their markets.

To many manufacturers, industrial networking means effectiveness inproduction, delivery and cost efficiency to improve competitiveness of industries.

Meanwhile to Asian manufacturers, they refer the industrial network, as therelationships between assemblers and part-component makers which establishednetwork by integrating production units vertically or horizontally into one unit. If theestablished unit works efficiently it will produce efficiently, and proceed to thesustainable growth in the competitive markets.

Most of the manufacturers have also adopted the following strategic measuresin networking system, such as procurement, financial assistance, logistic and etc, tosupport the relationships. Moreover, the relationship in term of equity participationwhich may start as strategic partners, would later turn into joint-venture, as thecompanies (assemblers) see the opportunities to strengthen their competitiveness.

The narrow definitions of networking system known among Asianmanufacturers as the clustering system, (MOI 2003) which has the followingcharacters;

- Specialization by each participant (which mean both competition andcooperation).

- High connectivity (trust and geographically concentration).- Customer-oriented marketing (supporting activities are prevalent).- Effective absorption and transfer of technology (government offices and

educational institutions play important roles).

Many industrial sectors, automotive, electrical appliances and electronics andtextile industries, are those engaged in the networking system, have contributed to theindustrialization in Thailand, creating value added in GDP, employment and foreignexchanges for the country.

Mr.Yoichi Koike, had conducted a survey on production networks of Japanesemultinational corporation in electronics sector, and their supplier network links aredepicted in Fig 2 as follows:


9


Fig 2 Networking in Electronics IndustrySource: Yoichi Koiki [1998]Note: Line of supply and information.

End ProductsSONY, NEC, TOSHIBA,IBM, SEAGATE, DELL

R&D

SuppliersWires, plastics,Semiconductors

Metal stamping etc.

Design &Engineering

EnablingTechnologies

Micro assemblyvarious stages

ServicesBanking

Packagingshipping

Exports




3.1 The Creation of the Auto Industry Production Network inThailand (Pre-1991 period)

Thai automotive industry emerged under the import substitution policy, whenthe government had enacted the 1960 Industrial Promotion Act to provide incentivesfor investment. This led to the setting up the first automotive assembly in Thailandin 1961. During the first decade, the government had adopted high tariff rates onCBU, and CKD passenger which were aimed at earning revenue to improve thebalance of payment deficit.

After a decade of development in automotive industry, the domestic assembledpassenger cars increased to 9017 representing 50% of the domestic passenger carmarket in 1971.

However, the beginning of local content requirement had started in 1971, afterthe Automobile Industry Development Committee (AIDC) was set up to play activerole in promoting industry. In 1971, it set the minimum local content requirements at25% for the assembly industry. However, the local content requirements becameeffective three years later, on December 31, 1973.

Due to an increasing trade deficit, the government had increased tariffs on CBUpassenger cars from 80 to 150 percent, and CKD passenger cars from 50 to 80percent, and imposed an import ban on small CBU passenger car (with engine size2300 CC and smaller) in 1978.

During the early period of development in auto parts and components, theproduction of peripheral autoparts, such as starters, attertors, filters, exhaust pipes,radiator and safety glass increased rapidly. In addition, the production of auto partsbased on casting process such as brake drums crankshaft pulleys and flywheels alsoincreased (IFCT, 1993).

The production of small-pressed body parts also increased significantly in early1970, which was really the beginning of auto part industry in Thailand-Large-scaledpart makers were established to produce pressed parts, diesel engine pistons, balljoints, plastic parts, rubber parts (BOI 1995).

Production networks during the period was organized to develop technicalcapabilities of Thai counterparts and local worker in operative technology, productionmanagement and etc. Local content requirements are the important factors whichsupport the creation of production networks in Thailand.

Japan

Automotivecompany

Auto-assembler(Subsidiary)

inThailand

CoordinatorAnd

Consulting


11


Fig 3 Production and Procurement Networks by Japanese Auto Assemblers

3.2 Liberalization period (1992-1996)

The Thai automotive industry enjoyed high growth rate, averaging 12% duringthe period of 1992-1996, which was considered as one of the highest among all thecountries in the region.

This liberalization period had been characterized by liberalization of autoindustry, with tax restructuring program to allow more competition, after a longperiod of protection for local industry. Price levels of automobile, both passengervehicle (PV) and commercial vehicles (CV) had dropped to attractive levels whichspurred higher demand for automobile during the periods. Production and domesticsales in 1996 had reached the historic level, but dropped to the lowest level in 1998when Thailand experienced the economic crisis.

High growths experienced during this period, coupled with the global sourcingof parts and components implemented by major auto assemblers, global sourcing hasbecome more important, especially for the complex parts or the module approach,which have a direct impact on the performance of the vehicle.

Production network will classify part components into 2 groups. For complexparts or module components a contract will be given for the life of the part, althoughthe price will have to match the world price. In the case of parts which are lesscomplex and have a lower technological content, contracts are shorter and pricecontinues to be a critical factor. In these cases, the contract is frequently allocated onthe basis of a "price auction". The FOB price for the component is taken as thestarting point for negotiations. With these practices, the part-components are beingintegrated into sub-assemblies, forcing first tier and second or third tier to worktogether in the supply network.

Part and component suppliers have been clearly defined by leading auto-assemblers in Thailand, reflecting the technical capabilities and ownership structures

Part-componentsuppliers

(Subsidiaries)

Information flow

1st – tierPart-component

Suppliers

2nd – tierPart-component

Suppliers(local firms)




in those companies. The 1st-tier suppliers are mainly owned by foreign companiesand/or joint companies with the local companies whose technological capabilities areup to international standards. Definitions of first and second class tiers are:-

(1) First-tier suppliers - are responsible for blackbox parts, the groups havehighly-qualified engines who can work closely with resident engineers of the auto-assemblers in providing design and blue-print and work closely with the 2nd-tiersuppliers in making module part and component kits.

(2) Second-tier suppliers are responsible for detail-controlled parts. They aresub-contractors who worked closely with the 1st-tier suppliers. They are suppliers ofplastic parts, rubber parts, body parts and etc.

(3) General-suppliers are sometimes called suppliers of proprietary parts whichprovide standard parts (spark plug and etc.) which are made independently of anyparticular car project.

The changed structure of production network of automotive industry indicatedthat the production units of part-component suppliers had highly concentrated in thearea where major auto-assembly plants are located. Production management underthe Toyota’s Just In Time system is one example that part-component suppliers haveto adopt production plan in accordance with the auto-assembler’s plan. Lack oflogistic system and traffic congestion have contributed to the newly-plannedestablishment of production-networks in clustering system.

Firstly, the relationship between the parent company and its key suppliers (No.1in the figure) involves greater coordination and two-way information flows. Incertain company, like Toyota Motors Thailand, they have its own units, responsiblefor more than 200 first-tier part-component suppliers. Toyota Motors Thailand hasstrengthened close cooperation with its 1st tier suppliers by setting up “Cooperativeclub” to provide informal get-together and consultation between its technical staffsand its suppliers, in order to promote efficiency relation.

Secondly, the relationship between parent company and local assembler inThailand (relation No.2) has always been in close-connection, as they have to applyproduction network in compatible with their production plan.

Thirdly, the most important relationship is No.4 which require designinformation and criteriors for contract selection, based on quality, cost and delivery.

Fourthly, the relationship No.3, as shown in Fig. 3.2 is the same withrelationship No.4 in the networking system of Japanese assemblers in Thailand.Meanwhile, the American auto assemblers have adopted independent coordinators inpart and component procurement systems, these coordinators have set up office inThailand and seek sub-contract works both in Thailand and in other countries in theregion.

Assembler :Home company

ComponentSupplier: NetworkCoordinator

1
GlobalSourcingNetwork


13


Fig 4: Assembler-Supplier Relations (2nd period – Liberalization)Source: Survey

3.3 Industrial Restructuring for closer regional networks (since 1997)After the eruption of economic crisis in 1997, the automobile market had

shrinked and capacity glut was clearly observed in this industry. Demand dropped to140,000 units in 1998, only one-fourth the number sold in the peak year of 1996.Local part & component suppliers had laid of their workers and adopted everymeasures at cost-saving, while waiting for the economic recovery.

Billions of baht were poured in during the peak period by auto assemblers tograb a higher share of the domestic and produce for the entire region. The countryhas a capacity glut, that will last well into the next century. Major new factories bylate-comers, General Motors Corp and Ford Motor Co. increased the total capacity upto 1.2 million cars and trucks.

During the crisis, the government had to adopt the fiscal policies mandated bythe International Monetary Fund, and increased value-added taxes, excise taxes andimport duties on goods including cars. Weakened market and excess capacity forcedmajor auto assemblers to increase export in order to compensate for weak localdemand. Some auto assemblers have adopted strategies of moving their productionline to Thailand, in order to utilize the newly-installed capacity and gain economiesof scale in production. Longer term they were looking forward to 2003, when tariffson car traded with the Asean were expected to drop to 5% and intra-trade within theregion would increase. Any delay in implementing the tariff reduction, the leadingauto assemblers would continue to trade of CBU automobile under the Brand toBrand Complement scheme (BBC) which started in 1992.

During the crisis, Thai automobile business had been hardest affected, andmany of them (part and component suppliers, dealers) had to go out of the business.Japanese auto companies had joined together and supplied loans, advance paymentsand other forms of assistance to financially toubled suppliers. Toyota MotorsCorporations had to inject more than 4 billion baht to keep its operation, withoutlaying off a single workers.

The bankruptcy of almost all of Thailand’s finance companies because of thecrisis poses another problem, customers can not get financing to buy cars. Some 10%of purchasers now pay cash compared with just one-third before the downturn.

2 4

3Assemblers inThailand

1st-tier

2nd-tier

Logistic providers

- Throughnetwork ofassemblers inother countries

- AFTA’s

(JIT)




Fig. 5 : Supporting Activities Extended by Japanese Auto-Assemblers instrengthening the production networking in Thailand

Source: Samart (Study on Industrial Networks in Asia) [2000]

During the periods immediately after the crisis, the Thai government had in1998 adopted the industrial restructuring program for 13 industries. As forautomotive industry, many part and component suppliers have joined the program,and concepts of global production and sourcing in industrial networks are explainedto them, as clearly indicated in Table.

Parent companiesin Japan

Affiliatedcompanies in

Thailand

Supported by

Affiliated system1) Information

TechnologySystem

2) Labour3) Data system4) Promotion

system5) R&D

FinancialAssistance

System

ProcurementSystem

Strategies(1) Partnership (Strategic alliances)(2) Taking equity participation (M&A)


15


Table 6: Global Production and Sourcing

BusinessConditions

Businessobjectives

Productionconcpet

Parts &Components

ProcurementPolicy

Low economicgrowth

Cost reduction Minimizenumber ofplaform

Standardization followsourcing

StagnatedtechnologicaldifferentiationinnovationVaried demandsmega-competition

Quick delivery Unit parts(module) partsfor common use

Globalsourcing

Source: Y. Koike (2000)

Production networks in Asia have been strengthened since the end of crisis andwill continue in the automobile industry as overseas output by Japanese carmakersare expected to exceed production in Japan. In 2003, overseas output of Japanesecarmakers reached 8.5 million, and this number would increase to 10 million units asearly as 2005, and surpass their output in Japan. In the early 1990s, output capacityin Japan totaled around 14 million units, and the industry has experienced excesscapacity due to the economic slow down.

With the on-going restructuring of production network in Thailand, andimproving economic conditions in the Asean countries, the new foreign directinvestment especially in automotive industry will strengthen economic cooperationsbetween the countries. During the past few years, Japanese investments havecontributed 40% of the total, with some projects would contribute to more tradeamong Asean member countries.

Table 7: Example of Projects in Automotive Industry in Asean during the last2-3 years

Company’s Name Project Market1. Toyota and Daihatsu

plan for production inIndonesia

1-1.3 litre-MPV ToyotaAvanza

Thailand, Indonesia

2. Honda’s investmentplan for productionbase in Thailand

1.5 litre-passenger vehiclein Thailand (Jazz)- Plastic fuel tank

Thailand, Japan, Indonesia

3. Mitsubishi’s productionplan for Thailand

Minivan (Grandic) Thailand Export to Europe

4. Toyota’s globalproduction base

Pick-ups and Multi-purpose vehicles or IMVproject

150 countries worldwide

Source: Toyota Motors Thailand (TMT).




IV. Performance (Production and Export Structure of Thai AutomotiveIndustry under the Changing Industrial Networks)

4.1 Production and Domestic DemandThe production of Thai automobile has increased rapidly since the latter half of

1980’s, the average growth of production during 1993-96 was 9.53%, attributed toliberalization policy which lowered the prices of automobile in the local market. Theproduction of Thai automobile reached the highest level during the last decade in2003, when Thailand exported almost 200,000 units of CBU cars. Many autoassemblers has utilized their production network to export more cars in order tocompensate the declined share of domestic market.

As for domestic demand, the domestic sales of automobile during 1993-1997,exceeded the production indicating that more CBU passenger cars were imported tofulfil the gap.

Table 8 Production and Domestic Sales of Automobile in ThailandYear Production

(unit)Domestic Sales

(unit)1993 419,861 456,4611994 434,001 486,6781995 525,680 571,5801996 547,312 589,1261997 360,303 363,1561998 158,130 144,0651999 327,233 218,3302000 411,721 262,1892001 459,418 297,0522002 584,951 409,3622003 750,512 533,176


4.2 Thailand As a Production Base of 1 ton Pick-up

Thammavit (1997) attributed the high percentage share of production incommercial vehicles (CV) to the government’s policies and strong demand for multi-purpose uses. See table 9, for the percentage share of type of vehicle in production ofautomotive industry in Thailand.

After the financial crisis in 1997, the production networks have immediatelyadjusted their production structure to commercial vehicle, 72.9% during the period of1998-2003. Approximately 25-30% of the production of commercial vehicles weremade for exports, mainly to Australia and many countries in Europe.


17


Table 9 Thailand’s Production Classified by Type

Year Passenger Vehicle Commercial Vehicle1993 144,419 (34.4) 275,444 (65.6)1994 109,830 (25.3) 324,171 (74.6)1995 127,242 (24.3) 398,438 (75.7)1996 138,579 (25.3) 408,733 (74.7)1997 112,041 (31.1) 248,262 (68.9)1998 32,008 (20.2) 126,122 (79.8)1999 72,716 (22.2) 254,517 (77.8)2000 97,129 (23.6) 314,592 (76.4)2001 156,066 (34.0) 303,352 (66.0)2002 169,321 (28.9) 415,630 (71.1)2003 251,684 (33.6) 498,828 (66.4)

Figures in parenthesis indicate percentage share.Source: Thailand Automotive Industry Association.




4.3 Capacity utilizationCapacity utilization, is an indicator of economies of scale in production, usually

at the 60% of the total. Capacity utilization in automotive industry reached the peakin 1996, especially for the commercial vehicles (78.2%) and 65.7% for the overallcategories.

During the crisis (1997-2000) the capacity utilization went below the 50%level, as the domestic sales shrank to only 144,065 units in 1998. But the productionof commercial vehicles for export market pulled the rate back to 62.1%, almostmatched that of 1996. See Table 10.

Table 10: Capacity utilization in Automotive Industry

Year Passenger Vehicle Commercial Vehicle Total1996 54.9 78.2 65.71997 39.4 52.2 45.31998 13.0 22.1 17.21999 23.6 37.5 30.02000 24.7 44.1 33.72001 37.0 41.6 39.12002 43.4 56.6 53.62003 57.7 64.9 62.1

Source: Bank of Thailand.

4.4 Thailand Vehicle and Part ExportDuring the pre-crisis period, exports of vehicle and parts and components were

less than 10 million dollars, as marketing was penetrated only on domestic market.Only 14,020 units of CBU of vehicle were exported in 1996, mainly commercialvehicles.

Fall-out from the crisis had forced the leading car companies namelyMitsubishi, Isuzu and Toyota shifted their production base to Thailand, especiallyproduction of commercial vehicles for exports. Production networks have graduallydiversified export structure of Thai automotive industry, as more OEM parts andcomponent continued to increase during the recent periods. Exports of OEM partsand components increased from only 976 million baht ($36 million) in 1996 to 22billion baht ($556 million) a fifteen-fold.

Automotive Resource Asia (ARA) predicted the 4 Asean countries would ship600,000 vehicles abroad in 2006, more than twice their combined exports of 250,000units in 2001. Thailand will contribute 500,000 units out of this 600,000.


19


Table 11 Thailand Vehicle and Part Export (1996-2003)

Year Total CBU Engine Spare Part Jig & Die O.E.M. Part Other RemarksAmount Unit Amount Amount Amount Unit amount Body Part Compo.Part amount

1996 6,295.55 14,020 4,253.36 801.98 215.44 43.66 373.62 602.16 5.331997 20,722.84 42,218 16,226.99 2,023.89 505.28 17 56.34 1,037.60 845.16 27.581998 34,110.33 67,857 28,125.55 1,536.77 722.79 6,013 63.70 1,347.27 2,288.36 25.891999 60,105.53 125,702 50,187.21 3,731.81 883.42 177 141.35 1,424.40 3,678.86 58.482000 83,245.46 152,835 63,349.15 7,106.22 1,245.65 119.96 1,556.45 9,531.17 336.862001 107,110.60 175,299 83,894.70 7,481.38 1,758.56 5 141.19 1,989.49 11,748.57 96.712002 107,729.72 180,554 82,474.66 6,087.28 1,796.41 18 145.26 2,879.77 14,196.28 150.062003 114,737.54 196,800 85,393.48 4,552.28 1,796.63 2 148.36 3,348.01 18,928.13 570.65 (Jan.-Oct)Amount: Million BahtSource: The Thai Automotive Industry Association




4.4.1 Export Market of Thai Automobile (CBU) in 2003

The major destination shows that Asean countries constitute for one-third of thetotal or 35.5%. This trend might reflect the benefit of preferential tariffs appliedunder AFTA scheme. Percentage share of major export markets of Thailand’s CBUmarket are given in Table 12.

Table 12 Major Export Market for Thailand Automotive (CBU) Year 2001

Unit : % shareIndonesia 22.92Japan 20.02Philippines 12.57Belgium 11.70Australia 11.56Others 21.23

Source: Custom Department, Ministry of Finance

4.4.2 Export Markets for Automotive Parts and Components

Export statistical data for 10 major items which constitute for 80% of the total,show that intra-trade among AFTA member countries accounted for one-fourth(26%) of the total exports in parts and components.


21


Table 13 Top 10 Export Destinations of Thai Auto Parts and Components in2001

Unit: % share(1) Japan 30.0(2) Malaysia 13.8(3) South Africa 15.8(4) USA 10.3(5) Sweden 9.4(6) Indonesia 6.6(7) Philippines 5.6(8) Australia 2.3(9) Pakistan 1.4(10) Vietnam 0.6

Source: Custom Department, Ministry of Finance.

4.4.3 Import structure of Thailand Automotive IndustryOnly 10,000 units of CBU vehicle were imported in 2001, mainly from Japan,

Europe and South Korea. Details of imports are given in Table 14

Table 14 Thailand’s Imports of CBU VehicleUnit: Vehicle unit

Country 1998 1999 2000 2001Europe 1,377 2,372 5,695 5,765Japan 723 4,655 5,342 1,454S.Korea 6 42 1,360 2,781Others 443 31 163 79Total 2,549 7,100 12,560 10,079Source: Custom Department, Ministry of Finance.




4.4.4 Import Structure of Thailand Parts and Components Industry

Since automotive production networks are owned and operated by parentcompanies operating in major industrialized countries, like Japan, Germany, Sweden,and USA, which contribute to the source of import where major parts andcomponents come. Details of import sources are given in Table 15.

Table 15 Imports of Parts and Components (Sources of Thailand’s Imports) in2001

Country % share(1) Japan 72.5(2) Germany 9.4(3) Philippines 6.5(4) Sweden 2.1(5) Indonesia 1.7(6) USA 2.6(7) Malaysia 1.1(8) Taiwan .7(9) S. Korea .1(10) UK .3

Source: Information Centre of Ministry of Commerces

4.5 Prospects of External Trade of Thai Automotive Industry

Global sourcing and Thailand’s vision of “Detroit of Asia” will push Thailand’sauto production to reach one million units in 2006, and 40% targeted for export. Thenet international trade of Thai automotive industry shows that Thailand has stillsuffered the trade deficits in auto parts and components, (see Table 16) which meansthat if Thai auto parts and components suppliers can not upgrade their technicalcapabilities to the 1st-tier suppliers, and are not able to manufacture higher value-added parts and components, then Thailand will not benefit from being the productionbase and part of the auto production networks.

Table 16 Trade in parts and components of Thai Automotive Industry during1994-2001

Unit: Million BahtYear Import Export Balance1994 137.1 28.2 -108.91995 189.4 23.1 -166.31996 158.9 25.6 -133.31997 98.6 36.4 -62.21998 44.9 53.6 8.71999 64.6 54.6 -10.02000 96.8 65.1 -31.72001 75.3 67.5 -7.8

Source: Ministry of Commerce.

V. Industry Trend


23


To propel Asean and especially Thailand to become strong auto productionnetwork of leading auto makers, Thailand has to strengthen the part and componentsuppliers to cope with the changing trend in automotive industry.

Asean countries had a combined market size of about US $8.6 billion in 2002,with almost 1700 parts manufacturers producing both OEM and after market parts.An estimated 60% of component manufacturers in Asean has either a foreign partnersor receives foreign technical assistance. Some of international companies such asDenso, Autoliv, Daikin, Visteon, Delphi, TRW, Yuasa and Johnson Control havealready set up manufacturing in Asean region.

These international giants are partly responsible in bringing the lastest industrytrends in Asean parts and component market.. A. Jalaluddin (2004) pointed out someof the recent global trends that are making the impacts on Asean parts are;

(1) Consolidations and strategic alliances

(2) The module systems approach

(3) Persistent price pressures

(4) Shifting design capabilities

(5) Emphasis on R&D initiatives

5.1 Consolidations and startegic alliances

Mergers, acquisitions and alliances in the component parts are the strategiesadopted by leading part and components to expedite the excess capacity, to have aglobal presence sharing a complementary product line. Asean based manufacturersare slow to adapt to this trend in trade integration. The reason is that the fragmentedvehicle type in Asean results in few parts that complement each other in the region.Thailand, Indonesia and Philippines part suppliers concentrate on van and truck partswhile Malaysian parts makers focus on car parts. However, it is expected thatstrategic alliances among Asean manufacturers to gradually increase once AFTAcomes into full force in 2008.

5.2 The Module system approach

A module system is a group of components that are linked by function and aresupplied to the automotive assemblers. Complex modules which incorporate multiplefunctions are still in its early stage in Asean. But big auto assemblers in Thailand,and Malaysia are currently applying this module system with groups of supplierworking closely together. Asean manufacturers need extensive R&D initiatives andhigh investment to devise ways to take core parts and show them into highly efficientassemblies.

Moreover, a large number of Asean factories are not flexible enough to produceintegrated system which demand a frequent shift in manufacturing capabilities. Thepresent system is not designed to cater to various models set up but targeted to mostlylimited parts models.




5.3 Persistent price presures

Cost cutting is the essential part in keeping the growth of this industry.However, cost reductions and price pressures have been intensified since 2001, as aresult of intense competition in the global automotive market. Leading vehiclemakers are pushing for price reduction in the range of 5% per year for majorcomponent parts supplied to the OEMs.

This similar scenario is happening at the Asean level. As pricing becomes akey determinant in attracting buyers of cars in Asean, vehicle manufacturers arepassing cost reduction to the component part suppliers. The cost reduction method isapplicable to every supplier in the OEM parts supply chain from tier 1 to tier 3 levelsuppliers.

5.4 Shifting design capabilities

Large OEMs like Ford, GM, and Daimler Chrysler, not to mention Toyota,have transferred design responsibility to tier1 suppliers without relinquishing controlover the design and quality aspects. Their main reasons are to concentrate on the coretask of marketing and selling the vehilces and other related activities.

Global tier one suppliers like Visteon, Delphi and Johnson Controls are takingan increasing share of risk from the OEMs to meet their tough requirements.

The idea of outsourcing design aspects is gaining grounds in Asean automotivemarket mainly in Thailand and Malaysia. It is expected that regional outsourcing toescalate as most Asean countries join AFTA scheme in promoting trade within theregion. The reason why many Japanese and European OEMs are pushing for greaterlocal involvement in parts design and manufacturing is to arrive with models that suitthe local demand. However, most of the design projects are undertaken by companiesthat are subsidiaries of large part manufacturers that are based in Asean region. Thelevel of participation of purely domestic companies in the design is very limited.

5.5 Emphasis on R&D initiatives

Well-established parts and component manufacturers would incorporate a hostof technologies both materials and of manufacturing process in order to create costefficient product differentiation and high value added components. This is not thecase for Asean manufacturers, as they have low level of technology infusion. A largenumber of parts and components suppliers are still producing low value added partsfor many years. The low priority of modern technology among Asean manufacturerscomes from inadequate engineering capabilities, high R&D costs, and lack ofawareness among manufacturers and consumers alike.

However, with proper assessment of the industry trends might lead to morecompetitive, technology driven and efficient Asean component parts industry. It isthen important that Asean parts and components industry give closer cooperation inpromoting the objective of AFTA, an integrated free trade region. Greatercollaboration among parts manufacturers, common parts sourcing, more integratedcomponent system approach, and sharing of R&D initiatives can increase crossborder alliance. Then a strong and unified Asean components industry would be able


25


to benefit from the changes in the global automotive market and able to withstand thecompetitive threats of other markets.

VI. Government's Role and Policies

6.1 Government's Role and production network in automotive industry

This section will analyze the compatibility of government's role and policieswhich help support the growth and development of production network in automotiveindustry. In the early period (1961-1970), the Industrial Promotion Act was adoptedto promote the establishment of auto assembly plant, and high tariffs were adopted toprotect local assembly plant from imported CBU. During this period, the small localmarket detered the economies of scale in production. Moreover, the weak economyforced the government to adopt high import tariff and excise taxes to finance deficitbudgeting. The early stage of production networks had been supported by thepromotional privileges for FDI, local content requirement which induced moresupporting industries to establish production base in Thailand.

The second period (1992-1996) was liberalization and deregulation period,when tax rates were restructured, excise and value added taxes were introduced. Theliberalization measures also included, abolishment of ban on imports of CBU, ban onnew assembly plants. More promotional privileges were extended to new FDI onsupporting industries.

After the crisis, the government's policies were aimed at rescuing themanufacturers in this sector, through the revision of promotional privileges inprovincial area. Rules and regulations were adjusted to support the expansion ofproduction capacity in the existing capacity. On January 1, 2003, local contentrequirements were abolished to support the global sourcing and to promote closerregional cooperation in production network.

6.2 Changing roles of the government

Since the liberalization and deregulation policies were adopted in 1991, thegovernment has gradually changed its roles.

(1) Change the roles of protection the industry to monitoring the trend, in orderto prepare all measures and policies in support of upgrading the technical capabilitiesand industry competitiveness in the changing global trend with WTO's rules andregulation.

(2) Prepare all necessary inputs and facilities to handle with the changingtechnology in-order to increase competitiveness of the industry in the followingaspects.

(a) HRD(b) Testing laboratory(c) Automotive Research and Development Centre(d) Technology Transfer(e) Basic infrastructure (telecommunication and transportation)(f) Information technology(3) Revise laws and regulations which are against the tariff and tax




structures.(4) Find measures and solutions for trade negotiations in order to protect

national interests.(5) Promote and/or support trade mission in order to find new markets.


27


Table 17: Government's Policies and Automotive Production Networks

Period General Characteristic Driving forces Policy measures Networking Development1. Pre-1991 - From small market to the

emerging networks.- Diseconomies of scales- Baht devaluation (1984)- High economicgrowth

(86-89)

- Domesticdemand

- Import substitution- Industrial Promotion Acts- High import tariffs- Local content requirement

(1971)- Limit model of car assembly- Revised local content

- Establishment of parts andcomponent (1974)

- Cooperation between autoassemblers and partmakers

- Investment in supportingindustry

2. Liberalization andderegulation (1992-1996)

- Lower taxes pushed theprice of automobile down

- Economy showed signs ofweakness

- Upward trend in domesticsales

- FDI- Strong domestic

demand

- Partial liberalization- Lift ban on import of CBU- Lower tariffs and business

taxes on imported CBU- Promote SMEs in automotive

industry

- Expansion of productioncapacity.

- Establishment productionnetwork with more localsupporting industries

- Promotion of cooperationthrough AFTA program

3. Industrialrestructuring forcloser regionalcooperation (1997-now)

- Financial crisis led to dropin demand.

- Business in trouble (lackof cash flow)

- Industrial restructuring

- Intra-regionstrade

- Exports

- Revise promotional privilegesfor new assembly plants

- Abolish local contentrequirement (2000)

- Create trade through regionalcooperation and FTA

- Global sourcing- Relocation of production

base to Thailand (pick-up)- New trend in global part

and component industry- New technology in

automotive industry




6.3 Government's policies on regional cooperation

Asean countries have attempted to integrate automotive industry, and formedcommon effective preferential tariff (CEPT) scheme under the AFTA set up in 1993.However, most assemblers did not take account of the CEPT scheme in their planningbecause automotive industry was on the sensitive list. However, the fast-changingliberalization in automotive industry, and promotion of bilateral trade among tradingcountries involving Thailand (FTA) have moved tariff reduction among membercountries sooner than earlier planned. The newly-planned for tariff reduction is .05percent to be implemented in 2010, but the Thai Automotive Industry Associationproposed the 0% CBU in 2005, regarding AFTA as an important base of maintainingcompetitiveness of Asean automotive industry. AFTA needs to realize earlier thanFTA.

Moreover, the Asean member countries agreed to promote intra-regional tradein automotive parts and components and introduced Brand to Brand ComplementScheme (BBC). The scheme assigned specific parts production to different Aseancountries to exploit comparative advantages and develop economies of scale. Itallowed assemblers in each of the participating countries receiving local contentsaccreditation and a 50% reduction in their import duty for imported components fromAsean countries. Unfortunately, only 3 countries, involving 4 auto makersparticipated in this program, since the BBC scheme has some limitations. Thus, theAsean agreed to have a new scheme, called Asean Industrial Co-operation Scheme(AICO), which was formed in April 1996. AICO will provide following privileges;(1) 0-5% import duty rates immediately (2) local content accreditation, and (3) norestriction on the export of the AICO products for the participating countries.

As expected the AICO scheme has enhanced intra-Asean trades of vehicles andauto parts. Production networks and global sourcing have started to promote intra-region trade, especially soon after the crisis. Moreover, as the cooperation among theAsean countries increased, several assemblers have designed cars for the Aseanmarket which effectively promote trade and exploit economies of scale. Amongthem, they are Toyota (Soluna designed and assembled in Thailand, Avenzaassembled in Indonesia), and Honda city assembled in Thailand.

6.4 Comparison of Tax structures in Automotive Industry

Thai Automotive Industry Association has complained on the distortion ofimport tariff against parts and components industry, since the tariff rates of importednew materials for parts and components production are higher than those imposed onparts and components. (CKD)

Law materials are levied at 10-50% rates, meanwhile the parts and componentsunder the AICO Scheme are set at 0-5% only. Part components manufacturers areput at disadvantage competing with the imported parts and components.


29


Table 18 Tax Structure of Asean Countries

Type of tax Thailand Malaysia Indonesia Philippine1) Import tariff

- CBU 80 140-300 65-80 30- CKD 30 42 10-15 10

2) Excise tax(%) 38.5-62.6 65 40 15, 35, 50, 100depending on engine

displacement3) Value added Tax 7 10 10 104) Others Interior tax

10% of excise- - -

Source: Automotive Industry Development Master Plan. (prepared by Thai Automotive Institute)




6.5 Free Trade Area Agreement

The Thai government has moved to promote bilateral trade with 10 countries,each with different stages of preparation for implementation. Bilateral agreementwith the following 4 countries have progressed at satisfactory level and automotivetrade in Thailand's FTAs are as follow;

Australia: A zero tariff is set in 2010 with Thailand proposed 3 steps ofimplementation Thailand’s tariff = 20% in 2005

10% in 2007and 0% in 2010

Australia’s tariff in 2005 is 0%India : A free trade agreement was signed on Oct 9, 2003.

Automotive parts are included in the list of 84 productsgoing into effect in March 2004. Zero tariffs will beachieved by 2010.

USA : Automobiles is a priority sector for both countries.Currently the US levies 25% tariffs on imported pick-uptrucks.

China : Free trade in industrial goods would begin in January 1,2004. Cars and components are one of China’s principaltaxable imports. All tariffs will be eliminated by 2010.

6.6 Clustering systemThe government has revised industrial development plan and adopted the M.

Portor’s clustering concept in promoting the efficiency of entrepreneurs in SMEs andoverall competitiveness of Thai industries.

The geographical concentration of the 5 targeted industries are planned by theCommittee on Competitiveness Promotion of National Economic and SocialDevelopment Board (NESDB), the central planning agency in Thailand. The fivetargeted industries include, Food, Fashion industry (garment, leather, jewellery)electrical appliances and electronics, tourism, and automotive industry.

The automotive clusters are planned in the eastern parts of Bangkok, wheremajor car assemblers are located. Main locations are Samutprakarn. The newlyestablished locations are Rayong, Chacheongsao, Chonburi in the eastern part andAyudhaya in the central part of Thailand.

Thai Automotive Institutes has recently drafted the Master Plan fordevelopment of Thai Automotive industry and proposed the groups of relatedactivities to be included in this clustering system. Moreover, the supply chainmanagement and/or logistic system is now being studied by the Japanese consultingfirms, and should be ready soon. It is important that the logistic providers willsupport the development of supply chain in Thailand, because there has beenincreased integration within the supply chain.

Outsource logistics, a major driver for car makers because, it helps reduce costsand allows concentration on the core business of making cars. At the same time, theskills and competencies of a professional partners allows economies of scale toensure a proper logistics process.


31





Fig 6 Structure of Automotive Cluster.

Main Activities

Motorcycle Passenger commercialMakers car makers car makers

1st-tier suppliers

2nd and 3rd tier suppliers

Steel

Plastics

Rubber

Electronics

Glasses

ClothingsLeather

Machinery

Tools &equipment

Mould &Dies

Jig&Fixture

Privateinstitute

andassociation

EducationalInstitution

&TechnicalInstitution

Governmentoffice

Distribution

Financial

Other relatedservices

Up-streamindustry

Testingservices

Sepcificservice

advisoryLegal

advisoryOther

services


33


Conclusion and Recommendation

During the past 30 years, the government’s policy measures have been on theright track in promoting growth and development of automotive industry, throughsupporting the production network, as laid down by the leading assemblers.

The liberalization and deregulation policies which started in 1992, havesupported the network production of major auto assemblers, especially the relocationof production base for commercial vehicles (pick-up trucks) by Toyota and Isuzu.Pick-up truck is a product champion for Thailand, and is destined to more than 150countries worldwide.

Regional economic cooperation which promoted trade and investment under theAIJE program, has greatly benefited the production network, as it created the scale ofproduction, and division of works among the companies engage in the exchangeprogram, namely Ford and Toyota.

As Asean has become the emerging production base and market for automotiveindustry, as they have in China and India. The joint efforts in drafting the policies fordevelopment, should aim at improving competitiveness of local SMEs in part-makingfor OEM and REM markets. This will strengthen the production networking, anddrive the industry into the sustainable development path.

Among the 6 challenges which Thailand and other countries in the region, haveto encounter are;

- Positioning of Thai and Asean Auto Industry in the global market- Linking Thai SMEs to the automotive supply chain- Empowering Thai workforces for the automotive industry- Developing and integrating supporting industries into Thai auto industry- Moderning the automotive industry through logistics and IT, in order to

strengthen competitiveness- Innovating to succeed through research and development.




References

Annuar Jalalud. “Asean Auto Components; Embracing the trends in GlobalComponent Market”. Asean Autobiz, vol 3 No.22 (January 2004): 22-25.

Aye Ko Ko. “The Age of Exports”. Asean Autobiz, Vol.3 No.22 (January 2004):36-38.

Chakchai Panichapak. “Development of Automotive Industry in Thailand”.Regional Conference of Automotive Industry in Thailand and the Mekong Sub-Region, Bangkok, Oct 14, 1996.

Japan International Corporation Agency (JICA) and Ministry of Industry, Thailand.“The Study in Industrial Sector Development Supporting Industries in theKingdom of Thailand”. Tokyo. Unico International Corporation.

Ministry of Industry “Regional Networks and Industrial Development in theprovinces of Thailand. Bangkok 2003.

Mipon Paopongsakorn. “The success of Thai Automobile Industry” A paperprepared for “The Asian of Automotive Industry”. Organized by the Institutefor Economic and Social research (LPEM FEUI) University of Indonesia,Jakarta, 1996.

John Humphrey. “Globalization, FDI, and the Restructuring of Supplier Networks:The Motor Industry in Brazil and India in “Learning, Liberalization andEconomic Adjustment”, Tokyo, 1998.

Prapapan Monmahachinda. “Factors Affecting the Exportation in Automobile PartsIndustry in Thailand” M.A. Thesis. Faculty of Economics, ThammasatUniversity 1993.

Samart Chiasakul. “The Study on Industrial Networks in Asia”, A case study ofThailand, Institute of Developing Economies, Japan External TradeOrganization, 2000.

Shegeki Hizashi. “The Automotive Industry in Thailand: From Petection Promotionto Liberalization”. In The Automotive Industry in Asia: The Great LeapForward? Tokyo: Institute of Developing Economies. 1995.

Thammavit Terdudomtham. “The Automotive Industry in Thailand”. ASP-5 (Sub-Programme on Liberalization of Trade and Investment. Thailand DevelopmentResearch Institute. September 1997.

Uniresearch, Chulalongkorn University. “Industrial Restructuring in Thailand; Preand Post Crisis”. Ministry of Industry Bangkok, October 2003.

Yoichi Koike. “Globalization of Japanese Subcontract Transaction and AsianSuppliers”. In the “Learning Liberalization and Economic Adjustment. Tokyo:Institute of Develoing Economies, 1998.

production networks, trade and investment policies, and regional cooperation in asia: a case study...

Documents

regional production

local production networks

global industry

east asia production

production activities

component industry

production base

performance production