Automotive Resources Asia Ltd. - Providing Asian automotive market advice

(from BOI Investment Review, March 2005)

John Bannell is a partner in Automotive Resources Asia Ltd. (ARA), a marketing services consulting firm specializing in Asia's automotive market. More information about ARA can be found at www.auto-resources-asia.com

Question: How did three American automotive professionals from Detroit establish and Asian-based automotive consulting service?

ARA President Michael Dunne established the company in1993 in Bangkok using a university grant that he had won. I came over about six months later because I was interested in the business opportunity and new challenges. Michael’s brother Timothy, who had established an automotive information company in Detroit, joined us later. In 1994 we had sufficient consulting requests from tier I OEM suppliers to warrant the opening of an office in Beijing, and in 2001 we opened a sales office in Shanghai.

Question: What types of marketing services do you provide and how has your work evolved with the auto industry?

In the early stages the majority of our work revolved around market entry research and assisting clients with understanding policies, developing marketing strategies and establishing their businesses. Today we are doing more demand-side work, looking at consumers, competitors and segmentation of demand. About 90% of our work is dedicated to customized projects for our clients, but this year we want to move more towards product-oriented work in which one product can have broader client appeal. We plan to launch a national car buyer study in 2005 for China and Southeast Asia, covering issues like demographics, purchase behavior, and vehicle replacement. The objective is to help clients get a feel for who is buying what and why.

Question: Among the countries served by ARA, do you see automotive industry issues that are unique to certain markets?

We have operational offices in Bangkok and Beijing, and the Bangkok office covers Korea, Taiwan, Malaysia, Indonesia, the Philippines, Vietnam, Singapore and India. There are different issues facing each business environment. For example, in China, foreign manufacturers need to think more about protecting their business structure and intellectual capital versus Southeast Asian countries, where it is not so much of a worry. Another regional difference is that Indian consumers are much less image-conscious than their counterparts in Southeast Asia, and may not see the value in purchasing an expensive, luxury vehicle.

Question: What factors contributed to Thailand's successful development as an automotive export base compared to the ASEAN nations?

First, the size of the pick-up truck market is a factor. Thailand is the second largest market for pick-up trucks outside of the US, making it possible to get economies of scale with one product. Second, there is a welcoming atmosphere for companies here. Third, manufacturers have access to Southeast Asian markets through ASEAN. AFTA (ASEAN Free Trade Area) is very important to consider during the planning stages, but companies should not anticipate wide-open free trade in ASEAN. ASEAN is a managed or balanced trade environment. Trade will increase between countries, but it may not necessarily be free trade. Auto makers will take it upon themselves to be sure that benefits accrue to all countries in the region. A manufacturer may be based in Thailand, but value added assembly or major components might be sourced from other countries.

Question: What advice do you have for manufacturers in the Asian automotive industry?

Auto makers in high growth markets need to place higher priority on positioning. In India, for example, markets are growing, they are not entrenched. With large growth, there are openings for new companies to come in and succeed and fail. In Southeast Asia, the competition is entrenched. The successful companies have been the same over the past 30 years, mainly the Japanese manufacturers. To displace these companies and chip away at their market share will be difficult to do. It will be challenging for the West to build a meaningful share of the Southeast Asian automotive industry.

Question: The Chinese automotive industry ahs been attracting a great deal of attention recently. Where do you see China and Thailand within the next five years?

Thailand is developing as a global automotive production center with factories that export around the world. Thailand is not in direct competition with China. For example, the leading auto manufactures in Thailand are not competing with China. They consider their regional needs and establish production facilities according to various internal business factors. Depending upon a manufacturer’s unique situation, they may need something in both China and Thailand.  In the longer-term, Thailand and China may be competitors. China’s supporting industries will take time to develop, but in ten years, people will see whether manufacturing efficiencies have developed in China.

Question: What are your automotive market expectations for Thailand in 2005?

The 2005 domestic market sales goal of 700,000 vehicles is extraordinary. The excise tax on certain passenger cars has been reduced and prices have dropped, but Thai incomes have not changed much. It seems more reasonable for current Thai incomes to sustain domestic sales levels of 650,000 vehicles. Thailand should have a big jump in exports in 2005 due to new production projects that are coming on-line. The big industry question is whether the next step will be to move towards higher passenger car production. The supporting industries that serve the pick-up truck market can also serve passenger car production. There are indications that the market seems to be moving beyond pick-up truck production, with a passenger car production project in the works.

 

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