Strong evidence suggests that Indonesia will eventually replace Thailand to become the main automotive production hub in ASEAN, according to Markus Scherer, Global Automotive Sector Leader at Ipsos Business Consulting.
This could have major implications for automotive manufacturers and suppliers as well as policy planners in both countries.
“The evidence is clear that in terms of the trend in vehicle production output, policy development, and improvements in infrastructure, the Republic continues towards increasing capacity, increasing domestic consumption and increasing export volumes.
Automotive manufacturers and policy makers in Indonesia, Thailand and elsewhere will want to consider the implications,” said Mr Scherer. Historically, Thailand has been the largest producer of automobiles in South East Asia with an annual production volume of around 2 million units as compared to Indonesia’s 1.1 million units in 2015.
Despite being the second largest automotive producer, Indonesia has not been as successful as Thailand at building its export markets, exporting only 23% of its domestic production in 2015 compared to Thailand’s 55%.
For Indonesia to overtake Thailand and be crowned as the number 1 production hub in ASEAN, the current gap needs to be closed. In 2015, the production gap between the two countries was around 810,000 units but, by 2020, the difference is forecasted to be 465,000.
Ipsos Business Consulting believes this improvement will be achieved through a combination of:
– Increased plant utilization. In 2015, Indonesia had an installed production capacity of close to 2 million vehicles, but was only utilizing around 62% of this capacity;
– Further investment of up to USD 2,6 billion in the creation of new or expanded plant capacity, if utilization rate remains the same
The latest Ipsos report highlights that, even in the absence of significant export success at present, Indonesia has huge domestic growth potential, ensuring that investors can reliably expect a solid baseline in sales growth if they are appropriately positioned in the market.
Douglas Cassidy, Indonesia Country Head at Ipsos Business Consulting, stated: “Global automotive players who do not yet have a significant production base in Indonesia will increasingly be asking whether they are positioned to gain market share in an ASEAN market comprising more than 600 million people, and whether they can defend their existing market share as other companies look to expand in Indonesia and Asia generally.
A production base in Indonesia will enable them to benefit from the cost, scale and supply chain advantages of the country that seems on track to become the preeminent automotive power in ASEAN.” Chukiat Wongtaveerat, Senior Consulting Manager at Ipsos’ Bangkok office agreed with Cassidy’s analysis of the current situation but thinks that Thailand can still protect its automotive industry, though any hesitation could prove disastrous.
Wongtaveerat noted that several high profile automotive OEMs have announced exit strategies for the Indonesia market, most notably Ford Motor Company and General Motors. He said that other well-known players, such as Volkswagen, Hyundai and Mazda were not yet able to communicate a clear strategy for securing a strong and profitable market share that encompassed both of these emerging markets in South East Asia.
“Specifically in relation to Indonesia, it is going to require stable regulation and continuous development of the automotive supporting infrastructure against the backdrop of current sales. Once this happens, we are likely to see a “domino-effect”, with other absent OEMs looking to build a plant and engage in an aggressive expansion of their dealer networks,” said Wongtaveerat.
Difficulties persist in Indonesia’s business climate, however. According to the World Bank’s ‘ease of doing business’ index, Indonesia ranks 109 out of 198 countries, while Thailand ranks 49. The government in Jakarta aims to improve the country’s ranking to 40 by 2018. Such significant improvement, if it is to be achieved, will clearly require sustained focus from policymakers. Scherer noted that “Recent developments have been encouraging, encompassing the relaxation of foreign ownership rules and streamlined licensing application procedures.”
Download the complete report here
Large Shopping Malls in Bangkok Will Be Closed until July 25th
Shopping malls under the Mall Group, including all branches of The Mall, the Emporium, Emquartier and Paragon Department Store, are also closed for 14 days, from today, except for supermarkets, food courts, pharmacy shops, eateries (take-out and delivery only), banks, mobile phone shops and vaccination sites.
Downside risks loom for Thai economy due to Prolonged COVID-19 Outbreak
The most important issue for the Thai economy at present would be the procurement and distribution of appropriate vaccines adequately and timely.
The Bank of Thailand (BoT) has revealed that Thailand’s economy faces significant downside risks, because a prolonged COVID-19 outbreak could cause the economy to underperform the baseline projection, squeezing business liquidity and slowing employment.(more…)
Subscribe via Email
Thai baht becoming the region’s worst-hit currency in COVID pandemic
According to data from its tourism ministry as well as the World Bank, Thailand had only a little over 34,000...
Asia’s slow rate of vaccination is a thorn in the region’s economic recovery
Southeast Asia has been hit badly. Daily infections for Indonesia, Thailand, Vietnam are at their worst, on a seven-day moving...
TAT expects 850 billion baht ($25.7 bln) in tourism revenue after successful reopening
The Tourism Authority of Thailand (TAT) has set this year’s revenue target at 850 billion baht, 300 billion of which...
Download 1xBet mobile and play all over the world
Placing profitable bets or playing in a casino is now possible comfortably even without being tied to a computer. It...
3 ways Asia can recover from the COVID-19 pandemic faster
Countries in the East Asia and Pacific region will benefit from cooperation in three major areas: vaccine deployment, reviving sectors...