Thursday, 30 April 2015

Auto SMEs to take part in global value chain through AEC, Apec

While economic regionalization of the Asean region through the formation of Asean Economic Community (AEC) is fast taking shape towards the end of the year, globalization of the regional economy is progressing through the Asia-Pacific Economic Cooperation (APEC).

Regionalization of Asean and its important roles in the Asia-Pacific economy have been subjects of interest to governments and industry players alike for a long time now. Initiatives towards fulfilling many of the economic agendas are close to becoming realities.

AEC and Apec share similar economic objectives and inspirations towards achieving economic liberalization and integration.

The formation of AEC will be a significant advancement in support of the Apec mission, in particular to assist developing member nations to achieve trade and investment liberalization by 2020.

Apec economy, comprising of 21 developed and developing member nations, with a total population of 2.8 billion, make up 56 per cent of the global gross domestic product with US$21 trillion (RM75 trillion) in annual goods and services trade.

Almost 70 per cent of global vehicles are produced by 14 of the Apec member countries.
The biggest automotive producing nations of the Apec are China, the United States, Japan and South Korea.

Medium-sized annual total industry volume (TIV) is produced by Mexico, Thailand, Canada, Russia and Indonesia, while the smaller annual TIV producers are Malaysia, Taiwan, Australia, the 
Philippines and Vietnam.

More than 120 million light vehicles are expected to be on global demand by 2020 and 46 per cent of the TIV, or about 60 million vehicles, are expected to be from the Apec member countries.

To achieve this forecasted demand by 2020, right regulatory and policy environment issues among the member nations are essential.

In this respect, it is the task of the automotive leaders and governmental regulators to work together to facilitate the automotive industrial growth and trade in the Asia-Pacific region through Apec.

It is a common belief among small and medium enterprises (SMEs) in each of the member countries, automotive SMEs included, that trade liberalization is of no benefit to them.

The perception among SMEs remains that all goods from overseas entering the respective nation’s local market at low or zero duty will be a threat to their business well being, while documentation bureaucracies are hindrance to their export initiatives.

The Apec 22nd Automotive Dialogue Meeting in Manila last week saw continuous dialogue on automotive industry sustainable development agendas.

Automotive manufacturing and trade is an important area of economic activity in the Asia-Pacific region as well as the AEC member countries.

Malaysia Automotive Institute is one of the participating organizations in the dialogue.

Malaysia, as the co-sector lead with the Philippines, is conducting the survey as part of the meeting’s proposed work programme for this year.

The study will include the identification of the tariff and non-tariff barriers to trade and investment that the automotive SMEs face in their integration into global value chains.

The exercise will lead to the development of practical solutions to address the barriers.

Tuesday, 21 April 2015

Industrial nationalism and AEC integration automotive sector

A lot has been said about Malaysia’s protectionist policy with regard to the development of its automotive sector.

The practice of infant industry protection was introduced in the 19th century in Germany to protect the onslaught of British industrialists that began to exploit the European market for their industrial produce.

Similar “economic or industrial nationalism” practice was introduced in Japan as a nationalist response to protect the country from foreign trade dominance during the same period. This industrial nationalism was also widespread among nations of the Third World, Africa and Asia, in their attempt to recover from postcolonial economic dependency.

Despite rapid globalization that has taken place in the last few decades or so, the automotive industry remains as a national industry to most nations, especially in advanced countries despite being highly developed in their international businesses. Automotive still represent their manufacturing industry’s best serving interest of the nations.

The automotive industry relates to a wide range of the other sectors within its ecosystem. Upstream industries producing and supplying raw materials right down to downstream parts and components manufacture, inclusive of supporting industries such as molds and dies, foundries and machining are players within the automotive ecosystem.

In this respect, the automotive industry of a nation is a national industry and as such, industrial nationalism is close to the heart of its car makers. Although internationalized, these carmakers operate their manufacturing businesses tightly connected to their domestic supporters and have high tendency to complement them.

Their competitiveness is closely related to their homeland, especially in the areas of advanced technological development (R&D) and parts and components supply.

Malaysia has envisioned itself of becoming an industrialized nation through the development of its automotive sector.

In the sector’s nascent stages, it has no alternative but to adopt an unpopular protectionist policy to ensure the survival of the industry. The policy has resulted in the establishment of the nation’s automotive ecosystem with its homegrown industry players and entrepreneurs.

Today, some 550000 of the nation’s working population are directly or indirectly involved in automotive related activities and various technological acquisitions and advancements have been achieved through spin-offs from the development of the automotive industry.

Automotive liberalization is rapidly progressing in Malaysia and the formation of the Asean Economic Community (AEC) will further expedite the process. AEC liberalization will eventually open up business opportunities for all and lead to the removal of various protectionist policies. 
Homegrown vendor communities within the region will be vulnerable to stiff competition from well-established global parts and components manufacturers.

The success of the automotive economic integration of the AEC and its sustainability is largely dependent on business strategies of both homegrown and global automotive players. Possible threats to business opportunities among homegrown vendors may lead to unfavorable repercussions for governments and the car makers alike.

In this respect, the global automotive players present within the AEC would have to re-examine their operational strategies in the near future, especially in relation to fair participation of homegrown vendors in the countries they are operating.

Proton and Perodua, the two establishments nurtured as a result of Malaysia’s industrial nationalism, are now playing their vital role of sustaining the local automotive industry. The companies have shared responsibilities to assist the government in ensuring the survival of the vendors and suppliers within the nation’s automotive supply chain and able to participate in coming liberalized automotive EAC agenda.

Similarly, enhancing the capability and economic viability of local vendors are favorably expected from other international players present in the country, putting aside their industrial nationalism to assist Malaysia to successfully participate in the AEC integration in the automotive sector.