Thailand’s position in production networks
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2000
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2008
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Production
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Thai share in Asian production (%)
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Thai share in world production (%)
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Production
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Thai share in Asian production (%)
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Thai share in world production (%)
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Units (‘000)
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(%)
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Units (‘000)
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(%)
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Japanese carmakers
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239
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58.1
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23.0
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1.1
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1135
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81.4
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20.8
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4.1
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Toyota
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63
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15.3
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21.1
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1.1
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573
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41.1
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34.6
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6.2
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Honda
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36
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8.7
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25.1
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1.4
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162
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11.6
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20.3
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4.1
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Nissan
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19
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4.6
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20.2
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0.7
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74
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5.3
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14.0
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2.2
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Mazda
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30
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7.3
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68.9
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3.2
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48
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3.5
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30.1
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3.6
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Mitsubishi
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91
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22.1
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19.8
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5.0
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173
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12.4
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57.6
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13.1
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Isuzu
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67
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16.3
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39.6
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12.4
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135
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9.7
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64.7
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25.1
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US
carmakers
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9
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2.1
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22.1
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22.1
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105
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7.5
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4.5
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0.8
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GM
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9
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2.1
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22.1
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0.1
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104
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7.5
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5.2
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1.3
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Ford
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—
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—
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—
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—
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1
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0.1
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0.3
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0.0
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Other
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164
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39.9
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1.7
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0.6
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153
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11.0
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1.6
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0.5
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Total
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412
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100.0
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3.1
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0.7
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1394
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100
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8.0
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2.0
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Source: Compiled from the International Automobile Association database (www.oica.net/).
Notes: 1. Production comprises passenger cars and commercial vehicles, including light commercial vehicles, heavy commercial vehicles and heavy bus and coach.
2. Excluding Japan.
3. Including production in the source country of the carmaker.
4. Ford not in production where dashes appear.
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The data summarized in this table shows the relative importance in Thailand of individual carmakers and Thailand’s relative importance as a production base for these firms in their global operations. Japanese automakers dominate automobile assembly in Thailand, accounting for over 80% of total output. The two largest American carmakers – General Motors and Ford – accounted for a mere 7.5% of total production in 2008. Production in Thailand accounted for about one-fifth of total automobile production by Japanese firms in Asian countries, excluding Japan. However, Thailand accounts for a much smaller share of the total global production of Japanese firms, at 4.1% in 2008. For the American firms, the share is less at 0.8%.
For all carmakers listed above, Thailand is the regional production base for one-tonne pick-ups. These firms use a platform production strategy to produce one-tonne pick-ups for more than 100 countries. In the platform production strategy, automakers use a small number of under-body platforms as the basis for a greater number of vehicle models. This strategy reduces the costs of platform development and enables component sharing among models. For example, platform sharing between Chrysler and Mitsubishi allowed Mitsubishi to reduce its number of light-vehicle platforms from 12 to six. Honda Odyssey and Accord share the same platform, as do Ford Everest and Mazda Fighter.
What is the role of Thailand in global automobile production networks? Toyota, which has continuously accounted for the largest share in production in Thailand of both passenger cars and pick-ups, uses the country as a production and export base of small-to-medium passenger cars and one-tonne pick-ups. Toyota exports the cars mostly to Southeast Asian countries, Australia and New Zealand. Toyota exports pick-ups primarily to Europe.
Passenger cars manufactured by Honda in Thailand are exported to other Southeast Asian countries, whereas Honda Stream is produced in Indonesia and exported to other countries in the region, including Thailand. Ford and Mazda use their production base in the Philippines for producing passenger cars – Ford Laser, Ford Escape, Mazda Protégé, and Mazda Tribute – for the other countries in the region, including Thailand.
Linkages: assembler and parts suppliers
As global competition intensifies, multinational carmakers increase local parts procurement to strengthen their international competitiveness. Many vehicle parts have high weight-to-value ratios and some are bulky. Therefore, there is substantial cost in procuring parts from distant suppliers. Close cooperation between manufacturers and parts suppliers is also needed to match production plans and delivery schedules to ensure just-in-time production while maintaining quality. Local procurement also reduces exposure to exchange rate risk. These considerations explain the tendency for geographic clustering of the automobile industry, with car assemblers at the centre surrounded by part suppliers.
According to ADC records there are 1,454 indigenous part suppliers in Thailand. Of these, 354 are first-tier suppliers, while the rest operate at the second- and third-tier in the supply chain. The first-tier suppliers design and manufacture modules, not just individual parts and components. They deal directly with car manufacturers. Second- and third-tier suppliers produce parts and components for first-tier suppliers.
Currently there are about 10 local firms among the first-tier suppliers that are truly involved in design and manufacture modules. The other local firms manufacture simple inner body parts. Prior to the abolition of ownership restriction on foreign affiliated firms in 1997, there were many more first-tier local suppliers operating under technology licensing agreements with foreign part producers. Since then, the technology owners have taken over most of these local firms.
The dominance of MNEs at the first-tier of the supply chain is not unique to the Thai auto industry. The phenomenon of foreign firms consolidating their position at the first tier of the supply chain has become integral to the globalization of auto industry. For example, by the late 1990s in Brazil there was only one locally owned firm among the 13 largest component producers. In the Republic of Korea, many large auto part firms were taken over by Western first-tier suppliers after the 1997-1998 financial crisis. Given concerns about protecting proprietary assets in cutting edge technology in a highly competitive market, wholly owned affiliates have become the preferred mode of international operation for MNE auto part producers.
The fact that only a few indigenous suppliers have been able to maintain their OEM status suggests that the LCR regime during the 1970s and 1980s failed to have a significant, lasting and positive impact on local part suppliers. However, the LCR regime and other protection measures helped local suppliers gain technological capability. The relevant issue is whether such protection measures can lay the foundation for sustainable development of a local auto parts sector. The Thai experience suggests that these measures were insufficient to build up the technological capability of local suppliers and allow them to benefit from the gains of dynamic economies.
Evidence from firm level interviews suggests that the success of the few local OEM producers has come not from the protection provided by LCR measures, but from their ability to forge links with the car assemblers whose production strategy shifted in the late 1980s towards exports. The expansion of production in these firms began in earnest only from the mid-1990s when policy reforms, in particular the removal of LCR, enabled them to forge links with world class part makers.
At the initial stage of global integration, opportunities seem limited for purely local firms to become OEM suppliers on their own within MNE-dominated production networks without forging links with MNE part suppliers. Their activities will be heavily concentrated at the second and third tiers until they gain technological expertise and establish themselves as quality providers. The few local OEM suppliers are currently concentrated in the production of auto-body parts. Car assemblers normally design body-related parts because they are directly related to the appearance of the vehicle. Production of these parts does not require a high level of technological capability.
However, there are indications that the local OEM suppliers and some local firms involved at the second tiers have begun to move up the technology ladder. For instance, Thai company Aapico has emerged as one of the world’s best suppliers of low-volume tooling. A recent study of procurement practices found many cases of Japanese automakers and first-tier firms expanding procurement of high-tech parts from second-tier Thai firms.
The number of local firms joining the automotive production chain at the second and third tiers has significantly increased over the past decade or so. They are involved in the production of standard parts and components, as well as intermediate inputs such as such as plastics, textile products and leather products. Growth prospects in these product lines seem promising because of the high growth of vehicle production and the increased local content of locally assembled vehicles. Evidence from interviews suggests that knowledge and technology transfer from OEM firms and final assemblers to lower tier suppliers have accelerated as the auto industry becomes increasingly globally integrated.
Related articles:
- Making inroads in regional and global automotive networks: Part 1
- Making inroads in regional and global automotive networks: Part 2
- Making inroads in regional and global automotive networks: Part 3