The arrival of the AEC era will change the face of automotive industry as we know it. We will see inter-country tariffs eliminated hence, we can predict that in AEC era, auto-makers will concentrate their investment in a few countries and export cars from these few countries to meet demand of the whole South East Asian region. The current upcoming automotive hub in AEC could be Thailand, Indonesia, Malaysia, Vietnam or Philippines.

1. C A N VA S S C O 1

2. ASEAN 5 SELECTED COUNTRIES
AUTOMOTIVE MARKET SNAPSHOT
FIGURE 1: POPULATION (FY 2013)
INDONESIA - 25O MN
PHILIPPINES - 98 MN
VIETNAM - 89 MN
THAILAND - 67 MN
MALAYSIA - 30 MN
FIGURE 2: PASSENGER CAR OWNERSHIP PER 1,000 POPULATION
12%
368
18% 10% 6% 16%
93
45 12 8
325
67
CAGR (%)
37 9 6
2010 2013 2010 2013 2010 2013 2010 2013 2010 2013
Indonesia Philippines Vietnam Thailand Malaysia
FIGURE 3: PRODUCTION CAPACITY
ASEAN 5 COUNTRIES
THAILAND
INDONESIA
MALAYSIA
PHILIPPINES
VIETNAM
3,916,095 UNITS
2,120,000 UNITS
1,200,000 UNITS
543,829 UNITS
46,396 UNITS
5,870 UNITS
© C a n v a s s c o 2

3. FIGURE 4: COMPETITIVE RANKING 2013
2nd
1st
About a decade ago, ASEAN
started emerging as an attractive
h u b f o r a u t o m o t i v e
manufacturing. Lower production
and transportation costs have
motivated most auto makers to
move their factories to ASEAN.
Total production in this region is
e x p e c t e d t o g r o w a t 8 %
Compound Annual Growth Rate
(CAGR) to a total of 7.05 million
units by 2019 (Frost and Sullivan).
Present-day, Toyota is the largest
car manufacturer in this region
with market share of 12.9% in
volume.
The coming of the AEC era will
change the face of automotive
industry as we know it. We will
s e e i n t e r - c o u n t r y t a r i ff s
eliminated hence, we can predict
that
In AEC era, auto-makers
will concentrate
4th
Philippines has not issued any national policies for
automotive industry
It’s low cost labour, high middle class population and bad
transportation infrastructure means it could be the next Detroit of
Asia
It’s key strategic location, government support and low labour costs makes
it the No.1 Automotive Hub in ASEAN
3rd
The delay in government liberalising automotive industry
resulted in it lagging behind Thailand and Indonesia
5th
There is a lack of incentives for automakers to
locate production base in Vietnam
their investment in a
few countries and
export cars from these
few countries to meet
demand of the whole
South East Asian
region.
This will allow auto-makers to
afford lower cost of production
f r o m e c o n o m i e s o f s c a l e .
Therefore, it is critical that we
analyze which countries are most
likely to be the automotive
production hub in the AEC era.
We will focus on manufacturing
based countries such as Thailand,
Indonesia, Malaysia, Philippines
and Vietnam. The attractiveness
of the production base depends
on factors such as production
capacity, government scheme,
labour availability and current
export volume.
THAILAND
The popularity of Thailand as an
automotive hub arises from it’s
strategic location, being the
gateway to all of Asia. It’s key
success factors are low cost
production, transportation and
labour costs.(Business Monitor
International, 2014)
Giving it the name,
“Detroit of Asia”.
According to the Federation of
Thai Industries, car production for
the first 10 months of 2013 came
in at 2.12 million units, an
increase of 7.1% year on year
(yoy). It is the largest production
base in the region due to
c o n s i s t e n t e c o n o m i c a n d
industrial growth in 2014.
The automotive sector is vital to
Thailand’s economy, being the
second largest export industry
© C a n v a s s c o 3

4. a f t e r c o m p u t e r p a r t s a n d
components.
It’s attractiveness as a
production base arises
from government
allowing 100% FDI
ownership in this
industry (Bangkok Post,
2010)
Hence making it popular for
Japanese giants. The country has
business friendly government,
strong supplier presence for
automotive parts, and efficient
i n f r a s t r u c t u r e c r e a t i n g a
preferred automotive ecosystem
for Japanese car manufacturers.
Since more than a decade ago,
the policies on automotive
industry set by the government
has been consistent with making
it an automotive hub for
passenger cars by promoting its
manufacturing and export. The
government fostered hub, creates
an environment where auto part
makers and suppliers are located
w i t h i n c l o s e p r o x i m i t y t o
production sites creating clusters,
allowing enhanced communication
and improved flow of goods.
F u r t h e r , T h a i l a n d ’ s l o n g
e x p e r i e n c e i n a u t o m o t i v e
manufacturing has equipped the
country skilled labour allowing it
to manufacture high quality
automotive parts, being ranked as
one of the best suppliers for
automotive parts in ASEAN
region.
Today, the passenger car market
is dominated by key Japanese
players such as Toyota, Honda
and Nissan which accounts for a
total of 72% of the market share
by end of 2013 (BOI, 2014). In
the first phase of the eco-scheme,
automakers for eco cars
manufacturers get to enjoy
exemptions from corporate tax
and machine import duties as well
as get 90% reduction in import
tax for raw materials and finished
parts. Nissan, Mitsubishi, Honda
and Toyota took part in the first
scheme.
The second eco-car scheme
which came about March this
year had attracted additional
members including but not limited
to Ford. In this scheme, they
enjoy benefits such as exporting
car tax-free to Indonesia and
using Thailand as a low cost
production base to export to
other parts of South East Asia
including Europe and U.S.(BOI,
2014)
The government gives permission
to bring in foreign experts and
technicians ensuring a lenient visa
p r o c e s s f o r f o r e i g n e x p a t
employees. Further, there are no
restrictions on export, local
c o n t e n t a n d l o c a t i o n
requirements.
Apart from being production
base for passenger or eco-cars to
cater to local demand,
Thailand’s automotive
export accounts for 50%
of the manufactured
volume with value of
800 million THB (26.7
billion USD).
A l t h o u g h T h a i l a n d h a d
experienced weak demand in
some export markets in the
r e c e n t y e a r , a u t o m o t i v e
manufacturers are shielded from
this decline due to their well-diversified
export locations. For
instance, Mazda is using Thailand
as a production base for cars to
be exported to US since 2013.
Therefore, showcasing Thailand
as a potential global automotive
export hub.
INDONESIA
Besides Thailand, Indonesia is the
most attractive automotive
production base and
Indonesia has potential
to be the next “Detroit
of Asia”.
Although a late mover, it became
an appealing hub for automotive
manufacturing due to recent
removal of foreign ownership
restrictions and decreased import
restrictions on auto parts. The
market size for car production is
much smaller than in Thailand but
it’s passenger car production
grew rapidly in the past year at
13.4% in 2013 to over 1.2 million
u n i t s . ( B u s i n e s s M o n i t o r
International, 2014).
The current hype in visioning
Indonesia as the next automotive
base is it’s rapidly growing
domestic demand and low skilled
labour wages in comparison to
Thailand and Malaysia. Key drivers
for the fast growing demand of
passenger cars in Indonesia
arises from large population of
240 million, increasing number of
middle-class drivers, rising per
capita income levels and most
importantly, it’s poor public
transportation system. This calls
for a need for the middle class to
invest in their own form of
t r a n s p o r t a t i o n . T h e r e f o r e ,
Indonesia has the fastest growing
domestic demand for passenger
cars in South East Asia.
Today, large Japanese passenger
car manufacturers located in
Indonesia are Honda, Daihatsu
and Toyota. The Indonesian
© C a n v a s s c o 4

5. Government has introduced the
Low Cost Green Car (LCGC)
scheme attract big automotive
players and to increase their
production for domestic and
export market. The LCGC scheme
promotes the production of small,
cheap, fuel efficient and low
emission cars which is similar to
the eco-car concept in Thailand.
The scheme was introduced in
2013 and the regulation states
t h a t p a s s e n g e r c a r s
manufactured complying with this
scheme will enjoy 25% tax cut if
they run 20 km on a single litre of
fuel, 50% tax cut for 28 km per
litre and 100% tax cut if they
manage more than that.
It is expected for dominant
players such as Toyota and
Daihatsu to have first-mover
advantage as they already have
models waiting to be released for
this scheme. Tata Motors and
Mazda have also announced that
it plans to use Indonesia as an
export hub for their cars. Due to
motivation from LCGC scheme,
p a s s e n g e r c a r p r o d u c t i o n
exceeded domestic sales for the
first time in five years. The
government has encouraged
export of these cars to other
parts of South East Asia but it
has lesser appeal as a passenger
car manufacturer and exporter in
comparison to Thailand. This is
because of less aggressive
policies and it lacks supply chain
investments for automotive.
Although export of automobiles
reached 200,000 in 2012 and is
expected to be 30% of cars
manufactured, Indonesia needs to
develop it’s supply chain for
automotive fast.
Although an exporting country
having sold to more than 30
other countries, it’s biggest
deficiency for automotive export
is still it’s underdeveloped port
infrastructure. Despite inadequate
facilities for export of passenger
c a r s , t h e r e a r e s t i l l s o m e
e x a m p l e s o f e x p o r t f r o m
Indonesia where Toyota Motor
b e g a n e x p o r t i n g c a r s t o
Philippines and Middle East.
However, Indonesia is not capable
of exporting large volume and
benefiting from cheap
manufacturing and labour costs
afforded from economies of
s c a l e . I n c o m p a r i s o n w i t h
Thailand, it will still be lagging
behind in export of passenger
cars.
The rapid surge in
domestic demand for
passenger cars in
Indonesia will make up
for the lack in export
and make it appealing
for a car manufacturing
base.
In the short-term it is doubtful
that Indonesia could attain the
leading position for automotive
manufacturing in ASEAN. The
biggest short-term obstacle is it’s
d e fi c i e n t c a r e x p o r t
infrastructure. Nonetheless, if
Indonesia rapidly develops its
export infrastructure, it has great
potential to be the next “Detroit
of Asia” surpassing Thailand.
MALAYSIA
T h e m a r k e t s i z e o n c a r
manufacturing is small compared
to regional neighbours such as
T h a i l a n d a n d I n d o n e s i a .
Passenger car manufacturing in
Malaysia showed a growth of
6.7% to 543,892 units in 2014.
Although Malaysia has shown an
interest in automotive industry
before competing countries, its
protective mechanism for it’s
local automotive companies such
as Proton and Peradua has
caused it to lag behind in
production volume and export
volume.
Proton and Peradua
have long enjoyed
preferential treatment
from the government
due to high tariff on
imported cars.
This prevented Proton from
improving it’s technology hence,
lagging behind international
competitors. Till today, Malaysia’s
production volume has not
increased beyond it’s market
demand and imports have had to
satisfy much of their local
demand for passenger cars.
The National Automotive Policy
2 0 1 4 ( N A P 2 0 1 4 ) b y t h e
Government aims for Malaysia to
be the hub for energy efficient
v e h i c l e ( E E V ) h e n c e , l o c a l
production of both hybrids and
electric vehicles are encouraged.
A first scheme targeted at both
foreign and local automotive
companies, it is the first clear
step the Malaysian Government is
taking to liberalize the automotive
industry. Japanese automakers
such as Toyota is expanding it’s
operations to launch a third plant
in Malaysia and is a joint venture
with Japan Toyota and Malaysia
Toyota. They will assemble and
manufacture in Malaysia.
The NAP scheme and Malaysian
skilled labour in automotive is
expected to make it an attractive
base for green vehicle production
in the country. The scheme allows
tax exemption for local and
foreign companies alike for all
locally assembled hybrids till end
of 2015 and for locally assembled
© C a n v a s s c o 5

6. electric cars till end of 2017.
The government aims to
achieve annual exports
in excess of 250,000 cars
by 2020 with the
introduction of this
scheme.
The intention is to boost the
country’s position as an export
hub with NAP policy, as the
Malaysian government have
gauged that there is more benefit
to be realized from locally
manufactured cars rather than
import expensive cars from
neighboring countries to satisfy
the demand.
It was only a matter of time
before the government had to
liberalize it’s automotive industry
and allow Proton and Peradua to
compete with international
competitors. With the NAP
scheme in place, Malaysia car
production is expected to grow
faster than domestic sales by
2018. Therefore, export from
Malaysia is not going to be limited
to Malaysian passenger car
b r a n d s b u t i n t e r n a t i o n a l
competitors as well.
PHILIPPINES
Philippines is a “laggard” among 5
car manufacturing ASEAN peers
with Vietnam following closely
behind. Passenger car production
capacity was at 46,390 units with
growth at 1.4% (year on year).
Nevertheless, the untapped
potential from low penetration in
car ownership and increase in
number of middle class spenders
means there will be growth in
domestic demand for cars for at
least a few years.
A country with the second
highest energy cost in the world
and with FDI foreign ownership
limited to 40%, it has attracted
s m a l l e r p e r c e n t a g e o f
m a n u f a c t u r i n g i n t e n s i v e
businesses in comparison to its
peers. Despite many discouraging
factors for foreign investment,
the Japanese automotive giants in
Philippines are there to stay due
to surging domestic demand for
cars and because of the FTA
agreement with Japan.
The key reason for
Philippines falling
behind it’s peers is the
lack of national policies
for the automotive
sector.
ASEAN car manufacturers such
as Thailand, Indonesia and
Malaysia already have well-established
national policies to
incentivize car production but
Philippines has yet to set such
policies. Although there have
b e e n u p d a t e s t h a t t h e
government is going to issue
strategic policies to increase
Philippines competitiveness on
being an automotive hub, the
issuance of the policy has been
delayed. For this reason, there is
still potential for Japanese
investors to increase production
bases but they are waiting for a
clear industry policy to boost
their confidence and increase
production capacity in Philippines.
Regardless, the news update on
such policy issuance in the near
future has lead Toyota and
Mitsubishi to set up bases for
automotive parts and assembly in
Philippines. This shows that there
is potential for Philippines to at
least be a production base to
cater to the local demand. As for
being an exporting country for
cars and parts, Philippines has
too much catching up to do. In
fact, it’s domestic demand is still
being catered to by import of
cars and parts from Thailand and
Indonesia.
VIETNAM
Vietnam automotive production is
very much at the infant stage
with 5,870 units in 2013, a 40.7%
growth from last year. Similar to
Philippines, the attractiveness of
locating automotive production
base in Vietnam arises from less
penetration in vehicle ownership.
The country with fast growing
middle and affluent class in
ASEAN, the population of these
potential consumers for the
automotive
industry is expected to rise from
12 million to 33 million between
2012 to 2020. Moreover, with
50% VAT reduction on passenger
cars, there is a boost in sales in
2014 in spite of the decrease in
GDP growth this year.
Despite Vietnam’s attractiveness
in many industries due to it’s
cheap but skilled labour, there is
lack of incentives for automakers
to locate production base in
Vietnam due to several critical
factors. Firstly, the domestic
supplier industry for automotive
parts is not at all developed.
S e c o n d l y, a u t o m a k e r s a r e
required to import very expensive
parts due to high import tariffs on
automotive parts to support
assembly of passenger cars.
Thirdly, while all neighbouring
countries have already had their
passenger car incentive scheme,
Vietnam has yet to
© C a n v a s s c o 6

7. have a national
scheme to incentivize
manufacturing of
automotive.
Lastly, the most important is
investment policy whereby
Vietnamese government should
offer incentive such as tax breaks
for automotive manufacturers to
attract FDI into the country.
While there is a range of
incentives that Vietnam must
work on to promote automotive
companies to set up production
base in Vietnam,
Vietnam has to cut
bureaucracies in doing
business.
Hyundai Motor has stopped the
construction of manufacturing
factory as the government has
yet to give license for Euro 2 and
3 engine production which has
taken an unnecessarily long
amount of time. Vietnam has yet
to work on being a production
base for cars hence, it is not
capable of being an exporting
country for cars for at least a few
years.
THE FUTURE
The arrival in AEC will certainly
cause drastic changes to many
industries in member countries
due to free flow of goods and
s e r v i c e s . P a r t i c u l a r l y i n
a u t o m o t i v e i n d u s t r y , c a r
manufacturing base will be
concentrated in few countries
with the most potential and
lowest cost of production.
I l l u s t r a t e d i n F i g u r e 3 , i n
comparison to all countries,
T h a i l a n d ’ s p a s s e n g e r c a r
production output is more than
half of the whole ASEAN output.
Although Indonesia is the second
highest car manufacturing
country, it manufactures half of
what Thailand manufactures.
Illustrated in Figure 6 is the
analysis and comparison of all
countries on critical factors
r e q u i r e d t o b e t h e n o . 1
automotive hub in ASEAN. In this
study, all factors are assumed to
have an equal contribution to
making a country the no.1
automotive hub.
Thailand currently has the upper
hand in being an automotive hub
for passenger cars with highest
overall score. It continues to
retain a competitive position by
balancing local sales and export.
On the contrary, Indonesia
secures second position and
follows Thailand closely but falls
short in export of passenger cars
because of its underdeveloped
port for export. It concentrates
on local driven sales and inflow of
foreign investment in automotive
industry. Therefore, it is highly
a p p e a l i n g f o r J a p a n e s e
automotive to locate their
manufacturing base.
On the other hand, Malaysia is
r a n k e d a s t h e t h i r d m o s t
appealing for automotive. It has
been lagging behind because of
the delay in liberalizing it’s
FIGURE 5: COMPETITIVE SCORING
© C a n v a s s c o 7

8. automotive industry due to its
attempt in protecting it’s national
car brands Peradua and Proton.
Next is Philippines which is
playing catch up on automotive
industry. The disadvantages for
Philippines as an automotive
manufacturing hub are high
electricity costs, lack of an
attractive government scheme for
c a r m a k e r s . a n d i t ’ s 4 0
percentage ownership allowance
for foreign direct investment also
decreases it’s attractiveness for
foreign car makers. Despite,
being known for it’s workmanship,
Vietnam is not appealing as an
automotive hub. It’s production
capacity is very much at the
infant stage and it does not have
automotive parts supply network
for automotive car makers.
Equally important, it is not
appealing as an automotive
assembly hub due to it’s high
import tariffs. Currently there are
n o s u p p o r t s y s t e m s a n d
government schemes in place to
p r o m o t e V i e t n a m a s a n
automotive hub. Overall, the
l e a d i n g A E C c o u n t r y f o r
automotive manufacturing and
export is Thailand.
Thailand secures a
number one position
with Indonesia
following closely
behind.
It is expected that these two
countries will be the automotive
hub in the AEC era. However we
expect to see Indonesia continue
t o f a l l s h o r t i n e x p o r t i n
comparison to Thailand in the
short-term. This is because of it’s
u n d e r d e v e l o p e d e x p o r t
infrastructure.
This is because it has low cost of
production and lower defect to
total production ratio than
Thailand. For Thailand to continue
securing it’s number one position
as an automotive hub in the long-term,
it has to continue to be
aggressive and consistent in
government policies like in the
past.
“DETROIT OF ASIA”?
Thailand must continue to be
aggressive in factors such as
investing in production capacity
expansions, schemes to promote
e x p o r t a n d l o c a l d e m a n d ,
development of skilled force for
automotive and parts, and
continuous development on
automotive component industry.
Furthermore, to get ahead
Thailand must also start investing
in R&D to adopt technology in
manufacturing in order to
manufacture innovative cars and
differentiate itself. In terms of
strategy,
Thailand cannot sustain
competitive advantage
in the long-term future
in terms of economies
of scale
This is because it has higher cost
of production than Indonesia. it is
recommended to compete by
being first mover with highest
production capacity and it has to
develop itself to compete by
differentiation strategy.
Therefore, the key success factor
for Thailand to continue being
“Detroit of Asia” is to be the
c o u n t r y w i t h t h e h i g h e s t
production capacity, export
capacity and differentiation
strategy by adopting latest
technology and innovation in
automotive manufacturing.
AUTHORS
Navneet Madan is a published
author and a full-time Senior
Project Manager at Canvassco.
She is a young marketing
enthusiast who performs the role
of Business Consultant, Project
Manager and Part-time Writer.
S h e h a s o v e r fi v e y e a r s
experience in content marketing
specifically for mobile and digital
data management. Navneet is
also a copy editor who takes
boring topic and turn it into story-telling
content. Feel free to
contact her at
nmadan@canvassco.com
Anusara Gulthong is a Graphic
Designer with love for marketing.
She transforms content into
visually appealing infographics,
presentations, illustrations and
digital artwork. Apart from
C a n v a s s o , s h e h a s h a d
experience working with Blue
Business. Feel free to contact her
at agulthong@canvassco.com
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