Seeking for bigger share in ASEAN car market
Imanuddin, The Jakarta Post, Pattaya, Thailand
Ford Motor Company, the Michigan-based car manufacturer, recently invited a number of journalists from ASEAN countries to Thailand and Vietnam as part of the company's ASEAN-wide campaign. The Jakarta Post's Imanuddin took part in the week-long trip.
Major thoroughfares in metropolis Jakarta, Singapore, Kuala Lumpur, Bangkok and Manila are flooded with various brands, types and models of automobiles.
From the popular Japanese names to the European idols and the powerful newcomers from South Korea, you name it, all are competing at high speed to win the hearts of the huge ASEAN market.
And the Ford Motor Company, which besides manufacturing cars under its own name also controls Volvo, Land Rover, Jaguar, Aston Martin, Lincoln, Mercury and Mazda, has in the past few years been making aggressive marketing efforts in major member countries of ASEAN.
For some countries in the region, the presence of Ford -- which will celebrate its centennial anniversary next year -- is perhaps relatively new.
But for Indonesians over the age of 50, Ford is not a new brand, as its cars have been on the streets here since the late 1920s.
Thunderbird, Mustang and Cortina were among the Ford sedans that arrived in Indonesia in the 1950s, 1970s and 1980s, respectively.
Ford's presence here has, however, been on the decline since the arrival of Japanese vehicles in the late 1960s. In a bid to revitalizes its Indonesian operation, the company opened in February two sales outlets, in South Jakarta and West Jakarta.
In the eyes of Ford executives, ASEAN is a prospective and promising market.
"ASEAN represents the Association of Southeast Asian Nations, comprising 10 nations. Though each of these countries is unique, there are many commonalities to be drawn from them as a region," said John Parker, Ford's president for ASEAN operations.
"For the automotive industry, ASEAN offers huge potential. Yet, compared to some of the more developed nations, ASEAN's huge population represents a consumer market with a low vehicle penetration of four vehicles per 100 people."
Looking at the bigger picture, the Asia-Pacific region represents the largest market for the future. Approximately 8 percent, or three-quarters, of the world's automotive growth from 1999 to 2008 will be in Asia Pacific.
David Snyder, director of business development and associations management for Mazda and Ford Asia Pacific, said Asia, including ASEAN, was an important market for Ford as a firm.
"No automaker can ignore the market in Asia. It will be a great market real soon," Snyder said.
Ford has invested over US$1.3 billion in Asia in the five years between 1995-2000. Currently, within ASEAN, Ford has a manufacturing presence in four countries -- Thailand, Malaysia, Vietnam and the Philippines. It also has sales and distribution companies in those four markets, as well as in Singapore and Indonesia, as well as finance and credit companies in multiple locations.
John Parker said Ford was committed to long-term business, investment and operation in ASEAN.
"Ford may be considered a late starter in comparison with its Japanese counterparts, but I strongly believe that we have in place the 'building blocks' for a solid foundation -- that we have the products, innovation and technology, talent, infrastructure, commitment, brand equities and 'can-do' spirit that will make Ford a leader in the Asian auto industry," he said.
An example would be Ford's success story in Thailand. It first introduced the Ford Ranger, a 4x4 pickup, in 1998 and succeeded in gaining a 10.5 percent market share in just three years. The international research institute JD Powers named the Ford Ranger the best pickup in two consecutive years -- 2001 and 2000.
Yet, Ford is also realistic about its presence in ASEAN, especially its recent presence in Indonesia.
"There is a market of 300,000 vehicles in Indonesia ... it's a big market indeed. But we are aware that we cannot become a market leader in such a short period of time," said Scott McCormack, brand director of PT Ford Indonesia.
But to Ford, ASEAN will only be competitive when it is viewed as one market, with 550 million people and over 1 million in vehicle sales annually.
"Auto manufacturers recognize that as 10 separate markets, the ASEAN markets are too small to be of significance. Together, they are a formidable market," John Parker said.
A fragmented ASEAN may be a small market in terms of size, but an integrated ASEAN would be the eighth largest auto market with 1 million in car sales. And with continued growth, it could become the fourth largest auto market by 2005 with 2.2 million in auto sales.
Ford's confidence about penetrating the ASEAN market is also due to the fact that the ASEAN Free Trade Area (AFTA) comes into effect in six founding members of the association -- Indonesia, Singapore, Malaysia, the Philippines, Thailand and Brunei -- on Jan. 1, 2003.
In line with AFTA, all but a few import tariffs will be reduced to between zero percent and 5 percent.
Consequently, for example, cars imported from these countries will be able to be sold at cheaper prices in Indonesia, while Indonesian-made cars can be sold cheaper overseas.
And Ford believes that AFTA will allow manufacturers to unlock regional volumes, as there is a lot of unused capacity in the region with many car factories operating at below 60 percent of capacity utilization. This 60 percent utilization is the bare minimum required to keep a plant open and profitable.
AFTA could act to boost regional volumes, which would allow vehicle manufacturers to fill up today's unused capacity.
The important thing about AFTA is that it creates one market of 520 million people, said John Parker.
"Because of AFTA, vehicle manufacturers have market access which in turn drives investment, job creation, small and medium- scale business development, and effective and real technology transfer," he said.
For all these manufacturers, AFTA also allows coimplementation and product specialization.
"In terms of economies of scale, AFTA brings reduced complexity, reduced costs and increased quality. Rather than building the same product in multiple plants in the region, we can assign one product to one plant and allow that plant to specialize. Indeed, that is Ford's strategy in ASEAN, and we believe it is a winning strategy.
"We also believe AFTA is a 'Win Win Win' formula. It's a win for governments because it allows investment by the auto industry, which is large scale and involves meaningful technology transfer and jobs. It's a win for car companies because it allows us to fully utilize our plants, and a win for parts suppliers because it opens up export markets to them. And it's a win for customers because they will have greater access to world-class vehicles at competitive or even cheaper prices," he said.
As an example, he said that in 2001 Ford built pickup trucks and passenger cars in both Thailand and the Philippines. This resulted in duplication of vehicle assembly, duplication of suppliers and no resource sharing, which was inefficient and led to higher costs.
With the help of AICO, or the ASEAN Industrial Cooperation Scheme, Ford decided to concentrate production by moving pickup truck manufacturing to Thailand only, and passenger cars to the Philippines only, he said.