Global Strategies and Local Realities

In the 1980s, debates on the restructuring of the automotive industry focused on the impact of lean production and the restructuring of supplier relations in Europe and North America, largely in response to the success of Japanese companies. In the 1990s, attention shifted towards the globalisation of the automotive industry. The stagnation of vehicle production and sales in the Triad regions (North America, Western Europe and Japan), together with the startling performance of the automotive industry in wide range of emerging markets, put the issue of globalisation and relations between Triad and emerging markets at the centre of debates.

Trade magazines¹ have been rife with predictions that new countries are making a grand entrance onto the automotive industry’s global stage, and this is also a recurring theme in the strategic plans made by automotive companies (car and component makers). Despite disappointment in the recent growth rates of the Central European, Latin American (Mexico, Brazil) and, lately, South East Asian markets, most observers today still appear to consider that the rise of the emerging countries is unstoppable. However, similar breakthroughs have already been widely announced on several different occasions, and even though they never really materialised, the top international experts (Altshuler et al. 1984) have often been somewhat too quick to agree with these forecasts. It is, therefore, worthwhile asking whether or not the emergence of new automotive countries is an irreversible phenomenon. After having described the recent rise of the emerging countries, and after having analysed the factors involved, this chapter will explore the uncertainties associated with expectations for growth in these markets.

For much of the 1990s, vehicle production and sales grew rapidly in the emerging markets, while the vehicle markets of the Triad economies stagnated. From 1990 to 1997, vehicle sales in the major emerging markets grew by 92 per cent, and production by 99 per cent. Over the same period, sales and production in the Triad economies rose by 1 per cent and 4 per cent respectively (Fourin, 1998).¹ In this period, total vehicle sales in the Triad grew by 230000, while sales in the major emerging markets grew by 3.9 million. Not surprisingly, production and sales in the emerging markets were expected to rise considerably in the early part of the 21st century.

This chapter analyses the environmental impact of vehicle use in South and South East Asia and the range of policy responses available to reduce this impact. The countries of South and South East Asia are very disparate in terms of economic development. Over the last three decades these countries have experienced growing urbanisation and affluence, although this growth has been unevenly distributed, both spatially and over time. While levels of car ownership remain generally low compared to Western Europe or North America, high rates of growth of traffic in cities have led to congestion on roads and environmental damage from atmospheric pollution, noise and land use impacts.

Since the mid-1980s, the Mexican motor industry has experienced exceptional growth, with annual vehicle output having exceeded the one million mark since 1996 (Table 6.1). This period of expansion, which was sparked off when the big North American companies decided to build a series of assembly facilities in the country, has been sustained by an export boom towards the United States. From an analytical point of view, these events have become a classic example of the Triad having integrated its periphery into its core, and they have come to symbolise a type of industrial development which the present article will from now on refer to as ‘Integrated Peripheral Markets’.¹ Mexico is not the only country to have lived through this kind of experience. During the 1970s, the Spanish motor industry also followed a similar trajectory. At the beginning of that decade, Spain had been producing 500000 vehicles annually — but by 1997, this number had soared to 2.5 million (Table 6.2), and the country had caught up with France as Europe’s second largest vehicle producer, far ahead of Italy and the UK. More than 80 per cent of the production of foreign companies in Spain has been exported to the countries in the European heartland.

Over the past decade, a substantial amount of FDI has been channelled into the motor industries of the emerging markets. New investments in the emerging markets have become strategic not only for the assemblers but also for first-tier suppliers, and the subsidiaries of transnational companies in these markets have become more closely integrated into the global operations of their parent companies. Consequently, the motor industries of these countries have been structurally transformed. In some respects, the emerging markets have been places for innovation and experimentation within the motor industry. Their weaker social institutions and regulation, combined with their convenient distance from global headquarters, have allowed experiments in assembler—supplier relations. In many respects, the assemblers are using the opportunities afforded by greenfield investments and weak trade unions to introduce more advanced systems in developing countries such as Brazil, China and Thailand than might be seen in Europe or North America.¹

The purpose of this chapter is to explore dynamic aspects of strategy formation in global product development. By describing and analysing the design and organisational choices of some Japanese vehicle makers for products targeting the South East Asian markets, particularly in Indonesia, we aim to better understand how international manufacturing firms try to balance goals that often contradict: to adapt their products and activities to local requirements, and to enjoy scale or scope economies through standardised global operations and resources. We pay special attention to the dynamic nature of a firm’s capability building or organisational learning, through which its product design strategies, organisational capabilities, and its environments co-evolve over time.

Until the 1960s, vehicles sold in the ASEAN countries came exclusively from Western manufacturers. These were designed and produced in Western countries and exported to the region. Toyota, followed by other Japanese makers, entered these markets in the 1960s by opening assembly plants for CKD vehicles. Then, during the 1970s, as the ASEAN countries began to adopt policies that favoured localisation (see Chapter 3 by Humphrey and Oeter, in this volume), the Japanese vehicle makers began to outsell their Western rivals, and this in turn attracted Japanese component manufacturers who also began to set up operations in the region.

Central Europe’s unique history together with its geographical location provide an excellent opportunity to analyse the dynamics of inter-and intra-regional division of labour, the role and scope of global and regional patterns, national policies and firms’ strategies. Central European countries have long-established, but somewhat different automotive traditions, shaped by the three distinct socio-economic systems occurring in the space of 90 years. These traditions continue to shape the auto industry even today.