TOKYO In the 1980s, fewer than 500,000 cars were sold in the ASEAN region annually. In 2016, the figure was more than six times higher, at 3.2 million. The initially modest size of the auto market in Southeast Asia led to a unique division of labor and helped foster economic integration, according to Toshiyuki Shiga, a Nissan Motor board member and former chief operating officer.
In an interview with the Nikkei Asian Review, Shiga, who had worked with the region starting in 1983, including five and a half years in Indonesia, said automakers' drive to create an efficient value chain in the 1980s was a key event in ASEAN's development.
"After the 1985 Plaza Accord, Japanese automakers' localization rapidly advanced," Shiga said, recalling the agreement between big industrial countries to push up the value of the yen. ASEAN countries, on the other hand, required foreign manufacturers to buy locally produced parts for auto plants operating there. This forced automakers to think hard about how to make cars in ASEAN.
Then, in 1988, came the Brand-to-Brand Complementation, or BBC, program. Under it, components made in ASEAN were granted tariff reductions within the region and were classified as local content.
"Thanks to the BBC, the concept of an intra-ASEAN division of labor was created," Shiga said. "Automakers studied hard which parts to produce in which country, and they chose specializations, such as castings for Indonesia and transmissions for the Philippines."
Mitsubishi Motors proposed to ASEAN policymakers the creation of the BBC scheme, Shiga said. The BBC later evolved into the ASEAN Industrial Cooperation Scheme in 1996, which covered more industries. ASEAN members in the meantime had agreed to create the ASEAN Free Trade Area (AFTA), which aimed to reduce internal tariffs to between zero and 5%.
This regional division of labor was a barrier to entry by non-Japanese automakers. "Latecomers like General Motors used a lot of imported parts. Therefore, they were hit hard by local currency depreciation during the 1997 Asian financial crisis," Shiga said.
Japanese automakers control some 80% of the ASEAN auto market. But with the establishment of the ASEAN Economic Community in 2015, ASEAN has become more open, Shiga acknowledged.
"Japanese manufacturers should be ramping up localization and human resource development," Shiga said. "Through such efforts, we will be able to grow together with ASEAN and gain an advantage" over rivals, he said. The next goal in ASEAN will be to produce locally developed models.
Japanese carmakers could face challenges when new types of services, such as car-sharing and ride-hailing, emerge, he added. "We have invested a lot in ASEAN," Shiga said, "We have to be careful that such legacies will not weaken our [response] when paradigm shifts happen."