Intenrational Business Essay Research Paper Turnover in

Intenrational Business Essay, Research Paper

Turnover in the Indonesian automotive components industry dropped by 80% in 1998, and the trend continued into 1999 despite efforts to generate exports and the cushion of a slightly more stable aftermarket. There were 171 local components manufacturers in 1998, employing 45,000 people–down from 65,000 the year before.

Like the vehicle industry, the Indonesian components industry now faces its greatest challenge to date–trying to overcome the worst crisis in the automotive sector’s history. Domestic demand has plummeted, and the economy is stalled. Trading conditions remain desperately subdued, with vehicle production now a tiny fraction of capacity levels. Inward investment has been delayed and in some cases diverted to other Asian countries in the light of the political and social instability in the country and, despite the elections, many political hurdles remain.

As a result of the troubles, many indigenous manufacturers are struggling to contain losses and remain in business. Those that have linked with foreign joint-venture partners are more likely to weather the crisis, but at a price. Most are expected to relinquish control and the industry’s need of recapitalisation has provided foreign partners with the opportunity to increase their equity holdings. Vehicle manufacturers have also done a lot to support their suppliers, in an effort to keep the supply chain intact. Nevertheless, the industry has been operating at a fraction of capacity, with extensive temporary closures and redundancies. As the impact of the crisis continues, many of these closures are likely to become permanent.

Assuming that some sort of political and economic stability returns soon– and that is a major assumption–then the outlook should begin to improve. Great challenges lie ahead, but the country does offer among the best opportunities for a regional production base, with among the lowest-cost labour rates and a domestic market with colossal long-term potential. With restored stability, investor confidence should eventually return.

This article is drawn from “World automotive components, 2000 edition”.

SOURCE: Automotive Research Report

There are many tales of misfortune in Asia but few are more sorry than that of the auto industry in Vietnam. It is a story of almost spectacular foolishness, driven by a blind desire to be first in a market that had not the slightest hope of being attractive anyway. Now, the multinational car and truck makers that have over-invested so rashly in the last few years face the prospect of an embarrassing and difficult withdrawal.

The story began in the early 1990s when the car and truck sectors of South Korea, China, India and the main ASEAN countries saw their most feverish expansion. Investment burgeoned as the world’s top vehicle producers convinced themselves that they had found the solution to their growth problems. It was no the longer dull, staid and mature markets of Europe, the US and Japan that were important. It was Asia.

As the fever spread, industry analysts were told to seek out the next market — to find virgin territory, to discover places where competitors had not yet ventured and where even faster growth might be achieved. The willing young executives eagerly searched their atlases for the answer. And, miraculously, they found what they needed. A market with almost 80m people right in the heart of Asia. One that was experiencing rapid economic growth. A country with a (seemingly) adapting political structure looking for inward direct investment. And a country with few cars and trucks. Vietnam.

And so began an incredible tale of misjudgement, over-investment and sheer folly — an excellent lesson in collective corporate madness.

The optimistic analysts had certainly found a market with some attractive features but they had not done their homework. It was true, for example, that the country had a large population and it was experiencing rapid economic growth. It also had few cars and trucks. And it was virgin territory, competitively.

But that was for a reason. There was no real vehicle industry in Vietnam because there was no real demand. Most of the vehicles on the roads were bicycles or (small) motorcycles and the few four-wheel vehicles that trundled around were typically ageing machines from another era (or the imported, gilded carriages of aid agencies). The market was dominated by used cars and trucks from Japan, the Soviet Union and, from a previous political incarnation, France. The fact that these were very old vehicles and that they broke down a lot did not mean that there was a huge pent-up market for new vehicles. It meant that there was a market for old, run- down and slightly decrepit ones.

And the explanation was simple. While the average income level of Vietnamese consumers was growing, it was still very low. GDP per head in Vietnam at the time was just over US$300 — around one-twentieth the level generally assumed to be necessary for a car market to take-off, and around half the level of even Pakistan at the time. The average newly-urban inhabitant of Hanoi or Ho Chi Minh cities barely aspired to a fridge let alone a Ford.

The carmakers had not done their homework in other ways, too. They had not looked properly at the changes taking place in the political system. Vietnam wa