Tài liệu The automobile industry in vietnam and thailand in a comparative perspective

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MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY -------------------------------------------- FULBRIGHT ECONOMICS TEACHING PROGRAMME HUỲNH THỊ KIỀU OANH THE AUTOMOBILE INDUSTRY IN VIETNAM AND THAILAND IN A COMPARATIVE PERSPECTIVE MASTER’S THESIS ON ECONOMICS MAJOR: PUBLIC POLICY CODE: 603114 Supervisor: Jonathan R. Pincus HOCHIMINH CITY, 2010 i CERTIFICATION I certify that the substance of the study has not already been submitted for any degree and is not being currently submitted for any other degrees.   I certify that to the best of my knowledge any help received in preparing the study and all sources used have been acknowledged in the study.  The study does not necessarily reflect the views of the Ho Chi Minh City Economics University or Fulbright Economics Teaching Program. Huynh Thi Kieu Oanh  ii ACRONYMS AND ABBREVIATIONS AFTA ASEAN Free Trade Agreement AICO ASEAN Industrial Cooperation Organization BBC Brand-to-Brand Complementation CEFT Common Effective Preferential Tariff CBU Completely Built Unit CKD Completely Knocked Down IEs Industrial Estates IL Inclusion List IKD Incompletely Knocked Down JVs Joint ventures LVCs light commercial vehicles Samco Saigon auto-mechanics Corporation TEL Temporary Exclusion List UK United Kingdom US United States VEAM Vietnam Engine & Agriculture Machinery Corporation Vinacoal Vietnam Coal Corporation Vinamotor Vietnam Motor Corporation WTO World Trade Organization iii ACKOWLEDGMENTS To finish this paper, I have received many helps. I am heartily grateful to Professor Jonathan R. Pincus for his supervision and guidance. His support and guidance from the initial to the final level help me to develop this subject. He also read and corrected my grammars very carefully and in details. Also I would like to thank FULBRIGHT teachers and staffs in helping me to broaden my view and knowledge during my studying. And I would like to express my deepest gratitude to my parents and friends in supporting me. I offer my regards and blessings to all of those who supported me in any respect during the completion of the paper. Huynh Thi Kieu Oanh iv CONTENTS 1. INTRODUCTION ............................................................................................... 1 2. THE AUTOMOBILE INDUSTRY.................................................................... 4 2.1. Performance .................................................................................................... 5 2.1.1. Thailand ................................................................................................ 5 2.1.2. Vietnam ................................................................................................. 9 2.2. Policies and development ............................................................................. 13 2.2.1. Thailand .............................................................................................. 13 Before the 1997 crisis: protectism, agglomeration and development.... 13 Tariff and tax policy ................................................................................. 14 Localization and other policies ................................................................ 15 Developments of the automobile cluster and supporting industries ........ 18 After the 1997 crisis: Trade and investment liberalization and global and regional integration ................................................................................. 19 Abolishing local content requirements and restructuring tariffs and other taxes .......................................................................................................... 19 Promoting the development of related and supporting industries and large automobile cluster investments................................................................. 21 2.2.2. Vietnam............................................................................................... 22 Before 2004: High protection for agglomeration .................................... 23 After 2004: Protection decreasing, but remains high .............................. 25 2.3. Explaining the differences and learning ....................................................... 27 2.3.1. Differences .......................................................................................... 27 2.3.2. Explanation ......................................................................................... 28 The domestic market is shrunk by government’s policies, especially current tariff and taxes ............................................................................. 28 Supporting industries in Vietnam have not developed, especially an autoparts industry to be able to localize production................................ 31 v Vietnam also has some policies, such as land, R&D, financing policies but they are not clear and useful ............................................................................... 33 2.3.3. Lessons................................................................................................ 33 3. POLICY RECOMMENDATIONS.................................................................. 34 3.1. Changing the current tariff and tax policy ................................................... 35 3.2. Developing of related and supporting industries ......................................... 36 3.3. Development of infrastructure ...................................................................... 37 4. CONCLUSION .................................................................................................. 38 REFERENCES........................................................................................................ 39 APPENDIX 1 ........................................................................................................... 42 TABLES Table 1. List of FDI automakers in Vietnam ........................................................... 10 Table 2. The production volume of 11 JVs (in units), 1996 – 2002 ........................ 11 Table 3. Tariff and tax rate (%) related to CBU and CKD vehicles, before 1992 – present ...................................................................................................................... 14 Table 4. Regulations to Thailand’ zone ................................................................... 21 FIGURES Figure 1. Major functions within the automobile industry ......................................... 1 Figure 2. Competitiveness Diamond........................................................................... 4 Figure 3. Thailand’s automobile production (in units), 1993 – 2008 ......................... 6 Figure 4. Thailand’s automobile sales (in units), 1993 – 2008................................... 7 Figure 5. Thailand’s automobile sales share by producers (%), 2005 ........................ 7 Figure 6. Thailand’s automobile exports (in units), 1996 – 2008............................... 8 Figure 7. The VAMA’s sales volume (in units), 2000 – 2009 ................................. 11 Figure 8. Vietnam’s automobile sales share by companies (%), 2005 ..................... 12 1 1. INTRODUCTION The automobile industry was acknowledged as the “the industry of industries” in the twentieth century and is considered one of the most globalised industries today (Wad, 2009). From Figure 1, we see that the automobile industry is related closely to many industries such as steel, electronics and textiles and contributes to the development of many service industries such as finance, marketing, retailing and banking. So a country that has a developed automobile industry will create good conditions for promoting the development of other industries. This industry contributes largely to socio - economic development and job creation. So, in the ASEAN countries, such as the Philippines, Thailand, Indonesia, Vietnam and Malaysia, it is one of the most important and supported industries. Development of the automobile industry, covering car and component manufacturing, is usually sought by policymakers in the developing and developed countries (Kohpaiboon, 2008). Figure 1. Major functions within the automobile industry BODIES MAJOR SUPPLYING INDUSTRIES Steel and other metals Rubber Manufacture and Stamping of body panels COMPONENTS a. b. Electronics Body assembly and painting Manufacture of mechanical and electrical components, e.g. instruments, braking system, steering components Manufature of wheels, types, seats, windscreens, exhaust systems, etc Final assembly CONSUMER MARKET Plastic Glass Textiles ENGINES AND TRANSMISSIONS Forging and casing of engine and transmission Machining and assembly of engines and transmissions Source: The changing nature of the Asian automobile industries (cited from http://www.unescap.org/tid/publication/chap1_2212.pdf ) 2 Vietnam’ automobile industry has begun since 1991. But up to now, it is small and underdeveloped. Sales volume is very low, about 100,000 units per year. This influences very much to generate economies of scale of assemblers and autoparts companies. And now the local assembly industry in Vietnam is dominated by foreign-invested joint ventures (JVs). It is focused solely on serving the domestic market. In recent years, Vietnam has had many incentives to protect its automobile industry with a view to increasing the local content and reducing the price of vehicles. However, up to now, the local content rate is only about between 2% to 10%. So, local assembly products are heavily reliant on imported parts. In addition, car price is very high. According to the survey of the Ministry of Finance, on November 8th, 2008 the Toyota Corolla 1.8MT was sold in Vietnam with the price of 19,532 USD while in other countries, it was sold 15,350 USD. Similarly, the Toyota Camry 3.5 is 38,510 USD in Vietnam while the world price is from 24,215 USD and 28,695 USD. These results are against the government’s expectation and also demonstrate that Vietnam’s policies have not worked in the automobile industry. As mentioned above, the automobile industry is supported and encouraged by many countries in the ASEAN. The automobile industry in these countries generated some achievements, especially Thailand. Now Thailand’s automotive industry is a key sector in the overall economy that account for 11.3% of GDP in manufacturing and employed 1.2 million workers in 2008 (Sirisuwanangkura, 2009). The local content rate is between 60% and 80% depending on the type of vehicles. Since 2005, Thailand has become the largest production hub of ASEAN and rank number 14 in global production in 2008. To achieve these results, the government’s policies contributed a large part. The study chose Thailand as a comparative object because Thailand and Vietnam are in the ASEAN region. In the past, present and future, the WTO and regional commitments influence much to the automobile industries in Vietnam and Thailand. 3 Additionally, Thailand is an example of success in the development of the automobile industry in the ASEAN. As known, these results in the automobile depend in large part on government policies. Thailand has been successful in building industrial policies such as tariff and tax policies, local content requirements, supporting industrial development and cluster – based automobile industry development, while Vietnam’s policies have not promoted the domestic automobile industry. This study does not focus on finding out these results in two countries. It demonstrates the ways in which the policies have resulted in differences. So, the study focuses on answering these following questions: 1. Which policies influenced the development of the automobile industry in Thailand in the last years? 2. Which policies used to support the development of the automobile industry in Vietnam? 3. Why are not Vietnam’s policies effective to the automobile industry in comparison with the effect of Thailand’s policies? About methodology and collecting data: Almost data of the study is secondary data. It is collected from various sources, such as the reports of Vietnam’s Ministry of Industry, the VAMA, the websites of automobile companies in Vietnam, the available data of the TAIA from its website, the articles about Vietnam automobile market information at Vietnam automobile Magazine and other sources. About thesis restrictions: To write this paper, I put myself in the position of a policy maker. And policy commendations only focus on the side of state and are to repair the government failures. 4 This paper is organized as follows. The next section analyses the Vietnamese and Thailand’s automobile industries and explains the differences described above. Section 3 gives policy recommendations. The final section concludes and summarizes. 2. THE AUTOMOBILE INDUSTRY Using the diamond model of Michael Porter, there are four decisive factors in the competitiveness of the industry as shown in Figure 2 (Porter, 1998). It includes firm strategy, structure and rivalry, factor conditions, demand conditions and, related and supporting industries. The role of government policies in this model is to affect the other four factors with a view to moving to higher levels of competitive performance. These main policies include tariff and tax policy, localization, cluster-based development policy and supporting industry development. Figure 2: Competitiveness Diamond Firm strategy, structure and rivalry Demand conditions Factor conditions Related and supporting industries Source: Porter, 1998 Government policies 5 Over time, impact of these policies has contributed to differences between Vietnam and Thailand. Based on this model, the study demonstrates the effect of the policies through impact of the government’s policies to the other four factors. 2.1. Performance It is difficult and complicated to compare to the auto industry in two countries because of the differences in starting points and domestic conditions. The purpose of this study is to demonstrate the ways in which the policies have resulted in differences. 2.1.1. Thailand Thailand launched its automobile industry in the 1960s. Based on government policies, the country has developed a global and regional automobile industry. Over 40 years, this industry has grown from an import – substitution to an export – oriented industry. The Thai automobile industry supplier network is built as a pyramid, with 15 car assemblers (see Appendix I), 648 tier – 1 suppliers and 1.641 tier – 2 suppliers (Sirisuwanangkura, 2009). About 80% of the country’s overall automobile assembling capacity belongs to Japanese companies. Most of these Original Equipment Manufacturers (OEMs) are mainly members of Japanese keiretsu groups supplying their own customer bases. The companies can be categorized into three groups: members of a Japanese family of companies; joint ventures with Japanese technology owners; and, companies that have technical assistance or licensing agreements with Japanese firms (Royal Danish Embassy, 2006). Together with Japanese firms, many new investments by non-Japanese tier-1 suppliers have entered the country. Most Thai owned companies are in tier 2 or 3. Figure 3 shows that the production of vehicles has picked up strongly after the post – 1997 crisis. During the crisis, production fell rapidly, from 555,821 in 1996 to 6 143,250 in 1998. However, in 2005, production volume exceeded one millions units and Thailand is the largest production hub of automobiles in ASEAN. In 2008, the total production of vehicles was 1,391,728 units, compared with only 143,250 vehicles in 1998. About the structure of products in 2008, Thailand mainly produced one-ton trucks and pick-up trucks. This matches domestic demand as shown in Figure 4. Figure 3. Thailand’s automobile production (in units), 1993 - 2008 Source: The Thailand Automobile Industry Association (retrieved data from http://www.thaiauto.or.th/Records/eng/records_menu_eng.asp, 10/2009) Sales can be classified into two types: passenger cars and commercial vehicles. In Thailand, domestic demand is weighted towards light commercial vehicles, especially one-ton vans and pick-up trucks. Commercial vehicles in total accounted for around two – thirds of domestic demand. The tax regime has favored the purchase of these vehicles rather than passenger cars. In 2008, 238,990 passenger cars were sold, up by 30% from 182,767 units in 2007. More than 95% of local auto demand was met by domestic production. Locally assembled one – ton pickups 7 account for about two-third of the total sector in Thailand. This makes Thailand the second largest market for pickup trucks in the world, after the US. Figure 4. Thailand’s automobile sales (in units), 1993 – 2008 Source: The Thailand Automobile Industry Association (retrieved data from http://www.thaiauto.or.th/Records/eng/records_menu_eng.asp, 10/2009) Figure 5. Thailand’s automobile sales share by producers (%), in 2005 Source: The Thailand Automobile Industry Association, 2005 8 As shown in Figure 5, vehicle sales were dominated by two brands: Toyota and Isuzu. Toyota has the largest market share, with 39.8% in 2005. Isuzu has greatly increased its market share and accounted for 25.4%. Honda, Mitsubishi and Nissan follow with market shares of 7.7%, 6.8% and 5.9%, respectively. United States automobile companies have also increased their presence in the market. Japanese manufacturers controlled nearly 90% of the market. After meeting domestic demand, the automobile companies export vehicles. Thailand has become more export oriented since 1996. Exports have increased gradually from 1999. In 2008, a total of 775,652 units were exported with a value of 516,244 million THB. Major car export markets were Australia, Indonesia and the UK while vehicle components and parts were exported to Japan, the US and Malaysia. Figure 6. Thailand’s automobile export (in units), 1996 - 2008 Source: The Thailand Automobile Industry Association (retrieved data from http://www.thaiauto.or.th/Records/eng/records_menu_eng.asp, 10/2009) 9 2.1.2. Vietnam Before 1991, cars in Vietnam were mainly imported from the socialist countries. Domestic companies had not invested in auto assembling, and were only focused on repairing imported vehicles. Since 1991 the automobile industry has begun to change dramatically as Vietnam opened its economy to international trade and investment. In 1991, the first jointventure with the Philippines was formed in Vietnam, a company called Vietnam Motors Corporation (VMC). At present, Vietnam has 12 automobile joint-ventures (see Table 1), more than 40 foreign autopart companies and 100 domestic companies, including 20 Completely Knocked Down (CKD) kits assemblers and repairers, 20 body-trailer-barrel builders and 60 parts manufacturers. Joint-ventures (JVs) consist of seven Japanese automakers (Daihatsu, Hino, Isuzu, Mitsubishi, Suzuki, Toyota and Honda), one Korean automaker (Daewoo), one Korean-backed licensed assembler (Mekong), one Philippine-backed licensed assembler (VMC), one German automaker (Mercedes), and one American automaker (Ford). JVs are capable of manufacturing any kind of vehicle demanded by the domestic market, but Hino Motors specializes in heavy trucks. Most of the JVs were established before 1996. They play an important role in the Vietnam’s automobile industry. The total registered investment capital of JVs is 574.7 million USD and total real investment capital to the year 2002 was 419.85 millions USD (74% of registered capital). In 2005, Honda invested in producing cars. As of 2005, total real investment capital was about 536 million USD. By 2002, the total registered capacity of eleven JVs was 148,200 units per year. However, these JVs used just 30% of total registered capacity and focused on assembling. Before 2004, the activities of eleven JVs dominated the Vietnamese 10 automobile industry. The production volume of the eleven JVs accounted for more than 90% of the domestic market. Products were diversified in many models. They produced mainly cars to satisfy domestic market demand. Only Hino Motors Company specialized in heavy duty trucks. Table 1. List of FDI automakers in Vietnam S T T 1 2 Company MEKONG CORPORATION VIETNAM MOTOR CORP. Home Country Korea Philippine Company Type License Assembler License Assembler Registered Capacity capital (units/year) (million $) Start Date Location 1992 HCMC 60 5,000 1992 Hanoi 35 20,000 3 VIDAMCO Korea Automaker 1993 Hanoi 32 10,500 4 VINASTAR Japan Automaker 1994 HCMC 50 5,000 5 MERCEDES BENZ VN Germany Automaker 1995 HCMC 70 10,000 6 VISUCO Japan Automaker 1995 HCMC 21 12,400 7 VINDACO Japan Automaker 1995 HCMC 10 3,600 8 FORD VIETNAM US Automaker 1995 Hanoi 102 14,000 9 TOYOTA VIETNAM Japan Automaker 1995 Hanoi 89 20,000 10 ISUZU VIETNAM Japan Automaker 1995 HCMC 50 10,000 11 HINO VIETNAM Japan Automaker 1996 Hanoi 17 1,760 12 HONDA VIETNAM Japan Automaker 2005 Hanoi 70 20,000 Source: Compiled from websites of automobile companies Table 2 shows the production volume of 11 JVs from 1996 to 2002. We see that in this period, the eleven JVs had assembled a total of 84,585 vehicles, achieved USD 1,976.6 million in sales and earned profits of USD 24.4 million. The production volume of vehicles remains low, but is increasing annually. In 1996, total production volume was only 5,538 vehicles. However in 2000, automobile companies produced 13,955 units, up by 155%. Production volume in 2002 was about 26,706 vehicles, a two fold increase over 2000. 11 Table 2. The production volume of 11 JVs (in units), 1996 - 2002 Company 1996 TOYOTA 1997 1998 1999 2000 2001 2002 201 1.277 1.836 2.179 4.600 5.759 7.335 1.014 689 465 1.097 1.750 2.906 3.719 11 362 325 1.195 1.915 3.685 71 359 252 183 547 1.874 2.622 2.090 1.341 950 1.250 2.222 1.800 2.358 VINASTAR 482 622 702 650 858 1.612 2.440 VISUCO 161 489 386 320 948 1.508 2.122 MEKONG CORPORATION 964 527 417 281 414 866 907 57 148 200 483 744 870 556 345 434 779 469 492 12 64 44 81 103 156 5.940 5.927 6.963 13.955 19.556 26.706 VIDAMCO FORD VIETNAM MERCEDES BENZ VN VIETNAM MOTOR CORP. ISUZU VIETNAM VINDACO 555 HINO VIETNAM Total 5.538 Source: Compiled from report of the Ministry of Industry in order to use for the Master Plan for Developing Vietnam’s Automobile Industry, 10/2004 Figure 7. The VAMA’s sales volume (in units), 2000 – 2009 120000 110184 110000 2008 2009 (e) 100000 80392 80000 60000 42557 40138 40277 40897 2004 2005 2006 40000 26635 20000 18960 13239 0 2000 2001 2002 2003 2007 Source: The Vietnam Automobile Manufacturers’ Association, 12/2009 12 VAMA is a non-profit organization founded in 2000, started with 11 JVs and today has 17 members. The sales volume of VAMA represents that of Vietnam’s auto market. Figure 7 shows that sales have risen rapidly since 2007, but are still low, only about 100,000 units per year. Compared with sales of 13,239 units in 2000, volume has increased to 110,184 vehicles in 2008, nearly ninth times. In 2005, Toyota Vietnam sold nearly 12,000 units, up 29% year on year and accounting for 33.3% of VAMA’s overall sales. Following Toyota is Ford, Vinastar and Vidamco with 14.3%, 11.9% and 11.9%, respectively. The 12 JVs used only 3.7% of capacity in 1996, rising to 13.2%, 18% and 28.8% in 2001, 2002 and 2003 respectively. It is very clear that capacity utilization rates in Vietnam’s automobile industry are extremely low and JVs are counting on an increase in the size of the domestic market as the country becomes more prosperous (Nguyen Bich Thuy, 2009). Figure 8. Vietnam’s automobile sales share by companies (%), in 2005 Source: The Vietnamese Automobile Manufactures Association, 12/2005 Domestic Vietnamese automobile and autopart companies were mostly established in the 1960s. By 2003, Vietnam had more than 160 domestic companies in 13 assembly and manufacture of autoparts. These included four state owned enterprises supported largely by the government. They are Vietnam Motor Corporation (Vinamotor), Saigon auto-mechanics Corporation (Samco), Vietnam Engine and Agriculture Machinery Corporation (VEAM) and Vietnam Coal Corporation (Vinacoal). Recently, and especially since 2004, many 100% domestic investment companies, including private and state own enterprises, have been launched. For example, Truong Hai auto company invested in producing Kia, Hyundai, Daewoo and Foton with investment capital of USD 330 million, and TMT corporation invested USD 250 million in manufacturing pickup trucks. A majority of these companies import production lines and technology from China, and competition among enterprises is increasing. 2.2. Policies and development 2.2.1. Thailand: Before the 1997 crisis: protectism, agglomeration and development The government’s support and promotion of this industry can be traced back to 1961 when the Thai Motor Industry Company, the first automobile assembly plant, was established. Only a limited number of auto parts were domestically produced. These included rubber parts, batteries and leaf springs. In 1969, the Ministry of Industry formed the Automotive Industry Development Committee under a Cabinet Resolution of August 26th, 1969, in order to impose policies and measures with an aim to develop the local auto industry. Policies and procedures were put in place to facilitate the process of moving from assembly to production. The objective of production was import substitution and reducing the trade deficit. Before 2000, the assembly companies and parts producers in Thailand were protected through five main policies: high rate of import tariff and taxes; restricted and limited use of imported auto parts; protected and controlled imports; no new operating plants; and, investment promotion. 14 Tariff and tax policy: Table 3. Tariff and Tax rate (%) related to CBU and CKD Vehicles, before 1992 – present Before 1992 1992 2000 – present 1999 Completely built-up (CBU) vehicles Passenger cars over 2,400 cc1 Tariff rate Excise tax 300 44-55 68.5 41.8 80 43-50 80 41-48 Tariff rate 180 42 80 80 Excise tax 44-55 35.75 41.25 38.5 Tariff rate 120 60 60 80 Excise tax Completely knocked-down (CKD) vehicles Passenger cars over 2,400 cc 9.9 n.a 5.5 3.3 112 44-55 42 41.8 20 43-50 33 (30)4 41-48 Tariff rate 112 42 20 33 Excise tax 44-55 41.8 41.25 38.5 72 20 20 33 9.9 3 5.5 3.3-19.83 Passenger cars under 2,400 cc Pick-up truck Tariff rate Excise tax Passenger cars under 2,400 cc Pick-up truck Tariff rate Excise tax 2 Notes: 1. Before 1992, the classification of passenger vehicle was 2,300 cc engines 2. Excise taxes include municipal taxes 3. Excise taxes for one-ton pick-up trucks was 3.3% whereas for the so called “pick-up passenger vehicle” is 19.8% 4. Numbers in parentheses are tariffs in 2005 Source: Kohpaiboon, 2008 Thailand used tariffs as a tool to protect the automobile industry. Before 1992, tariff rates on most vehicles, except CKD kits of pick up trucks, were over 100%. However, in 1990 the Ministry of Industry called off the limitation on the number of
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