Senior Partner & Managing Director
The diversity of the Beyond BRIC markets means that OEMs must adopt a tailored go-to-market strategy while compensating for the subscale nature of each market. One top executive explained, “The big challenge for OEMs is finding a regional approach, within which they can treat markets individually; that is, working through country offices and identifying local success factors while ensuring economies of scale.” In this chapter, we explore each region—and unique regional approach—in depth.
When considered as a strategic cluster, the ASEAN Nations represent both the most developed and most dynamic of the four clusters we studied. Within this cluster, Indonesia, Malaysia, and Thailand are the most important tier 1 markets.
As a cluster, all ten markets generated a combined 3.1 million in new-vehicle sales in 2012. By 2020, this annual total is projected to rise to 4.6 million, making this regional market larger than the Russian national market, which will have 4.4 million new-vehicle sales.
The ASEAN Nations’ great automotive potential is driven by the increasing wealth of its 600 million inhabitants; the cluster’s GDP per capita is projected to grow 3 percent annually from 2010 through 2020. Indonesia, with 1.7 million annual new-vehicle sales projected by 2020, will become the largest market not only in this cluster but also anywhere in the Beyond BRIC world. As one CEO of an international OEM told us, “Indonesia is certain to be one of the most important emerging markets for the automotive industry. It will be a key battleground of the future.”
Our projections for the new-vehicle market in this cluster are illustrated in Exhibit 1. We foresee the following:
Customers and Competition. The ASEAN Nations are characterized by diverse customer demands that are highly specific to the individual markets within the cluster.
The varying demands mean that no single car model can be sold in large volumes across all the ASEAN markets. There is, however, a growing common demand across these markets for small-size cars. Sales in this segment are projected to reach about 1 million in Thailand and Indonesia by 2020, but market variations will remain a factor.
In Thailand, consumers pay reduced taxes of just 17 percent on “eco car” purchases—almost half the taxes paid for traditional cars. In Indonesia, by contrast, the government supports “low-cost green cars” by making their purchase entirely tax-exempt.
Despite the diverse consumer demands in the cluster, the ASEAN markets have a highly concentrated competitive landscape. They were among the first international targets of the Japanese OEMs, which still dominate with a market share above 60 percent. By contrast, European and U.S. OEMs remain marginal players in the cluster; each has annual new-vehicle sales well below 80,000.
Localization. Production has grown rapidly in the ASEAN Nations in recent years, yet it remains confined to a few markets.
This concentration reflects the strong incentives for OEMs to localize value chains across the ASEAN markets.
Japanese companies dominate localization.
Under these circumstances, Western OEMs considering localization are at a competitive disadvantage compared with established Japanese players.
The largest of the four strategic clusters of Beyond BRIC auto markets (as measured by projected new-vehicle sales for 2020) is also the most culturally diverse. The Emerging Mideast cluster incorporates Turkey on the European border, the markets of the Gulf Cooperation Council (GCC) in the south, Pakistan in the east—and many different (and different types of) markets in between.
It will have 700 million inhabitants—10 per-cent of the world’s population—by 2020. It will also gain increasing wealth as its GDP per capita is projected to grow 3 percent annually from 2010 through 2020. Yet these advantages must be considered alongside the cluster’s disadvantages: the effects of sanctions against Iran and latent political uncertainty following the Arab Spring.
While this is a heterogeneous regional cluster, with individual markets growing at widely differing speeds, the long-term potential of the region as a whole is beyond any doubt.
As one industry expert told us, “Markets like Turkey, Saudi Arabia, and Iran have to be on the list of every high-volume car manufacturer taking a long-term perspective.”
Our projections for the Emerging Mideast, illustrated in Exhibit 3, foresee the following:
Customers and Competition. Diverse customer preferences across the Emerging Mideast cluster are shaped by the region’s widely varying cultures and population groups.
Especially in Saudi Arabia, status is a significant factor in shaping consumer choices. The vehicles most popular with consumers are spacious and affordable cars—and, increasingly, vehicles with status-enhancing features and accessories such as alloy rims, audio options, and tuned bumpers.
The competitive landscape varies across the markets in the cluster.
Localization. The Emerging Mideast’s production capacity is concentrated in Turkey and Iran. The cluster’s total output of 2.4 million units in 2012 is projected to rise to 3.6 million in 2020, but the retreat of major international OEMs from Iran clouds the forecasts.
One probable consequence of the trends and developments is that Turkey will gain importance. A number of reasons make this likely:
Turkey’s potential is enhanced by a supply base that has grown alongside OEM development over the past decade. Today, the nation has more than 4,000 components manufacturers, and they produce almost all the critical automotive parts. Of these suppliers, about 70 percent are small or midsize enterprises.
Framed by Brazil to the east and Mexico to the north, the Andeans form a fast-growing strategic cluster. The region’s cumulative demand there is expected to reach 2.9 million new-vehicle sales by 2020. Optimism for the Andeans is based on the cluster’s combined population of 197 million generating 3 percent annual growth in GDP per capita through 2020. This trend reflects the region’s overall macroeconomic stability and an obvious richness in natural resources. Of course, some potential risks exist in the form of political instability, as in Venezuela, and economic downturns, as in Argentina. But the overall positive trends seem solid.
The tier 1 markets of Argentina, Chile, and Colombia are expected to account for more than 75 percent of the total new-vehicle sales in the cluster in 2020. Our projections for the Andean car markets, as illustrated in Exhibit 5, foresee the following:
Customers and Competition. Demand is mostly homogeneous across the Andeans, making it possible for auto companies to succeed even with a limited product portfolio. As one top auto executive told us, “You can enter the Latin American market with one car model for several different countries.”
GM’s Chevrolet brand dominates the Andean competitive landscape with a total market share of 18 percent. Its strength is spread across the main markets; it ranks first in Colombia and Chile, and second in Argentina.
Chevrolet’s strength is a serious challenge to new entrants, but new OEMs are increasing competition, particularly in the crucial entry-level segment, in which new entrants from France and South Korea have made rapid progress with affordable entry models.
Localization. In 2012, the Andeans produced 1.1 million units, approximately 70 percent of these in Argentina. Based on the varying tariff systems of the cluster’s individual markets, three main models exist for localization in the Andean markets. One major OEM uses all three, as illustrated in Exhibit 7.
Embracing these differentiated approaches, which respond to varying tariff systems and protectionist measures, offer a key to sustainable success in the cluster.
The North African Belt, ranging along the Mediterranean coast from Morocco in the west to Egypt in the east, is leading the transformation of an African automotive landscape that until recently was confined largely to South Africa.
Led by Algeria—the cluster’s largest, most resource-rich market—the North African Belt is expected to grow into a regional market of 1.2 million new-vehicle sales by 2020. Political instability remains a risk in the region, but the signs of economic development are positive. Morocco, where North Africa’s first automotive-manufacturing cluster is developing, offers one positive example.
Our projections for the North African Belt, illustrated in Exhibit 8, foresee the following:
Customers and Competition. North African customers have limited purchasing power and, thus, are highly sensitive to price. At the same time, they demand both quality and the durability needed to cope with poor road conditions. This has led to a market dominated by B-segment cars in Algeria (market share of 42 percent) cars and Morocco (30 percent share); whereas in Egypt, C-segment cars are popular (39 percent share). The mismatch between consumers’ spending power and their product requirements has stimulated a thriving used-car market over the past decades. But as salaries rise, partly as a reaction by governments to the Arab Spring, so does demand for new vehicles. Among the big sellers are budget cars such as Renault/Dacia’s Logan.
French carmakers dominate the competitive landscape. Across the cluster, they have a market share above 30 percent. Renault/Dacia has taken significant market share from established Asian OEMs by introducing budget cars like the Logan.
But their dominance faces a challenge. Growing competition from China is making the market tougher. Chinese companies like Chery, Great Wall Motors, and Changan Automobile are targeting Algeria and Egypt as key export markets. (See Exhibit 9.)
Localization. Significant investment by OEMs is expected to triple production volumes in the North African Belt from about 200,000 units to about 600,000 by 2015. But growth will be accompanied by a geographical shift within the cluster. Localization was formerly confined to Egypt, where import tariffs of more than 40 percent prompted OEMs to develop small-scale CKD and semi-knockdown (SKD) production facilities. But political instability in Egypt has made the country a much less attractive site for localization.
Morocco is now emerging as the cluster’s dominant producer.
Given these combined factors, the hub of the North African motor industry is shifting westward.