GVC AUTOMOTIVE INDUSTRY FINAL PRESENTATION - INDUSTRY-SPECIFIC GLOBAL VALUE CHAINS
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GVC AUTOMOTIVE INDUSTRY
FINAL PRESENTATION
INDUSTRY-SPECIFIC GLOBAL VALUE CHAINS
Ifeyinwa Uchenna Onugha
Guillermo Carlos Arenas
Alberto Criscuolo
Thomas Kenyon
STRATEGIC SEGMENTATION INDUSTRY-SPECIFIC GLOBAL VALUE CHAINS
Analysing the “Automotive” Industry (GVC Style) 1. What does the automotive industry consist of? What are the different “businesses” that exist? Is it really as simple as 2-wheels, 4-wheels, trucks and autoparts? 2. What will the automotive industry consist of “tomorrow”? What trends are we seeing, in which direction is the industry heading 3. What would it take to participate? To compete? What would it take for any country / region to compete in any one of the business segments that we have identified? 4. What would it take for COUNTRY X to participate? What do I have? What don’t I have? What policy needs to change? What investments need to be made?
Through “Strategic Segmentation”, we have tried to answer questions (1) and (2) 1. What does the automotive industry consist of? What are the different “businesses” that exist? Is it really as simple as 2-wheels, 4-wheels, trucks and autoparts? 2. What will the automotive industry consist of “tomorrow”? What trends are we seeing, in which direction is the industry heading 3. What would it take to participate? To compete? What would it take for any country / region to compete in any one of the business segments that we have identified? 4. What would it take for COUNTRY X to participate? What do I have? What don’t I have? What policy needs to change? What investments need to be made?
What are the emerging Strategic Segments within the automotive industry? INTUITIVE / KNEE JERK SEGMENTATION: By no of wheels?…. By type of supplier?….
What are the emerging Strategic Segments within the automotive
industry
INTUITIVE / KNEE JERK SEGMENTATION:
THESE ARE
FINISHED PRODUCTS
By no of wheels….
NOT
BUSINESS SEGMENTS
By type of supplier….
So.. How Do We Identify ‘True’ Business Segments
in the Automotive Industry
(both those that exist and those that are emerging)
First we must first identify and understand global industry trends and constraints… Rates of urbanisation and congestion Awareness of atmospheric pollution and increase in emissions controls Ever more stringent crashworthiness and safety requirements Emphasis has shifted to information technology Product lifecycle is evolving
Rates of Urbanisation
Increasing rates of urbanisation and congestion
• In 1800, 2% of the world’s population lived in cities. Now it’s 50%.
• Cities generate a disproportionate share of new private sector jobs
• Cities cover only a fraction of the world's land mass but concentrate 80 percent
of global GDP
• Car usage is increasing year on year even in high-income economies
Increasing rates of urbanisation and congestion - Implications
• Cities are becoming more crowded and road space more scarce. However as
urbanisation is good for the economy, it is supported.
• Onus is on cities and local governments to find to reduce the demand for road space
• Public transport is may be seen as an inferior good;
and as incomes rise, people switch away from
inferior goods. This could be compounded in
emerging economies with a growing middle class
who may wish to replace bicycle/motorcycles with
cars (as symbol of improved social class).
• High density conurbations tend towards integrated
mass transport solutions. (It is cheaper and more
efficient to take more people shorter distances).
Systems are less successful in sprawling cities like
JohannesburgPollution awareness and increase in emissions controls
In 2013,
TRANSPORTATION
contributed
MORE THAN HALF OF CO2
and nitrogen oxides, and almost
¼ OF THE HYDROCARBONS
emitted into the atmosphere1
CO2 REGULATION
is likely to TIGHTEN and
not just in EUROPE.
CHINA, the US and JAPAN
have also enacted laws to International Transport Forum2
REDUCE EMISSIONSPollution awareness and increase in emissions controls
- Implications for automotive…
In 2013,
TRANSPORTATION
contributed OEMs will invest more in2
MORE THAN HALF OF CO2 • e-Mobility (electrical/hybrid
and nitrogen oxides, and almost powertrains, batteries)
¼ OF THE HYDROCARBONS • lightweight and
emitted into the atmosphere1 aerodynamic drag-reducing
technologies
CO2 REGULATION
is likely to TIGHTEN and Opportunity for
not just in EUROPE. specialist suppliers to
CHINA, the US and JAPAN recapture power /
have also enacted laws to value / margin
REDUCE EMISSIONSEver more stringent crashworthiness and safety requirements
CRASHWORTHINESS MANY PASSENGER VEHICLES
REQUIREMENTS now include (often
(e.g. seatbelts, airbags and as a differentiatior)
crumple zones) ADVANCED DRIVER
are EVER MORE STRINGENT ASSISTANCE
often requiring anthropomorphic features (e.g. infrared night vision,
crash test dummies and tire pressure monitoring systems,
ADVANCED TESTING emergency brake assist, and
FACILITIES electronic stability controls)Ever more stringent crashworthiness and safety requirements
- Implications for automotive…
CRASHWORTHINESS MANY PASSENGER VEHICLES
REQUIREMENTS now include (often
(e.g. seatbelts, airbags and as a differentiatior)
crumple zones) ADVANCED DRIVER
are EVER MORE STRINGENT ASSISTANCE
often requiring anthropomorphic features (e.g. infrared night vision,
crash test dummies and tire pressure monitoring systems,
ADVANCED TESTING emergency brake assist, and
FACILITIES electronic stability controls)
Cost of testing
‘State-of-the-art’,
continuously increasing Supply of subsystems
accredited, well
may require advance
Safety requirements managed testing
Research and
may vary from region to facilities are necessary
Development capacity
region to competeEmphasis has shifted to information technology
THAT WHICH MADE
“A CAR, A CAR” Consumers want
(e.g. speed, acceleration, TRAFFIC INFORMATION
torque, engine size, services,
number of cylinders) and a host of Number of
LESS IMPORTANT INFOTAINMENT NETWORKED CARS
FEATURES, will rise 30%
including internet radio year on year;
and smartphone by 2020
compatibility 1 IN 5 CARS
will be
CONNECTED TO THE
INTERNETEmphasis has shifted to information technology
- Implications for automotive…
Consumers want
THAT WHICH MADE TRAFFIC INFORMATION
“A CAR, A CAR” services, Number of
(e.g. speed, acceleration, and a host of NETWORKED CARS
torque, engine size, INFOTAINMENT will rise 30%
number of cylinders) FEATURES, year on year;
LESS IMPORTANT including internet radio by 2020
and smartphone 1 IN 5 CARS
compatibility will be
CONNECTED TO THE
INTERNET
need to constantly Location is key. Remote Swedish cities (e.g.) may require total on-board
identify differentiating solutions, whilst in busy Italian cities (e.g.) collaboration between road /
features and services car / data providers may be more feasibleProduct lifecycle is evolving Trend has moved from Aftersales market is Specific requirements buying vehicles to growing. and preferences of the leasing vehicles to CHINA AFTERSALES markets require a RENTING VEHICLES market is estimated to LOCALISATION OF (maintenance included) grow 20% a year1 THE AFTERMARKET
Product lifecycle is evolving
- Implications for automotive…
Trend has moved from Aftersales market is Specific requirements
buying vehicles to growing. and preferences of the
leasing vehicles to CHINA AFTERSALES markets require a
RENTING VEHICLES market is estimated to LOCALISATION OF
(maintenance included) grow 20% a year1 THE AFTERMARKET
Companies trying to
exploit the
Parts either need to be In manufacturer aftermarket with a
Maintenance, durability available JIT in / maintainer’s standardized global
and recycling much consumer country or interest to approach will
more important held as stock monitor vehicles most likely fail.
in realtime Finding an
individual approach is
essential.
Scania is already “directing” truck drivers to
nearest garages and pre-booking hotel rooms!So our Automotive Universe (both current and future) is not
segmented by engine size / wheel base / complexity but instead is a
function of the density of the environment and the type of cargo…
DENSE / URBAN / CITY
SPRAWLING / RURAL /
ENVIRONMENT (OF THE NEAR
SPARSELY POPULATED
FUTURE)
Individual Strategic Segment 1 Strategic Segment 2
Movement of
People
Groups Strategic Segment 3 Strategic Segment 4
INTRACITY INTERCITY
Light Strategic Segment 5 Strategic Segment 6
Movement of
Merchandise
Heavy Strategic Segment 8So our Automotive Universe (both current and future) is not
segmented by engine size / wheel base / complexity but instead is a
function of the density of the environment and the type of cargo…
DENSE / URBAN / CITY
SPRAWLING / RURAL /
ENVIRONMENT (OF THE NEAR
SPARSELY POPULATED
FUTURE)
Individual Strategic Segment 1 Strategic Segment 2
Movement of
People
Groups Strategic Segment 3 Strategic Segment 4
•Congestion common
•Parking limited
INTRACITY INTERCITY
•Pollution a concern
Light
•Road (expansion)Strategic Segment 5
is limited Strategic Segment 6
Movement of
Merchandise
Heavy Strategic Segment 8So our Automotive Universe (both current and future) is not
segmented by engine size / wheel base / complexity but instead is a
function of the density of the environment and the type of cargo…
DENSE / URBAN / CITY
SPRAWLING / RURAL /
ENVIRONMENT (OF THE NEAR
SPARSELY POPULATED
FUTURE)
Individual Strategic Segment 1 Strategic Segment 2
Movement of
People
Groups Strategic Segment 3 Strategic Segment 4
• Little / no congestion
• Parking no problem
INTRACITY INTERCITY
• Pollution less acute
Light Strategic Segment 5 expansionStrategic
• Road and Segment 6
Movement of availability not a problem
Merchandise
Heavy Strategic Segment 8What makes each segment distinct from the other?
1)The value chain required to successfully compete is different for each
2) We consider not only the product but also the service and the user
DENSE / URBAN / CITY
SPRAWLING / RURAL /
ENVIRONMENT (OF THE NEAR
SPARSELY POPULATED
FUTURE)
Individual Strategic Segment 1 Strategic Segment 2
Movement of
People
Groups Strategic Segment 3 Strategic Segment 4
INTRACITY INTERCITY
Light Strategic Segment 5 Strategic Segment 6
Movement of
Merchandise
Heavy Strategic Segment 8Next steps (3) and (4)… 1. What does the automotive industry consist of? What are the different “businesses” that exist? Is it really as simple as 2-wheels, 4-wheels, trucks and autoparts? 2. What will the automotive industry consist of over the next 10yrs? What trends are we seeing, in which direction is the industry heading 3. What would it take to participate? To compete in each segment? What would it take for any country / region to compete in any one of the business segments that we have identified? 4. What would it take FOR ME to participate? What do I have? What don’t I have? What policy needs to change? What investments need to be made?
Value Chain Flowchart
SEGMENT 2: RURAL – PEOPLE INDIVIDUAL
IDEAL VALUE CHAIN
Local/Cluster Value Chain
TOOLING EXTE INTERI
ASSEMB FINANCIAL RECYCLIN
EXT/INT SHI MAINTE
RIOR OR
LY P
SERVICES G
3363 NANCE
VEHICLE CAP CAP LAB
CAP
LAB KNL LAB LAB
DESIGN &
TESTING CHASSIS ELECTRONICS
KNL
TOOLING
CHASSIS Final assembly
CAP CAP CAP Labor intensity:
4.5 (mean = 11)
Minimum scale:
100k units
Regional Value Chain
PWTRAIN
DESIGN & TOOLING POWERTRAIN
TESTING PWTRAIN
KNL CAP
CAP
Global Value Chain
ELECTRON.
OTHER DESIGN &
TESTING
CAP KNLGlobal – Regional – Cluster Automotive Value Chains flowchart
STRATEGIC SEGMENT 1: DENSE / URBAN / CITY ENVIRONMENT – PEOPLE INDIVIDUAL
IDEAL VALUE CHAIN
Local/Cluster Value Chain
EXTERIOR INTERIOR ASSEMBLY NETWORK RECYCLING
TOOLING 336370 336360 SHIP MNGMT PARK
EXT/INT 336211 ROADS MAINTE
VEHICLE CAP CAP LAB
CAP LAB KNL NANCE LAB
CAP LAB
DESIGN &
TESTING CHASSIS ELECTRONICS
KNL 336320
FINANCIAL
TOOLING 336330 SERVICES
CHASSIS 336340
CAP CAP CAP KNL
POWERTRAIN
Regional Value Chain
PWTRAIN
DESIGN & TOOLING 336310
TESTING PWTRAIN 336350
KNL CAP CAP
Global Value Chain
OTHER ELECTRON.
336390 DESIGN &
TESTING
CAP KNLGlobal – Regional – Cluster Automotive Value Chains flowchart
STR. SEGMENT 4: SPRAWLING/ RURAL/SPARSELY POPULATED– PEOPLE GROUP
IDEAL VALUE CHAIN
Local/Cluster Value Chain
TOOLING EXTERIO INTERIOR ASSEMBLY SHIP RECYCLI
R 336370 336360 FINANCIAL MAINTENA
EXT/INT
336211 SERVICES NCE NG
VEHICLE CAP CAP LAB
LAB LAB KNL LAB LAB
DESIGN &
TESTING
KNL
TOOLING CHASSIS ELECTRONI
CHASSIS 336330 CS 336320
336340
CAP CAP
CAP
Regional Value Chain
PWTRAIN POWERTRAIN
DESIGN & TOOLING 336310
TESTING PWTRAIN 336350
KNL CAP CAP
Global Value Chain
OTHER ELECTRON.
336390 DESIGN &
TESTING
CAP KNLRegional and Local Value Chains
MEXICO: AUTO VALUE CHAIN
Where is Mexico positioned and where might it be going?
DENSE / URBAN / CITY
SPRAWLING / RURAL /
ENVIRONMENT (OF THE NEAR
SPARSELY POPULATED
FUTURE)
Individual Strategic Segment 1 (‘Uber’) Strategic Segment 2 (‘Toyota Corolla’)
Movement of People
Groups Strategic Segment 3 Strategic Segment 4
Mexi
co
City Rural US Market
Little/no congestion
Light Strategic Segment 5 Strategic
Parking no problem Segment 6
Pollution less acute
Movement of Road availability
Merchandise
Heavy Strategic Segment 7 Strategic Segment 8Mexico is well established in the ‘Toyota Corolla’ segment (2)
Mexico’s Position in the Value Chain
Local/Cluster Value Chain
TOOLING EXT INTER
ASSEMB FINANCIAL RECYCLIN
EXT/INT SHI MAINTE
ERIO IOR
LY P
SERVICES G
336 NANCE
VEHICLE CAP R
CAP LAB
CAP
LAB KNL LAB LAB
DESIGN & 3
TESTING CHASSIS ELECTRONICS
KNL
TOOLING
CHASSIS
CAP CAP CAP
Regional Value Chain
PWTRAIN
DESIGN & TOOLING POWERTRAIN
TESTING PWTRAIN
KNL CAP
CAP
Global Value Chain
ELECTRON.
OTHER DESIGN &
TESTING
CAP KNLBut there is scope for deepening some functions to close the gap between Tier 1s and local Tier 2s
And to further develop R&D capacity….
The Mexican Segment 2 value chain ten years from now?
Mexico’s Potential Position in the Value Chain
Local/Cluster Value Chain
TOOLING EXT INTER
ASSEMB FINANCIAL RECYCLIN
EXT/INT SHI MAINTE
ERIO IOR
LY P
SERVICES G
336 NANCE
VEHICLE CAP R
CAP LAB
CAP
LAB KNL LAB LAB
DESIGN & 3
TESTING CHASSIS ELECTRONICS
KNL
TOOLING
CHASSIS
CAP CAP CAP
Regional Value Chain
PWTRAIN
DESIGN & TOOLING POWERTRAIN
TESTING PWTRAIN
KNL CAP
CAP
Global Value Chain
ELECTRON.
OTHER DESIGN &
TESTING
CAP KNLThe ‘Uber segment’ (1) is also expanding……
Mexico’s Position in the Value Chain
Local/Cluster Value Chain
EXTERIO INTERIOR ASSEMBLY NETWORK RECYCLING
TOOLING R 336360 SHIP MNGMT PARK
EXT/INT 336370 ROADS MAINTE
VEHICLE CAP
336211
CAP LAB
CAP LAB KNL NANCE LAB
CAP LAB
DESIGN &
TESTING CHASSIS ELECTRONICS
KNL 336320
FINANCIAL
TOOLING 336330 SERVICES
CHASSIS 336340
CAP CAP CAP KNL
POWERTRAI
Regional Value Chain
PWTRAIN
DESIGN & TOOLING N 336310
TESTING PWTRAIN 336350
KNL CAP CAP
Global Value Chain
OTHER ELECTRON.
336390 DESIGN &
TESTING
CAP KNLWhat Does This Mean for IFC/WB?
Segment 1 Segment 2
Build clearing house of traffic data (partnership with Support consortia of international and tooling/machining
apps: Easy Taxi, OlaCabs, GrabTaxi) companies – build scale & transfer expertise
Advise on municipal regulation - safety standards, tariff Help evaluate Program Pro Auto support (INADEM)
transparencySERBIA & MACEDONIA IN THE EUROPEAN AUTOMOTIVE VALUE CHAIN
Overview of the European Periphery Automotive Regional Value Chain
A Snapshot of the Participants in the EP RVC and Main Trends OEMs Plants in Europe within a 1 & ½ days from the Western Balkans
End-Market Trends and Sales Potential Forecasts in 2020
Two distinct integrations in the EP RVC: Serbia (PVs) and Macedonia (components)Serbia Automotive: a solid manufacturing base geared towards a
single OEM
A Solid Automotive Footprint… Leading to Good Performance… Built around the FDI Strategy of one OEM…
Main Automotive Plants in Serbia (OEM, Tier 1, Tier 2) Turnover of the Serbian Automotive Industry FIAT and Main Automotive FDI in Serbia
Product Breakdown of Serbia AutomotiveMacedonia Automotive: the New Kid on the Bloc in the European
RVC…
A Recent Wave of Uncoordinated
An Embryonic Automotive Base… Auto-FDI in Segment 2… Is Auto-Parts as the Entry to the EP RVC?
Main Automotive Plants in Macedonia Current and Pipeline Tier 1 and Tier 2 FDI in Macedonia Performance of Auto-Components Industry
Automotive FDI Pipeline in 2015 Country of origin
Cap-Con USA
Gentherm USA
Key Safety Systems USA
Mediterr Shock Absorbers Italy
Mensan Otomotiv Turkey
ODW Elektrik Germany
Kostal GermanyCan Serbia and Macedonia Compete in the “Toyota Corolla”
Segment in Europe?
DENSE / URBAN / CITY
SPRAWLING / RURAL /
ENVIRONMENT (OF THE NEAR
SPARSELY POPULATED
FUTURE)
Individual Strategic Segment 1 Strategic Segment 2
Movement of
People
Groups Strategic Segment 3 Strategic Segment 4
Demand Trends in the EU:
INTRACITY INTERCITY
• more onboard
electronics
• high fuel efficiency
Light Strategic Segment 5 Strategic Segment 6
Movement of • stringent
environmental
Merchandise
regulation
Heavy Strategic Segment 8
• increased safety
• networked mobilityThe Western Balkans are well-positioned in the Euro-Periphery RVC
for ST. SEGMENT 2: INTERCITY – PEOPLE INDIVIDUAL
Serbia has a relatively good positioning through FIAT, although both strategic positioning (lock-in)
and supply chain efficiency risks do exist…
Western Balkans - Local/Cluster Value Chain
EXTERIO
TOOLING R INTERI ASSEMBL SHIP
336370 OR RECYCLIN
EXT/INT Y FINANCIAL MAINTE
336211 33636 SERVICES NANCE
G
VEHICLE CAP CAP LAB
CAP LAB KNL LAB LAB
0
DESIGN &
TESTING CHASSIS ELECTRONICS
KNL
336330 336320
TOOLING
CHASSIS 336340
CAP CAP CAP
PWTRAIN POWERTRAI European Periphery Regional Value Chain
DESIGN & TOOLING N 336310
TESTING PWTRAIN 336350
KNL CAP CAP
Global Value Chain
OTHER ELECTRON.
336390 DESIGN &
TESTING
CAP KNLThe Western Balkans are well-positioned in the Euro-Periphery RVC
for ST. SEGMENT 2: INTERCITY – PEOPLE INDIVIDUAL
Is Macedonia better off in becoming a auto-parts hub for specific component systems in Segment 2?
MACEDONIA - Local/Cluster Value Chain
EXTERIO
TOOLING R INTERIO ASSEMBL SHIP
336370 R RECYCLIN
EXT/INT Y FINANCIAL MAINTE
336211 336360 SERVICES
NANCE
G
VEHICLE CAP CAP LAB
CAP LAB KNL LAB LAB
DESIGN &
TESTING CHASSIS ELECTRONICS
KNL
336330 336320
TOOLING
CHASSIS 336340
CAP CAP CAP
European Periphery Regional Value Chain
PWTRAIN POWERTRAI
DESIGN & TOOLING N 336310
TESTING PWTRAIN 336350
KNL CAP CAP
Global Value Chain
OTHER ELECTRON.
336390 DESIGN &
TESTING
CAP KNLFocus on specific Auto-Component Systems (Electronics & Electrics, Interior,
Exhaust, Telematics) in Segment 2 to leverage skilled labor, low cost, R&D niches,
and FDI tech-assets?
Macedonia’s Potential Automotive Component Systems Specialization
Macedonia’s Export of Automotive Components by Type
Macedonia’s Export of Automotive Components by Country of Destination
42A Small Country for a Big Product: Macedonia and Bus
Manufacturing…
DENSE / URBAN / CITY
SPRAWLING / RURAL /
ENVIRONMENT (OF THE NEAR
SPARSELY POPULATED
FUTURE)
Individual Strategic Segment 1 Strategic Segment 2
Movement of
People
Groups Strategic Segment 3 Strategic Segment 4
Demand Trends for Bus:
• INTRACITY
Global demand to reach US INTERCITY
$41 billion and 664,000 units
by 2018
• growth of urban population
Light & needStrategic Segment
to reduce traffic 5 Strategic Segment 6
Movement of congestion
Merchandise • growth in the number and
size of private transportation
Heavy companies Strategic Segment 8
• more stringent emissions
standards and diffusion of
electric, hybrid modelsGlobal – Regional – Cluster Automotive Value Chains flowchart
STR. SEGMENT 4: SPRAWLING/ RURAL/SPARSELY POPULATED– PEOPLE GROUP
Macedonia’s positioning in the Bus European Periphery RVC
Macedonia Local/Cluster Value Chain
TOOLING EXTERIO INTERIOR ASSEMBLY SHIP RECYCLI
R 336360 FINANCIA MAINTEN
EXT/INT
336370 L ANCE NG
VEHICLE CAP 336211
CAP LAB
LAB SERVICES
CAP KNL LAB LAB
DESIGN &
TESTING
KNL
TOOLING CHASSIS ELECTRONI
CHASSIS 336330 CS 336320
336340
CAP LAB CAP
European Regional Value Chain
PWTRAIN POWERTRAI
DESIGN & TOOLING N 336310
TESTING PWTRAIN 336350
KNL CAP CAP
Global Value Chain
OTHER ELECTRON.
336390 DESIGN &
TESTING
CAP KNLDeepening and Expanding the Bus Manufacturing Value Chain in
Macedonia…
Bus manufacturing structural requirements fit well
Macedonia as a potential production hub in the European
RVC
• €25M investment
• Small minimum investment size to (Euro 25 million) vs.
• 431 employees
1 billion Euro for PV plant (FIAT)
• Production of intercity coaches
• Labor intensive (21.2 hours worked per $1K of value (500 for US market)
added vs. 4.4 hours worked per $1K of value added for • Started operations in 2013
PV manufacturing • Sourced locally chassis modules
(Aktiva) & fiberglass body parts
• Discrete production process and small batches (Uniplast)
production runs
• Potential to localize high-volume
• Buyers require tailor-made solutions low-value components
• High ratio of unit value ($300K to $400K) to transport
costs makes shipping long distance is a viable
• Supply chain with made-to-order linkages and high-
intensity information exchangeWhat Does This Mean for IFC/WB?
Some preliminary considerations…
• WBG lending and advisory operations should encompass a regional scale to reflect
the cross-border nature of the EP automotive RVC
• There is no such thing as an automotive GVC, each value chain is local, regional,
and global at the same time
• Supplier Development Programs or other WBG-supported programs (matching
grants, etc.) should be designed according to the dynamics of the specific strategic
segment (Segment 4 for Macedonia), and
• the distribution of functions among the local, regional, and global dimensions of
the VC (for example, no point in organizing meet-the-buyer events for Segment 2 if
procurement is centralized in HQ)
• Attracting an OEM in Segment 2 at all costs is not necessarily the best GVC
insertion strategy for WBG clientsCOLOMBIA’S AUTO INDUSTRY
Palliative Care: Clinging to the Traditional Model
Segment 2 represents the traditional car/motorbike business segment. Think: “Toyota Corolla”…
DENSE / URBAN / CITY
SPRAWLING / RURAL /
ENVIRONMENT (OF THE NEAR
SPARSELY POPULATED
FUTURE)
Individual Strategic Segment 1 Strategic Segment 2
Movement of
People
Groups Strategic Segment 3 Strategic Segment 4
INTRACITY INTERCITY
Light Strategic Segment 5 Strategic Segment 6
Movement of
Merchandise
Heavy Strategic Segment 8Palliative Care: Clinging to the Traditional Model
The ideal value chain in the traditional (“Toyota Corolla”) segment:
EXTERIOR INTERIOR
Local/Cluster Value Chain
ASSEMBLY
TOOLING 336370 336360 SHIP
336211
FINANCIAL RECYCLIN
EXT/INT SERVICES MAINTE
NANCE
G
VEHICLE CAP CAP LAB
CAP LAB KNL LAB LAB
DESIGN &
TESTING CHASSIS ELECTRONICS
KNL
336330 336320
TOOLING
CHASSIS 336340
CAP CAP CAP
POWERTRAIN
Regional Value Chain
PWTRAIN
DESIGN & TOOLING 336310
TESTING PWTRAIN 336350
KNL CAP CAP
Global Value Chain
OTHER ELECTRON.
336390 DESIGN &
TESTING
CAP KNLPalliative Care: Clinging to the Traditional Model
Colombia is it participating (well) in very few of the value chain activities in this business segment…
Optimal Sub-optimal Not present
EXTERIOR INTERIOR
Local/Cluster Value Chain
ASSEMBLY
TOOLING 336370 336360 SHIP
336211
FINANCIAL RECYCLIN
EXT/INT SERVICES MAINTE
NANCE
G
VEHICLE CAP CAP LAB
CAP LAB KNL LAB LAB
DESIGN &
TESTING CHASSIS ELECTRONICS
KNL
336330 336320
TOOLING
CHASSIS 336340
CAP CAP CAP
POWERTRAIN
Regional Value Chain
PWTRAIN
DESIGN & TOOLING 336310
TESTING PWTRAIN 336350
KNL CAP CAP
Global Value Chain
OTHER ELECTRON.
336390 DESIGN &
TESTING
CAP KNLPalliative Care: Clinging to the Traditional Model
However, even with greater participation, Colombia cannot compete in the traditional automotive
sector without increasing its local market…
In order to do stimulate local demand, Colombia might;
• Introduce financial support / incentives for end consumers.
160 100
Thousands
Thousands
Private Vehicles
80
120
SUVs
60
80
Vans and Light Trucks
40
40 Public Transportation 20
0 Commercial Vehicles 0
02 03 04 05 06 07 08 09 10 11 12 13 02 03 04 05 06 07 08 09 10 11 12 13
• Introduce car scrappage programs
• Improve road InfrastructurePalliative Care: Clinging to the Traditional Model
…However increasing local demand will undermine efforts to reduce traffic congestion
Before After Now
2002 2012
Time spent 52mins 71mins
in traffic
everyday
(Transmilenio began operation in 2000)Palliative Care: Clinging to the Traditional Model
…Colombia could instead explore an ‘expansion’ of its home market to include its neighbours
Import of New Vehicles – Andean Community (2014)
48.1%
35.3% Colombia
Bolivia
Ecuador
Peru
9.2%
7.4%Palliative Care: Clinging to the Traditional Model
…But the industry would still need to work towards the regionalisation of products and parts to
survive
Example: The Totoyota Corrolla
The Market The Preference The Difference…
USA Americans view their cars as an expression of their In the United States the vehicle has
lifestyle: They want them to project a youthful image and a more streamlined appearance and
have soft seats and soft steering for relaxed cruising on softer seats.
the highway
EU Europeans attach great importance to safety, which means In Europe, vehicles have more solid
that they appreciate such features as more solid doors. (looking) bumpers and headlights
They want their cars to be stable on the road and that are integrated into the car body
accelerate quickly in the low gears
Japanese Japanese focus on fuel efficiency, modern design and In Japan there are more drink
practical details holders as an example
Production of region-specific models often takes place in 16 different respective marketsLeap of Faith: Organising industry towards value-added services
Whilst Colombia’s participation in the traditional bus segment is also limited…
Optimal Sub-optimal Not present
Local/Cluster Value Chain
EXTERIO INTERIOR ASSEMBLY SHIP
TOOLING
R 336370 336360
FINANCIAL MAINTENA RECYCLI
EXT/INT SERVICES
336211
NCE NG
VEHICLE CAP CAP LAB
CAP LAB KNL LAB
LAB
DESIGN &
TESTING
KNL
TOOLING CHASSIS ELECTRONI
CHASSIS 336330 CS 336320
336340
CAP CAP
CAP
Regional Value Chain
PWTRAIN POWERTRAIN
DESIGN & TOOLING 336310
TESTING PWTRAIN 336350
KNL CAP CAP
Global Value Chain
OTHER ELECTRON.
336390 DESIGN &
TESTING
CAP KNLLeap of Faith: Organising industry towards value-added services
The BRT/ networked trucks segment is more expansive…
Optimal Sub-optimal Not present
Local/Cluster Value Chain
NETWORK ROADS MAINTENANCE RECYCLING
TOOLING EXTERIO INTERIOR ASSEMBLY SHIP MNGMT
R 336370 336360 RAILS
EXT/INT
336211
VEHICLE CAP CAP LAB
CAP LAB KNL CAP LAB LAB
DESIGN &
TESTING
KNL
FINANCIAL
CHASSIS ELECTRONI
TOOLING
336330 SERVICES
CHASSIS CS 336320
336340
CAP CAP
CAP KNL
Regional Value Chain
PWTRAIN POWERTRAIN
DESIGN & TOOLING 336310
TESTING PWTRAIN 336350
KNL CAP CAP
Global Value Chain
OTHER ELECTRON.
336390 DESIGN &
TESTING
CAP KNLLeap of Faith: Organising industry towards value-added services
And there are clear opportunities for Colombian industry to appropriate this value.
Local/Cluster Value Chain
NETWORK ROADS MAINTENANCE RECYCLING
TOOLING EXTERIO INTERIOR ASSEMBLY SHIP MNGMT
R 336370 336360 RAILS
EXT/INT
THIS IS WHERE THE VALUE IS
336211
VEHICLE CAP CAP LAB
LAB KNL CAP LAB
RETAINED
LAB
CAP
DESIGN &
TESTING
KNL
FINANCIAL
CHASSIS ELECTRONI
TOOLING
336330 SERVICES
CHASSIS CS 336320
336340
CAP CAP
CAP KNL
Regional Value Chain
PWTRAIN POWERTRAIN
DESIGN & TOOLING 336310
TESTING PWTRAIN 336350
KNL CAP CAP
Global Value Chain
OTHER ELECTRON.
336390 DESIGN &
TESTING
CAP KNLLeap of Faith: Organising industry towards value-added services
Bus Rapid Transit systems have been particularly popular in Latin America
Passengers per day - Global Cities where BRT systems are planned or under construction
Passengers per day – Latin America
In Operation
Under constructionLeap of Faith: Organising industry towards value-added services The BRT value chain is broad, and Colombia’s direct participation is far below what it could be…
Leap of Faith: Organising industry towards value-added services The BRT value chain is broad, and Colombia’s direct participation is far below what it could be…
Leap of Faith: Organising industry towards value-added services
Colombia’s Fourth Generation Program presents an opportunity for Colombian industry to leap
forward…
TARGET
reduction in travel time 24-30%
reduction in 15-20%
transportation costsLeap of Faith: Organising industry towards value-added services
But industry and government must look beyond traditional assembly and supply of parts…
Software installed in our truck fleet
diagnoses problems and sends alerts to a
local call center where staff redirect
drivers to local dealers stocked with
replacement parts. We also send
information to the dealer before the truck
arrives, so they can pull up the
truck/driver’s information (warranty,
customer data) so as to provide a tailored
experience.
Dieter Haban (paraphrased), CIO of Daimler AG subsidiary.What Does This Mean for IFC?
Support to BRT development;
- Fare collection
- Station management / design
- Operations
- Architecture
Support growth of aftersales industry (with/without OEM) including;
- Replacement parts logistics and management capacity?
- Service / Repair centers?
- Network capabilities?
- Telematics and Navigation?
Also
- Financial Services?
- Electronics?
IN SUPPORT OF GOVERNMENT AND PRIVATE SECTOR’S OWN INITIATIVESVIETNAM AUTO INDUSTRY
High and differentiated tariffs provide protection to local CKD
industry and generate sizeable rents
Import Tariffs for Motor Vehicles (2014)
HS codes Description MFN CEPT
Personal Vehicles
8703.21-23 Under 3,000 cc 70 50
8703.24 More than 3,000 cc 64 50
Commercial Vehicles
8704.10-90 GVW under 5 tons 56/68 5
GVW 5 ~ 10 tons 50 5
GVW 10 ~ 24 tons 20/15 5
GVW 24 ~ 45 10/15 5
GVW more than 45 0 0
Buses
8702.10-90 All types 70 50Global – Regional – Cluster Automotive Value Chains
flowchart ST. SEGMENT 2: SPRAWLING/
RURAL/SPARSELY POPULATED– PEOPLE INDIVIDUAL
Local/Cluster Value Chain
EXTERIO INTERIOR ASSEMBLY
TOOLING R 336370 336360 SHIP
336211
FINANCIAL RECYCLIN
EXT/INT SERVICES MAINTE
NANCE
G
VEHICLE CAP CAP LAB
CAP LAB KNL LAB LAB
DESIGN &
TESTING CHASSIS ELECTRONICS
KNL
336330 336320
TOOLING
CHASSIS 336340
CAP CAP CAP
PWTRAIN POWERTRAIN Regional Value Chain
DESIGN & TOOLING 336310
TESTING PWTRAIN 336350
KNL CAP CAP
OTHER ELECTRON. Global Value Chain
336390 DESIGN &
TESTING
CAP KNL
Optimal Sub-optimal Not presentThe Challenge in ASEAN: Economies of Scale and First-
Mover Advantage
Capacity Capacity
Company Plant in Thailand Plant in Vietnam
(thousands) (thousands)
Toyota Gateway I 230 Vinh Phuc 36
Ban Pho 230
Samrong 240
Gateway II* 80
Mitsubishi Laem Chabang 510 Vinastar (Binh Duong) 20
Isuzu Samrong 300 Ho Chi Minh City 5
Gateway 100
Nissan Samut Prakan I 220 TCIEV (Danang) 6.5
Samut Prakan II 150
Honda Ayutthaya 300 Vinh Phuc 10
Prachinburi 120
General MotorsRayong 250 Thanh Tri 20
Ford Rayong 150 Hai Duong 14
Suzuki Rayong 100 Bihn Da 5
Hino Hino 10 Hanoi 4
Kia - - Thaco (Chu Lai) 25
Mazda - - Thaco (Chu Lai) 10Shift to cars as a means of transportation is incompatible with current infrastructure • High population densities and sparse road networks are incompatible with the demand for road space created by a shift to individual cars • Even if a fraction of the current trips made by motorcycles switch to cars the result would be total gridlock
Where is Vietnam positioned and where might
it be going?
DENSE / URBAN / CITY
SPRAWLING / RURAL / SPARSELY
ENVIRONMENT (OF THE NEAR
POPULATED
FUTURE)
Individual Strategic Segment 1 Strategic Segment 2
Movement of People
• Little / no congestion
•
GroupsParking noStrategic
problem Segment 3 Strategic Segment 4
• Pollution less acute
• Road availability
Light Strategic Segment 5 Strategic Segment 6
Movement of
Merchandise
Heavy Strategic Segment 7 Strategic Segment 8Where could Vietnam go?
STRATEGIC SEGMENT 3: DENSE / URBAN ENVIRONMENT – PEOPLE
Local/Cluster Value Chain
NETWORK ROADS MAINTENANCE RECYCLING
EXTERIO INTERIOR SHIP
TOOLING ASSEMBLY MNGMT
EXT/INT R 336370 336360 RAILS
336211
VEHICLE CAP CAP LAB
CAP LAB KNL CAP LAB LAB
DESIGN &
TESTING
KNL
FINANCIAL
CHASSIS ELECTRONI
TOOLING
336330 SERVICES
CHASSIS CS 336320
336340
CAP CAP
CAP KNL
Regional Value Chain
POWERTRAIN
PWTRAIN 336310
DESIGN & TOOLING 336350
PWTRAIN
TESTING CAP
KNL CAP
OTHER ELECTRON. Global Value Chain
336390 DESIGN &
TESTING
CAP KNL
Optimal Sub-optimal Not presentMid/Heavy Commercial Vehicle Production and Statistics
Mid/Heavy Vehicle Production (2014)
Type of vehicle
Maker Production Installed capacity Employees
Car Light CV Mid CV Bus
IVC (Isuzu) - - x - 3,629 5,000
Hino - - x - 3,058 4,000
Samco - - - x 1,040 4,000
Bus: 1,400 Bus: 3,000
Thaco x x x x 3,800
Truck: 20,000 Truck: 25,000
Bus: 3,000
Vinamotor - - x x 2,693
Truck: 5,000
VEAM - x x - 2,269 3,000GlobSTR. SEGMENT 4: SPRAWLING/ RURAL/SPARSELY
POPULATED– PEOPLE GROUP– Regional – Cluster
Automotive Value Chains flowchart
IDEAL VALUE CHAINS
Local/Cluster Value Chain
EXTERIO INTERIOR SHIP
TOOLING 336360
ASSEMBLY
FINANCIAL
RECYCLI
R 336370 MAINTENA
EXT/INT
336211 SERVICES NCE NG
VEHICLE CAP CAP LAB
CAP LAB KNL LAB LAB
DESIGN &
TESTING
KNL
TOOLING CHASSIS ELECTRONI
CHASSIS 336330 CS 336320
336340
CAP CAP
CAP
Regional Value Chain
PWTRAIN POWERTRAIN
DESIGN & TOOLING 336310
TESTING PWTRAIN 336350
KNL CAP CAP
OTHER ELECTRON.
Global Value Chain
336390 DESIGN &
TESTING
CAP KNLGlobal – Regional – Cluster Automotive Value Chains flowchart
STR. SEGMENT 6: INTERCITY– MERCHANDISE MEDIUM/HEAVY
Local/Cluster Value Chain
EXTERIO INTERIOR SHIP
TOOLING 336360
ASSEMBLY
FINANCIAL
RECYCLI
R 336370 MAINTENA
EXT/INT
336211 SERVICES NCE NG
VEHICLE CAP CAP LAB
CAP LAB KNL LAB LAB
DESIGN &
TESTING
KNL
TOOLING CHASSIS ELECTRONI
CHASSIS 336330 CS 336320
336340
CAP CAP
CAP
Regional Value Chain
PWTRAIN POWERTRAIN
DESIGN & TOOLING 336310
TESTING PWTRAIN 336350
KNL CAP CAP
OTHER ELECTRON.
Global Value Chain
336390 DESIGN &
TESTING
CAP KNLConclusions • OEM presence in the car segment was due to high tariffs and unable/unlikely to develop a local industry • Economies of scale and regional integration in ASEAN make it very hard to compete in car segment • Bus and truck segments already have developed some capabilities and MSE constraints are not binding • Potential to develop full range of software, hardware and service design and implementation skills that could be exported (networked bus) • Emergent digital transportation services ecosystem building on congestion solution dataset and APIs
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