INDUSTRY-SPECIFIC GLOBAL VALUE CHAINS
Ifeyinwa Uchenna Onugha
Guillermo Carlos Arenas
Alberto Criscuolo
Thomas Kenyon
GVC AUTOMOTIVE INDUSTRY
FINAL PRESENTATION
INDUSTRY-SPECIFIC GLOBAL VALUE CHAINS
STRATEGIC SEGMENTATION
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:
By no of wheels….
By type of supplier….
THESE ARE
FINISHED PRODUCTS
NOT
BUSINESS SEGMENTS
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
• 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
• 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
Increasing rates of urbanisation and congestion - Implications
• 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
Johannesburg
Pollution 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
REDUCE EMISSIONS
International Transport Forum2
Pollution 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
REDUCE EMISSIONS
- Implications for automotive…
OEMs will invest more in2
• e-Mobility (electrical/hybrid
powertrains, batteries)
• lightweight and
aerodynamic drag-reducing
technologies
Opportunity for
specialist suppliers to
recapture power /
value / margin
Ever more stringent crashworthiness and safety requirements
CRASHWORTHINESS
REQUIREMENTS
(e.g. seatbelts, airbags and
crumple zones)
are EVER MORE STRINGENT
often requiring anthropomorphic
crash test dummies and
ADVANCED TESTING
FACILITIES
MANY PASSENGER VEHICLES
now include (often
as a differentiatior)
ADVANCED DRIVER
ASSISTANCE
features (e.g. infrared night vision,
tire pressure monitoring systems,
emergency brake assist, and
electronic stability controls)
Ever more stringent crashworthiness and safety requirements
- Implications for automotive…
CRASHWORTHINESS
REQUIREMENTS
(e.g. seatbelts, airbags and
crumple zones)
are EVER MORE STRINGENT
often requiring anthropomorphic
crash test dummies and
ADVANCED TESTING
FACILITIES
MANY PASSENGER VEHICLES
now include (often
as a differentiatior)
ADVANCED DRIVER
ASSISTANCE
features (e.g. infrared night vision,
tire pressure monitoring systems,
emergency brake assist, and
electronic stability controls)
Cost of testing
continuously increasing
Safety requirements
may vary from region to
region
‘State-of-the-art’,
accredited, well
managed testing
facilities are necessary
to compete
Supply of subsystems
may require advance
Research and
Development capacity
Emphasis has shifted to information technology
THAT WHICH MADE
“A CAR, A CAR”
(e.g. speed, acceleration,
torque, engine size,
number of cylinders)
LESS IMPORTANT
Consumers want
TRAFFIC INFORMATION
services,
and a host of
INFOTAINMENT
FEATURES,
including internet radio
and smartphone
compatibility
Number of
NETWORKED CARS
will rise 30%
year on year;
by 2020
1 IN 5 CARS
will be
CONNECTED TO THE
INTERNET
Emphasis has shifted to information technology
THAT WHICH MADE
“A CAR, A CAR”
(e.g. speed, acceleration,
torque, engine size,
number of cylinders)
LESS IMPORTANT
Consumers want
TRAFFIC INFORMATION
services,
and a host of
INFOTAINMENT
FEATURES,
including internet radio
and smartphone
compatibility
Number of
NETWORKED CARS
will rise 30%
year on year;
by 2020
1 IN 5 CARS
will be
CONNECTED TO THE
INTERNET
- Implications for automotive…
need to constantly
identify differentiating
features and services
Location is key. Remote Swedish cities (e.g.) may require total on-board
solutions, whilst in busy Italian cities (e.g.) collaboration between road /
car / data providers may be more feasible
Product lifecycle is evolving
Aftersales market is
growing.
CHINA AFTERSALES
market is estimated to
grow 20% a year1
Trend has moved from
buying vehicles to
leasing vehicles to
RENTING VEHICLES
(maintenance included)
Specific requirements
and preferences of the
markets require a
LOCALISATION OF
THE AFTERMARKET
Product lifecycle is evolving
Aftersales market is
growing.
CHINA AFTERSALES
market is estimated to
grow 20% a year1
Parts either need to be
available JIT in
consumer country or
held as stock
Trend has moved from
buying vehicles to
leasing vehicles to
RENTING VEHICLES
(maintenance included)
In manufacturer
/ maintainer’s
interest to
monitor vehicles
in realtime
Scania is already “directing” truck drivers to
nearest garages and pre-booking hotel rooms!
Specific requirements
and preferences of the
markets require a
LOCALISATION OF
THE AFTERMARKET
- Implications for automotive…
Companies trying to
exploit the
aftermarket with a
standardized global
approach will
most likely fail.
Finding an
individual approach is
essential.
Maintenance, durability
and recycling much
more important
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
ENVIRONMENT (OF THE NEAR
FUTURE)
SPRAWLING / RURAL /
SPARSELY POPULATED
Movement of
People
Individual Strategic Segment 1 Strategic Segment 2
Groups Strategic Segment 3 Strategic Segment 4
INTRACITY INTERCITY
Movement of
Merchandise
Light Strategic Segment 5 Strategic Segment 6
Heavy Strategic Segment 8
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
ENVIRONMENT (OF THE NEAR
FUTURE)
SPRAWLING / RURAL /
SPARSELY POPULATED
Movement of
People
Individual Strategic Segment 1 Strategic Segment 2
Groups Strategic Segment 3 Strategic Segment 4
INTRACITY INTERCITY
Movement of
Merchandise
Light Strategic Segment 5 Strategic Segment 6
Heavy Strategic Segment 8
•Congestion common
•Parking limited
•Pollution a concern
•Road (expansion) is limited
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
ENVIRONMENT (OF THE NEAR
FUTURE)
SPRAWLING / RURAL /
SPARSELY POPULATED
Movement of
People
Individual Strategic Segment 1 Strategic Segment 2
Groups Strategic Segment 3 Strategic Segment 4
INTRACITY INTERCITY
Movement of
Merchandise
Light Strategic Segment 5 Strategic Segment 6
Heavy Strategic Segment 8
• Little / no congestion
• Parking no problem
• Pollution less acute
• Road expansion and
availability not a problem
What 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
ENVIRONMENT (OF THE NEAR
FUTURE)
SPRAWLING / RURAL /
SPARSELY POPULATED
Movement of
People
Individual Strategic Segment 1 Strategic Segment 2
Groups Strategic Segment 3 Strategic Segment 4
INTRACITY INTERCITY
Movement of
Merchandise
Light Strategic Segment 5 Strategic Segment 6
Heavy Strategic Segment 8
Next 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
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Local/Cluster Value Chain
Global Value Chain
Regional Value Chain
SEGMENT 2: RURAL – PEOPLE INDIVIDUALIDEAL VALUE CHAIN
Final assembly
Labor intensity:4.5 (mean = 11)
Minimum scale:100k units
Global – Regional – Cluster Automotive Value Chains flowchartSTRATEGIC SEGMENT 1: DENSE / URBAN / CITY ENVIRONMENT – PEOPLE INDIVIDUAL
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Local/Cluster Value Chain
Global Value Chain
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IDEAL VALUE CHAIN
Global – Regional – Cluster Automotive Value Chains flowchartSTR. SEGMENT 4: SPRAWLING/ RURAL/SPARSELY POPULATED– PEOPLE GROUP
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Local/Cluster Value Chain
Global Value Chain
Regional Value Chain
IDEAL VALUE CHAIN
Regional and Local Value Chains
MEXICO: AUTO VALUE CHAIN
Where is Mexico positioned and where might it be going?
DENSE / URBAN / CITY
ENVIRONMENT (OF THE NEAR
FUTURE)
SPRAWLING / RURAL /
SPARSELY POPULATED
Movement of People
Individual Strategic Segment 1 (‘Uber’) Strategic Segment 2 (‘Toyota Corolla’)
Groups Strategic Segment 3 Strategic Segment 4
Movement of
Merchandise
Light Strategic Segment 5 Strategic Segment 6
Heavy Strategic Segment 7 Strategic Segment 8
Rural US Market
Little/no congestion
Parking no problem
Pollution less acute
Road availability
Mexi
co
City
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Local/Cluster Value Chain
Global Value Chain
Regional Value Chain
Mexico is well established in the ‘Toyota Corolla’ segment (2)
Mexico’s Position in the Value Chain
But 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….
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Global Value Chain
Regional Value Chain
The Mexican Segment 2 value chain ten years from now?
Mexico’s Potential Position in the Value Chain
The ‘Uber segment’ (1) is also expanding……
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Local/Cluster Value Chain
Global Value Chain
Regional Value Chain
Mexico’s Position in the Value Chain
What Does This Mean for IFC/WB?
Build clearing house of traffic data (partnership with
apps: Easy Taxi, OlaCabs, GrabTaxi)
Advise on municipal regulation - safety standards, tariff
transparency
Support consortia of international and tooling/machining
companies – build scale & transfer expertise
Help evaluate Program Pro Auto support (INADEM)
Segment 1 Segment 2
SERBIA & 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
Turnover of the Serbian Automotive Industry
Product Breakdown of Serbia Automotive
Main Automotive Plants in Serbia (OEM, Tier 1, Tier 2) FIAT and Main Automotive FDI in Serbia
A Solid Automotive Footprint… Leading to Good Performance… Built around the FDI Strategy of one OEM…
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 Germany
Macedonia Automotive: the New Kid on the Bloc in the European
RVC…
Current and Pipeline Tier 1 and Tier 2 FDI in MacedoniaMain Automotive Plants in Macedonia Performance of Auto-Components Industry
An Embryonic Automotive Base…
A Recent Wave of Uncoordinated
Auto-FDI in Segment 2… Is Auto-Parts as the Entry to the EP RVC?
Can Serbia and Macedonia Compete in the “Toyota Corolla”
Segment in Europe?
DENSE / URBAN / CITY
ENVIRONMENT (OF THE NEAR
FUTURE)
SPRAWLING / RURAL /
SPARSELY POPULATED
Movement of
People
Individual Strategic Segment 1 Strategic Segment 2
Groups Strategic Segment 3 Strategic Segment 4
INTRACITY INTERCITY
Movement of
Merchandise
Light Strategic Segment 5 Strategic Segment 6
Heavy Strategic Segment 8
Demand Trends in the EU:
• more onboard
electronics
• high fuel efficiency
• stringent
environmental
regulation
• increased safety
• networked mobility
The Western Balkans are well-positioned in the Euro-Periphery RVC for ST. SEGMENT 2: INTERCITY – PEOPLE INDIVIDUAL
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Western Balkans - Local/Cluster Value Chain
Global Value Chain
European Periphery Regional Value Chain
Serbia has a relatively good positioning through FIAT, although both strategic positioning (lock-in)
and supply chain efficiency risks do exist…
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MACEDONIA - Local/Cluster Value Chain
Global Value Chain
European Periphery Regional Value Chain
Is Macedonia better off in becoming a auto-parts hub for specific component systems in Segment 2?
The Western Balkans are well-positioned in the Euro-Periphery RVC for ST. SEGMENT 2: INTERCITY – PEOPLE INDIVIDUAL
Focus 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?
42
Macedonia’s Export of Automotive Components by Country of DestinationMacedonia’s Export of Automotive Components by Type
Macedonia’s Potential Automotive Component Systems Specialization
A Small Country for a Big Product: Macedonia and Bus
Manufacturing…
DENSE / URBAN / CITY
ENVIRONMENT (OF THE NEAR
FUTURE)
SPRAWLING / RURAL /
SPARSELY POPULATED
Movement of
People
Individual Strategic Segment 1 Strategic Segment 2
Groups Strategic Segment 3 Strategic Segment 4
INTRACITY INTERCITY
Movement of
Merchandise
Light Strategic Segment 5 Strategic Segment 6
Heavy Strategic Segment 8
Demand Trends for Bus:
• Global demand to reach US
$41 billion and 664,000 units
by 2018
• growth of urban population
& need to reduce traffic
congestion
• growth in the number and
size of private transportation
companies
• more stringent emissions
standards and diffusion of
electric, hybrid models
Global – Regional – Cluster Automotive Value Chains flowchartSTR. SEGMENT 4: SPRAWLING/ RURAL/SPARSELY POPULATED– PEOPLE GROUP
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Macedonia Local/Cluster Value Chain
Global Value Chain
European Regional Value Chain
Macedonia’s positioning in the Bus European Periphery RVC
Deepening and Expanding the Bus Manufacturing Value Chain in
Macedonia…
• €25M investment
• 431 employees
• Production of intercity coaches
(500 for US market)
• Started operations in 2013
• Sourced locally chassis modules
(Aktiva) & fiberglass body parts
(Uniplast)
• Potential to localize high-volume
low-value components
• Small minimum investment size to (Euro 25 million) vs.
1 billion Euro for PV plant (FIAT)
• Labor intensive (21.2 hours worked per $1K of value
added vs. 4.4 hours worked per $1K of value added for
PV manufacturing
• Discrete production process and small batches
production runs
• Buyers require tailor-made solutions
• 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 exchange
Bus manufacturing structural requirements fit well
Macedonia as a potential production hub in the European
RVC
What Does This Mean for IFC/WB?
• 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 clients
Some preliminary considerations…
COLOMBIA’S AUTO INDUSTRY
Palliative Care: Clinging to the Traditional Model
DENSE / URBAN / CITY
ENVIRONMENT (OF THE NEAR
FUTURE)
SPRAWLING / RURAL /
SPARSELY POPULATED
Movement of
People
Individual Strategic Segment 1 Strategic Segment 2
Groups Strategic Segment 3 Strategic Segment 4
INTRACITY INTERCITY
Movement of
Merchandise
Light Strategic Segment 5 Strategic Segment 6
Heavy Strategic Segment 8
Segment 2 represents the traditional car/motorbike business segment. Think: “Toyota Corolla”…
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Global Value Chain
Regional Value Chain
Palliative Care: Clinging to the Traditional Model
The ideal value chain in the traditional (“Toyota Corolla”) segment:
Local/Cluster Value Chain
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ASSEMBLY
CAP
Local/Cluster Value Chain
Global Value Chain
Regional Value Chain
Palliative Care: Clinging to the Traditional Model
Optimal Sub-optimal Not present
Colombia is it participating (well) in very few of the value chain activities in this business segment…
Palliative 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.
• Introduce car scrappage programs
• Improve road Infrastructure
0
40
80
120
160
02 03 04 05 06 07 08 09 10 11 12 13
Tho
usa
nd
s
Private Vehicles
SUVs
Vans and Light Trucks
Public Transportation
Commercial Vehicles 0
20
40
60
80
100
02 03 04 05 06 07 08 09 10 11 12 13
Tho
usa
nd
s
Palliative Care: Clinging to the Traditional Model
…However increasing local demand will undermine efforts to reduce traffic congestion
2002 2012
Time spent
in traffic
everyday
52mins 71mins
(Transmilenio began operation in 2000)
AfterBefore Now
Palliative Care: Clinging to the Traditional Model
…Colombia could instead explore an ‘expansion’ of its home market to include its neighbours
48.1%
7.4%
9.2%
35.3% Colombia
Bolivia
Ecuador
Peru
Import of New Vehicles – Andean Community (2014)
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
lifestyle: They want them to project a youthful image and
have soft seats and soft steering for relaxed cruising on
the highway
In the United States the vehicle has
a more streamlined appearance and
softer seats.
EU Europeans attach great importance to safety, which means
that they appreciate such features as more solid doors.
They want their cars to be stable on the road and
accelerate quickly in the low gears
In Europe, vehicles have more solid
(looking) bumpers and headlights
that are integrated into the car body
Japanese Japanese focus on fuel efficiency, modern design and
practical details
In Japan there are more drink
holders as an example
Production of region-specific models often takes place in 16 different respective markets
VEHICLE
DESIGN &
TESTINGKNL
TOOLING
EXT/INT
CAP
CHASSIS
336330
336340CAP
INTERIOR
336360
LAB
ELECTRONI
CS 336320
CAP
TOOLING
CHASSIS
CAP
TOOLING
PWTRAIN
CAP
OTHER
336390
CAP
PWTRAIN
DESIGN &
TESTINGKNL
ELECTRON.
DESIGN &
TESTINGKNL
POWERTRAIN
336310
336350
CAP
SHIP
LAB
EXTERIO
R 336370
336211CAP
ASSEMBLY
CAP
Local/Cluster Value Chain
Global Value Chain
Regional Value Chain
Leap of Faith: Organising industry towards value-added services
MAINTENA
NCE
LAB
RECYCLI
NG
LAB
FINANCIAL
SERVICES
KNL
Whilst Colombia’s participation in the traditional bus segment is also limited…Optimal Sub-optimal Not present
ROADS
RAILS
CAPVEHICLE
DESIGN &
TESTINGKNL
TOOLING
EXT/INT
CAP
CHASSIS
336330
336340CAP
INTERIOR
336360
LAB
ELECTRONI
CS 336320
CAP
TOOLING
CHASSIS
CAP
TOOLING
PWTRAIN
CAP
OTHER
336390
CAP
PWTRAIN
DESIGN &
TESTINGKNL
ELECTRON.
DESIGN &
TESTINGKNL
POWERTRAIN
336310
336350
CAP
SHIP
LAB
NETWORK
MNGMT
KNL
MAINTENANCE
LAB
RECYCLING
LAB
EXTERIO
R 336370
336211CAP
FINANCIAL
SERVICES
KNL
ASSEMBLY
CAP
Local/Cluster Value Chain
Global Value Chain
Regional Value Chain
Leap of Faith: Organising industry towards value-added services
The BRT/ networked trucks segment is more expansive…Optimal Sub-optimal Not present
ROADS
RAILS
CAPVEHICLE
DESIGN &
TESTINGKNL
TOOLING
EXT/INT
CAP
CHASSIS
336330
336340CAP
INTERIOR
336360
LAB
ELECTRONI
CS 336320
CAP
TOOLING
CHASSIS
CAP
TOOLING
PWTRAIN
CAP
OTHER
336390
CAP
PWTRAIN
DESIGN &
TESTINGKNL
ELECTRON.
DESIGN &
TESTINGKNL
POWERTRAIN
336310
336350
CAP
SHIP
LAB
NETWORK
MNGMT
KNL
MAINTENANCE
LAB
RECYCLING
LAB
EXTERIO
R 336370
336211CAP
FINANCIAL
SERVICES
KNL
ASSEMBLY
CAP
Local/Cluster Value Chain
Global Value Chain
Regional Value Chain
Leap of Faith: Organising industry towards value-added services
And there are clear opportunities for Colombian industry to appropriate this value.
THIS IS WHERE THE VALUE IS
RETAINED
Leap of Faith: Organising industry towards value-added services
Bus Rapid Transit systems have been particularly popular in Latin America
Passengers per day - Global
Passengers per day – Latin America
Cities where BRT systems are planned or under construction
In Operation
Under construction
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
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
transportation costs
15-20%
Leap 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 INITIATIVES
VIETNAM AUTO INDUSTRY
High and differentiated tariffs provide protection to local CKD industry and generate sizeable rents
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 50
Import Tariffs for Motor Vehicles (2014)
Global – Regional – Cluster Automotive Value Chains
flowchart ST. SEGMENT 2: SPRAWLING/
RURAL/SPARSELY POPULATED– PEOPLE INDIVIDUAL
VEHICLE
DESIGN &
TESTINGKNL
TOOLING
EXT/INT
CAP
CHASSIS
336330
336340
CAP
INTERIOR
336360
LAB
ELECTRONICS
336320
CAP
TOOLING
CHASSIS
CAP
TOOLING
PWTRAIN
CAP
OTHER
336390
CAP
PWTRAIN
DESIGN &
TESTINGKNL
ELECTRON.
DESIGN &
TESTINGKNL
POWERTRAIN
336310
336350
CAP
SHIP
LAB
MAINTE
NANCELAB
RECYCLIN
GLAB
EXTERIO
R 336370
336211
CAP
FINANCIAL
SERVICES
KNL
ASSEMBLY
CAP
Local/Cluster Value Chain
Global Value Chain
Regional Value Chain
Optimal Sub-optimal Not present
The Challenge in ASEAN: Economies of Scale and First-Mover Advantage
Company Plant in ThailandCapacity
(thousands)Plant in Vietnam
Capacity (thousands)
Toyota Gateway I 230 Vinh Phuc 36Ban Pho 230Samrong 240Gateway II* 80
Mitsubishi Laem Chabang 510 Vinastar (Binh Duong) 20Isuzu Samrong 300 Ho Chi Minh City 5
Gateway 100Nissan Samut Prakan I 220 TCIEV (Danang) 6.5
Samut Prakan II 150Honda Ayutthaya 300 Vinh Phuc 10
Prachinburi 120General MotorsRayong 250 Thanh Tri 20Ford Rayong 150 Hai Duong 14Suzuki Rayong 100 Bihn Da 5Hino Hino 10 Hanoi 4Kia - - Thaco (Chu Lai) 25Mazda - - Thaco (Chu Lai) 10
Shift 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 ENVIRONMENT (OF THE NEAR
FUTURE)
SPRAWLING / RURAL / SPARSELY POPULATED
Movement of People
Individual Strategic Segment 1 Strategic Segment 2
Groups Strategic Segment 3 Strategic Segment 4
Movement of Merchandise
Light Strategic Segment 5 Strategic Segment 6
Heavy Strategic Segment 7 Strategic Segment 8
• Little / no congestion
• Parking no problem
• Pollution less acute
• Road availability
ROADS
RAILS
CAPVEHICLE
DESIGN &
TESTINGKNL
TOOLING
EXT/INT
CAP
CHASSIS
336330
336340CAP
INTERIOR
336360
LAB
ELECTRONI
CS 336320
CAP
TOOLING
CHASSIS
CAP
TOOLING
PWTRAIN
CAP
OTHER
336390
CAP
PWTRAIN
DESIGN &
TESTINGKNL
ELECTRON.
DESIGN &
TESTINGKNL
POWERTRAIN
336310
336350
CAP
SHIP
LAB
NETWORK
MNGMT
KNL
MAINTENANCE
LAB
RECYCLING
LAB
EXTERIO
R 336370
336211CAP
FINANCIAL
SERVICES
KNL
ASSEMBLY
CAP
Local/Cluster Value Chain
Global Value Chain
Regional Value Chain
STRATEGIC SEGMENT 3: DENSE / URBAN ENVIRONMENT – PEOPLE
Optimal Sub-optimal Not present
Where could Vietnam go?
Mid/Heavy Commercial Vehicle Production and Statistics
MakerType of vehicle
Production Installed capacity EmployeesCar Light CV Mid CV Bus
IVC (Isuzu) - - x - 3,629 5,000
Hino - - x - 3,058 4,000
Samco - - - x 1,040 4,000
Thaco x x x xBus: 1,400
Truck: 20,000Bus: 3,000
Truck: 25,0003,800
Vinamotor - - x x 2,693 Bus: 3,000
Truck: 5,000
VEAM - x x - 2,269 3,000
Mid/Heavy Vehicle Production (2014)
GlobSTR. SEGMENT 4: SPRAWLING/ RURAL/SPARSELY
POPULATED– PEOPLE GROUP– Regional – Cluster
Automotive Value Chains flowchart
VEHICLE
DESIGN &
TESTINGKNL
TOOLING
EXT/INT
CAP
CHASSIS
336330
336340CAP
INTERIOR
336360
LAB
ELECTRONI
CS 336320
CAP
TOOLING
CHASSIS
CAP
TOOLING
PWTRAIN
CAP
OTHER
336390
CAP
PWTRAIN
DESIGN &
TESTINGKNL
ELECTRON.
DESIGN &
TESTINGKNL
POWERTRAIN
336310
336350
CAP
SHIP
LAB
MAINTENA
NCE
LAB
RECYCLI
NG
LAB
EXTERIO
R 336370
336211CAP
FINANCIAL
SERVICES
KNL
ASSEMBLY
CAP
Local/Cluster Value Chain
Global Value Chain
Regional Value Chain
IDEAL VALUE CHAINS
Global – Regional – Cluster Automotive Value Chains flowchartSTR. SEGMENT 6: INTERCITY– MERCHANDISE MEDIUM/HEAVY
VEHICLE
DESIGN &
TESTINGKNL
TOOLING
EXT/INT
CAP
CHASSIS
336330
336340CAP
INTERIOR
336360
LAB
ELECTRONI
CS 336320
CAP
TOOLING
CHASSIS
CAP
TOOLING
PWTRAIN
CAP
OTHER
336390
CAP
PWTRAIN
DESIGN &
TESTINGKNL
ELECTRON.
DESIGN &
TESTINGKNL
POWERTRAIN
336310
336350
CAP
SHIP
LAB
MAINTENA
NCE
LAB
RECYCLI
NG
LAB
EXTERIO
R 336370
336211CAP
FINANCIAL
SERVICES
KNL
ASSEMBLY
CAP
Local/Cluster Value Chain
Global Value Chain
Regional Value Chain
Conclusions
• 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