The automobile industry in vietnam and thailand in a comparative perspective

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

MINISTRYOFEDUCATIONANDTRAININGUNIVE RSITYOFECONOMICSHOCHIMINHCITY

CERTIFICATION

Icertifythatthesubstanceofthe studyhasnotalreadybeensubmittedforanydegreeand is not being currently submitted for any other degrees

Icertifythattothebestofmyknowledgeanyhelpreceivedinpreparingthe studyand all

sources used have beenacknowledged in the study

ThestudydoesnotnecessarilyreflecttheviewsoftheHoChiMinhCityEconomicsUniversit

y or Fulbright Economics Teaching Program

HuynhThiKieuOanh

ACRONYMS ANDABBREVIATIONS

ACKOWLEDGMENTS

To finishthis paper,Ihavereceivedmanyhelps

IamheartilygratefultoProfessorJonathanR.Pincusforhissupervisionandguidance.Hissupportandguidancefromtheinitialtothefinallevelhelpmetod e v e l o p thissubject.Healsoreadandcorrectedmygrammarsverycarefullyandindetails

AlsoIwouldliketothankFULBRIGHTteachersandstaffsinhelpingmetobroadenmyviewand knowledge during mystudying

AndI wouldliketoexpressmydeepestgratitudetomyparentsandfriendsinsupportingme.Ioffermyregardsandblessingstoallofthosew h o supportedmeinanyrespectduring thecompletionofthepaper

HuynhThiKieuOanh

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 investmentliberalizationand global andregional integration 19

Abolishing local content requirements and restructuringtariffsandothertaxes 19

Promoting the development of related and supporting industries and largeautomobile cluster investments 21

2.2.2 Vietnam 22

Before 2004: High protectionforagglomeration 23

After2004:Protectiondecreasing,butremainshigh 25

2.3 Explaining the differences and learning 27

2.3.1 Differences 27

2.3.2 Explanation 28

Thedomesticmarketisshrunkbygovernment’spolicies,especiallycurrent tariff and taxes 28

SupportingindustriesinVietnamhavenotdeveloped,especiallyanautoparts industry to be ableto localize production 31

e not clear and useful 33

2.3.3 Lessons 33

3 POLICYRECOMMENDATIONS 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

APPENDIX1 42

TABLES Table 1 List of FDI automakers in Vietnam 10

Table 2 The production volume of11 JVs (in units), 1996–2002 11

Table 3 Tariff and tax rate (%) relatedtoCBUandCKD vehicles,before1992–present 14

Table 4 Regulations to Thailand’ zone 21

FIGURES Figure 1 Major functions withinthe 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 sharebyproducers (%), 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

BODIES

Manufacture and Stamping of body panels Body assembly and painting

COMPONENTS

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

h a t hasa developedautomobilei n d u s t r y willc r e a t e g o o d conditionsforpromotin

gt h e developmentofotheri n d u s t r i e s T h i s industryco n t r i b u t e s l a r g e l y t o soci

Vietnam’automobileindustryhasbegunsince1991.Butuptonow,itissmallandunderdeveloped.Salesvolumei s v e r y low,about100,000unitsperyear.Thisi n f l u e n c e s v e r

y mucht o generateeconomiesofscaleofassemblersandautopartscompanies.AndnowthelocalassemblyindustryinVietnamisdominatedbyforeign-

investedjointventures(JVs).Iti s focusedsolelyonservingt h e domesticmarket.Inrecentyears,Vietnamhashadmanyincentivestoprotectitsautomobileindustrywitha viewtoincreasingthelocalc o n t e n t a n d reducingthepriceo f vehicles.However,uptonow,thelocalcontentrateisonlyaboutbetween2%to 10%.So,localassemblyproductsareheavilyreliantonimportedparts.Inaddition,

carpricei s veryhigh.Accordingtot h e surveyoft h e MinistryofFinance,onNovember8t

h

,2008theToyotaCorolla1.8MTwassoldinVietnamwiththepriceof19,532USDwhilei nothercountries,itwassold15,350USD.Similarly,t h e T o y o t a Camry3.5is38,510USDinVietnamwhiletheworldpriceisfrom24,215USDand28,695USD.Theseresultsareagainstthegovernment’sexpectationandalsodemonstratethatVietnam’spolicieshavenotworkedintheautomobilei n d u s t r y

Asmentionedabove,theautomobileindustryissupportedandencouragedbymanycountriesi n t h e ASEAN.Theautomobileindustryinthesecountriesgeneratedsomeachievements,especiallyThailand NowThailand’sautomotiveindustryisakeysectorintheoveralleconomythataccountfor11.3%ofGDPinmanufacturinga n d e m p l o y e d 1.2m

i l l i o n workersin2008(Sirisuwanangkura,2009).Thelocalco nt en t r a t e i s between60%and8 0 % dependingo n t h e t y p e ofvehicles.Since2005,ThailandhasbecomethelargestproductionhubofASEANandranknumber14inglobalproductionin2008.Toachievetheseresults,thegovernment’spoliciescontributedalarge part

ThestudychoseThailand asa comparativeobjectbecauseThailandand VietnamareintheASEANregion.Inthepast,presentandfuture,theWTOandregionalcommitmentsinfluencemuchtotheautomobileindustries inVietnamand Thailand

industry in the ASEAN

Asknown,theseresultsintheautomobiledependi n l a r g e partongovernmentpolicies.Thailandhasbeensuccessfulinbuildingindustrialpoliciessuchastariffandtaxpolicies,localcontentrequirements,supportingindustrialdevelopmentandcluster–based

automobileindustrydevelopment,whileVietnam’spolicieshave

notpromotedthedomesticautomobileindustry

Thisstudydoesnotfocusonfindingouttheseresultsintwocountries.Itdemonstratesthewaysinwhichthepolicieshaveresultedindifferences.So,thestudy

Government policiesFirm strategy, structure and rivalry

Demand conditionsFactor conditions

Related and supporting industries

Thispaperisorganizedas follows.ThenextsectionanalysestheVietnameseandThailand’sautomobileindustriesandexplainsthedifferencesdescribedabove.Section3 givespolicyrecommendations.Thefinalsectionconcludesandsummarizes

2 THE AUTOMOBILE INDUSTRY

UsingthediamondmodelofMichaelPorter,therearefourdecisivefactorsinthecompetitivenessoftheindustryasshowninFigure2(Porter,1998).Itincludesfirmstrategy,structureandrivalry,factorconditions,demandconditionsand,relatedandsupportingindustries.Theroleofgovernmentpoliciesinthismodelistoaffecttheotherfourfactorswitha viewtomovingtohigherlevelsofcompetitiveperformance.Thesemainpoliciesincludetariffandtaxpolicy,localization,c l u s t e r -

b a s e d developmentpolicya n d supportingindustrydevelopment

Figure 2: Competitiveness Diamond

Source:Porter,1998

Overtime,impactofthesepolicieshascontributedtodifferencesbetweenVietnama n d Thailand.Basedonthismodel,thestudydemonstratestheeffectofthepoliciesthrough impact ofthegovernment’s policiestotheotherfourfactors.

2.1 Performance

Itisdifficultandcomplicatedtocomparetotheautoindustryintwocountriesbecauseofthedifferencesinstartingpointsanddomesticconditions.Thepurposeo f t h i s studyi s t odemonstratet h e w a y s i n whicht h e p o l i c i e s h a v e r e s u l t e d i n differences

2.1.1 Thailand

Thailandlauncheditsautomobileindustryinthe1960s.Basedongovernmentpolicies,thecountryhasdevelopedaglobalandregionalautomobileindustry.Over40years,t h i s i n d u

s t r y hasgrownfromanimport– substitutiontoanexport– orientedindustry

TheThaiautomobileindustrysuppliernetworkisbuiltasa pyramid,with15carassemblers(seeAppendixI),648t i e r – 1 suppliersa n d 1.641t i e r –

2 suppliers(Sirisuwanangkura,2009).About80%ofthecountry’soverallautomobileassemblingcapacitybelongstoJapanesecompanies.MostoftheseOriginalEquipmentManufacturers(OEMs)aremainlymembersofJapanesekeiretsugroupssupplyingtheirowncustomerbases.Thecompaniescanbecategorizedintothreegroups:membersofaJapanesefamilyofcompanies;jointventureswithJapanesetechnologyowners;and,companiesthathavetechnicalassistanceorlicensinga g r e e m e n t s withJapanesefirms(RoyalDanishEmbassy,2006).TogetherwithJapanesefirms,manynewinvestmentsbynon-

143,250in1998.However,in2005,productionvolumeexceededonemillionsunitsand ThailandisthelargestproductionhubofautomobilesinASEAN.In2008,thetotalproductionofvehicleswas1,391,728units,comparedwithonly143,250vehiclesin1998.Aboutthestructureofproductsin2008,Thailandmainlyproducedo n e - t o n t r u c k s a n d pick-uptrucks.T h i s matchesdomesticd e m a n d ass h o w n inFigure4.

Figure 3 Thailand’s automobileproduction (in units), 1993-2008

Source:The Thailand AutomobileIndustry Association(retrieved data fromhttp://www.thaiauto o r.th/Record s /eng/records_menu_eng.as p ,10/2009)

Salescanbeclassifiedintotwotypes:passengercarsandcommercialvehicles.InThailand,domesticdemandisweightedtowardsl i g h t commercialvehicles,e s pe c i a l l y one-

thepurchaseofthesevehiclesratherthanpassengercars.In2008,238,990passengerc a r s weresold,upby30%from182,767unitsin2007.Morethan95%oflocalautodemandwasmet

b y domesticp r o d u c t i o n L o c a l l y assembledo n e – t o n pickups

accountforabouttwo-thirdofthetotalsectorinThailand.ThismakesThailandthesecondlargestmarketfor pickup trucksintheworld,aftertheUS

Figure 4 Thailand’s automobilesales (in units), 1993–2008

Source:The Thailand AutomobileIndustry Association(retrieved data

fromhttp://www.thaiauto o r.th/Record s /eng/records_menu_eng.as p ,10/2009)

Figure 5 Thailand’s automobile sales share by producers(%),in2005

Source:The Thailand AutomobileIndustry Association,2005

AsshowninFigure5,vehiclesalesw e r e dominatedb y twobrands:Toyotaa n d Isuzu.Toyotahasthelargestmarketshare,with39.8%in2005.Isuzuhasgreatlyincreaseditsmarketshareandaccountedfor25.4%.Honda,MitsubishiandNissanfollow withmarketshareso

f 7.7%,6 8 % a n d 5.9%,respectively.UnitedStatesautomobilecompanieshavealsoincreasedtheirpresenceinthemarket.Japanesemanufacturerscontrollednearly90%ofthemarket

Aftermeetingdomesticdemand,t h e automobilecompaniesexportvehicles.Thailandhasbecomemoree x p o r t orientedsince1996.Exportshaveincreasedgradually from

withavalueof516,244millionTHB.MajorcarexportmarketswereAustralia,IndonesiaandtheUKwhilevehiclecomponentsandpartswereexportedtoJapan,theUSandMalaysia

Figure6.Thailand’s automobile export (in units), 1996-2008

Source: The Thailand Automobile Industry Association(retrieved data fromhttp://www.thaiauto o r.th/Record s /eng/records_menu_eng.as p ,10/2009)

2.1.2 Vietnam

Before1991,carsinVietnamweremainlyimportedfromthesocialistcountries.Domesticcompanieshadnotinvestedinautoassembling,andwereonlyfocusedonr e p a i r i n g imported vehicles

Since1991the automobileindustryhasbeguntochange dramaticallyasVietnamopeneditseconomytointernationaltradeandinvestment.In1991,the firstjoint-

venturewiththePhilippineswasformedinVietnam,a companycalledVietnamMotorsCorporation (VMC)

Atpresent,Vietnamhas12automobilejoint-ventures(seeTable1),morethan40foreignautopartcompaniesand100domesticcompanies,including20CompletelyKnockedDown(CKD)kitsassemblersandrepairers,20body-trailer-barrelbuildersa n d 60partsmanufacturers.Joint-

ventures(JVs)consistofsevenJapaneseautomakers(Daihatsu,Hino,Isuzu,Mitsubishi,Suzuki,T o y o t a andHonda),oneKoreanautomaker(Daewoo),oneKorean-

backedlicensedassembler(Mekong),onePhilippine-backedlicensedassembler(VMC),oneGermanautomaker(Mercedes),andoneAmericanautomaker(Ford).JVsarecapableofmanufacturinga n y kindofvehicledemandedbythedomesticmarket,butHinoMotorsspecializesi n heavytrucks

MostoftheJVswereestablishedbefore1996.TheyplayanimportantroleintheVietnam’sautomobileindustry.ThetotalregisteredinvestmentcapitalofJVsi s

574.7m i l l i o n USDandtotalrealinvestmentcapitaltotheyear2002was419.85millionsUSD(74%ofregisteredcapital).In2005,Hondainvestedinproducingcars As of 2005,total real investmentcapitalwasabout536millionUSD

By2002,thetotalregisteredcapacityofelevenJVswas148,200unitsperyear.However,t h

e s e JVsusedj u s t 30%oftotalregisteredc a p a c i t y a n d focusedonassembling.Before2004,t h e activitiesofelevenJVsdominatedtheVietnamese

automobileindustry.TheproductionvolumeoftheelevenJVsaccountedformorethan90%ofthedomesticmarket.Productswerediversifiedinmanymodels.Theyproducedmainlycarstosatisfydomesticmarketdemand.OnlyHinoMotorsCompany specializedinheavydutytrucks.

Table 1.List of FDI automakers in Vietnam

1 MEKONGCORPORATION Korea semblerLicenseAs 1992 HCMC 60 5,000

2 MOTORC O R P VIETNAM Philippine semblerLicenseAs 1992 Hanoi 35 20,000

3 VIDAMCO Korea Automaker 1993 Hanoi 32 10,500

4 VINASTAR Japan Automaker 1994 HCMC 50 5,000

5 MERCEDESBENZVN 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 FORDVIETNAM 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:Compiledfromwebsitesof automobile companies

Table2showstheproductionvolumeof11JVsfrom1996to2002.Weseethatint h i s period,theelevenJVshadassembledatotalof84,585vehicles,achievedUSD1,976.6millioninsalesande a r n e d p r o f i t s o f USD24.4million.Theproductionvolumeo f v e h i c l e s remainsl o w , b u t isincreasingannually.In1996,totalproductionvolumewaso n l y 5 , 5

3 8 vehicles.Howeveri n 2 0 0 0 , automobilecompaniesproduced13,955units,upby155

%.Productionvolumei n 2002wasabout 26,706 vehicles,atwo foldincreaseover2000

110184110000

100000

80392 80000

60000

42557 40138 40277 4089740000

26635 18960

Source:CompiledfromreportoftheMinistryofIndustryinordertousefortheMaster

PlanforDeveloping Vietnam’s AutomobileIndustry, 10/2004

Figure 7 The VAMA’s sales volume (in units), 2000–2009

Source:TheVietnam AutomobileManufacturers’ Association,12/2009

VAMAisanon-profitorganizationfoundedin2000,startedwith11JVsandtodayhas17members.T h e salesvolumeofVAMArepresentst h a t ofVietnam’sautomarket.Figure7showsthatsaleshaverisenrapidlysince2007,butarestilllow, onlya b o u t 100,000u n i t s p e r year.Comparedwithsalesof13,239unitsi n 2000,volumehasincreasedto110,184 vehiclesin2008,nearly ninth times

In2005,ToyotaVietnamsoldnearly12,000units,up29%yearonyearandaccountingfor33.3%ofVAMA’soverallsales.FollowingToyotaisFord,VinastarandVidamcowith14.3%,11.9%and11.9%,respectively.T h e 1 2 J V s usedonly

3.7%ofcapacityin1996,risingto13.2%,18%and28.8%in2001,2002and2003respectively.ItisveryclearthatcapacityutilizationratesinVietnam’sautomobileindustryareextremelylowandJVsarecountingonanincreaseinthesizeofthedomesticmarketasthecountrybecomesmoreprosperous(NguyenBichT h u y , 2009)

Figure 8 Vietnam’s automobile salesshare by companies (%), in 2005

Source:The VietnameseAutomobileManufactures Association,12/2005

DomesticVietnameseautomobileandautopartcompaniesweremostlyestablishedi n the1960s.By2003,Vietnamhadmorethan160domesticcompaniesin

fourstateownedenterprisessupportedl a r g e l y b y t h e government.T h e y a r e VietnamMotorCorporation(Vinamotor),Saigonauto-

mechanicsCorporation(Samco),VietnamEngineandAgricultureMachineryCorporation(VEAM)a n d VietnamCoalCorporation(Vinacoal).Recently,andespeciallysince2004,many100%domesticinvestmentcompanies, i n c l u d i n g privatea n d stateo w n e

n t e r p r i s e s , h a v e beenlaunched.Forexample,TruongHaiautocompanyinvestedinproducingKia,Hyundai,DaewooandFotonwithinvestmentcapitalofUSD330

million,andTMT

corporationinvestedUSD250millioninmanufacturingpickuptrucks.A majorityofthesecompaniesi m p o r t productionl i n e s andtechnologyfromChina,andcompetitionamongenterprisesis increasing

2.2 Policiesanddevelopment

2.2.1 Thailand:

Before the 1997 crisis: protectism, agglomerationanddevelopment

Thegovernment’ssupporta n d promotiono f t h i s i n d u s t r y c a n b e t r a c e d b a c k to1961whentheThaiMotorIndustryCompany,thefirstautomobileassemblyplant,wasestablished.Onlyalimitednumberofautopartsweredomesticallyproduced.Theseincludedrubberp a r t s , b a t t e r i e s a n d l e a f springs.In1969,t h e MinistryofIndustryformedtheAutomotiveIndustryDevelopmentCommitteeunderaCabinetReso lu ti on ofAugust26th,1969,inordertoimposepoliciesandmeasureswithanaimtodevelopthelocalautoindustry.Policiesandprocedureswereputinplacetofacilitatetheprocessofmovingfromassemblyt o production.Theobjectiveofproductionwasimportsubstitutionandreducingthetradedeficit.Before2000,the

assemblycompaniesandpartsproducersinThailandwereprotectedthroughfivemainpolicies:highrateofimporttariffa n d t a x e s ; restricteda n d limiteduseofimportedautoparts;protectedandcontrolledimports;nonewoperatingplants;and,investmentpromotion

Tariff and tax policy:

Table 3 Tariff and Tax rate (%) relatedtoCBUandCKDVehicles,before

1 Before 1992, the classificationof passenger vehicle was 2,300 cc engines

2 Excise taxes include municipal taxes

3 Excisetaxesfor one-ton pick-uptruckswas 3.3% whereas for the so

called“pick-up passenger vehicle”is19.8%

4 Numbers in parenthesesaretariffsin2005

Source:Kohpaiboon,2008

Thailandusedtariffsasatooltoprotecttheautomobileindustry.Before1992,tariffratesonmostvehicles,exceptCKDkitsofpickuptrucks,wereover100%.However, in 1990 theMinistryof Industry called off the limitation on the number of

allowedseriesa n d t h e MinistryofCommercereplaceditwithtariffmeasuresinordertocontinuerestrictingpassengercarimports.TariffratesforCBUpassengercarsover2400cc.werereducedfrom300%before1992to68.5%.ForCKDkitsofpassengervehicleswith2400ccandbelow,tariffratesweredecreasedto42%from112%.So,thetaxburdenforimportedanddomesticallyassembledcarswasreduced.Consequently,i t resultedi n a c a r -

p r i c e decrease,whichbenefitedconsumers

Table3showsthattariffsandothertaxpolicieswereusedtoprotectthedomesticpassengercarmarketmorethancommercialvehicles.Thetariffsonpassengercarwer e 3 0 0 % b e

f o r e 1 9 9 2 a n d 6 8 5 % i n 1 9 9 2 Forcommercialvehicles,therateswere120%and42%.Theexcisetaxrateappliedbefore1992andin1992ofCBUp a s s e n g e r carwas44%-55%and 41.8%, muchhigherthanthatofpickuptrucks

Localization and other policies:

Atfirst,in1972,theMinistryofIndustryannouncedtherequiredlocalcontentforpassengercars.FromJanuary1st,1975,itrequiredassemblerstouseatleast25%locallyproducedc

o n t e n t s T h e requiredp e r c e n t a g e wasr a i s e d f r o m 2 5 % t o 50%within fiveyears accordingtoan announcement of the Ministryof Industryin1978

Aftert h a t , it alsorequiredt h a t 15%ofthepartsusedfortruckan db us assemblywithc h a

s s i s a n d engineshouldb e locallyp r o d u c e d A minimumo f 2 0 % l o c a l c o n t e

n t s wasalsorequiredfortruckandbusassemblywithchassisandwindshields

In1979,theMinistryofIndustryannouncedastandardmatrixonthepercentageoflocal contentsrequiredf o r trucka n d b u s assembly.I t r e q u i r e d manufacturerst o increasetheir use of local parts by 5%per annumoverthenext5years.

In1980theAutomotiveDevelopmentCommitteea n n o u n c e d regulationsforvanandjeepassembly.Thepassenger-

carassemblingpolicywasappliedtovanassembly.Likewise,CBUimportsofvansandjeepsalsofellintothecar-

assemblyp o l i c y , whileCKDimportsofjeepsandvans,called“chassiswithwindshield”or“chassiswithe n g i n e ” , werei n compliancewitht h e truck-and-

busp o l i c y Sevenrequiredpartsfortruckassemblingwerelaterannounced,namelyradiators,exhaustpipesets(includingmufflers),batteries,leafsprings,tiresandinnertubes,safetyglassandbrake drums

Upto1981,thelocally-producedcontentsweremuchmoreexpensivethanthei m p o r t e d ones.So,in1982,theMinistryofIndustryraisedthelocalcontentl im it at io n to45%onpassenger-

carassembly.Apartfromtherequiredlocalcontent,the Ministrybegant o a n n o u n c e l i s

t s ofcompulsorypartsusedforpassenger-carassembly Theymightbeappliedtothe rest

of the overall contents

In1984,inordertoi n c r e a s e t h e useofidenticalparts,whichwouldresulti n a decreaseincapitalrequiredbya u t o p a r t s manufacturers,t h e Ministryannouncedannuallistsofrequiredlocalcontentsforpassengercarsandpickupassemblyfor1986–

1 9 8 8 However,i n 1986theannuallistsofrequiredl o c a l contentsf o r carassemblywerereplacedbyPartsListAandPartsListB.PartListAwascompulsorytoallassembly,whileassemblerswereabletochoosetherestfromcontentsstatedinPartsListB.LocalcontentsincompliancewithbothListsAandListsBwassetataminimumof54%inordertorespondtotheeconomicrecessionofthatyear.Inaddition,passenger-

passenger-carsassembledfromJuly1st,1987wererequiredtouselocallyproducedenginesinordertopromoteandsupporttheautoparts industry

In1989theAutomotiveDevelopmentCommitteerequiredtheassemblyofpickupswithanenginecapacityofupto2,500cc.touselocallymanufacturedengines.Inthesameyear,domesticcarassemblywasrequiredtouselocalcontentsaccordingtoListA,inadditiontothatofListB w h i c h couldb e chosenfreely.Thet o t a l amountofl o c a l contentsusedwasrequiredto beatleast 54% oftheoverallassembledparts.

In1991theMinistryofIndustryannouncedanewpickuptruckpolicy.Inessence,alllocalcontentslistswereused,andlocallymanufacturedengineswererequiredfor assembly ofpickup trucks with engine capacity of morethan1,000cc

Restrictingt h e numbero f producedvehicleseriesandmodelswasalsoa wayt o forcefirms

t o agglomerate.In1984,t h e MinistryofIndustryannouncedthata maximumof42seriesofpassengercarsc o u l d b e producedb y thei n d u s t r y , a n d only2 modelswerea l l o w e

d f o r e a c h series.Ina d d i t i o n , a n y seriest h a t wasnotassembled wouldnotbee n t

i t l e d t o a n

assembly-concessionrenewal,andtherewouldbenoreplacementconcessionforthoseseries.Besides,toreducepollutionan dtoupgradequalityandcapability ofdomesticcars,theMinistryalsorequireddomesticallyproducedc a r s t o useexhaust-

pipesystemscertifiedbytheThailandIndustrial StandardsInstitute

However,in1990inordertocomplywiththechangingeconomicsituation,internationaltr ade, an d consumerdemand,the Ministryo f Industryannouncedan a d d i t i o n a lpassenger-cara s s e m b l y policyt o e n d t h e l i m i t a t i o n o n t h e numbero f allowedseriesannounced in 1984

Inaddition,Thailandusedtoprohibitandcontrolimports,didnotallownewoperatingplantsandpromoteddomesticinvestmentinordertoprotectthedomesticautomobilemarket.Initially,in1978theMinistryofIndustrydisallowedregistrationofnewautomobileassemblyplants.L i k e w i s e , assemblyofa n y newpassenger–

carserieswasalsodisallowed.Inthesameyear,theMinistryof

Commercea l s o disallowedCBUimportso f carsinordertoreducethenationaldeficit.To1989,enlargementofe s t a b l i s h e d plantswasa l l o w e d buttheMinistrydisallowednewassemblyregistrations.

In1991,theMinistryofCommerceannouncedanabolishmentofpassengerc a r i m p o r t restrictionswhilet h e i m p o r t ofusedcarswasprohibited.Butto1994theMinistryofIndustryallowednewregistrationsofcar-

assemblyplantsi n ordertoincreaseinvestmentandcompetitiveness.TheBoardofInvestmentPromotiongranted rightsa n d p r i v i l e g e s concerningt h e PromotedAreaPolicyfort h e automotiveindustry.TheMinistryofFinancealloweda50%specialreductiononnormali m p o r t duties,pursuantt o t h e Brand-to-

BrandComplementationScheme( B B C Scheme)

Fromthepoliciesmentionedabove,weseethatbeforethe1997crisis,theGovernmenta f

f o r d e d h i g h l e v e l s o f protectiont o thedomesticmarketincludingassemblers,especiallyforpassengercarassembly.Intheearly1990s,protectionwas reduced

Apartfromthesepolicies,tosupportThailand’sautomobilec o m p a n i e s , t h e governmentfocusedonthe developmentof theautomobileclusterandsupportingindustries

Development of the automobile cluster and supporting industries:

TheclusteringoftheThaicarindustrystartedinthefirsthalfofthe1970s(Lecler,2002).Atthattime,theclustersweresmallandformednaturally.Asshownabove,thegovernmentusedmanypoliciessucha s l o c a l contentrequirements,banningCBUimports,res tr ic te

d an d limitedus eo fpartsto promotepartsproduction.So,duringthistime,someJapanesepartsmakers

enteredThailand.InsteadofimportingCKDfromJapantoproducenewvehicles,assemblerspurchasedlocallytoincreasel o c a l i z a t i o n asrequired.However,therelatedandsupportingindustriesinThailand