Current Export Condition of Auto Parts Made in Taiwan and Opportunities Posed for the Auto Part Manufacturers

Transcription

1 92 Current Export Condition of Auto Parts Made in Taiwan and Opportunities Posed for the Auto Part Manufacturers By James Shao of ITRI In the past few years, markets including the BRICs (Brazil, Russia, India, China and South Africa), southeast Asian countries, eastern European countries and South American countries, have been emerging. The total automobile sales in these countries have exceeded those in the developed countries. In the future, the global auto parts supply system will lead the development of auto parts industry through the fast-pacing work division and the restructuring of carmakers, and will undergo substantial changes. Restricted to a relatively small domestic market, Taiwan s domestic demand turns small and production capacity exceeds demand. Because free trade agreements (FTA) have been signed by and between regions and countries, auto part suppliers face challenges much greater than carmakers. These auto part suppliers, which are export-oriented, have to face challenges posed by the emerging markets, such as lower car price and compact-size cars, and other challenges posed by the industrial countries, including higher-priced parts and eco-friendly cars. Auto part suppliers in Taiwan should review and adjust their long-term development plan and secure a firm foothold as a global auto part supplier so as to remain competitive and further develop their international markets. Most of the auto part suppliers in Taiwan are small and medium sized firms, and a high percentage of them have been engaging in global after market (AM), which is characterized with small quantity and large variety; whereas as an OEM supplier, the after market is characterized with large quantity and small variety. More and more of them have acquired competitive product advantages, which enable them to become a parts supplier for a multinational carmaker in the global auto part supply system via various kinds of marketing base and networks, distribution warehouses, technical cooperation, joint venture and the business strategy of overseas manufacturing along with local sales. With their engagement in the global after market and as an OEM supplier, they have acquired a niche in the global auto market after many years of effort and have secured a certain percentage in the global auto market. The total production value of the auto industry (including both assembled cars and auto parts) has exhibited a continuous growth over the past several years. In 2011, its production value reached NT$ billion, which was a record high (a growth of 10.0% as compared to 2010) and comprised 4.2% of the total monetary value of the manufacturing sector of Taiwan. The auto parts industry of Taiwan is characterized with the manufacturing pattern of small quantity and large variety as well as a flexible manufacturing style. In addition, after their continuous effort in research and development and technological capability, their parts are quite globally competitive. Though the demand for the assembled car in Taiwan market have undergone ups and downs in the past decade, these auto part suppliers have accumulated solid strength in the field and have demonstrated on-going increases in the monetary value of export. In 2009, the value plummeted 6.6% for the first time due to the global financial storm. In 2011, the value bounced back to a healthy figure of NT$ billion; in the first half of 2012, the value reached NT$ 98 billion, a healthy growth of 11.2% as compared to the same period of It was predicted that this value would total NT$ billion in 2012, a growth of 7.0% as compared to In this article, we will elaborate on the current condition of the auto parts industry of Taiwan, global auto parts

2 94 supply system, competitive advantages of Taiwan and some suggestions for the future development of the auto parts suppliers of Taiwan so that these suppliers may optimize their business strategy and enter the global auto parts market. Current Condition of the Auto Parts Industry of Taiwan The auto parts industry of Taiwan started in 1957 when Yulon Motor Co. was established. Over the years, more models have been put on the market and consumers have become aware of the importance of quality and performance; therefore, parts suppliers have automated some of their manufacturing processes and have developed a manufacturing pattern characterized with small quantity, large variety and flexible manufacturing style. They have acquired manufacturing technology that can match developed countries, and their product quality has exhibited substantial improvements. As of now, these suppliers are able to manufacture most of the parts and a complete supply chain has been established in Taiwan, except for a few types of engines and key transmission parts. These suppliers have acquired technology through technical cooperation with foreign countries. They have had very close cooperative relations with Japanese carmakers in particular. Such technical cooperation has laid a solid foundation in automobile production and assembly in Taiwan. Generally speaking, auto parts may be categorized into two types: OEM parts and after-market parts. In the aspect of OEM parts, suppliers have entered a predicament due to the small domestic market and the strict requirements in quality stipulated by the original carmakers. However, suppliers have made a lot of effort in research and development and hence production technology and quality have been greatly enhanced, allowing some of their parts to become globally competitive to be good enough to enter the global supply chain. Therefore, (in correspondence to the release of new car models) the size of OEM market has been bigger than after market and orders or sales of the former is relatively more stable than those of the latter. However, if a carmaker demands a price reduction, these suppliers would not have much bargaining power. Therefore, partially because of the difficulty in the entry of the parts supply system of Europe, after market parts have become the main stream in the auto parts industry of Taiwan; amid them, more parts have been exported to Europe, the US and Japan. If we compare after market parts with OEM parts, the former s advantages or characteristics include high level of autonomy, high mobility and manufacturing in small quantity and big variety. Most of after-market parts have been for export; however, orders and sales of after-market parts have exhibited less stability than those of OEM parts. There are about 2,800 parts suppliers in Taiwan and 300 of them are OEM part suppliers; the other 2,500 suppliers sell their parts to domestic and oversea markets. Because of the limited domestic market for passenger cars in Taiwan, parts suppliers have put more effort in the development of oversea markets so as to continue to grow. OEM parts (as example) Fuel system parts Transmission parts (Forged) aluminum wheels Conventional auto parts After market (as example) Collision related parts (such as bumpers, head lights, sheet metal and rear view mirrors) + Auto parts exported from Taiwan include the ordinary parts and accessories, such as plastic parts, metal stamping dies, tires and head lights. After markets have been the main markets. The steady growth of the auto part export in Taiwan attributes to competitive prices, mold and die fabrication technology, and increasing OEM orders placed by multinational corporations and after markets. Therefore, big suppliers in Taiwan have benefited from these factors and they continue to expand their production capacity. The court ruling against State Farm Insurance Co. in the US has greatly assisted the growth of the after market parts. In addition, because of the financial problems of several parts suppliers in the US, such as Delphi, carmakers of the US have switched their parts orders from the US to Asia. Therefore, parts suppliers of Taiwan, characterized with flexible manufacturing approach and competitive prices, have great potential in growing the OEM parts market and after market in the next few years. Taiwan, which has been an exportoriented and export-driven country, became a member of the WTO in Such entry has not affected the sales of the parts suppliers of Taiwan due to the competitive prices of their parts. In addition, they have benefited from such entry because trade barriers have been lifted automatically after the entry. OEM parts (as example) Parking sensors Tire pressure monitoring system Engine management system Auto parts After market (as example) Telematics, Audio and video entertainment devices, Satellite navigation devices

3 96 As of now, parts suppliers of Taiwan put their eyes on the emerging markets, such as Asian Pacific region, Latin America and Eastern Europe. Their focus is on countries with high economic growth in particular, such as China, India, Russian Federation, the ASEAN countries, Mexico, Brazil and some of the Eastern Europe countries. In the future, the auto parts industry will develop towards large-scale manufacturing and modularization. Therefore, the focal point of the future development of the industry will lay upon the expansion of production scale, the development of crucial technologies in the manufacturing of assembled cars and the strengthening of research and development of modular parts. A General Description of the Entry of Taiwanmade Auto Parts into the Global Market Fig. 1 illustrates two types of auto parts regarding their entry to the world market. Auto parts may be generally categorized into two types: conventional parts and electronic parts. Electronic parts are often closely related to the on-board CAN (control area network). These two types are greatly different from each other in terms of certification requirements, market barrier, service life, introduction time, investment return time and relevance to the manufacturing factory. Fig. 2 illustrates the output values and growths of auto parts made in Taiwan from 2009 to Domestic demand for auto parts is determined by the sales of assembled cars in Taiwan. The total value of auto parts made in Taiwan in 2012 was about NT$ billion. There is a complete centralsatellite system in terms of auto parts manufacturing in Taiwan. Each carmaker has a close cooperative relation with its suppliers. Auto parts suppliers possess the advantages of competitive prices and flexible manufacturing style; however, Item Conventional auto parts Auto parts Certification Barriers to entry Service life Introduction time Investment return Relation with carmakers AM: relevant certification, OEM parts: checks by a carmaker or a supply chain Mold and die fabrication, quality of parts, rubber and plastic parts, marketing channels, competitive prices, precision of reverse engineering Depending on car mode Short (depending on mold fabrication and rapid prototyping) Sooner AM: none OEM parts: developed in cooperation with a carmaker EMC, checks by a carmaker or a supply chain Control technology, applications of sensors, specifications, innovations, services and price differentiation Depending on specifications on parts, modules or systems Long (from several months to one year) Longer Fig. 1: two types of auto parts regarding their entry to the world market. Data source: IEK of the ITRI (Nov. of 2012) Parts developed in cooperation with a carmaker Connected with CAN bus Fig. 2: the output values and growth of Taiwan-made auto parts from 2009 to 2013 Unit: NT$ 1 million Output value Growth Data sources: Import and export data bank of Directorate General of Customs and IEK of the ITRI (Nov. of 2012) because of the small domestic market, these suppliers have focused on export recently. The quality of Taiwan-made parts has reached international standards and have acquired certification required by relevant agencies in the US and Europe. Thanks to the signing of ECFA, the custom taxes for 33 auto parts exported from Taiwan to China have been sharply reduced to 5% from 2011 and have been further reduced to zero in 2012, rendering Taiwan-made parts more competitive in China. However, there have been some difficulties in the export markets of these parts. Except for collision-related parts (such as plastic and rubber parts and sheet metal), only few other parts are competitive. Additionally, most of the parts have been targeted at the after markets and it is difficult for most types of parts to enter the OEM or Tier 1 supply chain. Most of them are single items and have not been manufactured in a modularization manner. Moreover, most of them are of low and

4 98 Fig. 3: a pie chart of the main part importing countries (with the total import value of NT$ billion) Other countries Germany Sweden Korea Japan China Data sources: Import and export data bank of Directorate General of Customs and IEK of the ITRI (Nov. of 2012) medium value and parts with a high value made in Taiwan cannot meet the requirements of carmakers. Plus, most of the suppliers can not establish their own brand and lack ability in innovation. Therefore, auto parts made in Taiwan have a limited level of competitiveness. Fig. 3 is a pie chart of the main part importing countries, including Japan, China, Korea, Germany, Sweden and Thailand (in the order of descending import value). These imported parts are used for maintenance of cars In Taiwan. Fig. 4 is a pie chart of the main part export destiny countries. The import and export values in 2011 exhibited growth of 13.5% and 7.8% respectively, as compared to the previous year. Most auto parts made in Taiwan are for export and the main export destiny countries include the US, China, Japan and Germany. In addition, most of them are after market parts, such as headlamps, bumpers, rearview mirrors, parts that have been processed by machines, various types of rubber and plastic parts, sheet metal and fenders. Most of the export destiny countries are in North America and Europe. In the mean time, suppliers in Taiwan are actively developing the emerging markets in places including southeastern Asian countries, Africa, Middle East, Central America and South America. They are also striving to become suppliers for carmakers in China. Fig. 5 is a pie chart illustrating various types of Taiwanmade auto parts in terms of output value. The total output value of Taiwan auto part industry in 2011 was NT$ billion, a growth of 5.4% as compared to the previous year ( billion). Electric parts had the largest percentage of 21.1%, followed by transmission systems and their parts (11.7%) and engines and their parts (7.1%). The Competitive Advantages of the Auto Compartment Industry of Taiwan A complete ICT and electronic part manufacturing chain As the cost ratio of electronic parts for assembled car quickly increases, there are four business opportunities Fig. 4: A pie chart of percentage shares of main part export destiny countries (with total export value of NT$ billion) Other countries 44% US Australia Germany Japan China Data sources: Import and export data bank of Directorate General of Customs and IEK of the ITRI (Nov. of 2012) Fig. 5: a pie chart illustrating various types of auto parts made in Taiwan in terms of output value. The total output value of the auto part industry of Taiwan in 2011 was NT$ billion Other types of parts Meters Steering systems and their parts Braking systems and their parts Electric parts Data sources: Import and export data bank of Directorate General of Customs and IEK of the ITRI (Nov. of 2012) posed for the auto compartment industry of Taiwan. Sheet metal for full-size buses Sheet metal for trucks and other types of vehicles Engines and their parts Transmission systems and their parts (1) Semiconductors and sensors: Because Taiwan has a complete IT manufacturing chain, many IT products are internationally competitive and some key IT parts are topnotch. The manufacturing and designing capabilities of IC, semiconductor and sensor manufacturers in Taiwan should be utilized to integrate electronic systems and control devices. In addition, Taiwan has a complete semiconductor manufacturing chain and the manufacturers of this chain have entered the auto electronic part realm and have used telematics as the basis to enter the global after-sales market. Because there are many types of telematic devices and power electronic parts, and the barriers to entry are relatively lower, it is suggested that relevant manufacturers should enter the field as soon as possible. (2) Regarding auto safety related products: It would be more difficult for part suppliers of Taiwan to enter the realm of safety related products because most of the suppliers have limited technology and resources (most of them are medium and small businesses). It takes a longer time in research and development as well as testing and the acquisition of certification, and the requirements of a carmaker must be met. However, if they can better use

5 100 their product development capacity and adopt new technology, they will make it in the realm. It is suggested they swiftly developed competitive auto safety related products. (3) Regarding the telematics field: Many manufacturers in Taiwan have entered the telematics field and most of them are in the after market of the field. The field is featured with high level of product autonomy and comprises of hardware (such as satellite navigation systems), software (such as manmachine interface and voice recognition) and system services (such as TOBE developed by Yulon Motor Co. Products developed by these manufacturers are concentrated in the following several types of upstream and downstream products: satellite navigation modules, receivers, various types of on-board devices, PDA used with a cell phone and the management module for commercial fleets (such as taxicabs and trucks). Specifically, these products include plug-in onboard navigation devices, commercial monitoring and positioning systems, portable on-board navigation devices, navigation module for PDA, on-board audio/video entertainment devices. (4) Enter the Chinese market to cooperate with multinational carmakers: Many multinational carmakers have entered the Chinese market and have local Tier 1 and 2 manufacturers as their suppliers. For example, Delphi is GM s supplier; Visteon is Ford s supplier; Denso is Toyota s supplier; Tung Thih Electronic supplies parking sensors to Mercedes Benz and domestic carmakers. We suggest that manufacturers of Taiwan should establish a buyersupplier relation with Tier 2 and 3 manufacturers in China through technical cooperation or joint venture to be their suppliers or to enter the after market in China so as to bypass the limited market of Taiwan. In comparison, the auto electronic part manufacturers cannot match main multinational carmakers in manpower, technical capacity and the size of research and development. Therefore, these manufacturers should consider establishing a cooperative relation with these multinational carmakers. Taiwan has outstanding reverse design capacity and swift manufacturing capacity The so called reverse engineering includes taking a part apart, using a 3-D system to measure the dimensions, carrying out trial fabrication and then developing a mold if everything checks out to be OK. Other aiding technologies include rapid prototyping, rapid tooling, product data management system, engineering data management system and precision processing technology. Fig. 6: the upstream, midstream and downstream of the auto part manufacturing chain in Taiwan Upstream: raw materials Material for positive poles Material for negative poles Material for containers Cylinders/pistons Gaskets Bearings/bush Axles Electric and electronic elements Electrolyte Membranes LED/light source Glass Steel Plastic Rubber Midstream: individual parts and Batteries with high power rating Energy storing system Valve systems Transmission Sheet metal Headlights Wheel/tyres mechanisms modules Motor inverters Motors Rearview mirrors Bumpers Parking sensors Downstream: Electricity powering systems Engine systems Air intake and exhaust systems Cooling and air conditioning systems Telematics systems Transmission and chassis systems Assembly Assembled cars Data source: IEK of the ITRI (Nov. of 2012)

6 102 With a long period of accumulation of experience in reverse engineering, auto parts manufacturers of Taiwan have acquired excellence in precision and speed, which have gradually become their competitive advantages. Typical parts mass-produced through reverse engineering include bumpers, various types of headlights, sheet metal and rearview mirrors. Taiwan has a complete auto part manufacturing chain Fig. 6 illustrates the upstream, midstream and downstream of the auto part manufacturing chain in Taiwan. The upstream is about raw materials; the midstream is about individual parts and modules; the downstream is about systems. The auto industry and its part manufacturers form a central satellite system, in which Tier 3 satellite manufacturers supply parts to Tier 2 satellite manufacturers, which then supply parts to Tier 1 satellite manufacturers, which in turn supply parts to carmakers. Such system mimics a pyramid of work division. As of now, there are 10 carmakers in Taiwan and there are about 400 Tier 1 manufacturers under them. The total number of Tier 1, 2 and 3 and other manufacturers supply parts for after market reaches 2,300 in Taiwan. About 100 of them have some form of investment in China. As of now, most of these 2,300 manufacturers have acquired flexible manufacturing (i.e., small quantity and big variety) via partial automation, and the quality of their products has caught up with the international standards. Taiwan ranks the top of the world in the global auto collision parts after market Taiwan produces many types of auto parts. The following types have high percentages: collision parts, electronic parts, tires, accessories, etc. Export destiny regions include the US (with the highest percentage), Asian (ranking the second) and Europe (ranking the third). Different types of parts have different sales performance determined by their manufacturing maturity level. The following types have a bigger share in the parts imported into Taiwan from other countries: chassis, engines systems, steering systems, braking systems and suspension systems. Taiwan ranks the top of the world in the global auto collision parts after market. Taiwan dominates the global rubber and plastic auto collision parts after market with 85% of global market share, and it tops global bumpers after market by 90% of market share. However, the quantity of each type of these parts exported from Taiwan is far less than the quantity ordered by carmakers. Taiwan s auto parts after market is characterized by small quantity and large variety. Parts suppliers may fabricate each of these parts mimicking the shape and appearance of the corresponding original manufacturer s part. This is a very important characteristic or attribute of the auto parts suppliers in Taiwan. These types of auto collision parts dominated by Taiwan in the global after market include various types of headlights, bumpers, sheet metal, rearview mirrors and rubber and plastic auto collision parts. Taiwan has acquired outstanding die and mold fabrication technology In the early days, Taiwanese auto parts manufacturers learned die and mold fabrication technology from Japan. After years of accumulation of experience and technology, and being aided by the fact that their processing technology continues to excel, they have acquired outstanding die and mold fabrication technology so that auto parts made by them are of high precision and lower cost. Mold and die fabrication is the foundation of product manufacturing. Because the tooling machine manufacturing industry has been quite mature, it invigorates the relevant industries. The level of die and mold fabrication technology of these manufacturers has continued to excel with their accumulation of experience in the technical cooperation with other satellite factories in the chain. Thanks to the economic stimulus measures in China and the global economic recovery, the output value of the die and mold fabrication industry in Taiwan in 2011 bounced back to NT$ 42.8 billion. In 2011, the export and import values of the die and mold fabrication industry in Taiwan were NT$ 13.5 billion and 2.58 billion respectively (representing a trade surplus of NT$ billion). Both of these export and import values in 2011 exhibited a growth as compared to Export condition of Taiwan auto parts industry The auto parts industry in Taiwan is a highly export-dependent industry and has been quite an internationally competitive conventional industry. According to Taiwan Transportation Vehicle Manufacturers Association, in 2011, the export value of auto parts exported from Taiwan was NT$ billion, a growth of 7.9% as compared to 2010; the US ranked the top in terms of export value with respect to individual export destiny country with NT$ 66 billion (comprising 35.7%); Japan ranked the second with NT$ 12.7 billion (comprising 6.9%), followed by China, Germany, Australia, Canada and Great Britain (each comprised over 2%). Auto parts have constituted a very high percentage in the global auto parts after market and mainly include rearview mirrors, window lifters, skylights, sheet metal, electric parts, transmission boxes, wheels and tires. Bigger auto parts suppliers include TYG, Depo and TYC, and these suppliers have been actively developing their export markets.