FTAs will consolidate Asian auto markets

Free trade agreements (FTAs) across Asia are set to "spark a shift" toward greater integration in Asia's automobile and auto component markets, says a report by KPMG, a Swiss consultancy.

A fallout will be that selling in such markets will "no longer be a question of how much capacity you can pump into China," KPMG says.

In a release on the report, the consultancy says such consolidation will be led by the rise of a number of major manufacturing centres in Asia.

Yezdi Nagporewalla, who studies "industrial markets" in the region as national industry director at KPMG, says, "By the time the decade draws to a close, Asia can be a passenger car market as large as North America or Europe."

More FTAs, such as the one towards which India and Thailand are working, and the emergence of large manufacturing centres in these countries will mean that India and Thailand will join China's bid to challenge Japanese and Korean dominance in auto manufacturing, Nagporewalla says, "even though Japan and Korea will maintain significant technological edge."

The report details three scenarios for the next decade: The auto market throughout Asia may become closely integrated with production moving to the most efficient markets; China and India may become dominant production centres for their own growing markets and for exports to other market; or Asian auto markets remain fragmented with little regional trade as a few countries become large domestic markets.

Sanjay Upendram, director of business advisory services at KPMG says, it is likely that the Asian automotive market will become more closely integrated and China and India are likely to become major production markets.

But this development will be good only for manufacturers who will be able to combine production activities in and across the Asian region. Upendram says indigenous companies must "synergise" their activities and grow, merge or perish.

FTAs will benefit the component sector as well, the report says, in making it more cost efficient and therefore a source of components for the rest of the world.

Nagporewalla says overseas component firms are scrambling to supply car firms in Asia and are being forced to come up with a different strategy for Asia.

This will have its impact on the Indian supplies market also, which will "face rationalisation issues due to regional cost pressures", says Upendram.