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Leveraging the Asian Markets for Global Competitive Advantage

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Presented at the 3rd Kuala Lumpur International Automotive Conference on December 1, 2010

Presented at the 3rd Kuala Lumpur International Automotive Conference on December 1, 2010

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    Leveraging the Asian Markets for Global Competitive Advantage Leveraging the Asian Markets for Global Competitive Advantage Presentation Transcript

    • Booz & Company December, 2010 Kuala LumpurBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt
    • One can divide the world into mature and emerging markets Emerging and Mature Markets Emerging Markets Mature MarketsSource: Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 2
    • Historically, the distribution of global wealth is skewed towardsmature markets Population Distribution in Emerging & GDP Contribution by Emerging and Mature Markets Mature Markets (2008; Total = 6,730 MM) (2008; Total = $61 Tn) Emerging Mature markets markets 27% 30% Mature Emerging markets markets 70% 73%Source: Global InsightBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 3
    • And a structural shift of economic power from the West to the Eastis taking place In past three decades, China Percentage of World GDP by PPP1) and India markets have been growing dramatically and (Last 500 years) returning towards its historic share of world GDP 100% US: 22% 80% China: 12% 60% Western Europe: 21% 40% Latin America: 8% Japan: 7% India: 5% 20% All other countries: 25% 0% 1500 1550 1600 1650 1700 1750 1800 1850 1900 1950 2000Source: Literature researchBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 4
    • Their growth momentum is predicted to continue, making themthe most important economies in the world GDP growth vs. GDP/capita (2007 – 2015, 2050) United Russia States China (2050) (2050) GDP growth (2007 – 2015 and 2050) (2050) India (2050) United States UK (2007) Russia(2007) (2007) Brazil Brazil(2007) (2050) India (2007) China (2007) GDP Per CapitaNote: Size of bubble is proportional to GDP of the economySource: EIU; Goldman Sachs BRIC ReportBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 5
    • Asia, driven by China and India, has become an important marketfor U.S. and European MNCs U.S. and European MNCs Total Revenue 2009; US$ Billion Asia US Europe Others Asia US Europe Others ABB 27% 10% 31.8 Siemens 16% 27% 98.9 Emerson 21% 45% 20.9 GE 17% 24% 156.8 Eaton 13% 53% 11.9 VW1 9% 11% 136.3 Tyco 16% 48% 17.2 Caterpillar 22% 38% 32.3International Flowserve 19% 32% 4.4 Honeywell 11% 49% 30.9Note 1): Sales revenue of the JVs in China are not included as they are accounted for using the equity method and recorded as an operating profitSource: Literature search; company annual reports; Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 6
    • The center of gravity of global market has shifted to the emergingmarkets - take the Auto market as an example Monthly Motor Vehicle Sales Shanghai: A Lean, Green DetroitNote: The “Emerging 16” are Argentina, Brazil, China, Czech Republic, Inida, Indonesia, Korea, Malaysia, Mexico, Poland, Russia, South Africa, Taiwan, Thailand, Turkey and VenezuelaSource: CEIC; Haver; UBS; Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 7
    • China exceeded US to become the world largest Auto market in2009 Top Five Auto Market in the World(1) Total China Auto Sales 2008 - 2009, in million units 2005 - 2010, in million units 66.0 63.6 Vehicle sales in the first 9 months of 2010 in China rose 52% from the same period last year to over 13 million Others 14.68 Jan Feb +23% Mar 5% Brazil 1.74 4% Apr Germany 1.55 May Japan Jun 16% US Jul 20% Aug 20% China 1.56 Sep 13% October 1.53 2008 2009 2005 2006 2007 2008 2009 2010 Jan - OctNote 1): Data does not include heavy truckSource: Global insight; CAAM auto market press release; Literature research; Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 8
    • For the Global Auto market, Asia pacific represents the greatestopportunity for growth Eastern Europe Western Europe Growth thru 2020: 3,485K NAFTA Growth thru 2020: 874K CAGR (2009-2020): 7% Asia Pacific Growth thru 2020: 7,667K CAGR (2009-2020):1% Growth thru 2020: 16,016K CAGR (2009-2020):5% CAGR (2009-2020): 6% Africa/Middle East Growth thru 2020:1,552K = Area Reflects Size Of 2009 Actual PV Sales Latin America CAGR (2009-2020):4% Growth thru 2020: 2,716K = Area Reflects Size Of 2020 Forecasted PV Sales CAGR (2009-2020): 6% ’000 Units Market 2009 PV 2015 PV 2020 PV Asia Pacific 17,233 28,518 33,249 NAFTA 10,794 17,319 18,461 Western Europe 13,638 14,183 14,512 Eastern Europe 2,907 5,214 6,392 Latin America 3,311 4,886 6,027 Africa/Middle East 2,693 3,864 4,245Source: Global Insight DataBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 9
    • Within Asia pacific, the greatest growth opportunities are Chinaand India China: Growth thru 2020: 11,461K CAGR (2009-2020): 8% Japan: = Area Reflects Size Of 2009 Actual PV Sales Mongolia Japan Growth thru 2020: -170K North Korea CAGR (2009-2020): 0% = Area Reflects Size Of 2020 Forecasted PV Sales China South Korea India Pakistan Nepal South Korea: Bhutan Bangladesh Myanmar Taiwan Growth thru 2020: 132K CAGR (2009-2020): 1% Laos ’000 Units Vietnam Taiwan: Cambodia Market 2009 PV 2015 PV 2020 PV India: Growth thru 2020: 110K Philippines Thailand CAGR (2009-2020): 3% China 8,672 16,840 20,133 Growth thru 2020: 2,947K CAGR (2009-2020): 10% Malaysia Japan 3,922 4,131 3,752 ASEAN: Growth thru 2020: 994K India 1,533 3,271 4,480 CAGR (2009-2020): 7% Indonesia ASEAN* 925 1,548 1,919 South Korea 1,235 1,349 1,367 Australia 536 732 829 Australia Australia: Taiwan 250 327 361 Growth thru 2020: 293K CAGR (2009-2020): 4% New Zealand 54 80 85 New Zealand Rest of Asia Pacific 104 236 321 Total 17,233 28,518 33,249Note: ASEAN figures include top 6 ASEAN member countries, including Thailand, Malaysia, Indonesia, Singapore, Philippines, and Vietnam Rest of Asia-Pacific includes Hong Kong and PakistanSource: Global Insight DataBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 10
    • In such a market, Chinese VMs are significantly gaining marketshare but international OEMs still dominate International/local OEM China PV market share International OEMs/Brands Local OEMs/Brands China PV sales 2008-2009 VW (incl. import, million units) 8.6 1 5.7 71% 75% International 29% Local 25% 2008 2009 2008 2009 21) Excluding CV volumes from SAIC-GM-Wuling2) Including AVICSource: Global Insight China ReportBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 11
    • While there is clear growth in the SUV, MPV and cross-over Chinasegments, China remains a Sedan market China Auto Market by Segments ’000 Units (2009, in thousand units)16,000 15,124 200915,000 2015E 2020E14,00013,000 Sedans continues to dominate the China market12,000 with strong growth, though SUVs are gaining share 6,000 5,758 4,826 4,000 3,646 3,291 3,000 2,741 2,210 1,937 2,000 1,107 1,141 1,274 1,231 1,000 766 582 758 709 268 424 274 69 0 A B C1 C2 D1 D2 E1 E2 MPV-B MPV-C MPV-D MPV-E PUP-C PUP-D SUV-B SUV-C SUV-D SUV-E HVAN MVANSource: Global Insight dataBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 12
    • The India market is dominated by a few OEM’s in the rapidlygrowing A/B segments International / Local OEM Passenger Vehicle Market Share Top 8 International OEMs/Brands 2009 Total Market Share, by Sales Domestic OEMs (Incl. import) Total: 1,435K units (35.0%) (65.0%) (Including Maruti) SoM 2009 SoM 2008Source: Global Insight SP08 Asia Market Forecast – IndiaBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 13
    • India still remains a micro and small car market, despite its Indiagrowth in large cars India Auto Market by Segments (2009, in thousand units) ’000 units 5,200 5,149 5,000 2009 4,800 2015E 4,600 2020E 4,400 A and B segments account for the majority share of the market, while other 2,200 2,066 segments remain small 2,000 1,800 1,600 1,400 1,200 1,000 894 800 600 458 443 467 400 323 264 274 200 56 77 43 32 57 7 1 13 0 A B C1 C2 D1 D2 E1 E2 MPV-B MPV-C MPV-D PUP-C SUV-B SUV-C SUV-D SUV-E HVANSource: Global Insight dataBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 14
    • The ASEAN market has a very diverse set of transportation means ’000 units ASEAN Auto Market by Segments1,900 1,854 (2009, in thousand units) 20091,8001,700 2015E1,600 2020E1,5001,400 1,2971,3001,2001,100 1,0501,000 982 900 800 500 372 370 386 400 305 300 256 224 203 195 200 171 100 78 62 80 14 0 16 0 A B C1 C2 D1 D2 E1 E2 HVAN MPV-B MPV-C MPV-D MPV-E MVAN PUP-C SUV-B SUV-C SUV-D SUV-ESource: Global Insight dataBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 15
    • Yet China and India are just entering the accelerated growth phasetypical of emerging markets Canada 600 Australia Discussion Germany   A country’s threshold of 500 U.K. mobility lies near US The S- curve U.S. $10,000 GDP per capita Poland (PPP), where 400 automobile ownershipCars per 1,000 People Malaysia accelerates Russia 300 Argentina   China is at the early taking-off stage of the S- Mexico curve 200 Brazil Turkey   India remains fairly distant from the mobility India Thailand 100 inflection point, but Iran continues to make China Indonesia steady progress 0 India 1,000 10,000 100,000 China GDP Per Capita (Logarithmic Scale)Note: Each line of symbols represents a 19-year progression for one country, from 1990 through 2008, GDP Per Capita is in Purchasing Power Parity (PPP)Source: Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 16
    • Successful companies must employ new strategies in Asia toimprove their global competitiveness 1 2 Integration of Asia Leveraging business operations “horizontal into the global value capabilities” resident chain in Asia to expand market participations Asian business operations are 5 increasingly become the platform for 3 growth and development of Creating a New Asian capabilities needed to compete Adaptive Brand Organizational globally Innovation to Epicenter extend product as a Platform reach and grow for Growth shares 4 Driving the Green Revolution in Personal MobilitySource: Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 17
    • 1 Integration of Asia business operations into the global value chainMulti-national companies are looking for more partnership inChina for their global expansionStage 1 Product Sales &Circa early R&D Sourcing Manufacturing Marketing Service Development Distributionto mid 1990s   Start a few, isolated production facilitiesStage 2 Product Sales &Circa mid to R&D Sourcing Manufacturing Marketing Service Development Distributionlate 90s   Began to use China as a   Began to integrate   Built brand for the local procurement source production facilities market and local sales & within China distributionStage 3 Product Sales &Early 2000s R&D Sourcing Manufacturing Marketing Service Development Distribution   Integrate China into global   Integrate China into global   Transfer global best practice to sourcing network manufacturing network ChinaStage 4Present to Product Sales & R&D Sourcing Manufacturing Marketing Service5-10 years Development Distributionhence   Build R&D and PD centers in China   Integrate China into global value chainBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 18
    • 1 Integration of Asia business operations into the global value chainSuccessful MNCs have pioneered to extend their value chain toChina Examples of Companies with China as Core of Global Strategies   Globally Integrated Enterprise   “Made and Designed in China”   The “New GM”   “Reverse Innovation”Source: Literature research; Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 19
    • 2 Leveraging “horizontal capabilities” resident in Asia to expand market participationGM is a successful example of gaining competitive advantage bycooperation with local players GM’s Sales in China Expansions of GM’s Corporate Operations (2005-2009, in Million Units) in China   Recently, GM announced a plan to set up Shanghai GMIO headquarters, managing the unified management of all overseas business, which indicates the central role +29% China plays in GMs global strategy   GM and SAIC also announced to set up a GM-SAIC Motor Investment Co. in Hong Kong with a $1 billion investment split equally between the two for use in purchasing 100 percent shares of General Motors India –  GM-SAIC India is expected to make small cars and commercial vehicles in India   GM’s mini-vehicle China JV (SAIC- 2005 2006 2007 2008 2009 GM-Wuling) will introduce the first own-brand car (Baojun, meaning   GM aims to sell 3 million vehicles a year there by 2015 treasured horse) to target the fast- as it adds new, more fuel-efficient models to meet demand growing low end market; The car   “ China GM’s largest single market worldwide and GM will model is Based on Buick Excelle and launch 25 new models in China in 2010 and 2011 in a bid is aiming to combine world-class to maintain its leading position” - Gan Wenwei, President quality with low ownership costs and General Manager of GMSource: Automotive News; Company profile; Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 20
    • 2 Leveraging “horizontal capabilities” resident in Asia to expand market participationJV partnership and acquisition provide solutions for GM to gainaccess to China market, and to strengthen its presence in India GM’s Partnership with SAIC Implications to GM’s Expansion into India India   SAIC and GM formed 50:50 R&D JV in August 2010 to:   YTD Oct. 2010, GM’s sales in India grows up almost –  Jointly develop fuel-efficient engines and 79% and will surpass 100,000 year end transmission   Nov. 12, 2010, GM formally inaugurated the flexi- –  Deliver new power-train systems within 3 years engine plant in Talegoan, Pune. The plant will take   Products include small engine and front-wheel-drive total Talegoan output to 300,000 cars and 300,000 transmission that are 10% more fuel-efficient and reduce engines annually. emissions by 20%   The automaker has developed local suppliers and   A Chinese automaker and a foreign partner share awarded component supply contracts worth intellectual property rights on a core technology for the $500million. It plans to source components worth first time $1bn in the next two years for its global operations.   Nov.,2010, SAIC announced to acquire 1% GM share through investment of $500M during GM’s IPO “We are bringing in four passenger cars and two commercial vehicles in the next two years in 14 fuel variants,”…“We are planning to invest US $250m more in the Indian market.” - Karl Slym, President of GM IndiaSource: Literature research; Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 21
    • 3 Adaptive Brand Innovation to extend product reach and grow shareEmerging markets appear in a multi-tier structure VERY ROUGH ESTIMATE Multiple-Tiered Market in Emerging Markets Volume Pricing Premium 1X 1X Mid-Market 2-3X 0.6-0.8X 4-5X <0.5X Low-TieredSource: Literature research; Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 22
    • 3 Adaptive Brand Innovation to extend product reach and grow shareAsian markets have different Auto market demands, therefore theplayers have to use different competition strategies In China auto market, there are demands In India auto market, there is only strong in different markets market demand in the low-end market Market demand No High margin Global players demand High-end High-end market market Weak Global and Chinese players Mid-end market Mid-end market Low Global and Low margin Chinese players local players margin Low-end market Strong Low-end marketDifferent players could target different market All they players have to compete with low price and low cost, leading players have big scaleSource: Literature research; Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 23
    • 3 Adaptive Brand Innovation to extend product reach and grow shareJV and acquisition are also key solutions for MNCs to gain accessto local market CASE STUDY Example: Caterpillar’s expansion through local acquisition 1990’s Early 2000’s Late 2000’s Caterpillar focused Caterpillar acquired on selling to Chinese Shandong Engineering government and Machinery and formed local R&D centers to premium segment in expand into lower end Premium private sector market while optimizing cost base to compete Japanese and Korean Mid-range competitors entering the middle market (Komatsu, Hitachi, Dae-woo, Hyundai) Local manufacturers focusing on low end but Low-end also moving up to expand market coverage (e.g., Xugong)Source: Literature research; Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 24
    • 4 Driving the Green Revolution in Personal MobilityWith increasing pressure from air pollution, oil consumption andcongestion, China is compelled to reinvent propulsion technologies China to Reinvent Propulsion Technologies Air Pollution   Beijing, Xi’an, Shenyang, Shanghai and Guangzhou have been listed among the Top 10 cities with the worst air pollution. The massive growth of the automotive market only adds to the problem   The rapid growth of the automotive market worsens the problem. For example, Beijing’s automobile industry contributed 73% of the overall pollution problem in 2003 Energy Consumption   China imports two-thirds of its oil, and its ever-increasing thirst has had a dramatic impact on global energy prices   The gasoline and diesel consumption has accounted for half of the total consumption of petroleum products Traffic Congestion   In the light of the current rate of development and gas consumption level, China will have over 150 million vehicles and petroleum consumption will exceed 250 million tons in 2020 For alternative propulsion technologies such as clean diesel, hybrid and electric vehicles, China does not lead the technological developmentSource: Synergistics; Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 25
    • 4 Driving the Green Revolution in Personal MobilityThe central government is playing a key role in shaping industrydevelopment Official China at Work SASAC Vehicle Manufactures Electric Vehicles Market Battery Utilities Manufacturers CompaniesNote: SASAC: State-owned Assets Supervision and Administration Commission of the State CouncilSource: Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 26
    • 4 Driving the Green Revolution in Personal MobilityIn addition to the central government, strong support is alsoexpected from the various regional governments Policies for alternative power-train vehicle proactive provinces Use more than 1,000 HEV within 3 years Relying on Beijing Auto, aim to increase new energy vehicle sales at least to 10K in 2010 Changchun Relying on FAW Auto, aim to increase new energy vehicle capacity to 50K in • By 2011, 20 routes and 1K unit of alternative 2012 energy public buses Jilin • By 2020, increase the no. of LNG stands from Beijing 10 to 131, and no. of LPG stands from 15 to 20 Produce and Sell 10K EV in 2012 Make a characteristic automotive cluster Qingdao Shandong •  By 2011, sale 1,100 alternative power train vehicle of Chang’an brand •  By 2010, Capacity of alternative power •  Production capacity of alternative power train train vehicles to 50K, vehicles to 300K for assembly, 1000K for •  Foster 5 competitive alternative power engine Shanghai energy companies Chongqing Wuhan •  From 2010, include EV into government •  Production capacity of alternative power purchasing list train vehicles to 100K in 2012, 300K in •  Pursue to the share of EV to 10% 2015. •  30K vehicles of model operating public •  In 2012, model operators using transportation and taxi within 3-5 years alternative energies to be 4,000 •  200K Capacity of EV by 2015 vehicles, including 1,300 HEV and Guangdong 2,600 EVSource: Development Research Center of the State Council “Automotive Bluebook”Booz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 27
    • 5 Creating a New Asian Organizational Epicenter as a Platform for Global GrowthSuccessful MNCs also shift their organizational epicenter to China(1/2) ILLUSTRATIVE Analysis Framework on Companies’ Organizational Epicenter Shift and Degree of Value-Chain Migration Big Shift of Organizational Epicenter MNCs in most of the ‘90s Small Low High Degree of Value-Chain MigrationSource: Literature research; Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 28
    • 5 Creating a New Asian Organizational Epicenter as a Platform for Global GrowthFor example, R&D and engineering centers established in Chinaand India have assured Hyundai’s local adaptation and salessuccess Hyundai Motors Worldwide R&D Centers Detroit, Michigan, US Russelsheim, German America Technical Center Namyang, Korea European R&D Center / Design Center Chino, California, US Central R&D Headquarters America Technical Center Chiba, Japan Hyderabad, India Hyundai Motor India Engineering Hyundai R&D Center Pvt. Ltd (R&D Center) Frankfurt, German Irvine, California, US Kia Design Center Europe Beijing, China America Design & Technical Center Beijing Hyundai Technical Center Kia Design Center America Design Function of R&D facility Technology & Design   Korea R&D center: R&D headquarters, the overall R&D planning, the main vehicle design   China and India R&D center: localization support, local product adaptation and modification Technology   U.S. R&D Center: model design for the U.S. market   Germany R&D center: product design for the European market, focusing on R&D of powertrains Headquarters   Japan R&D center: the next generation of vehicle design and development of electronic systemsSource: Literature research; Booz & Company analysisBooz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 29
    • A well-leveraged Asian market strategy will certainly make a win-win situation... Thank you!Booz & Company 20101125_Leveraging the Asian Markets for Global Competitive Advantage_v3.0 (with backup).ppt 30