Friday, August 22, 2014

Thailand will extend its dominance as the “Detroit of the East”

Via Malaymail Online:

The protection afforded to national carmakers Proton and Perodua will cause Malaysia to lose out to neighbours when an Asean caucus comes into effect next year, the Economist Intelligence Unit (EIU) has projected.

In a report summarising the possible effects of the Asean Economic Community (AEC) set to be formalised on December 31, 2015, the business advisory services arm of The Economist said Malaysia’s barriers to entry have blunted the competitiveness of both local carmakers and made the country less attractive than giants Thailand and Indonesia.

“The AEC signifies the arrival of a more level playing field, less protectionism and greater competition,” the EIU wrote in its report.

“Malaysia, the third-largest producer, is likely to suffer under AEC. Foreign firms in the country need to enter joint ventures with local partners, which has produced uncompetitive national champions, Proton and Perodua. More competition will challenge their dominance.”

The AEC aims to create a unified market and production base that theoretically would promote the free movement of goods and labour.

The detriment from the AEC’s liberalisation to Malaysia is two-fold, with the country losing out further on potential manufacturing and assembly jobs as car makers look elsewhere to set up shop and continuation of government support to prop up local automakers as competitors arrive.

While manufacturers have invested in full-fledged production facilities in Thailand, their Malaysian operations are generally limited to part-assembly operations geared to meet requirements for preferential tariffs and strictly for the local market.

On the consumer side, Malaysians pay some of the world’s highest prices for cars owing to a combination of duties and taxes initially introduced to provide Proton a price advantage, and policies to discourage foreign competition.

With the arrival of the AEC, the EIU said Thailand will extend its dominance as the “Detroit of the East”, as more manufacturers adopt the so-called “Thailand+1” strategy.

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