According to a global auto report by Scotiabank, Asia was the biggest automotive producer from 2012 to 2014, with 31.69 million vehicles sold in 2014. As a production hub, China leads, followed by Japan and South Korea according to the Organisation Internationale des Constructeurs d’Automobiles (OICA) auto production statistics for 2014. Total production in Asia Pacific reached 46 million in 2014, accounting for more than 51% of global auto production.
McKinsey & Company predicts that the next 7 years will be profitable for the industry in Asia Pacific with emerging markets driving the majority of gains with massive growth expected. The surge in domestic demand and Government initiatives supporting the manufacturing sector are key factors for the future of the automotive sector. But where does that place manufacturers in Asia, when we look at the global value chains? Can automakers in Asia continue to benefit from operating in such a large consumer market in the face of increased domestic competition?
Some things never change
Even at a time when consumer expectations and manufacturing processes are seeing a tremendous amount of evolution, one fact remains unchanged - automakers still need to meet the expectations of customers on two counts - safety and quality. But with growing complexity, the pressure to maintain quality, while lowering costs is constantly increasing. The automaker, be it local or a multinational, is expected to respond to the local market quickly, offer fuel economy and emission reductions, top level safety whilst meeting stringent regulations.
For manufacturers in Asia, operating in a price sensitive market has never been more difficult than it is today. Many are struggling to maintain a good reputation for their brand and product quality. Several automakers in India and China that have already purchased existing brand and development teams from Europe or North America, are finding it challenging to manage and integrate those new resources within their systems and utilising them to their full potential.
But the rules do
Major technological shifts in the automotive industry over the last few years have had a strong impact in ways that were previously unthinkable. Vehicles are no longer limited to being the core elements of the automotive industry. Given the size and potential of the automotive market, technology companies are jumping in the fray. Google’s driverless car and Tesla’s e-car are prime examples of non-traditional entities entering and catalysing the automotive industry. BYD in China and Reva in India (both leading Automotive OEM suppliers) are examples of similar game changers from our own backyard. These new players come without the common burdens or constraints that automakers have to factor in. They work on an open platform with strong capacity to integrate their success with top offerings of other industries. With this aggressive approach and malleable, quick-to-adapt business model, they are rewriting the rules of production and consumption.
Another critical factor affecting the manufacturing budget and strategy is the increasing requirement for a greater variety of customisation options from consumers. In an era where personalisation is at the heart of every buying decision, a significant investment such as a vehicle is a carefully considered one. With the young generation treating their vehicles as a sign of success, character and lifestyle, manufacturers have to come up with a product that can be adapted to various tastes and requirements. With electrical devices and software features being an integral part of a vehicle design, several additional costs are incurred even before the vehicle is ready to hit the market.
Survival of the most adaptable
With the increase of manufacturing in Asia, we are witnessing the marketplace go beyond innovation. The key to surviving and thriving in this complex scenario is transformation. Automakers need to transform not only their materials and processes, but also the business landscape, operating model and legacy advantage that once gave them a competitive edge. This transformation can be achieved by digitalisation - a concept that entails establishing a new business operation foundation and implementing a digital process that ties all phases (ideation, realisation and utilisation) together. This digital thread that has the intelligence of the products and its lifecycle processes then connects to smart devices, which are part of the production facilities to interpret and react to the information. A digitalised environment is the foundation of establishing a digital enterprise that fosters product and business innovation which is necessary for providing future automakers a sustainable competitive advantage.
Realise innovation with digitalisation
Digitalisation across the entire value chain can help automakers in Asia manage the complexity of processes and products in four areas:
Establishing a simple yet compelling environment that meets the unique needs of each member of the vehicles value chain including OEM and all suppliers.
Building highly intelligent digital models, which accurately reflect the real vehicles’ manufacturing environment and response to market.
Seamlessly connecting the digital and physical worlds of vehicles and production to meet quality and cost targets, when making ideas come to life.
Delivering a foundation that can evolve with new tools, technologies and business models ensuring the long term return on the automaker’s investment
A digital enterprise that is open and collaborative can usher in a new automotive ecosystem, one which will include all aspects of the traditional products, services and the relationships between consumers, the vehicle and the enterprise in both virtual and physical form.
With a transformative new mechanism resting on a strong foundation of the digital enterprise, there is no reason why production hubs in Asia can’t be one of the top rated centres of the world. Digitalisation is coming fast and the increasing complexity of business and technology is changing the landscape of automotive manufacturing in Asia. What appears to be a tough situation today is a golden opportunity for a brighter tomorrow. With the right tools available and waiting to be leveraged, automakers in Asia are uniquely positioned to shine on a global stage.
The article is authored by Jizheng Zhao, Marketing Manager - Asia Pacific, Siemens PLM Software