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The importance of Asia for Japan's automakers

Posted by: Ian Rowley on February 25, 2008

Can Japan’s automakers withstand a slowdown or worse in the U.S. Japan and Western Europe? You bet they can. Hot on the heels of healthy quarterly results for the three months ended December, more signs are emerging that rising demand in Asia will offset troubles in the mature markets.

Sunday’s Nikkei, Japan’s biggest business paper, reckoned that this year, for the first time, sales in Asia outside Japan will be more than sales at home for Japan’s automakers. In 2008, sales in the region are projected to rise 700,000 to 5.5 million units, besting Japan sales which were 4.94 million in 2007 and unlikely to grow anytime soon. Just as important, that’s not too far away from the 6.8 million vehicles sold by Japanese automakers in the U.S. in 2007. Unsurprisingly, China looks like being one of the big drivers of growth with Toyota, for example, projecting a 40% increase in sales this year to 700,000 vehicles.

While that’s good news for sales and earnings, rising Asia sales my yet cause a few headaches. One big challenge will be how to manage the growth. Management resources are already spread and the fear is that rapid growth in Asia could put more pressure on quality. Analysts also reckon that Japan’s automakers may eventually have to revise their strategy of conducting the lion’s share of design and development work in Japan, yet it’s far from clear how quickly that could happen. On the one hand, R&D has become much globalized in recent years as companies increased efforts to meet with the needs of local markets. On the other, a rash of investment in new facilities in Japan means its central role is unlikely to diminish in a hurry.

Reader Comments

Jalal Alamgir

February 25, 2008 11:15 PM

Just like the growth/quality trade-off, the other one to bother Japanese auto companies would be the global/local trade-off. Japanese companies have built global brands with standard cost-efficient components in most countries of the world, with minimal adjustments. Once the price battle with companies like Tata settles, the next battleground will likely be who can capture the rapidly growing Asian middle-class markets' yearning for individuality. One example is the cellphone market, which is flooded with accessories to options to frequent model updates.

Component-based accessorizing is something Japanese automakers can do much better than either the US makers or the new Indian price upstarts. But for that to happen, they'll need to plan now about how to manage each of the hundreds of local markets where they sell cars.

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