Hyundai “doing a Toyota” in Indonesia
Beating Toyota in Asia is close to impossible. The Japanese giant has made some good decisions in the past that have led directly to its leadership position. One such decision is to build cars outside of Japan to avoid the high import duties across APAC.
Toyota has been especially smart when selecting where to build plants and which models to be built locally, for example MPVs in Indonesia and pick-up trucks in Thailand. They were early in understanding which countries were growth countries and which countries, potentially less profitable, to stay away from. In addition, Toyota has always been focusing on serving local markets as well as producing for export – again, the Hilux, produced in Thailand is a great example of a model that sells well in Thailand and across the region.
The Koreans approached car making a bit differently, focusing on Korean production and (besides EU and US) not so much on establishing themselves in other Asian countries. This has become a first problem now that Hyundai needed to rectify.
Another issue are the declining sales in China, where Hyundai planned to build 2 factories, that have been cancelled in the meanwhile.
Finally, the high car import taxes in Asia (between 5% and 80%, depending on the country) is an obstacle for growth and positions Korean cars in the premium range in terms of pricing, but still comparable to Toyota in terms of image.
The decision to build a 150.000 car production facility in Indonesia solves a lot of problems. It reduces transport costs to the South-East Asian growth countries, it targets directly 280 million Toyota buying Indonesians (although some buy Honda…), eager to buy more cars and, most importantly, as Indonesia is part of the ASEAN free trade agreement, it allows Hyundai to offer their vehicles much cheaper in Thailand, Malaysia, the Philippines and Vietnam.
From here to the…
Moon Jae-in, S-Korea’s president, has hosted a meeting of ASEAN leaders in Seoul, where he announced the country’s “New Southern Policy”, aiming to deepen ties with the successful South-East Asian countries. Turns out that the issues that Hyundai is facing, due to its strategy to focus on China and the US, is a Korean industry-wide phenomenon.
What about Vietnam?
Korea is Vietnam’s number one foreign investor. Samsung, for example, is producing mobile phones and other electronics and has recently started investing in the offering of financial and insurance products out of Vietnam. Next to Samsung, other big names such as LG and Seoul Semiconductor Co. have invested massively in one of the fasted growing countries in the world. Hyundai’s decision to select Indonesia might be justifiable because of its population’s size and hunger for cars, but is surely disappointing for Vietnam, that has been attracting much of Korea’s investments, and is looking for more automotive investments.