Toyota Global Production Network (Imv Project)

domestic market; phase 2 (1971-1986) associated with industrial rationalization policy through local origin requirements; phase 3 (1987-1999) export promotion policy and partial liberalization; phase 4 (from 2000 to present) the Thai government applied a diversified policy to promote the development of supporting industries.

First of all, the most important policy of the Thai government to develop supporting industry was the local content requirement in 1972, which required foreign automobile manufacturers to purchase components produced by domestic enterprises. In the 1980s, policy makers introduced strict regulations such as the use of domestic resources for components. Therefore, supporting industry in Thailand gradually grew and through domestic enterprises developed their business.

In addition, building institutions, databases and exchanging information on supporting industries. Thailand has made efforts, especially focusing on building institutions and databases on supporting industries and enhancing such information sources and links, which have contributed significantly to the success of its supporting industries. They have built ASEAN supporting industries by establishing independent organizations such as Thailand Research, Electronics Research Institute. In 1988, the government established the Supporting Industry Development Department under the Supporting Industry Analysis Department for Investment with the main functions of providing technical support and training for supporting industries, designing and developing sample products such as detailed electronic components for firing and drying.

In addition, the strategy for developing Thailand's supporting industry is to develop component manufacturing companies. This supporting industry is capable of providing complex assemblies such as engines, starters, gears, brake systems, etc. and whether exported or consumed domestically, the products all have a high localization rate. Currently, this rate in Thailand has reached 80 - 90% for light-duty vehicles and 30 - 70% for passenger cars and vans. The total number of Thai auto component manufacturers is more than 2,200 parts and has more than 3,000 workers with raw materials for production mainly supplied domestically. In addition, the structure of Thai auto assembly manufacturers is clearly broken and they are foreign enterprises.

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Box 1: Some typical examples of Thailand's participation in the global automobile production network

The Toyota Global Advanced Multipurpose Vehicle (IMV) project is a typical example of participating in the global automobile production network because the IMV project started at almost the same time in four major production bases including Thailand, Indonesia, Argentina and South Africa. The project aims to produce and export auto parts, accessories and finished products to countries in Asia, Europe, Africa, Oceania, Latin America and the Middle East. In addition, the project also produces some key components in different locations, such as diesel engines in Thailand, gasoline engines in Indonesia and manual transmissions in the Philippines and India, to supply to countries in charge of vehicle production. In ASEAN, the ASEAN Industrial Cooperation Program (AICO) was initiated to promote trade in intermediate inputs within the region, although AICO has been replaced by AFTA since 2003. This program has helped promote product segmentation within the region and ensure a deeper industrial base in Thailand. To produce a car requires thousands of parts and finished and semi-finished products, and in order to limit transportation costs, car assemblers tend to build component factories around their assembly plants [129].

Figure 3.5: Toyota's global production network (IMV project)

Source : Annual Report 2005, Toyota Motor Corporation

After the 1997 financial crisis, a large number of Thai parts manufacturers went bankrupt, some were acquired by foreign companies, the remaining were some first-tier suppliers capable of supplying components and assemblies to automobile manufacturers. The assemblies they produced were mainly labor-intensive parts, such as seats, cockpits, etc. Thai suppliers still lacked the technical capacity to produce high-tech components such as starting systems, chassis electrical systems, powertrain systems (i.e. engines, axles, and transmissions), chassis, etc. Mostly, second-tier and third-tier suppliers supplied raw materials to first-tier suppliers.

To enhance the productivity of suppliers, both Toyota Motor Thailand (TMT) and the Ford-Mazda Automobile Joint Venture (AAT) provide technical assistance to suppliers. Both have invested in a number of important activities to help local supplier companies qualify to participate in the global automotive production network in Thailand. For example, Toyota Motor Thailand established the Toyota Cooperation Club (TCC) to train first-tier suppliers, which increased from 25-35 in 1982 to 109 in 2007. TMT has established a production network throughout Thailand, linking first-tier suppliers with lower-tier suppliers. In 2006, TMT had 144 first-tier suppliers of parts and 525 second- and third-tier suppliers such as raw materials and service providers. Due to the geographical dispersion of suppliers, TMT cannot simply deliver parts from different parts departments to the assembly plants on time. Although the 144 suppliers try to deliver parts within the stipulated time, there are still bottlenecks at the assembly plants. In 2006, TMT plants were operating at almost full production capacity [129].

Toyota was able to achieve such high productivity because it succeeded in diffusing an effective production management system to its suppliers (Toyota Production System - TPS). Toyota's production network facilitates knowledge sharing among suppliers in the network, TMT has introduced three initiatives in sharing,

Knowledge transfer in the production network is the facilitation of knowledge sharing between companies, manufacturers' associations, and consulting experience for small groups. The Toyota Cooperation Club (TCC) is responsible for clear knowledge sharing. However, not all suppliers can join and benefit from the club, only suppliers who maintain long-term relationships with Toyota can share this knowledge. For new members, they must have an annual turnover of over 50 million baht and must be approved by Toyota Motor Thailand, Siam Toyota Manufacturing or TCC.

After becoming a TCC member, suppliers can receive TPS support services free of charge, as long as they can demonstrate their commitment to learning and improving their production management capabilities. TMT will then send well-trained consultants to transfer confidential Toyota Production System technology to the supplier's plant. However, knowledge transfer is not the only goal. The consultants are actually acting on a "reciprocal knowledge sharing standard", which also helps create a more open and mutual knowledge sharing standard in the global production network (Dyer and Nobeoka, 2000). In 2007, there were about 12 consulting projects and currently, Thai staff conduct TPS training for company divisions in other ASEAN countries.

In addition, TMT also organizes small learning groups to improve suppliers' skills and share tacit knowledge with other members. This group is very effective in developing strong relationships among group members through the "core group" in the production network. Toyota's operating method is quite unique, Japanese companies focus more on knowledge transfer. American (GM and Ford) and European (BMW) automakers do not have similar knowledge sharing organization methods. These manufacturers only provide necessary technical support according to the requirements of new car models. Therefore, Thai companies trust Japanese manufacturers more [129].

Box 2: Some successful examples of industry upgrading to join global production networks

Summit Group, one of the largest auto parts manufacturers in Thailand, consists of more than 30 subsidiaries. Summit Auto Seat Industry (SAS), established in 1972 with 100% Thai capital, is a leading domestic supplier and successfully competes with foreign-invested companies operating in Thailand. To keep up with technological changes in the automotive industry, the company has continuously invested in new technologies. Investment decisions follow a two-step process: The first step is to study new technologies, then the company discusses with customers and proposes the use of specific technologies. Once the customer agrees, the company then decides to invest. For example, the company recently invested in a new hydroforming system after discussing with customers and visiting some leading factories overseas.

In addition, SAS works with lower-tier suppliers to improve the quality of their products and components. SAS has also developed a partnership with King Mongkut’s University of Technology to provide training to its employees. This has helped SAS develop design capabilities, rapid prototyping, and simulation models. The company has evolved from a manufacturing division to a system integrator that designs, simulates, and discovers new materials to sell to automakers.

Summit Group established an assembly company in 1986 initially to produce seats and stamping parts for automobiles. Thanks to technological upgrades, automation of the production process increased from 25% in 1995 to 75% in 2012. In 2009, the company was able to participate in the product development phase of new pickup trucks of several brands sold in Thailand. Product development included brake systems, clutch components, oil pipes and doors. In 2016, up to 26 engineers were involved in product development and design (R&D) for several orders, the company

The company sent engineers to participate in the product development phase at the buyer's R&D centers.

Somboon Group (SG), established in 1975, is one of the leading auto parts suppliers in Thailand. SG Group consists of four companies, namely Somboon High Technology Co., Ltd., Bangkok Spring Industrial Co., Ltd., Somboon Malleable Iron Co., Ltd. and International Casting Co., Ltd. The group supplies parts to customers such as Auto Alliance, Dana, GM, Hino, Honda, Isuzu, Kubota, Mitsubishi Motors, Nissan, Toyota and Yongkee.

SG Group actively utilizes external knowledge sources. The Group receives technical support from professors at Osaka University in Japan. In addition, the companies in the Group also use consulting services from an international organization via email and send products abroad for testing. Furthermore, utilizing the support of Japanese professors, SG Group cooperates with Japanese first-tier suppliers to learn from each other in terms of technology, such as in developing new processes. However, this type of knowledge transfer is mainly tacit knowledge through training and seeking advice. This long-term relationship is established faster than knowledge transfer.

In 2009, the group invested 400 million baht to develop technology through laboratory research for springs, shock absorbers and brake components, and new product development and design. In terms of R&D, the group mobilized 40 engineers to participate in research with the aim of enhancing technological capabilities to start becoming a tier-one supplier.

In 2007, thanks to investment in research and development, SG Group received a patent for the design of automotive disc brakes, which was a collaboration between King Mongkut University of Technology and the National Materials and Technology Center (MTEC). To expand its scope of operations, SG Group established an office in Japan to develop closer relationships with buyers.

Daisin Company, established in 1979 to produce aluminum die-casting parts for the automotive industry as a foreign joint venture with Nissin Koygo Co, Ltd with 67% Thai equity. The case of Daisin demonstrates the need for “active” investment in developing indigenous technological capabilities and the significance of working closely with suppliers and the automaker (Honda Motor Thailand) to access support for its own capability development.

First, the company hired a retired Japanese engineer to help improve manufacturing capabilities and negotiate with Nissin for a reduction in royalties. Then, the company hired other Japanese engineering consultants to help develop its own design capabilities. Nissin was initially reluctant to help, but eventually the company worked with the buyer to create a new design for the handbrake and a new lighting system, which led to Honda and Toyota inviting Daisin engineers to come to Japan and work with Honda and Toyota engineers to develop a new brake system. Daisin has now become an original design manufacturer (ODM) for a number of automakers in Japan's global production networks.

Sammitr Moto (SMM) was founded in 1967 and is primarily engaged in the production of chassis parts, molds and components for automobiles. SMM's production line was later expanded to include other related industries such as trailer manufacturing (70% of total revenue), OEM parts (15%) and spare parts (15%).

In order to maintain its leadership and competitive advantage, in 1997, the company developed, upgraded and introduced new products that could better meet and exceed customer needs. Not only did the company actively train its internal human resources in automotive engineering and alternative energy, but it also collaborated with leading domestic and foreign research institutes such as China Chongqing Automotive Research Institute (CCARI), and Thailand's National Materials and Technology Center (MTEC) to further enhance its industry capabilities.

In terms of product research and design, the company also has joint R&D projects with automakers to develop new components to secure orders. Its successful projects include the production of pickup trucks, trucks, etc. that use 100% diesel engines. SMM also invested in China to access raw materials and cheap labor to produce metal components for trailers and trucks, such as chassis and bodies, which are then imported for assembly in Thailand. Like Daisin, SMM has exploited its design capabilities while working with multinational corporations to diversify into more profitable markets.

Source : [126] .

Overall, some successful examples of participation in global automotive production networks

Thailand’s demand shows that, in the early stages of development, the channel of knowledge transfer and technical support from automobile manufacturers is the most important. However, competition and the global sourcing strategy of global automobile manufacturers force them to upgrade their production systems to match the requirements of multinational companies. Manufacturing groups and Daisin have achieved success because they have invested in their own design research and development. Successful examples such as Daisin show that in addition to the company’s own efforts, they also cooperate with local universities and retired foreign engineers to improve the company’s capacity to participate in the global automobile production network.

During the development stages, government policies were clearly aimed at developing the production of auto parts and components. During the second and third stages, the government implemented a rationalization policy to create linkages between automakers and local companies to avoid the import of outdated technology to produce auto parts and components in Thailand.

About the number of businesses

According to data in Table 3.7, from its establishment until before 1985, the number of companies established in the auto parts and accessories manufacturing industry was not much.

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