Faheem Haider and Abdul Hannan

Automotive sector plays significant role in growth of any economy and considered as the “industry of industries” due to its backward and forward linkages. Competitiveness of this industry has recently gained exceptional importance in this globalized era and it depends upon many internal and external factors. Increasing importance of automotive sector has motivated the policy makers and researchers to investigate its dynamics and driving forces. Recently a study regarding impact of economic, social and environmental variables on the competitiveness of automotive industry particularly in the context of Asian countries has been published in International Journal of Economic Behavior and Organization. Study utilized the data of 14 Asian countries from the year 1991 to 2012 and computed competitiveness of automotive industry by using Revealed Comparative Index (RCA). Comparison showed that the out of fourteen Asian countries, only five countries are competitive in terms of export of automotive products which includes China, Thailand, Japan, Vietnam and India. Study identified the external factors behind success and failure of automotive sector and showed that economic development and growth of country has positive impact on competitiveness of automotive industry as increase in demand creates economies of scale. High economic performance increases the demand for the automotive products as it enhances the purchasing power of customer through rise in disposable income. Those countries which failed to achieve sustained economic growth could not become globally competitive in automotive sector. Second factor behind the success of this industry is human capital. High skilled workers raises competitiveness of automotive sector as skilled workers improves the innovation and efficiency in production process.

Study also found that lending rate and carbon emission are negatively related to competitiveness of automotive sector. In developing countries, low lending rate encourages the entrepreneurs to invest in auto parts sectors which provides strong base to compete in global market. Environment emission standards plays important role as the result of this study shows that countries with stringent emission standards are more competitive in global automotive market. Environmental regulations stimulate competition and innovation among domestic players.

This paper concluded that in order to be globally competitive in automotive industry, countries needs to focus on their economic growth, human capital, should provide credit to the investor’s on easy credit terms and should improve their infrastructure and compliance of emission standards to remain competitive at both domestic and international market. Based on the empirical results, it is also suggested that Developing countries need to protect their local industry at development stage. There should be step by step and industry to industry approach for tariff reduction to develop manufacturing economy rather than trading economy. For instances, India and china tariff rate for automotive sector is 100% & 90% respectively for completely built up (CBU) units import but at the same time their industries are highly competitive in the international market.

Automotive policies in developing countries should improve their human capital and encourage foreign investors with adequate protection to local industry. For example, main success story behind Thailand & Vietnam automotive industry is the expansion of their production network both at regional and global level. Domestic industry alignment with global market, enhancement of their vendor base, economies of scale, and protection of local industry through tariff were found to be the reasons for expansion of automotive industry in Thailand & Vietnam.