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Asean Affairs  23 December 2010

VW moves into Asean

By  David Swartzentruber
AseanAffairs     23 December 2010

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After some earlier flirtations with entering the Asean region, Volkswagen (VW) kicked off its assembly plant in Malaysia on Tuesday of this week and signed an agreement with its Malaysian partner, DRB Hicom, with Malaysian Prime Minister Datuk Seri Najib Tun Razak in attendance.

The VW action has caused quite a stir in the German media for understandable reasons. The population of the Asean Economic Community (AEC) is nearing 600 million and the AEC starts in 2015. It is assumed that VW’s corporate strategists were impressed by the 570,000 vehicles that were sold in Malaysia in 2010.

The agreement signed in Malaysia between VW and DRB Hicom was the next logical step after the two inked a memorandum of understanding last summer. VW states its Malaysian partner has the largest automobile assembly network in Malaysia, with its Pekan and Melaka plants producing cars and commercial vehicles.

With its countrywide distribution network, DRB Hicom is Malaysia's leading car trader and importer.

The move is in line with VW’s goal to unseat Toyota as world largest automaker by 2018. VW expects to produce "few thousand vehicles" per year and will gradually increase the output. By the end of 2011, VW expects to roll out the first Passat model and possibly in 2012, VW will start the assembly of its other model called Jetta.

Asean's automobile market is highly attractive after the two giant markets of India and China. The implication of the VW move suggest that even with the AEC four years off, its impending arrival has not missed the attention of alert western companies that are faced with stagnant or even declining markets in their home regions.

It is of interest that VW bypassed locating in Thailand, which has increasingly been a major producer of autos in Asean. However, auto production in Thailand is growing steadily and could be constrained only by a lack of sufficient labor.

Asean watchers should keep their antennas up for other moves by western firms to develop supply bases in Asean during 2011.

Paul A. Ebeling, Jnr

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