BMW Believes in Asia

BMW’s investments in during market downturns may have seemed foolish when they were made but the company’s unusual strategy has proven to be the right one, as evident by its impressive sales performance throughout Asia last year. Sales of the group’s products (which includes Rover and Land Rover vehicles up till mid-2000) rose 16% to 58,250 units and its share in the luxury segment grew to 28.4%. These improvements were significantly better than the 7.5% growth of the passenger car market in Asia.

In Indonesia, China and South Korea, sales increases were about 100% or more but even more impressive was the overall increase of 63% in ASEAN markets. This increase was more than twice the percentage recorded by the total passenger car market and also higher than the rise of 47% in the luxury segment alone.

“Asia has a great future and is developing into one of the most important regions for the world economy,” declared Dr Michael Ganal, a member of the BMW Board of Management, during the annual BMW Asia press conference in Singapore. “Although other manufacturers continue to tread carefully in Asian markets and have opted for a “wait-an-see” approach, BMW is convinced that the Asian markets are already making their comeback and we believe more than ever in the future of this region.”

NEW SUBSIDIARIES IN ASEAN
A very clear demonstration of this commitment can be seen in the establishment of two new sales subsidiaries in Indonesia and the Philippines which will begin operations in April 2001. These will be the second and third BMW subsidiaries in ASEAN, following BMW Thailand which was established in 1997 and has its own manufacturing facility.

“The new subsidiaries will engage in wholesale activities of BMW products including spare parts and accessories, as well as overall planning of sales, marketing, after-sales and related activities in their respective countries,” explained Luder Paysen, Senior Vice-President of BMW’s Group Sales Division.

Mr Paysen refuted a suggestion that BMW’s move to become directly involved was due to the lack of aggressive marketing efforts or commitment by its importers. “On the contrary, their efforts have been excellent and we certainly have no unhappiness over their performance – just look at how Indonesia did last year!” he told AUTOWORLD.COM.MY.

“We are coming in to give their more support and to build on the success they have already achieved. In fact, the existing importers will have a lot of involvement in our subsidiaries; in BMW Philippines, the owner of the importing company will have a 30% stake while BMW Indonesia will continue to rely on its importer to handle assembly and retail sales,” he added.

Mr Paysen did, however, acknowledge that the present political and economic situations in the two countries would make things difficult for a while. “It will probably be tough in Indonesia and in the Philippines, we are expecting sales to remain level.”

“In any case, we are not in countries for the politics; we are there for the customers and we believe they are there,” he stressed. “We believe opportunities exist, regardless of the political situations, and there is definitely long-term potential.”

AFTA WILL HAPPEN… EVENTUALLY
Mr Paysen used to be rather critical of any possible delays in the creation of the ASEAN Free Trade Area (AFTA) and had warned that further investments in its Thai factory – which had been set up as the production base for ASEAN – until it was very clear that AFTA would become a reality. This was in the light of Malaysia’s request for a 2-year extension beyond the planned 2003 deadline. However, this year, he has softened his view and even explains that “in Asia, patience is necessary.”

“It is something which Munich [where BMW’s management board is] finds hard to understand and accept sometimes,” he said.

As far as BMW is concerned, the Thai factory will be maintained at its present 10,000 unit annual capacity and supply only to the Thai market. It’s already more than what is necessary, seeing that in 2000, BMW sales in Thailand totalled 2,415 units and that figure included imported models.

“Yes, we have a bit more capacity than we really need for that market, but we made money last year too,” said Mr Paysen. “But it is not something that we consider a burden either.”

“We have the option to purchase more land adjacent to the factory when the time is right for expansion and we are looking at possible collaboration with Indonesia and the Philippines,” explained Karsten Engel, the new head of BMW Thailand.

Mr Paysen is convinced that AFTA will be realised eventually and that if there is any delay, it would not be surprising. “After all, the European Union took 40 years….,” he said.

BMW IN CHINA
Of significant interest is BMW’s growing interest in China, to the extent that it is going to examine the possibility of building its products there. At this time last year, Mr Paysen had given a less optimistic view of BMW’s opportunities in that potentially huge market, citing tough government policies and also expressing scepticism that China’s entry into WTO would make it easier to sell imported cars and that to sell there, they would have to build there. But things have apparently changed in 12 months and he is now more upbeat about doing business there.

“We find that the government is now more flexible and are less insistent on foreign manufacturers starting off with volumes of 100,000 units or more – which obviously does not work for a luxury carmaker like BMW,” he revealed. “So, with this new development, we have teamed up with a local partner to form a joint-venture and are in the process of making an application to the central government to conduct a feasibility study.”

The local partner is believed to be Brilliance China Automotive Holdings. The Hongkong-based holding company, listed on the New York Stock Exchange, owns 51% equity interest in Shenyang JinBei Passenger Vehicle Manufacturing Company Ltd. which makes buses for the China market.

Mr Paysen declined to discuss details of the project, saying that it was too early but said that if approval could be obtained, “we are ready to get started immediately”.

But regardless of the outcome of the feasibility study to make cars in China, BMW will also be expanding its sales and service network there, from the present 20 to 35 outlets. The company is encouraged by the exceptional sales increase last year which saw an almost 100% increase over 1999 sales to 3,797 units. BMW was the top-selling luxury brand with a 24% market share as well.

“Asia is definitely going to grow and although things are not always smooth, BMW has found that its Asia strategy has worked well. We may have made investments in bad times – as when we started in Thailand in the middle of the economic crisis – but the advantage has been that when the markets started picking up, we were ready to meet the demand,” declared Mr Paysen.