4. Strengthening Global Operations
1986-
(3) Strengthening Operations in Asia-Pacific
- 1990s
- Motorization was beginning to take off in ASEAN. In response to the expanding production needs in each country, our business evolved to encompass mutual supply within the region, significantly contributing to the development of the automotive industry in major countries.
In the 1970s, responding to localization regulations in major Asian countries and requests from Japanese automakers, our company began local assembly operations through the knockdown method. With signs of motorization becoming more apparent in the 1980s, we explored expanding local production in key countries.
In Malaysia, the government announced the “National Car Project” in 1981, a national initiative aimed at producing an affordable car for the masses. The previous year, we had established “Nippondenso Malaysia” (now DNMY) to supply parts to Japanese automakers who had entered the local market, starting the production of electrical components and radiators. Due to strong requests from the top of the local government, we supported the National Car Project by supplying parts.
In Thailand, which was our first overseas production base using the knockdown method, production expanded steadily. Anticipating further motorization, we reevaluated our local operations in Thailand. In 1987, we established “Nippondenso Tool and Die Thailand” (now Denso Innovative Manufacturing Solution Asia) for the production of high-quality and cost-effective molds, which would be exported not only to Thailand but also to Japan and other Asian bases. Thailand continued to strengthen its role as a functional center for Asia, establishing production coordination functions, technical centers, and human resource development centers.
Entering the 1990s, motorization in major Asian countries fully took off, leading to a sharp increase in automobile production. This economic growth prompted demands for trade liberalization from developed countries. In response, major ASEAN countries agreed to establish the “ASEAN Free Trade Area (AFTA)” in 1992, gradually reducing intra-regional tariffs, aiming for near-total elimination by 2003. Additionally, by 2000, local content regulations for automobiles and auto parts were to be abolished.
Reference：Overview of ASEAN Free Trade Area (AFTA)
In light of these developments, we believed that the optimal strategy was to build a mutual supply system among ASEAN countries. This cross-border division of labor and mutual complementation was unique to ASEAN, where major countries were simultaneously experiencing significant economic growth. For our company, which manufactures a wide variety of auto parts in this region, this business model was ideal.
Specifically, we clarified the roles of each country's production bases, allowing each country to specialize in the production of specific products, which would then be supplied mutually within the region. However, before fully operationalizing this plan around 2000, we had to overcome several challenges, including negotiations for agreements and benefits from each government and the Asian economic crisis triggered by the Thai currency devaluation in 1997.
- Deep DiveConcept of the ASEAN Mutual Supply Initiative
- In 1988, our company established a project to plan and materialize the “ASEAN Mutual Supply Initiative.” At that time, the scale of automobile production in each ASEAN country was still relatively small, making it economically unviable to expand local production of auto parts on a country-by-country basis. However, when considered collectively, the ASEAN region had a sufficient scale in terms of volume.
The concept was to focus on specific production items in each country and mutually supply these items within the ASEAN region. This approach aimed to enhance the business viability while contributing to the industrial growth of each country. Given that ASEAN is a region with diverse ethnicities and cultures, the idea of pursuing growth through cross-border division of labor and mutual complementation was well-suited to the unique characteristics of ASEAN.
- Deep DiveRealization of the ASEAN Mutual Supply Initiative
- While the “ASEAN Mutual Supply Initiative” was theoretically sound, its practical implementation faced challenges due to the differing interests and agendas of the member countries. Adjusting production items to meet each country's demands was expected to be difficult. Additionally, to facilitate the smooth export and import of products within the ASEAN region, significant reductions in import tariffs were necessary, requiring cooperation among the countries.
To strongly promote the necessary operations locally, our company established the coordinating company “Denso International Singapore” in 1995. Our representatives engaged in direct negotiations with the governments of each country to gain their support and agreement. They applied for local systems that would provide the necessary tariff reductions for mutual supply and continued persistent negotiations. Ultimately, they succeeded in obtaining the required approvals, making the initiative feasible.
India, a large potential market, began relaxing restrictions on foreign investments in the 1980s, leading to the entry of Toyota and Suzuki. Responding to this, we established “SRF Nippondenso” (now DNIN) in 1984 to start producing electrical components, followed by “Subros” in 1985 for air conditioner production.
In China, we remained cautious following the Tiananmen Square incident in 1989. However, by the mid-1990s, business momentum between Japan and China was growing. The Chinese government also had high expectations for the development of the auto parts industry as a key national industry.
In 1993, we established “Yantai Shougang DENSO Co., Ltd.” (now YSD) to begin air conditioner production, marking our entry into China. Subsequently, we established numerous bases in major Chinese cities such as Tianjin, Chongqing, and Guangzhou, producing electrical components, air conditioners, parts for motorcycles, and setting up technical centers.