Market outlook: VISTA countries offer promising markets for commercial vehicles

• VISTA countries becoming more attractive for commercial vehicles – especially as a production location
• Demand for heavy- and medium-duty trucks is already about 150,000 units in 2012
• Annual demand will reach 200,000 units in 2015 and more than 250,000 units per year in 2020
• Global manufacturers should ensure today that they can participate in the long-term growth

The VISTA countries – Vietnam, Indonesia, South Africa, Turkey and Argentina – are becoming more attractive for the commercial vehicle industry. In 2012, the combined demand for heavy- and medium-duty trucks will already reach approximately 150,000 units. The annual demand is expected to reach 200,000 units by 2015. By 2020, it should rise to more than 250,000 units. Global manufacturers should ensure today that they can participate in the long-term growth of these markets. These are the key findings of a market outlook by Roland Berger Strategy Consultants entitled "VISTA – New growth opportunities for the commercial vehicle industry".

The commercial vehicles industry is undergoing one of the most fundamental changes in its history. The traditional focus on the triad (North America, Europe, and Japan) is vanishing. New markets and production locations have emerged, especially in the BRIC countries (Brazil, Russia, India and China). While the BRIC markets will continue to play a dominant role, a second wave of emerging markets is already forming: VISTA (Vietnam, Indonesia, South Africa, Turkey and Argentina). "The large, growing VISTA economies will impact global market shares and become attractive production locations for OEMs and suppliers alike," states Norbert Dressler, Partner and commercial vehicle expert at Roland Berger Strategy Consultants.

Booming economies and low labor costs

The future development and attractiveness of these second-wave emerging markets is driven by two essential factors. First, booming and large economies are spurring the demand for vehicles. Second, low labor costs and favorable production conditions will make these markets attractive low-cost production locations for the next decades. Already the economic size and development of the VISTA markets are significant. These markets will soon reach a population of more than 500 million people. Their combined gross domestic product (GDP) is higher than Brazil's or India's and per capita GDP is on par with China.

Strong production of agricultural and industrial goods for local consumption as well as export is boosting the need for transportation. Inflation is largely under control, ensuring future investments and attractive growth. Based on this economic situation and the anticipated development, the combined demand for heavy- and medium-duty trucks is already expected to be about 150,000 units in 2012, more than in Brazil. By 2015, annual demand is expected to reach about 200,000 units and by 2020 it will clearly exceed 250,000 units. Furthermore, attractive labor conditions ensure that a significant portion of the local demand will be met in domestic markets. Average labor costs range from EUR 0.50 per hour in Vietnam to around EUR 3.0 in Argentina – highly attractive when compared to typical rates in other regions, such as China (EUR 1.5) or Brazil (around EUR 4.0).

Manufacturers have to engage in local investments

Many companies have recognized VISTA's potential. Already many global brands have some presence in these markets, but not all are present in every VISTA country. To ensure their future market position, global manufacturers need to increase their participation in local investments: first in CKD production (completely knocked down) and later in full local assembly. However, the current and future attractiveness of these markets by themselves cannot guarantee a successful market entry or growth strategy: Each VISTA country has its own set of opportunities and risks. Political stability, local business regulations, expected economic development, inflationary tendencies as well as the regional competition among countries have to be understood before venturing significant investments.

Future of VISTA markets will be decided in the next five years

In addition, some of the VISTA markets do not yet offer a supply base capable of supporting strong local vehicle production. The automotive sector of Vietnam, for instance, still focuses heavily on motorcycle and CKD production. This is connected to problems in local supplier competence, capacity and product quality. Despite these challenges, the size and potential of these markets is too large to be ignored. "The future of these markets will be decided in the next five years," states Dressler. "Global manufacturers need to ensure today that they can participate in the long-term growth of these markets." An improved understanding of local market conditions and the potential for each manufacturer and supplier of commercial vehicles is the first step to ensure long-term success in the VISTA markets.