The automobile industry is the dominant manufacturer in the world. Including all downstream and upstream activities, the automotive industry accounts for 5-10% global value addition (Traub-Merz, 2017). Globally, over 500 million passenger cars are registered and the number is expected to triple by the year 2030 (Traub-Merz, 2017). Similar to the other manufacturing industries, automotive manufacturing has undergone rapid transformation over the last two decades. This transformation has been marked by technological inventions and innovations and shifts in demand and production (Malihi and Shee, 2017). Although the automotive industry is dominated by large multinational companies, virtually all of them outsource substantial production functions across borders. With the growth of the global value chains, emerging economies have identified the automotive industry as a strategic pillar for enhancing their gross domestic product (Traub-Merz, 2017). These countries use economic policies as instruments of localizing manufacturing activities and following the path of the developed economies including export promotion and import substitution.
After household goods, clothing and textile and electronics, automotive manufacturing is the next strategic pillar for capturing large proportions of global producing capacities. However, among the world’s highly populated countries, only Ethiopia, Nigeria, Bangladesh and Congo do not have active automobile manufacturing (Traub-Merz, 2017). This raises questions regarding the automotive manufacturing policies in these countries. Lemma (2015) highlighted lack of efficiency and poor quality of locally assembled vehicles as the reason consumers prefer imported vehicles. According to Nazret (2018), insufficient support from the government is also one of the causes of low automotive manufacturing activities in Ethiopia. Consequently, most of the automotive manufacturers seeking to commence operations in Ethiopia are stuck in the implementation phase. Beyond these few studies, there is lack of research regarding the challenges faced by automotive manufacturers in Ethiopia. The present study fills this gap by investigating the constraints and limitations causing slow progress of car assembling in Ethiopia.
The present study focuses in the Ethiopian automotive industry where low manufacturing activity has been reported. When it comes to the purchase of motor vehicles, the focus is often on affordability and durability of the vehicle as well as the availability of spare parts. This is highlighted by Lemma (2015) as one of the reasons local manufacturers struggle to compete in the Ethiopian market. Based on statistics from the Ethiopian Investment Commission, 73 domestic automotive assembly project and 31 foreign investment projects have been licensed in Ethiopia since 1998. Out of the 104 licensed companies, only six companies have active operations with four in the implementation stage (Lemma, 2015). In terms of production, the local manufacturers produce about 8000 units annually. However, over 38,000 vehicles are imported from other countries.
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The automotive manufacturing is characterized by global chain of suppliers whereby significant portions of the production process are outsourced. It is common to find that most of the automakers are importing components from different locations where there exist a cost advantage. Thus, it is important to integrate the local automotive manufacturing sector with global value chains. Supply chain management, referring to the process of effectively managing the supply chain assets including information to maximize profitability, can be applied to address the challenges related to establishing a successful automotive industry in Ethiopia. From the literature, there are five main challenges related to supply chain management including cost containment, risk management, visibility, globalization and customer demands (Butner, 2010).
Prior research has highlighted key issues slowing the growth of the automotive industry including strained marketing and distribution networks, high cost of credit, high port charges, unreliability of rail transport port delays, road freight volumes, poor infrastructure and unfriendly policies and regulations (Ambe and Badenhorst-Wess, 2013; Ambe, 2014). Incoherent policy decisions, lack of a national automotive strategy are also identified as key challenges (Joshi et al., 2013; Malihi and Shee, 2017; Makundi, 2018). Analysis of these issues indicate that the challenges related to the automotive industry can be traced to supply chain management. As a landlocked country, these factors are likely to be more pronounced for the case of Ethiopia. The present study investigates the constraints and limitations causing slow progress of car assembling in Ethiopia.
