Thailand’s latest Industrial Sentiment Index, has dipped again to some lowest point in 58 months, based on spur politics, zapping internal Thailand consumption and a revival of Thai exports, that has failed to gain traction, as global economy pick-up steam.
And the weak sentiment, according to several news reports, relates to, again sour politics, zapping foreign confidence to invest in new plants in Thailand and also a string of spending, such as anti-flood and infrastructure, combined to be close to US$80 to 100 billion, being blocked by the Bangkok establishment.
Things look so bleak for Thailand, yet again; the Thai Central Bank has reduced its forecast of 2014 Thai GDP to about 2.7%, with a few brokerage house economist and think-tanks, already talking of even lower GDP than 2.7%.
But economic prospect, many economists say is a long-term question.
The following is edited from The Industry Week: (Source)
Thailand is facing many difficulties. English proficiency presents some workforce concerns, but the real issue is the low level of unemployment: .7%. With industry expanding quickly, more workers will have to be found.
Political challenges include some instability in the southern part of the country. As Nuanjai Gittisriboongul, a partner at Deloitte Touche Tohmatsu explains, “Thailand has to make sure that is doesn’t have any more political rallies and civil unrest.”
The government is well aware of all of these issues and is working on them, as well as devising policies to lead growth in the future, explains Gittisriboongul.
In April last year, the government announced that it would alter its incentive system for businesses. One of the biggest changes in the incentive structure is that financial assistance will no longer be based on the geographical zones that were set up in the industrial estates, but instead will be targeted toward developing new regional manufacturing clusters.
The planners are moving away from activities that have low technology, low value-added output, less complex production process, low linkage with other industry and labor-intensive production. Also included in the remove list are activities that have high energy consumption and create environmental problems.
These new policies are in keeping with a country that wants to ensure that its strong manufacturing base will lead, not follow, in the continuing evolution of the region’s manufacturing strength.
Thailand is currently the 17th largest global manufacturer. A country of only 66 million people doesn’t become the 17th largest global manufacturer without careful planning. Carefully constructed strategies along with tangible incentives created this robust manufacturing economy. Thailand is the second largest producer of light pick-up trucks. It is the second largest producer of light pick-up trucks as part of it’s #14 ranking in auto production, which accounts for 12% of the country’s GDP. Employing 400,000, this sector accounts for $25 billion in exports (the third largest in the country. In other areas of manufacturing it ranks #2 in production of hard disk drives and occups the top spot globally in the production of natural and synthetic rubber. Even with these strong standings, the country is looking toward positioning itself as the center of the ASEAN Economic Community which starts in 2015.
In 2015 the association will become the ASEAN Economic Community (AEC), turning these countries into a single market and production base that will allow free movement of goods, services and skilled labor and free flow of capital. “The potential of a combined market economy of 600 million consumers creating a $2 trillion economy through the AEC is why we are positioning Thailand as an ‘Asian Hub,'” explains Ajarin Pattanapanchai, senior executive investment advisor for the Board of Investment. “Our free market system combined with our many free trade agreements allow us to offer investors, and manufacturers in particular, a strong economic base from which to operater and have access to markets in Southeast Asia, ” Pattanapancha added.
Proof that Thailand’s careful planning is paying off is abundant.
Research Bolstered to Support Manufacturing
Not content to rest on its success in the auto manufacturing and computer component segments, which will continue to grow, the government is looking toward the future and making sure it is a major player in the high-value manufacturing sectors.
Walking through Thailand’s National Science Park, home to 1,600 researchers supplied through 24 universities, again you feel the hand of planners. Aside from the architectural design, the level of collaboration and ambition is palpable.
The National Science and Technology Development Agency, which was established in 1991 under the Ministry of Science and Technology, has four research centers across the country as well as a center for technology management.
The reserach is organized under five platforms:
BIOTEC – Research in this division includes genomic technology and cell factory technology
MTEC – This area explores design and simulations materials as well as manufacturing and materials design and production.
NECTEC- The focus in this division is on sensor technology, knowledge engineering technology as well as information security technology.
NONTEC- Nanotechnology including nanocoating, nanoencapsulation and functional nanostructures are studies in this division.
TMC- This division explores technology transfer and commercialization of discoveries and technologies.
Inside the Organic and Printed Electronics Innovation Center, located at the Thailand Science Park near Bangkok, researchers demonstrated some of the technologies that have commercial potential. One in particular — OLED (Organic Light Emitting Diode) displays — will serve a television market expected to reach $16 billion by 2020.
U.S. companies are on this campus in an effort to take advantage of the synergy available through multidisciplinary collaboration. Pfizer’s (IW 500/17) recently spun-off division Zoetis, which develops products in the animal health sector, has a small lab located on the premises, as the parent company sees major growth in this sector. Air Products & Chemicals Inc. (IW 500/105) also has a large testing lab for customers, as Thailand is one of the world’s leading food processing markets. The company’s Asia Food Technology Center serves as a company Center of Excellence to help the Asian market.
Thailand has six deep sea ports and two international river ports. Shipping capacity was recently expanded at the Laem Chabang Sea Port to 10.8 million TEUs (20-foot equivalent units), with an additional 8 million TEUs of expansion possible. This deep sea port is especially important, as it the hub of automotive shipments. The port has adjacent factory facilities, which are currently being used by the automobile industry.
Even with all of these business-friendly attributes, there are some business challenges. Judy Benn, executive director of the American Chamber of Commerce in Thailand, highlights custom issues. She suggests that companies need to be very careful in how they process their goods, ensuring that tariff classification is correct in order to avoid penalties and audits.