Here is another piece of research by our marketing assistant Maria, this time about Thailand’s top export industries, trends, labor costs, and logistical issues.

A Highly Attractive Country, on Paper

Thailand has the 17th largest manufacturing output and 28th biggest export volume in the world. The World Bank Ease of Doing Business 2014 study also ranks Thailand as 18th in the world, one of the highest in East Asia & the Pacific.

These rankings are supported by direct investment numbers. The AT Kearney Foreign Direct Investment Confidence Index, 2013 puts Thailand among the most attractive destinations for investment in the region (Southeast Asia). This comes as no surprise since the Global Manufacturing Competitiveness Index (GMCI) ranking of the country in 2013 placed it as the 11th most competitive manufacturing nation in the world.

These strong standings suggest there is no stopping economic growth in Thailand. We can all look forward to what’s in store, for surely the country has much more up its sleeves, come 2015 when it starts to position itself as the center of the ASEAN Economic Community.

Thailand’s Survival – Year after Year after Year

Agricultural products, rubber and textile included; food processing and beverages; and tobacco – these are what constitutes Thailand’s remarkable history in export. The country has long been dependent on foreign demand, with its export industry equivalent to about 70% of its 2010 GDP. During the 1997-1998 financial crisis, however, Thailand’s economy experienced its biggest drop, but shortly recovered due to external demand by countries like the US.

In 2008, the country experienced another low when its political upheavals weakened the economic growth, flattening local and international demands, as well as its tourism. In 2010, not long after it has slightly recovered from the 2008 crisis, the central region of Thailand experienced severe flooding. This impeded manufacturing productions and, as expected, lowered manufacturing output by about 36%.

Recent events, however, which include political conflicts and massive protests have once again decreased Thailand’s economic growth. But despite all the falls, what made Thailand’s economy remarkable is how it continues to get up and try again. Today, the diversified manufacturing industry is composed of electronics, canned goods, plastic products, jewelry, furniture, toys, high-tech products, machinery, and automobile parts, among many others.

Asia’s Detroit – Thailand’s Automobile Manufacturing

The world hardly knows that Thailand is a growing hub for manufacturing big car brands like Toyota, Honda, Mazda, Nissan and Ford. Its production is so large that out of the 2.45 million vehicles it yielded in 2012, almost half of this went to export. Thailand is thus the 7th largest exporter of cars in the world.

Its capacity to produce cars by the bulk is a concerted effort of the government, through the generous investor incentives of its Board of Investments (BOI), and the rich local supplier scene which is considered a haven by car assemblers. One of the most sought after incentive offered by the BOI is the lower corporate tax rate (20%), a marked difference from Indonesia, Malaysia and Vietnam. Further, market research reveals that the localization rate of Thailand is pegged at 80%, the highest in all of Southeast Asia in terms of capacity to source locally.

Compared with its major Southeast Asian rival, Indonesia, a study reveals that “Thailand beats Indonesia on almost all important metrics: competitiveness, infrastructure, business environment, tax incentives, labor cost and so on.”

Jewelry and gem production

Thailand proves that successful manufacturing is not always about cheap labor. Thailand’s jewelry producers and exporters may not hold the record for the cheapest wages in the area (China in this particular industry, to this day) but the country still has its more than fair share of the jewelry export business by serving as the “Asian jewelry production and export hub” with exports reaching up to US $1.23 trillion in 2011.

Thailand’s pride comes from the Thai artisanship that is more labor-intensive (hence, pricier than China’s) but also of the highest quality. With good supply of natural resources, good government support through the Board of Investment and a population teeming with skilled workers, Thailand is really an ideal hub for establishing a jewelry production line.

Other key industries

Aside from automotive manufacturing and jewelry production, the government has emphasized five other sectors that are essential to the country’s development: “agriculture and agro-industry, alternative energy, electronics and ICT, fashion, and value-added services including entertainment, healthcare and tourism”.

It is relatively easy for any foreign investor to penetrate the manufacturing industries as the government does not subject some of the investment priorities to foreign equity restrictions, and has established One-Stop Service Centers for processing visas, work permits, and investments.

Infrastructure – as good as it gets

The Board of Investments boasts the country’s 7 international airports, modern city-wide mass transit, and 3G/Wi-Fi and broadband access. This will be further developed between the years 2012-2022 to include a mass transit system via high speed rail networks to extend to all directions of Thailand, reaching up to neighboring countries like Laos and Myanmar. Meanwhile, another project focuses on reducing logistical costs down to 10% of manufacturing costs in order to drive the trade competitiveness of Thai manufacturers.

With 3,219 km of coastline and 4,000 km of waterways, Thailand attracts investors with its 8 international deep sea ports and 2 international river ports, including containers, tank farms and liquid jetties. These ports are strategically located in Bangkok, Phuket, Si Racha, Map Ta Phut, Ranong, Laem Chabang, Songkhla and Sattahip.

In 2019, the Laem Chabang port is estimated to overtake that of Singapore as the main gateway port of the Greater Mekong Sub Region trade. At present, over 50% of Thailand’s exports and imports happen here.

Industry Wages – Coping up with Wage Hikes

In a rather unprecedented move in 2013, Thailand’s government gave in to demands of workers to increase the minimum daily wage of workers to 300 baht. This was despite warnings by the Bank of Thailand that the increase will trigger a slowdown of economic growth and affect mostly SMEs.

The government policy increased the monthly wages of the diversified manufacturing sector. For instance, workers in electrical and electronics manufacturing received an increase of 2,500 baht. This prompted several industries to take on measures to anticipate losses. Some companies decreased hours of work while others went on to find ways to increase their production. On the part of the government, it started implementing support measures, including reducing withholding tax from 3 to 2% for SMEs and reducing corporate income tax from 30 to 20%, among others.

The government reiterated that the wage hike aims to push Thai workers to further their skill levels in preparation for a more competitive labor come 2015, with the opening of the Asian Economic Community.