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Manufacturing Industry in Thailand. Manufacturing Industry in Thailand. References: Peter Warr (ed.) 1993 , Ch.2 “Manufacturing” by Somsak Tambunlertchai

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manufacturing industry in thailand1
Manufacturing Industry in Thailand

References:

  • Peter Warr (ed.) 1993, Ch.2 “Manufacturing” by Somsak Tambunlertchai
  • Medhi Krongkaew (ed.), Ch.1 “Thai Industrialization: An Overview” by Malcolm Falkus, and Ch. 3 “Export-Led Industrialization” by Suphat Suphachalasai
i industrial growth and structural changes
I. Industrial Growth and Structural Changes
  • High and sustained growth since 1960s:
    • 10% growth since 1960s
    • From 16% to 39% of total economy in the past 30 years; now the largest sector
    • Hit hard and declined sharply during the 1997 crisis, but continued to grow since then
    • Declined again during the hamburger crisis in 2008-09
i industrial growth and structural changes1
I. Industrial Growth and Structural Changes
  • From “import-substituting” during 1950s – late 1970s to “export-oriented” since 1980s
  • Manufactured exports exceeded agricultural exports since 1985; now accounted for over 80% of total
i industrial growth and structural changes2
I. Industrial Growth and Structural Changes
  • Top ten export items (1998 – 2007):
    • Computer parts, integrated circuits, garments, motor vehicles, processed seafood, jewellry, rice, television sets, plastic pellets, rubber, iron/steel products, chemicals, oil products
i industrial growth and structural changes3
I. Industrial Growth and Structural Changes
  • Shifted away from “food & beverages” (agro-based) towards labor-intensive industries (textiles, leather, shoes, toys, jewelry)
  • Later shifted from labor-intensive to higher technology, engineering-based (electronics, computers, transport equipment)
i industrial growth and structural changes4
I. Industrial Growth and Structural Changes
  • Always import-dependent
    • Producing finished products using imported machine, components, raw materials
    • Machine and raw materials always among top import items
i industrial growth and structural changes5
I. Industrial Growth and Structural Changes

Top ten import items (1998 – 2007):

Electrical machinery, Industrial machinery, integrated circuits, crude oil, chemicals, computer parts, iron & steel, metal products, precious stones, metallic ores, vehicle parts

i industrial growth and structural changes6
I. Industrial Growth and Structural Changes
  • Assembly, low linkages, low-tech base
  • Low labor absorption: below 15% of labor force
i industrial growth and structural changes7
I. Industrial Growth and Structural Changes
  • The number is dominated by small factories: 90% of factories have less than 15 workers, most in the Northeast and North (mostly household manufacturing)
i industrial growth and structural changes8
I. Industrial Growth and Structural Changes
  • But employment is concentrated in large firms in Bangkok vicinity and Central region
i industrial growth and structural changes9
I. Industrial Growth and Structural Changes
  • More than 80% of manufacturing value added is from large firms in Bangkok, vicinity and Central region
i industrial growth and structural changes10
I. Industrial Growth and Structural Changes
  • Heavy concentration in and around Bangkok: 50% of industrial jobs are located in Bangkok, producing half of total manufacturing value added
  • Moving toward the Eastern Seaboard since 1980’s with new industrial estates, ports and gas-related industries
  • Many factories moved from Bangkok to Central since 2001
i industrial growth and structural changes11
I. Industrial Growth and Structural Changes
  • Important role of foreign direct investment (FDI)
    • One-third of FDI flows into manufacturing, esp. textiles, electronic, transport equipment and machinery
    • Important sources: Japan, 4 NICs, U.S., E.U.
    • 5% of total investment in manufacturing: small but significant in technology
ii factors affecting manufacturing changes
II. Factors Affecting Manufacturing Changes
  • High growth and investment
  • Macroeconomic stability (but political uncertainty)
    • conservative macroeconomic policies (except pre-crisis period)
    • market-oriented economy with minimal government intervention
ii factors affecting manufacturing changes1
II. Factors Affecting Manufacturing Changes
  • Abundant natural resources, e.g. marine products, fruits & vegetables, rubber

 raw materials for industries

  • Large supply of unskilled labor up to 1980s, but labor became more scarce and expensive, attracting workers from neighbors
ii factors affecting manufacturing changes2
II. Factors Affecting Manufacturing Changes
  • Active local entrepreneurs (traders-turned-industrialists), Chinese connection and bank financing
  • Favorable world
    • industrial markets
    • technology transfer of labor-intensive industries
    • industrial relocation from Japan and NICs
    • economic integration, e.g. AFTA, attracting new industries
ii factors affecting manufacturing changes3
II. Factors Affecting Manufacturing Changes
  • Constraints on economic and social infrastructure (roads, ports, electricity, water) and environment; serious in 1990s
  • Shortages of skilled labor (engineers, technicians); very serious in 1990s
  • Shortages of semi-skilled workers in recent years, after the crises
iii policy measures
III. Policy Measures
  • Government direct involvement through state enterprises in production, as in 1950s  failure
  • Infrastructure provision by government since 1960s
    • Development plans
    • Transport (roads, rail, rivers, ports, airports)
    • Communication (telephone, postal services)
    • Power and water
    • Industrial estates
iii policy measures1
III. Policy Measures
  • Border Measures
    • Tariff protection in 1960s and 1970s
      • High for consumer goods, import-competing industries, and low for intermediate goods and capital goods
      • Lower tariffs in late 1980s
      • Import surcharge and anti-dumping measures
    • Import quota not significant
iii policy measures2
III. Policy Measures
  • Export promotion
    • Tariff reductions
    • Tax rebates for imported raw materials used in production for export
    • Marketing: trade fairs, road shows
  • ASEAN economic integration and other free trade areas
iii policy measures3
III. Policy Measures
  • Investment promotion through Board of Investment (BOI)
  • “Promotional privileges”: 3-8 year period of exemption from profit tax, import taxes on machine and raw materials; land ownership by foreign investors; employment of foreign experts
iii policy measures4
III. Policy Measures
  • Regional dispersion
    • 3 BOI Zones

1. Bangkok + surrounded

2. Zone 1- bordering provinces

3. Country areas  Maximum Benefit

+ special zone for 3 southern provinces

iii policy measures5
III. Policy Measures
  • Integrated planning
    • Eastern Seaboard: Industry, Community planning + Social + Econ infrastructure (Port, Rail, Estates, Schools, Hospital etc.)  Gas related + Heavy industries
    • Southern seaboard + Western seaboard
iii policy measures6
III. Policy Measures
  • Financial assistance through some financial institutions:
    • Industrial Finance Corporation of Thailand (IFCT) : abolished in 2004
    • Export-Import Bank
    • SME Bank
iii policy measures7
III. Policy Measures
  • Exchange Rate
    • Stable and overvalued in 1960 – 1980
    • Baht devaluation in 1984 basket peg
    • More flexibility after July 1997: managed float
iii policy measures8
III. Policy Measures
  • Others:
    • Labor training
      • Tax incentive for training by firms
      • Training institutes by government
iii policy measures9
III. Policy Measures
  • Industrial institutes
    • Federation of Thai Industries; institutes on textile, food, iron & steel, motor vehicles
  • Environment protection : Air, Water , Noise, Toxic, Solid Waste
  • Environment as a constraint on industrial growth?
iv future directions
IV. Future Directions
  • Abrupt slowdown of exports in 1996

 declining competitiveness, and industrial slowdown

  • Higher labor cost, no more labor surplus cf. China, India, VN, Indonesia
  • Recent labor shortage when factories reopen after the hamburger crisis
iv future directions1
IV. Future Directions
  • Competition from low-cost countries
  • More protected foreign markets, despite Uruguay trade agreement
    • Trading blocs, less Generalized System of Preferences (GSP), voluntary export restraint (VER)
    • More trade opportunities with the Doha Round Agreement (when?, 2010?)
iv future directions2
IV. Future Directions

Exporting industries declined during the hamburger crisis (2008-09)

Are we relying too much on the world market? (exports being 70% of GDP)

45

iv future directions3
IV. Future Directions
  • Deteriorated natural resources
  • Unsatisfactory technology transfer from foreign investors, and limited R&D
  • Limited infrastructure
  • How to upgrade industries?
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