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  1. Manufacturing Industry in Thailand

  2. 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

  3. 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

  4. 5

  5. 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

  6. Exports by Sector(%)

  7. 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

  8. 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)

  9. 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

  10. 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

  11. I. Industrial Growth and Structural Changes • Assembly, low linkages, low-tech base • Low labor absorption: below 15% of labor force

  12. 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)

  13. I. Industrial Growth and Structural Changes • But employment is concentrated in large firms in Bangkok vicinity and Central region

  14. I. Industrial Growth and Structural Changes • More than 80% of manufacturing value added is from large firms in Bangkok, vicinity and Central region

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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

  20. 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

  21. 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

  22. 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

  23. 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

  24. 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

  25. 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

  26. 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

  27. III. Policy Measures • Financial assistance through some financial institutions: • Industrial Finance Corporation of Thailand (IFCT) : abolished in 2004 • Export-Import Bank • SME Bank

  28. III. Policy Measures • Exchange Rate • Stable and overvalued in 1960 – 1980 • Baht devaluation in 1984 basket peg • More flexibility after July 1997: managed float

  29. III. Policy Measures • Others: • Labor training • Tax incentive for training by firms • Training institutes by government

  30. 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?

  31. 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

  32. 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?)

  33. 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

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