Thailand Accelerating Movements Toward Producing a Higher Level of Items

Greater Use of Neighboring Countries
Business Confidence Continues to Be Severe

Last year, Thailand’s economic growth was 2.8% (real GDP), which is smaller than the average of ASEAN countries. Although this year’s growth is forecast to recover to 3.0-3.5%, the driving force is goods and services due to an increase in foreign tourists, and the manufacturing industry continues to be in a slump. As a result of droughts in rural areas, consumer spending is sluggish. Japanese-affiliated companies in Thailand consider that it is quite difficult for the Thai economy to recover.

Meanwhile, political turmoil, which has been a matter of concern, is calming down. A military regime has continued since the coup in May 2014, but Japanese affiliates in Thailand say that the situation continues to be peaceful without any problems, and its impact on economic activities is small. On August 7th, the draft of a new constitution for establishment of a democratic regime received its approval in a national referendum, and democratic general elections are expected to be held maybe next year. In this respect, it appears that elements of anxiety are gradually being resolved.

Business confidence in the textile and apparel industries is particularly more severe than in other industries. Textiles for apparel are sluggish in the Thai domestic market. In addition to its influence, the inflow of cheap Chinese-made goods due to excess production capacities and economic stagnation also has a great impact. Moreover, the rise in labor cost is making the apparel industry look more towards abroad, and so the production capacity in Thailand is gradually decreasing.

As far as personnel expenses are concerned, the minimum wage was set at 300 baht per month in 2012-13, a sudden rise of 40%. Although the minimum wages have been stable since then, companies have actually been implementing wage hikes of 4-5% each year. Meanwhile, the unemployment rate has been at a low level of about 1%. For manufacturers who have advanced their operations to Thailand, the securing and training of employees have become an important issue.

The situation in the hopeful automotive sector has also changed during the last few years. Auto production in 2015 remained at 1.91 million (including slightly more than 800,000 for the domestic market), and sales of new cars continue to move at a low level because taxes on automobile goods were hiked this January. The situation is different from a few years ago when the country’s auto production favorably grew toward 2.8 million, and Toyota announced plans to restructure its Thai operation in July. In order to achieve future growth, it is necessary to take finer measures. Beside an expansion of production function, a major point will be movements in collaboration with bases in other parts of Asia.

In apparel textiles, production items are being brought up to a higher level, and moves to use neighboring countries with Thailand in the center of operations are progressing. Thai companies are endeavoring to manufacture a higher level of products instead of general-purpose goods, and further strengthen their function of supplying materials to nearby apparel manufacturing bases. Movements linked to the development of new applications are also accelerating. Developments involving neighboring countries, such as using spinning mills in India with control from Thailand have also become important.

Moves to use neighboring countries are advancing even for apparel manufacturing. The so-called “Thailand Plus One” idea is drawing attention, and emphasis is being placed on the maintenance of bases in neighboring countries with Thailand at the center. In association with this concept, there are moves to dispatch technicians who have been trained in Thailand to neighboring countries.

Meanwhile, nonwovens-related business is strong. In addition to sanitary applications, for which the market continues to grow, carpet applications are also favorable, and demand is expected to grow in the future as well. In the future, Thailand will have to increase its capacity in response to the growing Asian market, and undertake developments that take local needs into consideration. Together with economic growth, the applications for nonwovens are expected to expand, and application development is also likely to advance. Moreover, Thailand will play an important role in marketing to India, which is expected to be the next important market.

Follow me!