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Still Sexy!

By Songsamorn Kanchanabut, Krungthep Turakij, Thailand

Countless trucks are lying in a giant automotive factory in Maptaphut Industrial Estate. Automotive companies cannot sell their products as much as they did in the past decade. But some foreign investors still come to run their automotive operations in Thailand, believing in the potential of Thailand in the next century.
 
An American executive of large automotive factory in Thailand’s Maptaphut Industrial Estate said his company believes in the potential of Thailand’s domestic market in the future. "We believe vehicle sales in Thailand will reach the 1996 peak in the year 2002 again," said Mr. David L. Snyder, the Executive Vice President of Auto Alliance (Thailand) Co., Ltd. He said they believe the condition of Thailand is the same as Mexico, which also faced the currency crisis, the peso, in December 1994.
 
Before Thailand’s bubble economy burst in 1997, Thailand was the largest automotive assembler in Southeast Asia, producing 600,000 units annually, which were approximately 40 percent of the Southeast Asian market. There would be an additional 100,000 units capacity annually from both Ford/Mazda and General Motors that is starting its operation in mid 1999.
 
Mr. Snyder, who manages Auto Alliance, a joint venture company found in November 1995 by the Ford Motor Company and the Mazda Motor Corporation to produce pickup trucks for both local and overseas markets, said there are many attractive factors making the company decide to run the operations here. These factors are that Thailand has been a very good market and had a very strong consumer demand for 6-8 years prior to the crisis, which began in 1997.
 
This is a good example of Thailand’s comparative advantage, the unique strong points of each country,  that can effectively attract a lot of foreign capital and investors. Exploiting this comparative advantage to encourage more investment is important to the Thai economic recovery.
 
Mr. Ted Bardacke, the Bangkok reporter of The Financial Times, said Thailand’s significant comparative advantage is that Thailand is a big country full of usable land and literate people. Most of foreign investors still want to come in and set up their factories in Thailand for not only exporting but also supplying the domestic market.
 
Beyond the potential domestic market, the second comparative advantage of Thailand is the geographical location and natural resources. A lot of natural gas was discovered in The Gulf of Thailand was discovered a lot of natural gas during the middle of 1970s. The natural gas resources have been utilized for electricity supply and petrochemical products.
 
The Board of Investment (BOI), Thai government agency responsible for administering the investment promotion law and establishing overall policy guidelines, set up the Eastern Region Investment and Economic Centre near Laem Chabang port in 1995 so as to administer incentives, service investors and encourage investment in the region.
 
The Eastern region is rapidly becoming the preferred location for investment in Thailand. It has been a magnet for major foreign and local investments in industrial activities such as petrochemical, steel processing, automotive, electrical and electronics industries, Mr. Pairoj Sompouti of the BOI said in Laem Chabang.
 
Another comparative advantage of Thailand is the political and social climate. Mr. Bardacke said Thai politics is relatively stable. The government is often changed but the changing process is always peaceful. Socially, Thailand has an open society where business can be run easily. All businessmen including foreigners can understand and know what is going on in the country by reading the newspapers.
 Compared with neighboring countries, Thailand is better. In Singapore, politics is stable and the bureaucrats are qualified, but the society is not actually open. In Malaysia, people have good English skills, and the ruling system is standardised under the basis of British law. But few foreign investors want to invest in Malaysia in the midst of the current political situation and the capital controls.
 
The fourth comparative advantage of Thailand is the strength of food production. Dr. Surat Palalikit, Executive President of the Stock Exchange of Thailand, said Thailand would be able to recover its economy eventually with the strong point of the Thai economy as the “World Food Center”.
 
In the period of currency devaluation, Thailand has got a lot of profit from food exports, in particular rice. "Now Thai people come back to rice production again. They may not get much money from rice, but they will not lose money", said the President of Riceland International Co., Ltd.
 
Mr. Vichai Sriprasert, president of Riceland International Co., Ltd. said Thailand will be stronger in rice production if the Thai government supports rice exporters in the short-term period and exporters improve the quality of Thai rice in the medium and long term period.
 
He said Thailand’s rice exports are forecast to top six million tonnes this year, whereas the exports from Jan to Oct 29 were 5.16 million tonnes compared to 4.05 million tonnes in the same period last year. This is because Asian countries suffer from El Nino effects. Thai rice exporters can export to Asia more than 2 million tonnes this year.
 
All the comparative advantages of Thailand contribute to establishing the country’s credibility. "We might be the first to come out of the economic crisis," said the assistant vice president of Bangkok Bank, Piya Sosothikul.
 
Recently, BOI launched the additional measures for the current period of economic difficulties, such as the stimulus measures for exports, restructuring debts and matching the foreign partners for Thai small and medium enterprises (SMEs).
 
At the same time, the government is launching the new foreign business law that will create a more modern and liberal legal framework for foreign businesses in Thailand. According to the draft, the number of businesses and professions reserved for Thai citizens is reduced to 38 from 68, and allow the Commerce Ministry to grant exemptions for foreign participation.
 
Liberalisation will benefit the domestic economy as foreigners would look at Thailand in a different way after the crisis. Consequently, Thailand would attract more investment, according to Mr. Masato, the Minister of Economic Affairs at the Japanese Embassy, as reported in the Thai government report "Thailand"  in September 1998.

 

Copyright 2009 IMMF.