Manufacturing Industry in Thailand

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Manufacturing Industry in Thailand

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Manufacturing Industry in Thailand

References:1. Peter Warr (ed.) 1993, Ch.2

“Manufacturing” by Somsak Tambunlertchai

2. Medhi Krongkaew (ed.), Ch.1 “Thai Industrialization: An Overview” by Malcolm Falkus, and Ch. 3 “Export-Led Industrialization” by Suphat Suphachalasai

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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

1970 1980 1988 1996 1997 1999

Agriculture 27.0% 20.6% 16.9% 9.5% 9.4% 10.1%

Manufacturing 16.0% 21.7% 23.0% 29.7% 30.2% 36.0%

Construction 5.3% 4.5% 4.0% 7.4% 5.7% 2.9%

Wholesale and Retail Trade 17.4% 16.9% 17.0% 16.5% 17.2% 16.0%

Transport and Communications

6.5% 6.7% 7.4% 7.4% 7.8% 9.4%

Banking 2.5% 2.8% 3.6% 7.1% 6.5% 3.2%

Real Estate ** ** ** 3.4% 3.3% 4.1%

Other Services 25.3% 26.8% 28.1% 18.9% 19.8% 18.4%

Gross Domestic Product, (GDP)

100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

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55

2000 2001r 2002r 2003r 2004r 2005r 2006p

Agriculture 10.3% 10.4% 10.0% 10.5% 9.6% 9.0% 8.9%

Manufacturing 36.4% 36.2% 36.8% 38.0% 38.7% 38.9% 39.2%

Construction 2.5% 2.5% 2.5% 2.4% 2.4% 2.4% 2.4%

Wholesale and Retail Trade 15.8% 15.3% 14.8% 14.2% 14.0% 14.0% 13.8%

Transport and Communications 9.7% 10.1% 10.2% 9.8% 9.9% 10.0% 10.1%

Banking 2.8% 2.8% 3.0% 3.2% 3.4% 3.5% 3.4%

Real Estate 4.0% 4.0% 4.0% 3.9% 3.9% 3.9% 3.9%

Others 18.5% 18.8% 18.8% 18.0% 18.1% 18.2% 18.2%

Gross Domestic Product, (GDP) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

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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

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Exports by Sector

(%)

1961

1971

1981

1991

2000

Manufacturing 2 10 36 76 86

Agriculture 83 62 48 15 7

Fisheries0.4 2 4 6 3

Others 15 26 12 3 4

Total10

010

010

010

010

0

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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

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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)

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Value Added of Major Manufacturing Industries

(Percent

)

1996

1998

2000

2002 2,00

6Food Products and Beverages

16.8%

18.7%

15.8%

16.2%

15.6%

Textiles6.8%

7.7%

6.9%

6.4% 5.0%

Wearing Apparel7.5%

7.5%

6.5%

5.8% 5.1%

Refined Petroleum Products

8.4%

10.9%

9.5%

9.0% 7.0%

Other Non-metallic Mineral Products

5.8%

4.2%

4.3%

4.8% 4.8%

Machinery and Equipment

4.3%

3.6%

4.1%

4.2% 5.4%

Office and Computing Machinery

4.2%

6.1%

6.5%

5.6% 8.2%

Television and Communication Equipment

7.9%

8.3%

9.7%

8.4% 9.2%

Motor Vehicles7.7%

2.2%

5.2%

7.4%10.7

%

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Always import-dependent Producing finished products using imported

machine, components, raw materials Machine and raw materials always among top

import items

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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

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Assembly, low linkages, low-tech base Low labor absorption: below 15% of labor

force

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Employment by Economic Sector

1971 1980 1987 2001 2003

Agriculture 77.8% 70.7% 60.0% 46.0% 44.9%

Manufacturing 5.6% 7.9% 11.0% 14.2% 14.7%

Construction 1.1% 1.9% 4.1% 4.2% 4.7%

Transport and Communication 1.3% 2.0% 2.7% 2.9% 2.8%

Commerce and Banking 6.9% 8.5% 11.9% 14.7% 15.4%

Others 7.3% 9.0% 10.3% 18.0% 17.5%

Total 100% 100% 100% 100% 100%

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The number is dominated by small factories: 90% of factories have less than 15 workers, most in the Northeast and North (mostly household manufacturing)

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Distribution of Manufacturing by Size, Region and Number of Firms, 2007

Bangkok Vicinity Central North Northeast South Size Distribution

All sizes 9.05% 5.68% 10.12% 20.13% 47.01% 8.01% 457,968 100.00% 100.00%

1 - 15 8.25% 4.24% 9.62% 20.75% 48.99% 8.15% 431,675 100.00% 94.26%

16 - 25 22.75% 21.89% 12.93% 14.25% 21.94% 6.24% 8,096 100.00% 1.77%

26 - 30 21.09% 26.18% 12.35% 13.67% 20.97% 5.73% 2,494 100.00% 0.54%

31 - 50 24.70% 29.17% 15.65% 9.57% 15.24% 5.67% 5,150 100.00% 1.12%

51 - 200 22.30% 35.62% 22.13% 6.52% 8.11% 5.32% 6,977 100.00% 1.52%

more than 200 17.81% 35.77% 31.38% 5.29% 5.15% 4.61% 3,576 100.00% 0.78%

Number of FirmsSize (No. of

Employees) Whole country

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But employment is concentrated in large firms in Bangkok vicinity and Central region

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Distribution of Manufacturing by Size, Region and Number of Working Persons, 2007


All sizes 18.22% 27.83% 25.35% 8.80% 14.43% 5.37% 4,460,284 100.00% 100.00%

1 - 15 16.17% 7.95% 11.56% 18.47% 37.33% 8.52% 983,398 100.00% 22.05%

16 - 25 22.63% 21.91% 12.91% 14.28% 22.14% 6.12% 162,980 100.00% 3.65%

26 - 30 20.97% 26.20% 12.32% 13.67% 21.20% 5.65% 70,458 100.00% 1.58%

31 - 50 24.47% 29.93% 15.76% 9.33% 14.85% 5.66% 205,294 100.00% 4.60%

51 - 200 22.13% 36.14% 23.51% 6.04% 7.19% 4.98% 712,548 100.00% 15.98%

more than 200 16.95% 33.96% 33.85% 4.98% 6.18% 4.07% 2,325,606 100.00% 52.14%

Number of working personsSize (No. of


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Distribution of Manufacturing by Size, Region and Number of Employees, 2007


All sizes 19.93% 31.76% 27.84% 5.90% 9.57% 5.00% 3,818,955 100.00% 100.00%

1 - 15 28.05% 13.55% 13.14% 12.41% 23.65% 9.20% 396,101 100.00% 10.37%

16 - 25 24.59% 23.94% 13.16% 8.24% 23.57% 6.49% 143,617 100.00% 3.76%

26 - 30 22.68% 28.37% 12.62% 8.05% 22.34% 5.93% 63,859 100.00% 1.67%

31 - 50 25.52% 31.20% 16.16% 6.09% 15.16% 5.87% 194,142 100.00% 5.08%

51 - 200 22.40% 36.61% 23.74% 5.00% 7.22% 5.02% 700,839 100.00% 18.35%

more than 200 16.97% 34.03% 33.89% 4.85% 6.19% 4.08% 2,320,397 100.00% 60.76%

Number of EmployeesSize (No. of


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More than 80% of manufacturing value added is from large firms in Bangkok, vicinity and Central region

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Distribution of Manufacturing by Size, Region and Value Added, 2007


All sizes 17.50% 34.07% 37.29% 2.39% 4.03% 4.72% 1,758,758,484 100.00% 100.00%

1 - 15 40.38% 17.03% 10.59% 10.41% 13.44% 8.15% 91,084,371 100.00% 5.18%

16 - 25 31.53% 32.25% 15.40% 5.89% 8.80% 6.12% 29,253,651 100.00% 1.66%

26 - 30 26.50% 39.90% 12.31% 4.57% 11.08% 5.63% 15,822,896 100.00% 0.90%

31 - 50 25.88% 34.96% 20.56% 3.38% 4.38% 10.84% 61,663,302 100.00% 3.51%

51 - 200 17.77% 36.10% 32.83% 1.91% 3.54% 7.86% 253,557,180 100.00% 14.42%

more than 200 15.04% 34.79% 41.59% 1.78% 3.27% 3.54% 1,307,377,085 100.00% 74.34%

Size (No. of


Value Added (thousand baht)

22


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

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Distribution of Manufacturing by Region and Number of Firms, 2007 and 1997

Whole Country Bangkok Vicinity Central North Northeast South1997 100.00% 36.13% 23.41% 15.96% 8.97% 8.20% 7.33%2007 100.00% 22.18% 29.25% 18.36% 10.01% 14.58% 5.61%

All sizes of firmsNumber of firms

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Distribution of Manufacturing by Region and Number of Working Persons, 2007 and 1997


All sizes of firmsNumber Working Persons

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Distribution of Manufacturing by Region and Number of Employees, 2007 and 1997

Whole CountryBangkok Vicinity Central North Northeast South1997 100.00% 24.92% 35.35% 23.35% 5.46% 5.07% 5.83%2007 100.00% 18.99% 33.87% 29.54% 5.15% 7.94% 4.51%

All sizes of firmsNumber of Employees

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Distribution of Manufacturing by Region and Value Added, 2007 and 1997


All sizes of firmsValue Added

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REGIONAL DISTRIBUTION OF MANUFACTURING VALUE ADDED

REGION 1995 1997 1999 2001 2007 BANGKOK AND VICINITIES

62.7%

58.1%

57.0%

56.4%

47.1%

CENTRAL 6.5% 6.2% 5.9% 6.1%16.0

%WESTERN 3.5% 3.1% 3.2% 3.2% 2.3%

EASTERN16.6

%21.9

%23.0

%23.5

%22.9

%SOUTHERN 2.0% 2.0% 2.0% 2.1% 2.9%NORTHERN 3.8% 3.8% 3.9% 3.8% 4.4%NORTHEASTERN 4.9% 4.9% 5.0% 5.0% 4.4%WHOLE KINGDOM

100.0%

100.0%

100.0%

100.0%

100.0%

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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

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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

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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

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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

32


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

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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

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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

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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

36


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

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Regional dispersion 3 BOI Zones

1. Bangkok + surrounded

2. Zone 1- bordering provinces

3. Country areas Maximum Benefit

+ special zone for 3 southern provinces

38


Integrated planning Eastern Seaboard: Industry,

Community planning + Social + Econ infrastructure (Port, Rail, Estates, Schools, Hospital etc.) Gas related + Heavy industries

Southern seaboard + Western seaboard

39


Financial assistance through some financial institutions:

Industrial Finance Corporation of Thailand (IFCT) : abolished in 2004

Export-Import Bank SME Bank

40


Exchange Rate Stable and overvalued in 1960 – 1980 Baht devaluation in 1984 basket peg More flexibility after July 1997:

managed float

41


Others: Labor training

Tax incentive for training by firms Training institutes by government

42


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?

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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

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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?)

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

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

46


Deteriorated natural resources Unsatisfactory technology transfer

from foreign investors, and limited R&D

Limited infrastructure How to upgrade industries?

Manufacturing Industry in Thailand

Documents

industrial machinery

sustained growth

structural changestop

structural changesfrom

import items

structural changesshifted

structural changeshigh

food products