THAILAND’S MANUFACTURING STRENGTH – WHAT IT MEANS FOR AUSTRALIA Carey Ramm Principal Economist AEC Group Ltd.

THAILAND’S MANUFACTURING STRENGTH

– WHAT IT MEANS FOR AUSTRALIA

Carey RammPrincipal Economist

AEC Group Ltd

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Thailand’s Economy

• Growth– 2011 Thailand moved into the upper-middle income category

of nations– Thailand Output has grown for 25 years above an average

rate of 7% or more– Thailand will move into the World Bank’s high income

category by 2020.

• Thai exports– mostly machinery, electronic components, agricultural

commodities and jewellery

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Scale of Thailand’s Manufacturing

• Highly competitive, characterised by world-leading manufacturers:– Toyota - General Motors - Caterpillar– Nissan - Ford - Seagate– Mazda - Canon - Sony– Toshiba - Nikon - Hewlett Packard– Michelin - Isuzu– Lenovo - Western Digital

• Over 2 million vehicles produced in 2012

• Over $US 8 billion in machinery exports

• Rapidly expanding into high value industries:– Top hard disk drive and components manufacturing base worldwide– Alternative energy, green automotive, high value electronics and

ICT

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Thailand/Australia Manufacturing Comparison (2011)

Thailand Australia

Manufacturing Gross Value Added ($US) $113.6 Billion $98.3 Billion

Manufacturing % of GDP 35.6% 9.3%

Employment 5.3 million 903,000

% of Total Employment 13.8% 9.2%

Source: World Bank, NSO, AEC Group Thailand’s manufacturing sector is now 16% larger than Australia and growing fast due to exports

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Manufactured Product Exports 2000-2011 (USD$Million)

$0

$50,000

$100,000

$150,000

$200,000

$250,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Thailand Australia

Source: Bank of Thailand, ABS, AEC Group

Thailand’s manufactured exports are 400% larger than Australia

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BOI Approved FDI (2007-2011)

Japan United StatesEuropean

Union Australia

Projects Approved 1,723 197 421 94

Total Investment(Million Baht) 588,657

150,838 193,739 12,705

Source: BOI

Thailand is now a major manufacturing hub, particularly for Japanese and US companies.

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BOI Approved Foreign Investment 2007-11 (Million Baht)

Japan United States European Union Australia0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Source: BOI

Australian companies clearly need further assistance to expand into Thailand/ASEAN

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Share of Japanese Manufacturing FDI into ASEAN

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010

Singapore Thailand Indonesia Malaysia Philippines Vietnam Other

Source: Hamanaka

Japanese companies get substantial assistance to expand into ASEAN

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Thailand… Land of Opportunity

Australian companies already in Thailand see opportunities for expansion in the manufacturing, mining, services, construction and technology sectors.

Yes64.6%

No4.6%

Unsure26.2%

No Answer4.6%

Business Opportunities for Australian Companies in Thailand

Source: AEC Group

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Thailand… Land of Opportunity

Industries with Opportunities in Thailand

73.8%54.8%54.8%

50.0%47.6%

45.2%42.9%

40.5%35.7%

31.0%23.8%23.8%

19.0%14.3%14.3%

11.9%11.9%

7.1%4.8%

7.1%

0.0% 20.0% 40.0% 60.0% 80.0%

ManufacturingMining and Resources

Education and TrainingFinancial and Insurance Services

Clean Energy and EnvironmentProfessional, Scientific and Technical Services

Tourism and HospitalityTechnology and Telecommunications

Construction and InfrastructureElectricity, Gas, Water and Waste Services

Agriculture, Forestry and FishingHealth Care and Social Assistance

Transport, Postal and WarehousingWholesale Trade

Public Administration and SafetyRental, Hiring and Real Estate Services

Administrative and Support ServicesRetail Trade

Arts and Recreation ServicesOther

Source: AEC Group

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Why Manufacture In Thailand?

• 64.1% of Australian businesses established in Thailand to service the international market

• 59.4% to service the Thailand market • 14.1% to re-export to Australia

64.1%

59.4%

14.1%

6.3%

3.1%

0.0% 20.0% 40.0% 60.0% 80.0%

To service regional or international market

To service Thai market

To re-export to Australia

Other

Unknown/Not applicable

This is not about offshoring Australian jobs

Source: AEC Group

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Key Considerations

Key factors which support Thailand as a destination for Australian manufacturing investment include:

• Centre of the ASEAN Community

• Friendly and Manageable Business Environment

• Accounting and Regulatory Familiarity

• The Thailand-Australia Free Trade Agreement (TAFTA)

• Functioning and Secure Legal System

• Skilled Labour Force

• Attractive Investment Incentives

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World Bank Ease of Doing Business

2012 RankingSingapore 1

Thailand 17Malaysia 18Brunei 83China 91Vietnam 98Indonesia 129Philippines 136Cambodia 138Laos 165

Source: World Bank

Australia is #11

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Australian Domestic Manufacturing Outlook

Manufacturing lost 106,775 jobs in the last four years... another 85,600 jobs may be lost in the next five years... Prime Minister’s ManufacturingTaskforce – Report of the Non-Government Members August 2012

One out of every ten manufacturing jobs disappeared over the last four years. Prime Minister’s ManufacturingTaskforce – Report of the Non-Government Members August 2012

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Australian Domestic Manufacturing Outlook

• A small number of Australian firms have demonstrated how Thailand can be used as a base for expansion. They are not only saving manufacturing jobs in Australia - but creating them.

• Australian manufacturers need to grow into much larger markets to get economies of scale and to integrate into global supply chains.

• So how do we help them do this? The Asian Century Whitepaper raises awareness but it doesn’t have the on-the-ground initiatives to help business grow into Asia….

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Unlocking The Potential Of Asia

The Incubator will advise on:• Company registration / start up• Identification of partners• Office / factory location and

establishment• Market analyses • Practical export sales advice• Production sourcing• Product approvals• Human resources and labour

market legislation• Government regulations• Accounting rules and tax

legislation

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Danish Export Incubators

Denmark is a world leader in Export Facilitation Incubators. They:• service 7,500 clients a year• 92% satisfaction level • increased exports by AUD$5 billion pa

The Trade Council of Denmark has established export incubator facilities in: • Atlanta • Washington • Silicon Valley • Montreal• New Delhi • Bangalore • Beijing • Chongqing• Guangzhou • Tokyo • Sao Paulo

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In Summary

• Time is running out to save Australian Manufacturing.

• Expanding offshore and linking into global supply chains is the solution.

• Australia can no longer ignore the opportunities in the ASEAN region.

• Thailand is the logical choice for manufacturers to expand.

• Australian manufacturers need an Incubator to make the change from thinking LOCAL to acting GLOBAL.

Thank you…

www.aecgroupltd.com