For more than seven centuries after the establishment of the Thai kingdom in the Sukhothai period, the livelihood of Thai people has been dependent on agriculture and trade. Industry played only a minor role. Nonetheless, industries date back to earlier days. Cottage industries were established making tools and household goods like earthenware, ceramics, furniture, wooden transport vehicles, musical instruments, agricultural implements, textiles and garments, foods and medicines, tanning, raw hides and metal works. These traditional cottage industries and handicrafts evolved over time and presently constitute an important sector alongside other modern sectors of industry.
The development of modern industry has taken place with the rush to industrialise the country under the ΓÇ£Buy-Thai DriveΓÇ¥ of Field Marshal Pibul SongkhramΓÇÖs government before the Second World War. Many Thai cottage industries were modernised to meet the domestic demand. State campaigns to wear hats and to dress in modern and Western apparel provided the stimulus to various growing industries, particularly garments and textiles. Shortages of consumers goods and raw materials during the Second World War also initiated industrial production.
Into the 1960s, under Field Marshal Sarit ThanaratΓÇÖs government, Thailand started to implement modern industry initiatives. Following the First Promotion of Industrial Investment Act, 1960, which for the first time offered foreign investment incentives, foreign investment started to come into Thailand. The first wave saw large-scale investment from Japan, the US and Europe in import- substitution industries such as consumer products, automotive assembly, food processing, pharmaceuticals, textiles and garments.
In the 1970s and up to the 1980s the policy was shifted toward promoting industries for export. Under the Investment Incentives Law of 1977, various new incentives were introduced which triggered the flow of several new ΓÇ£wavesΓÇ¥ of investment in export-oriented industries. A high rate of growth of industries was recorded in the 1980s and 1990s. In addition to investment from traditional sources like Japan and the US, substantial investment came from other Asian countries like Singapore, Taiwan, Korea and Hong Kong.
During the 1970s, the Thai industrial sector grew at an average rate of 9.5 percent per year. Its share of GDP increased from 16.9 percent in 1970 to 23.5 percent in 1979. Production of manufactured goods continued to increase and diversify with the decline of processing industries in favour of labour intensive manufactured export.
In 1983, for the first time in ThailandΓÇÖs economic history, the contribution of manufacturing to the GDP overtook that of agriculture. Manufacturing thus became the leading sector of the Thai economy. The growth of the manufacturing sector reached a new high of 24.8 percent per year in 1987.
A rapid diversification of the manufacturing sector was also experienced in 1990. The shares of sub-sectors consumer goods, component parts, intermediates, semi-processed materials, machinery and capital goods produced in Thailand became evenly spread. Fast growing sectors were computers, automotive and auto parts, home appliances and electronics. Sizeable investments were seen in the basic industries, including iron and steel, petrochemicals and telecommunications. By the early 1990s, the transformation of Thailand from an agrarian state relying mainly on agriculture for its livelihood to that of an emerging industrialised country was almost completed. The agricultural share of the Gross Domestic Product (GDP) declined from 31.5 percent in 1960 to only 10.28 percent in 2000, while the share of manufacturing rose from 14.4 percent in 1960 to 32.06 percent in 2000. However, the growth of industries has been confined mainly to urban areas, resulting in substantial concentration of industries in and around Bangkok. This brought with it a wide range of social and environmental issues.
Current Status
In 1997 ThailandΓÇÖs financial institutions and the Thai economy as a whole were hit hard by the regional financial turmoil. The crisis was kicked off by the weakening of the Thai currency, a result of an excessive debt burden, rapidly rising cash flow shortages and liquidity problem resulting in a high level of non-performing loans. Once known as an ΓÇ£economic miracleΓÇ¥, the bubble finally burst.
Among the various measures adopted by the government to deal with the financial crisis, Thailand decided to request assistance from the International Monetary Fund (IMF). Throughout the years 1998-1999 the Thai industrial sector went through the most difficult period. Belt tightening measures to realise a balanced budget and the drain on financial resources into the financial sector slowed down the recovery in the industrial sector. The fluctuating value of the baht against the US dollar, the shrinkage of demand in some key export markets and the decline in domestic purchasing power contributed largely to the drastic drop in production and rise in unemployment. In contrast to the decade earlier, the capacity utilisation dropped in nearly all the sectors, some as low as 30 percent as in the case of the automotive sector. Only in late 1999 did the situation show signs of sustained recovery and the ΓÇ£real sectorΓÇ¥ began to look to the new millennium with renewed confidence.
Despite the hardship of the crisis, the manufacturing sector in Thailand took the opportunity to push through a country-wide programme for strengthening and restructuring the industrial sector. With funds from the IMF and the Miyazawa Assistance Schemes from Japan, priority was given to the small and medium sized industries which accounted for 95percent of the manufacturing industry. Some of the people who had been laid off from financial institutions and from industries in the downtrend, had to resort to building up their own small scale industries and businesses just for their survival. This has opened up a new economic order for Thailand where the focus has shifted from large scale businesses to SMEs.
Capacity Utilisation
During 1990 - 1995, the manufacturing sector had expanded annually at an average of over 10 percent. A survey of 1996 capacity utilisation indicated a downward trend from 87 percent in 1990 to 72.4 percent of full capacity.
At that time the reduction reflected production tendency to meet the decrease in domestic demand and exports. After the financial crisis in 1997, a sharp decline in demand and production
capacity affected industrial capacity utilisation, down to 65.5 and 52.0 percent in 1997 and 1998 respectively. But in 1999, it showed a recovery sign at the rate of 61.2 percent and slightly declined
in 2000 at 55.8 percent. Domestic production is the main industrial sector to be affected by the
crisis while general export-oriented production has maintained its utilisation. Consumer goods, steel products, vehicles, plastic pellets and electrical appliances faced severe excess capacity problems due to recent investment expansion.
Export and Import of Manufactured Goods
ThailandΓÇÖs present export structure reveals a greater diversity, in terms of both products and markets, than most of its competitors. Thailand is one of the worldΓÇÖs largest sources of computer hard disks, ball bearings, ICs and electronic products. In the automotive industry, Thailand is the largest producer of auto and auto parts in Southeast Asia and will soon become the largest production base for world-wide export for Mitsubishi, GM (Opel) and BMW. In agricultural products, Thailand is the worldΓÇÖs largest exporter of frozen shrimp, canned seafood, tapioca and canned pineapple. It is also one of the top exporters of rice and sugar. The top twenty export items include a growing number of industrial products and new entrants are seen every year.
During the first half of the 1990s, exports grew very fast, averaging around 19 percent. Export earnings exceeded 1,000 billion baht for the first time in 1994, claiming a market share of more than 1 percent of the worldΓÇÖs exports. Manufacturing and fishery exports, in particular, grew by 20 percent and the continued development of the production efficiency for new manufactured items was evidenced by an exceptional increase in exports of products requiring high technology, such as vehicles and parts, electrical appliances and computers and computer parts.
In the second half of the 1990s, Thai exports faced fierce competition from emerging economies such as China and Vietnam, particularly in the labour intensive goods. For higher technological products, however, Thailand maintained its export capability and competitiveness. The United States continued to be one of ThailandΓÇÖs largest market. More than 80 percent of export to the USA are manufactured products. Major items are textiles, computer parts and components, electrical circuit breakers, integrated circuits and parts and frozen and canned seafood. The second most important
export market is Japan. Over 60 percent of exports to Japan are manufactured products, with major exports being computer parts and components, rubber, frozen seafood, furniture and parts, textiles, electrical circuit breakers and integrated circuits. For 2002, ASEAN has surpassed the U.S. market to be the largest export market for Thailand. Exports to ASEAN countries rose sharply as ASEAN Free Trade Area came into being in 1993 and ASEAN came to be one of ThailandΓÇÖs major markets at 10.2 percent of total export in 1997. and In 2002, export earnings amounted to US$ 13.57 billion or a proportion of 19.71 percent.
On the import side, during 1987 - 1996, the rapid growth of the manufacturing sector had created a large demand for a growing range of intermediate goods. Thailand currently imports large quantities of capital goods, raw materials and intermediate goods each year. . From 1988, when total imports were about US$ 20 billion, imports had seen consistent growth, reaching US$ 64 billion in 2002. As a result of the financial crisis, however, imports significantly decreased to the point where, for the first time, Thailand enjoyed trade surpluses.
Government Policies pertaining to the
Manufacturing Sector
Over the past four decades, successive Thai governments have adopted nine National Economic and Social Development Plans, parts of which dealt with the manufacturing sector. Indications from these preceding national plans reflected broadly policy directions of each successive government laid out in specific policies towards industrialisation; examples are the fiscal and investment incentives policy, infrastructure development, protection and free trade, public versus private enterprises, price control, zoning of industries, decentralisation of industries and regional economic development, and proper natural resources utilisation and conservation, etc. Through the Eighth Plan covering the years 1997-2001, the important role played by industry in the overall economic and social development of the country has been evident.
For over three decades since the 1960s, successive governments have consistently followed two basic policies that can be traced back to the earliest days of industrial development. The first is the recognition of the importance of the private sector as the countryΓÇÖs ΓÇ£engine of growthΓÇ¥ to fuel the economy as a whole. As such, the private sector was the driving force behind industrial development. The government, on the other hand, plays a supporting role, refraining from setting up enterprises in competition with the private sector. The state also takes the responsibility of providing support to industry in the form of infrastructure development, R&D, management of natural resources and manpower development. These basic policies have been the main ingredients of each national development plan, and have invariably been incorporated in the policies of each government.
Following the region-wide financial crisis beginning in mid-1997, the Eighth National Plan has been revised. To ensure that the economy develops along a healthy and stable path of sustained growth and development, the governmentΓÇÖs policy is to concentrate on stabilising the economy and providing an appropriate stimulus to attain positive, sustainable growth with increased public spending and with expanding the export market world-wide. Priority was given to measures to boost exports and to promote tourism. Sustained growth and stability are expected to be achieved in the early part of the new millennium.
The revised Eighth Plan focuses on manpower development, with the recognition that liberalisation of trade and investment is the key to enhancing the competitiveness of the Thai economy. Since the financial crisis in 1997 and the subsequent regional economic turbulence, security has become a critical point of consideration. In this context, industrial policies are designed to encourage competition and reduce restraints on trade and on the private sector. It also stresses the continued transformation of the governmentΓÇÖs role from one of control to one of supervision and support.
The current Ninth Plan (2002-2006) adopts the philosophy of sufficiency economy bestowed by His Majesty the King to his subjects as the guiding principle of national development and management. The philosophy of sufficiency economy, based on adherence to the middle path, is advocated to (a overcome the current economic crisis that was brought about by unexpected change under conditions of rapid globalization, and (b) achieve sustainable development. It builds on the Eighth Plan that advocated a holistic people-centred development approach. In the Ninth Plan, major emphasis is placed on balanced development of human, social, economic, and environmental resources. A priority goal is pursuance of good governance at all levels of Thai society in order to achieve real sustainable people-centred development.
Through the period from the booming economy to the financial crisis, Thailand finds itself in an increasingly competitive international business environment. It became obvious to policy makers that Thailand can only sustain its growth if it can compete successfully in the world market. In this respect, it is up to the government to create a business environment conducive to businesses to thrive and progress to a higher level of competitive edge.
To accomplish these targets, the government has launched several action plans which incorporate measures to:
- reduce the cost of raw materials, intermediate parts and components
- lower labour costs
- increase the supply of skilled labour
- upgrade production standards to international levels, including ISO- 9000, QS-9000 for automotive industries, ISO-14000 for environmental protection and TIS ΓÇö18000 the national standard on the management for occupational health and safety, etc.
- encourage the initiatives on and the practice of R&D
- encourage the promotion of Thai brand names
- promote supporting industries as an indivisible part of the whole integrated complex of any sector of industries
- increase the countryΓÇÖs industrial capability to enable the industry to grow and to operate efficiently
Growth in manufacturing will also be supported by the joint government and private sector efforts to develop trade and investment within the Greater Mekong Sub-region, the Quadrangle Co-operation among China, Myanmar, Laos and Thailand, the Bangladesh- India-Myanmar-Sri Lanka-Thailand Economic Co-operation (BIMSTEC), and the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT). While the countries surrounding Thailand progress through their own course of development, co-operation will help enhance the growth of demand for Thai exports such as basic construction materials and consumer goods and, likewise, demand for imports of raw materials from these countries.
The Board of Investment - A Business
Partner
The Board of Investment (BOI) is the government agency responsible for providing incentives to stimulate investment in Thailand. In addition to providing incentives, the BOI conducts a wide range of investment promotion activities, both in Thailand and abroad, and has evolved over the years to become not just a regulator, but a service provider, as well.
Chaired by the Prime Minister, the BOI is responsible for administering the investment promotion law and establishing overall policy guidelines, which are derived directly from national development priorities. The BOI is empowered to grant a wide range of fiscal and non-fiscal incentives and guarantees to investment projects that meet these objectives.
Companies that receive BOI promotion receive basic incentives such as corporate income tax holidays and exemption or reduction of duty on imported raw materials and machinery. The Board of Investment provides investors with guarantees against nationalisation, state competition and price controls, and guarantees investors permission to export. The BOI also provides permission to bring in foreign workers to perform feasibility studies or to work on projects, and provides investors with permission to own land and remit foreign currency abroad.
Over the years, the BOI has continuously placed increased emphasis on removing obstacles to investment and providing a wide range of business-related services to investors, before, during and after the application process.
The BOI helps prospective investors by maintaining comprehensive information on investment opportunities in Thailand, both by sector and by region. Both the information and the investment advisory services are available at no charge.
The Board of Investment also maintains an extensive Home Page on the Internet and updates information daily. The BOI Home Page (www.boi.go.th) contains more than 2,000 pages of information, including many BOI publications, such as the quarterly newsletter, BOI Investment Review. Recognising the global nature of foreign investment, the site contains pages in French, German, Chinese, Japanese, English and Thai.
Once the decision has been made to invest in Thailand, the BOI works closely with investors to help them obtain the necessary permits and document required to conduct business, including visas, work permits and permanent residency permits, and helps investors cut through the ΓÇ£red-tapeΓÇ¥ associated with obtaining utilities.
To perform such services, BOI co-ordinated the establishment of a One- Stop Service Centre for Work Permits and Visas. By working closely with the Immigration Department and the Ministry of Labour and Social Welfare, the BOI was able to reduce the processing time to less than three hours! The BOI has also created a Foreign Expert Services Unit to expedite the paperwork associated
with certifying the expertise of foreign skilled experts and technicians.
One way the Board of Investment helps investors after their factories have opened is with the BOI Unit for Industrial Linkage Development (BUILD). BUILD was established to serve as a link between ThailandΓÇÖs dynamic parts and supply industries and the companies producing the final products.
The ultimate goal of BUILD, of course, is to assist small and medium-sized supplier companies improve efficiency, productivity, and quality to international standards, thereby providing the environment for subcontracting to flourish.
To accomplish this objective, BUILD engages in numerous activities and services, including organisation of seminars, which bring principals and suppliers together to share up-to-date information about specific opportunities.
For foreign companies in search of sourcing networks within Thailand, BUILD provides support by providing information about subcontracting opportunities, including levels of quality, quantity, marketing, and technology.
In addition, they have launched the Vendors Meet Customers Programme. Every three weeks, BUILD arranges for Thai parts and component manufacturers to visit end-product assembly factories in the electronics or automotive industries. Buyers thereby have the opportunity to meet with dozens of potential suppliers at one time to discuss the possibility of domestic sourcing of parts and components, which will reduce their overall production cost.
Marketplace is another activity that BUILD sets up every last Friday of each month at the Sofitel Central Hotel. The activity is divided into two sessions. In the morning, seminar is arranged to educate the suppliers in various concerns. In the afternoon, more than 10 assemblers/buyers are invited to exhibit part samples. The local suppliers will have the opportunity to look around and discuss the possibility of manufacturing the part for each assembler.
The BOI has also spearheaded the development of the ASEAN Supporting Industry Database (ASID), which contains information about thousands of supporting industry companies in the ASEAN countries.
The goal of this program is to expand the scope of ASEANΓÇÖs supporting industries by serving as the regionΓÇÖs industrial yellow pages. By harnessing the communications power of the World Wide Web, ASID can reach the global marketplace to make the world aware of the capabilities of supporting industries in ASEAN member countries.
The ASID Home Page (www. asidnet.org) contains a wide range of information about supporting industry companies throughout ASEAN and provides communication links to facilitate
electronic commerce between ASEAN suppliers and foreign purchasers.
In order to compete globally, it is necessary to improve the competitiveness of Thai industry. Support for supporting industries is important, as the continued development of supporting industries will strengthen the nationΓÇÖs industrial base, and increase our technological capabilities via transfer of technology.
Accordingly, the BOI has identified 19 supporting industry activities as priority activities, and they are eligible to receive maximum incentives, regardless of location or project ownership. Some of these priority activities are: forging, engineering plastics, cutting and grinding tools, moulds and dies, jigs and fixtures, anti-lock braking systems and electronic fuel injection systems.
In accordance with the governmentΓÇÖs development policies, BOI has set 5 target industries for its investment promotion strategies: agricultural industries, automotive industries, fashion-linked industries (garment, jewellery and leather industries); technology and communication industries and services industries.
In addition, BOI recognised that achievement of internationally recognised standards of quality is critical to future competitiveness. Indeed, ISO certification is rapidly becoming an entry-level requirement to be able to market products in major European and American markets. Therefore, in order to accelerate the upgrading of Thai industry, the Board announced that new projects that invest a minimum of 10 million baht will be required to obtain ISO 9000 certification. Industrial Estate Authority of Thailand (I-EA-T)
The Industrial Estate Authority of Thailand is state enterprise attached to the Ministry of Industry. It was established in 1972 to provide Strategic Production and Trade Bases with Globally Competitive Edge in enhancing Quality of Life and Nature.
I-EA-T plays an important role in supporting the governmentΓÇÖs industrial policy by developing and managing ΓÇ£Industrial EstateΓÇ¥ with efficient and standardised infrastructure and facilities for the investors to set up their factories throughout Thailand. In 2003 I-EA-T has developed 29 industrial estates in 13 provinces, accommodating around 2,500 manufacturing plants, altogether, with employment of more than 400,000 persons.
I-EA-TΓÇÖs Core Business
- Development and Management Industrial Estates
- Joint industrial estates with private developers
- Management Industrial Port
- Providing a variety of services to the investors
- Commercial / Property Management
- Service Provider / Public Outreach
- SHE Management (Safety Health and Environment)
Main Services
One Stop Service (OSS)
One Stop Services (OSS) is set up to provide information opportunities to the investors right from the planning through the operations.
- Exemption of Import Duty, Excise Tax, VAT on Machinery and Raw Materials.
- Exemption of Export Duty, Excise Tax, VAT on Exported Goods.
- Exemption of Refund of Duties, Excise Tax, VAT for Local Goods utilised for Production .
Non-Tax Incentives
- Permission for Foreign Inventors to own land.
- Permission to bring in Foreign Technicians and Experts to work and stay in the country.
- Permission for Foreign InvestorΓÇÖs Spouses or Dependents to stay in the country.
- Permission to take or remit Foreign Currency.
I-EA-T moves forward to undertake modern principles and concepts, to set up Industrial Clusters and Integrated Industrial Estate of related industries and business in order to further strengthen the national economy.
I-EA-TΓÇÖs on going Projects
- SMEs Industrial Estates
- Integrated Agro-Industrial Estate
- Rubber City Industrial Estate
- Dyeing Industrial Estate
- Global Trans-Park Industrial Estate
- R&D Automotive Industrial Estate
- Fishery Industrial Estate
I-EA-T operates with the administrative principles of good governance, aiming to build credibility and value added to the organisation on six important principles: accountability, responsibility, transparency, ethics, vision, and equitable treatment.
Stepping into an Era of Globalisation, Free Trade and Information and Communication Technology
Entering the new millennium, the manufacturing sector faces three main problems. First, it has to get itself out of the crisis as speedily as possible and with the least damage. Second, it has to face the challenges of trade and investment liberalisation under the WTO and the ASEAN Free Trade Area or AFTA, where tariff walls and non-tariff measures to protect local industry will no longer be possible. And lastly, industry has to be prepared to take full responsibilities for the deterioration of the environment and to manage the utilisation of natural resources or face penalties or barriers to exporting to certain markets, particularly in developed countries.
The adaptability of firms, the accountability of the governmentΓÇÖs policy and a sound foundation for the private sectorΓÇÖs global business development are the keys to success in nurturing the competitiveness which is necessary for the Thai manufacturing sector to flourish.
In maintaining the competitiveness of Thai industry, the manufacturing sector will be required to step into a higher level of technology and, because of rising wages, has to abandon some labour-intensive types of industry for lower wage countries. It will have to move to skill-intensive and knowledge-based industries utilising information and communication technology, including e commerce, electronic data interchange (EDI) and ECR (efficient consumer responses). This will govern the way in which the Thai industrial sector can be further expanded and diversified. In addition to manufacturing or processing, certain segments of industry will have to upgrade itself and diversify into the tertiary or service industry.
In order to improve the competitiveness of the industrial sector in the new millennium, the government has embarked upon a major industrial restructuring, paying attention to the need to eliminate all weakness including manpower development, research and development, technology, and managerial capabilities. Measures for cost reduction, improvements in productivity, compliance with international standards such as ISO-9000, ISO-14000 and for boosting the productivity and efficiency of industry and related sectors have been and are being implemented to enable the manufacturing sector to face the challenges brought on by the new world economic order.
Debt restructuring and the selling of shares to new foreign shareholders for the settlement of debts will have an effect on the structure of Thai industry, changing it from what it was before the
crisis. Increased foreign participation could help enhance the internationalisation of Thai enterprises as these firms adopt international style management and practices.
Selected Industrial SectorsΓÇÖ Performance, Outlook and Prospects
Electrical, Electronics, Computers and Telecommunications
The electrical and electronics industry has made great strides over the past few decades. Being one of the most diversified sectors it has turned out many types of electronic equipment, sub-assemblies and various sophisticated components. The industry has played an increasingly important role in the manufacturing sector, and is now one of the most important sectors in terms of exports. These include hard disk drives for computers, keyboards, and telephones.
In the 1990s, Thailand became an important manufacturing base for a number of electronic and related components, including integrated circuits, printed circuit boards, miniature ball bearings, computer cards and cables. The sector enjoyed rapid growth and diversified into higher value-added and higher technology products, e.g. facsimiles and cellular telephones. Firms that manufactured components for export gradually started supplying parts and components for assembly for export.
Even though the sector was hit hard by the financial crisis, production soon recovered and the sector retains its position at the forefront of manufacturing excellence for the Thai economy. From 1996, electrical and electronics exports expanded at an annual rate of 24.6 percent, on average. In 2001 the export value accounted for 710,835.5 million baht or 25 percent of total export value. However, ThailandΓÇÖs electronics exports comprised only 1.5 percent of worldwide production. The global growth of electronics products is estimated to have an export value of 1.74 MM$ in 2003 and ThailandΓÇÖs electronics production may be increased to 1.8 percent of worldwide production.
