Japan is the top foreign investor in Thailand, pouring 720 billion baht into local projects ranging from automotives to consumer electronics in recent years. Mr. Chokedee Kaewsang, currently executive director of the agro and light industry sector at the Thailand Board of Investment (BOI), recently returned to Bangkok after heading up the BOI’s Tokyo office from 2008-2010. In the following interview with the Thailand Investment Review (TIR), Khun Chokedee looks at the past, present and future trends of Japanese investment in Thailand.
TIR: What is the status of Japanese investment in Thailand?
Khun Chokedee: The business partnership between Thailand and Japan is strong. In fact, Japan remains the largest foreign investor in Thailand. Investment by Japanese enterprises continues to benefit the Thai economy in many ways. It is creating new jobs for Thai people, boosting the local export sector, and transferring technological know-how to enhance the competitiveness of local businesses.
In 2010, Japanese investors applied for BOI promotion on a total of 363 new projects worth more than 104 billion baht. Tha represents very healthy growth of about 35% in both number o projects and investment value over a year earlier. Between 2005 until 2010, applications by Japanese investors for BOI incentives promotion totaled more than 2,000 in number and nearly 720 billion baht in value.
Most Japanese investment in Thailand is in the automotives, metal processing, and electrical appliances and electronics (E&E) industries. Other major areas of investment by Japanese companies include services, chemicals and petrochemicals. Of BOI-promoted Japanese investment during the past five years, 40% is in automotives and metal products, 20% in E&E and 18% in the service sector.
The BOI is also working with potential Japanese investors to upgrade to higher-technology investment. Two new areas are alternative energy and environment friendly industries, and aviation parts and components. Aviation investment has especially strong potential because Thailand offers robust supporting industries such as metalworking and high-precision parts already being manufactured for automotives.
TIR: Do you see the Thai-Japanese business relationship growing even stronger in the years ahead?
Khun Chokedee: Yes, this is a virtual certainty. Because big Japanese companies have been investing in Thailand for many years, they have already built up large bases of operations that they want to continue strengthening. One trend in this regard is that major Japanese investors here are encouraging their parts and components suppliers back in Japan to set up businesses in Thailand to cut costs. This will attract more Japanese investment in Thailand as the parts and components suppliers locate here to have proximity to their main customers.
In fact, many of the potential Japanese investors that I met with back in our Tokyo office were SMEs (small and medium-sized enterprises) in the supporting industries such as metal, electronic, and electrical parts and components. These companies told me they were looking to invest in Thailand because their customers had requested them to do so as a means of reducing costs and providing faster service. Right now, this is especially active among eco-car investors that are pushing their suppliers to invest in Thailand.
The service sector is also part of this in the form of IPOs (international procurement offices). As many Japanese parts and components suppliers are small companies, they are not yet ready to establish their own factories in Thailand. However, in the meantime, to improve service to customers here they are setting up offices that can procure parts for their clients that manufacture in the country. As the BOI also promotes these kinds of services by providing non-tax incentives to IPOs, the incoming procurement businesses will contribute to the growth trend of Japanese investment in Thailand.
TIR: What distinguishes Thailand as a good operating location for investors from Japan?
Khun Chokedee: Competitive costs are one advantage and market potential and proximity, as we just discussed, is another. Production costs in Thailand are highly competitive and this has attracted many major international manufacturers to locate here. Moreover, the low production costs are likewise attractive to the larger parts and components suppliers that are coming to Thailand. This is because they can also manufacture for export on their own while supplying products to their local customers.
The incentives provided by the BOI are another key factor in attracting investors. For example, the incentive of allowing the duty-free import of machinery enables manufacturers to reduce their initial investment costs significantly. This helps to improve return on investment.
TIR: Do you regard the yen’s appreciation as a major factor convincing Japanese companies to invest overseas, including in Thailand?
Khun Chokedee: The strengthening of the yen is one reason that manufacturers in Japan are investing overseas. However, this is not as big a factor as it was in the 1980s. That is because currently both the yen and the Thai baht are appreciating, whereas back in the 1980s the baht was not fluctuating as the yen strengthened.
Perhaps a more significant problem for Japanese companies right now is that the domestic market in Japan is saturated. Production costs in Japan are also very high. Therefore, if those companies want to survive or continue to grow their business, they must have operations in foreign countries such as Thailand.
TIR: Do you see potential for Thai and Japanese companies to engage in joint investment projects overseas?
Khun Chokedee: Actually, there is movement in this direction. The BOI is promoting the concept of foreign companies using Thailand as a springboard to expanding their investments from Thailand into other countries, particularly in Southeast Asia. Not all products can be produced in one single country. In these cases, while maintaining their high-value-added production in Thailand, such makers might choose to do the very labor- intensive operations in certain neighboring countries.
Some companies are already following this business model by doing the low-cost components in other countries and then shipping those components to Thailand for final assembly.
The springboard concept is one of the investment strategies that the BOI would like to pursue.
TIR: The BOI planned a mission of Thai food business operators to attend FOODEX Japan 2011 in March. How would that benefit the participating Thai companies?
Khun Chokedee: It serves two objectives. The first is capability building. One of our functions at the BOI is to help strengthen the competitiveness of SMEs by making them more capable. Taking those companies to visit factories in Japan enables them to learn new processes and discuss ideas to upgrade their businesses. The second purpose is a matchmaking function provided by the BOI, as the Thai companies can network through meeting Japanese suppliers of technologies they want to purchase.
TIR: The BOI is preparing for its BOI Fair 2011 in November, one of Southeast Asia’s biggest international exhibitions. So far, Sony and Toyota are among the Japanese companies expressing an interest in participating. Do you see BOI Fair 2011 as an opportunity for Thai industry to forge closer relations with Japanese investors?
Khun Chokedee: I am quite optimistic that Japanese companies would benefit greatly from BOI Fair 2011, in two big ways. First, they can participate in the CEO Forum, one of the fair’s main activities. World-class CEOs in attendance at the forum will share their experiences on investing in Thailand and Southeast Asia, providing very useful business insight. The BOI plans to invite top executives from Japanese companies to participate in this activity.
Second, the BOI will be organizing investment missions from Japan to Thailand during the time of the fair. These Japanese companies can visit industrial estates here, observe the local infrastructure, meet with potential Thai partners or suppliers, and do business matching.
Furthermore, BOI Fair 2011 will take place at about the same time as the METALEX exhibition at BITEC on metalworking technologies. That is in November as well, and many Japanese companies are expected to exhibit products at METALEX or to visit this event. These enterprises can also attend the BOI fair while in Thailand.
TIR: The BOI recently appointed the chairman of Japan- based Bridgestone, the world’s leading tire manufacturer, to be one of the BOI’s honorary investment advisors (HIAs). Do such steps help promote Thailand’s image as a good investment destination?
Khun Chokedee: As HIAs represent companies that have been investing in Thailand for a long time, they have many experiences to share with potential investors. When potential investors hear good things about Thailand as an investment location directly from their peers, it strengthens their confidence in doing business in Thailand.