AGRICULTURE AND AGRO INDUSTRIES

Thailand's land and labour resources are used to produce a wide variety of agricultural products (rice, canned fruits), aquacultural products (shrimp, fish), and animal husbandry products (pork products, chickens). Although the share of GDP produced by the agricultural sector has decreased from 27 percent in 1970 to 11 percent in 1996, approximately 51 percent of Thailand's labour force is engaged in agriculture.

Due to increased competitiveness, Thai agricultural and farm product exports, which were valued at 183,962 million baht in 1997, grew to 211,092 million baht in 1998. According to the Thai Farmers Bank Research Centre, the fall in the value of he baht since July 2, 1997 has made export prices more attractive in global markets.

However, the benefits of lower export prices will be partly offset by the higher cost of imported chemical fertiliser and substances, seeds, machinery and the fuel. According to the Agriculture and Co-operatives Ministry, the value of imported materials for agricultural production is likely to reach 24.9 billion baht in 1999, 10 percent to 12 percent more than 1998.
 

Crop production

While other sectors of the Thai economy have experienced a market slowdown over 1996, agricultural production has maintained a steady growth rate of three percent. Thailand's major products include rice, rubber, maize, tapioca, and sugar cane. In 1997, the government earmarked 6.5 billion baht for farmer assistance measures and domestic price suports for 16 agricultural products. With the slowdown in the economy in 1997 leading to the baht's depreciation against major currencies, exports of agricultural products enjoyed an increase of 234 billion baht, or a 33.6 percent growth.

During early 1999, exports of agricultural products fell by 5.3 percent, compared to the same period in 1998, the Ministry of Commerce reported. This resulted from the strengthening baht and the competitive world market. Prices of paddy rice, palm oil, cassava, pineapple and rubber have also declined, due to oversupply on the world markets.

In late 1998, the government granted 9.98 million baht to farmers for marketing and production purposes under theFarmer Assistance Policy Fund. Other issues were also addressed. These included increasing counter trade and credit terms for purchasers of agricultural products, eliminating export barriers, and reducing taxes on the import of raw materials.
 

Production of major agricultural crops, 1994-1998

Crops	1994	1995	1996	1997	1998
Paddy Rice	20,125.50	20,678.60	22,081.90	22,332.00	23,580.00
Rubber	1,737.00	1,810.00	1,937.00	2,169.00	2,162.00
Maize	3,900.00	4,060.00	3,970.00	3,842.00	4,986.00
Tapioca	15,374.00	17,387.80	18,087.90	15,958.50	16,692.00
Sugar cane	50,458.90	57,693.40	56,190.00	45,850.00	46,025.00

Sources: Bank of Thailand and Ministry of Agriculture and Agricultural Co-operatives.

In 1996, rice production grew slightly to 22.1 million metric tons. Production for 1998 is 23,580 thousand tons and exports are worth 86,803.1 million baht, 33.35 percent more than last year, due to baht depreciation against dollar and increased overseas demand. The growth is aimed at 4 percent in 1999 since, during the beginning of the year, export price is found more expensive than some other competititors. It is expected to sell to major export partners, Indonesia and the Philippines, 2-3 million tons in 1999, compared to 6 million tons in 1998 as a result of improved cultivation in those countries.

The Agriculture and Agricultural Co-operatives Ministry is promoting the production of high-quality rice for exports by encouraging farmers to switch crops to keep up with market demand for gragrant rice from China, Hong Kong and Singapore. By growing higher quality rice, Thailand strives to maintain its top position in rice exports and hold off increasing competition from India and Vietnam. Currently, promotion on some long grain rice such as RD7, RD23, SPR1, SPR2, SKLG1, SHPR and the leader in the overseas market, KDML105 jasmine rice, has been implementing, according to the Patumthani Centre of Rice Research.

Thailand remains the number one producer of rubber in the world, and the Ministry of Agriculture reported that rubber production accounted for 2,169 thousand tons in 1997, then slightly down to 2,162 thousand tons in 1998. Exports rose from 1.92 million tons in 1997 to 1.99 million tons in 1998. Local consumption reached 190,000 tons in 1998, up from 183,000 tons in 1997, due to the growth of rubber-related industries, such as tyre production. In addition, a contract signed by the Thai Rubber Association with Japan to supply guaranteed high-quality rubber products for Japan in 1998 should increase rubber exports.

In August 1998, Thailand entered an agreement with Malaysia to co-operate in establishing a mutual rubber "buffer" of approximately 30,000 tons to protect prices. Under the greement, Thailand will annually export rubber to the value of between 2.1 and 2.2 million baht, down from the current 2.4 to 2.5 million baht. Furthermore, Thailand will pull out of the International Rubber Organisation in March 2000 since the organisation has not backed Thailand's push for price protection in the world market. Market intervention will be pursued to assist domestic producers.

Sugar cane is the key crop in the production of sugar. One-third of Thailand's sugar production is for the local market. The rest is exported, making sugar among the country's top 10 export items and making the country among the world's topo five sugar exporters. The volume of sugar production has shrunk continually since 1995. However, it increased slightly from 4.58 million tons in 1997 to 4.60 million tons in 1998. It is projected to produce 52.6 million tons between November 1999 to May 2000, against 51.9 million tons in first half of 1999. Unlike production, exports dropped 40.8 percent, from 4.9 million tons in 1997 to 2.9 million tons in 1998 as a result of surplus supply and diminished demand in the world market. This in turn caused producers severe debt burden problems. In response, in 1998 the government allocated 10 billion baht to support sugar plant operations.

Tapioca production fell 2.1 million tons in 1997, and then slightly increased by 0.7 million tons in 1998. It is expected that the production value will drop by as much as 34 percent, or 18,007 million baht, in 1999. This is because of over-production in the world market.

As the European Union (EU) is Thailand's main export destination for tapioca products, exports to that region are capped with a 5.25 million ton per year quota. Exports world-wide during the first quarter of 1999 grew to 1.9 million tons, compared with 1.4 million tons for the same period in 1998, due to increased demand from the EU to substitute its costly domestic grain. However, because of conversion from the EU currency to the weaker US dollar, the price of tapioca has dropped from US$80-99 to US$72-73 per ton.

The production of maize has risen sharply over 1998, attributed mainly to an increase in local consumption of 5.74 percent, from 4.35 to 4.6 million tons. In addition, the price of maize has gone up over the previous year. For the period 1995-99, goverment policy measures have encouraged the incorporation of higher technology in maize cultivation, advising farmers on more efficient harvesting and storage techniques, and a greater role for the private sector in marketing.
 

Fisheries and livestock production

The Association of Thai Swine Raisers reports that in the first quarter of 1999 production of pigs fell from 10 million to 8.8 million pigs over the same period last year as a result in a drop in the number of breeders from 700,000 to about 550,000 to 600,000.

Prices also fell because of inefficient supply and disease. Domestic consumption generally remains slow, and it has dropped sharply in the south of Thailand, to 6,000 pigs a month, due to infection by the Nipah virus in Malaysia.

The production of chicken and ducks has risen due to a slowdown in world markets, the depreciation of the yen, and increasing competition from other exporters. At present, rather than simply produce raw chicken meat, more value-added chicken is being promoted for export, such as chicken on a stick, baked chicken and chicken ham. Shipments in 1999 are expected to account for 270,000 tons, compared with 281,719 last year. Key foreign markets include Japan and Europe.

Production of livestock and fishery products

	1994	1995	1996	1997	1998	1999	2000 P
Livestock
Cattle	7,637	8,044	8,092	7,911	7,700	6,615	6,475
Swine	15,191	15,547	16,354	17,867	15,937	14,443	15,677
Chicken	646,540	664,290	705,000	764,875	828,000	836,000	852,000
Ducks	21,812	18,897	21,400	21,829	19,748	n/a	n/a
Fishery products
Marine capture	2,804	2,827	2,786	2,666	2,600	2,617	2,582
Inland capture	202	191	208	212	235	249	254
Freshwater culture	170	196	229	216	229	243	261
Coastal aquaculture	346	358	326	317	333	327	316

Source: Ministry of Agriculture and Agricultural Co-operatives
 

Agro-based industries

The bulk of investment in agriculture and agricultural products is concentrated on the production of rubber and rubber products, and the production of canned/processed seafood and refrigerated/frozen seafood. Exports of agro-industrial products rose by 18.82 percent in 1998, from 170,500 billion baht in 1997.

Most promoted investment projects in this industry are family businesses that have adopted advanced technology and management. This has helped Thailand earn a sound reputation on world markets for the quality of its goods. Thailand is a world leader in pineapple, shrimp and canned tuna exports. The latter in 1998 were worth US$611.1 million. Continued efforts are being made to improve shrimp production, such as the development of black tiger prawn breeds, and the establishment of a tiger prawn estate.

Because of the economic crisis, producers in agro-based industries have faced financial constraints. Some have sought to increase investment from foreign shareholders. In 1998, 123 Board of Investment approved projects accounted for 18,824 million baht, involving 32,793 new employees. In addition to the investment promotion strategy to expand the industry, Thai producers have adopted the Environmental Management System (EMS) in their production processes. This will help Thai products meet international standards, such as ISO 14000, and also protect exports against trade barriers.

The government believes there is great potential in rubber production due to its strong and stable qualities that meet international standards, as well as its contribution as a mixer in the production of automotive tyres. The government continues to promote Standard Thai Rubber (STR) and conentrated latex production. The trend in the export of rubber gloves is positive as many companies are relocating production from Malaysia and Indonesia.
 
 

Halal food

Government policy

Given the competitive world food market, the Thai government is concentrating on targeting specific markets, in particular halal food. Demand is driven by 1.5 billion Muslim consumers world-wide, generating 80 billion US dollar per year.

The government plans to promote the souther province of Pattani as the centre of world Islamic/halal food production, with projected revenue of US$80,000 million. The project is currently in its early stages. The government has provided funds for infrastructure, arranged ttax incentives and soft loans, assisted in promotions, such as trade shows, and brought together potential investors to study opportunities to open markets in Arabic countries, and South Africa.

However, due to the economic crisis, Thailand has had to reconsider its original plan of expansion in Pattani area, concentrating for the time being on developing available resources in the region.

In addition, Thailand co-operates with other ASEAN countries in the Indonesia-Malaysia-Thailand Growth Triangle. These nations have adopted halal food guidelines, and as a rule Thailand produces under as ASEAN halal logo. It also provides training on halal food preparation, regulation on food control and safety and endorsement.
 

Production by the private sector

Attractive factors facilitating the production of halal food in the Pattani industrial promotion zone include its location close to the source of raw materials, low rentals, adequate infrastructure, a large port, and rental contracts that can be used for loan guarantees with financial institutes. In addition, the large pool of Muslim workers ensures the implementation of proper production procedures in accordance with Islamic principles.

Currently, there are approximately 211 halal food factories in the country, many of them small enterprises. They largely serve the domestic market, although exports are rising, with total exports in 1998 valued at 500 million baht. Exports to the Middle East are expected to reach 535 million baht in 1999, and US$10 billion in 2002. Besides the Middle East, demand is growing in Indonesia, Pakistan, Bangladesh, India, China, the United States and the EU.

In order to increase maket share and meet with international acceptance, product standards - particularly on halal food enrosement and product promotion under a certified Thai halal brand - are being development by many producers.
 

Contacts

Ministry of Agriculture and Co-operatives
Rachadumnoen Nok Road, Bangkok 10200
Tel 2815955
Home Page: http://www.moac.go.th/

Department of Livestock, Ministry of Agriculture and Co-operatives
Phayathai Road, Bangkok 10400
Tel 251513-8
Home Page: http://www.doa.go.th/

Department of Fisheries, Ministry of AGriculture and Co-operatives 
Kasetsart University, Jatujak, Bangkok 10900
Tel 5620600-15
Home Page: http://rahu.fisheries.go.th/

Office of Agricultural Economics, Ministry of Agriculture and Co-operatives
Kasetsart University, Jatujak, Bangkok 10900
Tel 9407239-40

Agro-Industry Division, Bureau of Industrial Sectors Development,
Department of Industrial Promotion, Ministry of Industry
Soi Treemitr, Rama IV Road, Klongtoey, Bangkok 10110
Tel 3901896
Fax 3815571

Patumthani Centre of Rice Research
Rangsit, Thunyaburi, Patumthani 12110
Tel 5771688
 
 
 

AUTOMOTIVE AND PARTS

Thailand has the largest and most dynamic automotive industry in Sotheast Asia. In 1998, motor vehicles sales reached 608,000 units, nearly 40 percent of total demand for the Association of Southeast Asian Nations (ASEAN) market. The automotive industry has experienced impressive annual growth rates of 14 percent, and in 1996 the industry accounted for approximately 6.1 percent of Thailand's GDP (US$12 billion). The industry employs some 15,000 to 20,000 direct (manufacturing) workers, and 1.5 million indirect workers (automotive services, sales, supporting industries and suppliers).

The most salient features of this industry area:

• By 2000, Thailand domestic market is projected to reach one million vehicles

• Japanese manufacturers dominate local production, but US firms are starting to invest

• Under WTO influence, government policy has shifted towards more liberalised trade

• Local content policies have spurred the growth of domestic assemblers and parts makers

• Thailand has over 30 year's experience in auto assembly.

Growth of the domestic market

Thailand is Southeast Asia's fatest growing automobile market. Twelve local assemblers built an estimated total of 608,000 vehicles in 1996, 16 percent more than the year before, and the industry's total output has increased six-fold in a decade. The strength of its automotive assembly business, combined with the government's liberalisation efforts and attractive Board of Investment (BOI) investment policies, have attracted major industry players and hundreds of firms which produce automotive parts and components.

The government's open door policy and well-designed policies and incentive programs have helped maintain high levels of foreign investment in the industry. Sales of vehicles in Thailand rose from 265,560 in 1991 to 589,000 units in 1996 Thailand remains the world's second largest one-ton pick-up market, the world's fourth-largest market for motorcycles and is the main automotive hub of Southeast Asia.

Nonetheless, in the recent years, as a result of the recession, an increase in automobile tax and consumer's financial constraints, the Thai automotive industry has been facing the reduction of market growth. Consumer demand, production and sales have domestically decreased, even though the industry accounts for more than 80 percent on domestic market.

Vehicle sales in the domestic market started to shrink in the wake of the economic crisis, from 589,129 units in 1996 to 363,156 units in 1997 (a 38.3 percent reduction), and consistently down to 144,065 units in 1998 (a 60.3 percent reduction). The passenger car market has been the most affected, decreasing to 46,543 units a drop of 65 percent. Sales volume in 1999 is projected at 180,000 to 200,000 units. Toyota held the largest total market shaer in 1998, at 28.2 percent.

In comparison to passenger cars, sales of commercial vehicles were less affected than those of passenger cars, due in part to the introduction of a range of new models by different producers.

Vehicle statistica reveal that the value of imports of completely built up (CBU) which hold just over a five percent share of the automobile market, has fallen from 11,829 million baht in 1996 to 67,976 million baht in 1997 and 20,288 baht in 1998.
 

Growth of the export market

Vehicle exports are anticipated to rise steadily over the next few years due to capacity expansion by existing assemblers, including Mitsubishi, Nissan, Toyota, and Isuzu, and in order to compensate for the drop in local demand. The decline in value of the baht has helped make exports more competitive. As producton volumes grow, manufacturers are upgrading factories from import substitution assembly plants into fully integrated manufacturing bases.

In 1999, an expected 160,000 units are expected to be exported, from 66,772 units in 1998. Dominant auto producers include Mitsubishi, Toyota, Honda, Ford and Mazda. With the continued economic recovery and the reduction of tariff rates in ASEAN countries, export volumes are expected to continue to rise. Toyota projects to export 300,000 to 400,000 units in 2004, in addition to total domestic sales of 600,000 units.

Thailand's key export markets for passenger cars are the United Kingdom, Singapore, New Zealand, Australia and Hong Kong. The commercial vehicles market is occupied by Australia, Portugal, Germany, Spain and Italy. New Zealand and Australia have also recently become attractive markets.

Among auto exporters, Mitsubishi is Thailand's biggest, with a 90 percent market share, followed by Honda and Toyota. Mitsubishi has relocated production of its pickup trucks from Nagoya in Japan to Thailand.
 
 

Major industry players

Japanese manufacturers dominate both the assembly and components sectors, through direct investments, joint ventures with Thai companies, and technical and licensing arrangements. Japanese assemblers account for 87 percent of Thailand's vehicle manufacturing capacity, with Toyota, Isuzu, and Mitsubishi holding the top three positions.

American multinational firms such as Ford and Chrysler have recently invested in Thailand by setting up production units. Ford and Mazda, with a mutual factory, operated in 1998 with 100,000 vehicles.

General Motors (GM), in 1996, chose to set up a US$750 million vehicle production base in Thailand and recently expressed interest in joining ASEAN's Industrial Co-operation (AICO - see below) in a bid to cut costs. GM's factory is due to begin production in 2000 after initial investment was reduced to US$500 million. Zafira production will begin with an initial production of 40,000 units a year, 70 percent for export GM will be the irst factory in the Eastern Seaboard Industrial Estate.

BMW is establishing its first wholly-owned plant in Asia in Thailand as a production base for BMW and Rover cars for export in the region. Initial capacity will be 10,000 units a year, increasing to 60,000 units a year after the second phase is completed.

Honda is spending US$160 million on a new plant for the Accord and Civic. Toyota will invest US$460 million to expand production and build a training centre for service technicians. It is expected to reach full capacity of production by 2004. Mitsubishi will spend at least US$560 million to move a portion of its pickup truck production to Thailand. Auto Alliance (Ford/Mazda) has announced a joint venture of US$472 million to produce pickups.

Aside from cars and trucks, Thailand is internationally competitive with its motorcycle industry and ranks fourth behind China, Japan, and India for world-wide production. Nevertheless, due to lessened purchasing power, motorcycle sales fell in 1998 by 47.4 percent from 818,435 in 1997 to 430,131 units in October 1998. Suzuki, Honda and Yamaha dominate the market and produce the majority of bikes sold domestically.

In 1999, production of two-stroke bikes will be stopped in compliance with new government regulations aimed at curbing air and noise pollution. In response, manufacturers are developing local technology for four-stroke bike engines that are expected to cost a minimum of 25 percent more than the two-stroke models. The increasing sophistication of Thailand's motorcycle manufacturing is expected to boost export possibilities over the next several years.
 

Important government policies

In the 1970s, Thailand's local automotive industry was regulated by protectionist policies againt imports. Local content requirements were introduced in 1975. In addition to local content requirements, the goernment maintained steep tariff duties on imports, both on component kits for assembly (CDKs) and completely built up (CBUs) vehicles. This resulted in vehicle prices in Thailand being among the highest in the world.

In July 1991, the government cut these duties and has moved towards broad liberalisation of the automotive industry ever since. These changes include the lowering of import duties, the gradual phasing out of local content regulations, an agreement among the members of ASEAN to exchange car parts on preerential tariff terms, and the government's promotion of an export-oriented approach for the industry.

Local content requirements are being phased out in time for the year 2000 deadline set by the World Trade Organisation. In February 1999 the government calcelled a 54 percent local content for CDKs applied to all other countries and adjusted import tariffs on CKDs from 20 percent to 33 percent. Under the new law, effective on January 1, 2000, auto producers will be able to use either domestic or imported suppliers.
 

Incentives

The Thailand Board of Investment has designed incentive packages to attract foreign auto makers and, at the same time, strengthen the country's industrial competitiveness. These include:
 
 

Code	Category
4.23	Manufacture of engine parts, transmission, brakes, steering, or suspension systems
4.24	Manufacture of vehicle parts, radiators, fuel tanks, filters, air filters, oil and fuel filters, wiring harnesses, gaskets, leaf springs
4.25	Manufacture of other vehicle parts
4.27	Automotive assembly
4.28	Surface treatment
4.29	Heat treatment
4.30	Production of electric-powered vehicles

Local parts and assembly firms

The expansion of the market for motor vehicles and parts, and the local content requirements, have resulted in the growth of Thai-owned producers of parts and local assembly plants. Most of these are medium and small-size parts producers.

There are over 600 auto parts manufacturers in Thailand and 200 to 300 suppliers for after-sale repairs. The BOI actively promotes the build-up of supporting industries, including metal forging, steel mills, and plastics and chemical production. More complex and capital intensive industries like transmission and drive-train component manufacturers, electronic parts assemblers and fuel injection unit manufacturers are also being sought.

It is estimated that about 60 percent of the value of all auto components are still imported. Imports from Japan account for 75 percent of the total, followed by Germany with 12 percent. North America and Europe make of the balance.

There are huge opportunities for auto parts expors if Thai auto parts makers become a part of the supplier's network for giant companies in Thailand, such as GM and Ford, as it will be much easier for them to sell parts to other companies in foreign markets.
 
 

Regional incentives

Brand-to-Brand Complementation (BBC)

Thailand is also a member of the BBC, which is an ASEAN organisation aimed at promoting co-operation and economies of scale in auto parts manufacturing. There are two clear benefits under the BBC. First, import tariffs on parts traded within ASEAN are reduced by 50 percent. Second, parts sourced within ASEAN are included in the local content calculation in each country.
 

ASEAN Industrial Co-operation (AICO)

AICO has been developed to be more effective than the BBC in exchanging products within the region. AICO has the following regulations:

• A corporation can seek promotional privileges from AICO if at least 30 percent of its equity is held by an ASEAN nation or 40 percent by more than than two ASEAN concerns.

• An eligible company should be able to produce new products and introduce new production technology beneficial to the development of regional industry.

• An eligible company must export more than 50 percent of its products.

• An ASEAN government may grant AICO privileges to projects implemented under the BBC scheme.

Contacts

Federation of Thai Industries
Queen Sirikit National Convention Center Zone C, 4th Floor, 
60 New Rachadapisek Road, Klongtoey, Bangkok 10110
Tel 2294255
Fax 2294941-2
Home Page: http://www.fti.or.th

Board of Investment
555 Vipavadee-Rangsit Road, Jatujak, Bangkok 10900
Tel 5378111
Fax 5378177
Home Page: http://www.boi.go.th

Bank of Thailand
273 Sansen Road, Bangkok 10200
Tel 2835353
Fax 2800449
Home Page: http://www.bot.or.th

Thai Auto-Parts Manufacturers Association
32-33 Moo 17 Bangna-Trad Km. 11 Road, Bangleeyai, Bangplee, Samuthprakarn 10540
Tel 3168800-7
Fax 3165629
 
 

ELECTRONICS AND ELECTRICAL EQUIPMENT INDUSTRY

The combined electronics and electrical appliance industry is by far the largest export industry in Thailand. The loss in value in the baht since 1997 has favoured the industry, allowing it to be more competitive in global terms. The electronics industry is one of the few industries that has survived the crisis with minimal impacts. In 1998, computers and computer parts were the number one export products, with total export value of 318 billion baht, accounting for 14 percent of the country's total exports. The FOB value of computers and parts exports increased by 45 percent from the 1997 level. Domestic demand for electronic products is still relatively strong.

The most salient features of this industry are:

Overall, the electronics and electrical industry has grown more quickly than GDP in recent years.

The industry, being the leading export sector, continues to contribute substantially to Thailand's foreign trade.

Thailand is one of the top production bases for hard disk drives in the region, second only to Singapore among ASEAN member countries.
 

OVERVIEW

With the establishment of Tanin Industrial Co., Ltd. in 1962 to assemble radios and televisions for the domestic market, the electronics industry in Thailand was born. Since then, the industry has come a long way and it now boasts of nearly 2,000 companies in operation carrying a wide array of products.

Initially, starting as an import substitution industry, it is now highly regarded as export-oriented, in fact locally-assembled electronics and electrical equipment have been the top export earner for the country since 1994.

Thailand's electronics and electrical equipment industry has registered spectacular yearly double-digit growth in recent years, consistently surpassing the overall economic growth. From 1990-1994, the output from the electronics and electrical machinery sector increased in the range of over 20 percent per annum - supported by the expansion in the domestic and export markets. In comparison, GDP growth averaged about 9.1 percent per year during the same time frame. Industry growth for 1995 and 1996 remained steady at an average of just under 20 percent, while GDP grew at 8.8 percent and 5.5 percent, respectively. In 1997, the industry slipped to a single-digit growth in relation to the overall GDP growth of -0.4 percent.

In ASEAN, Singapore's production showed the highest development, followed by Malaysia, with Thailand ranking third. While Singapore's technology is regarded as highly-developed, high-labour intensive facilities are moving to Malaysia and Thailand in the face of labour shortages. Thailand is positioned as a middle-level technology producer in the region.

The combined export value of electroic and electrical equipment grew from 475.5 billion baht in 1996 to 623.1 billion baht in 1997, or an increase of 31 percent. Export growth for 1998 was 29 percent up on 1997, reached 803.7 billion baht.
 

Consumer equipment

This segment covers consumer electronic (including television sets, radios, audio and videocassette recorders, camcorders and electronic watehs), and consumer electrical products (such as white goods / other electrical appliances). The manufacture or assembly of consumer electronic products in Thailand still relies heavily on imported parts. On the other hand, consumer electrical products have a higher level of local content than imported parts.

Thailand's consumer electronics and electrical sub-sector has an increasing tendency to be export oriented. This segment's export was worth 148.1 billion baht in 1998, increasing by 14 percent from 1997 figures.

Thai exports of consumer electronics and electrical products, 1996-1999 (Jan-July)

	1996	1997	1998	1999
Electronics	60.2	82.9	97.7	40.7
Electrical	39.6	46.7	50.4	48.1
Total	99.8	129.6	148.1	88.8

Source: Department of Customs
 

The television production line is the most important single product in this sub-sector, exhibiting export growths of 25 percent and 15 percent in 1997 and 1998, rspectively. The overseas market for television sets exceeded 37.3 billion baht in 1998 while export during the first seven months of 1999 registered 12.1 billion baht. During the past three years (1996 to 1998), the country produced around seven to eight million TV sets yearly.
 

INDUSTRIAL EQUIPMENT

This segment covers industrial electronics such as office automation equipment, computers and peripherals, and telecommunications equipment; and industrial electrical products such as electric products such as electric motors and transformers.

In 1998, exports of industrial electronic and electrical products were worth 408.3 billion baht, an increase of 38 percent from 1997 level. During the first seven months of 1999, this sub-sector's export reached 219.4 billion baht.

Thai exports of industrial electronics and electrical products, 1996-1999 (Jan-July)

	1996	1997	1998	1999
Electronics	193.5	250.3	357.0	186.8
Electrical	33.5	46.3	51.3	32.6
Total	227.0	296.6	408.3	219.4

Source: Department of Customs
 
 

Computers and Peripherals

From 1996-1998, the local production of floppy disk drives (FDD) amounted to 15 to 18 million units and hard disk drives (HDD) - 20 to 40 million units per year. Within ASEAN, Thailand ranks second only to Singapore's approximately 56-64 million units produced annual. Presently, local sourcing is limited to a few basic activities such as die casting metal base plates, and cover and controller board assembly.

The development of the precision mechanical engineering sector should also serve as a strong inducement to the technological upgrading of the machinery sector through demand for more sophisticated machine tools and precision dies and moulds.

Thailand is beginning to establish a printer manufacturing capacity as well, with several foreign firms doing full or partial assembly of printers here. Annual local production of printers was about three to four million units per year from 1996 to 1998, compared with Singapore's annual output of 11-13 million units.

The total value of computers and computer parts exports increased by a margin of 45 percent from 219.7 billion baht in 1997 to 318 billion baht in 1998. During the first even months of 1999, total exports were recorded at 165.8 billion baht.
 

Telecommunications equipment

Many types of telecommunications equipment are now produced in Thailand, including telephone sets, telephone answering machines, facsimile machines and small PABXs. From 1996 to 1998, the combined local production of telephone sets and facsimile machines was about seven to eight million units per annum.

Potentially the biggest boost to the local telecommunications equipment industry could come from future projects to install new telephone lines. As part of the Eighth National Plan Economic and Social Development Plan, teledensity is targeted to reach 20 phones per 100 households during the course of the plan (1997-2001). This will require installation of an additional six million lines by 2001. The export value of telecommunications equipment grew from 29.3 billion baht in 1997 to 37.4 billion baht in 1998, registering a 28 percent increase. During the first seven months of 1999, total exports were valued 18.5 billion baht.
 

COMPONENTS AND PARTS

This segment covers electronic parts (i.e. printed circuit board (PCB), integrated circuits (IC) and motor transistor capacitors) and electrical parts (i.e. compressors).

The total export value of electronic and electrical components and parts grew from 196.9 billion baht in 1997 to 247.3 billion baht in 1998, or 26 percent. During the first seven months of 1999, total exports reached 158.4 billion baht in FOB value.

Thai exports of electronics and electrical components and parts, 1996-1999 (Jan-July)

	1996	1997	1998	1999
Electronics	132.8	176.6	220.4	143.1
Electrical	15.9	20.3	26.9	15.3
Total	148.7	196.9	247.3	158.4

     Source: Department of Customs
 

Integrated Circuits (ICs)

The IC industry is mostly export-oriented. IC assembly operations in Thialand have become progressively automated over the past decade, though they are still large employers in absolute terms. In 1997, exports of ICs were valued at 75.7 billion baht, up 30 percent from 1996 figures. Exports increased 24 percent (93.8 billion baht) in 1998 over the previous year. From January to July of 1999, IC exports reached 56.3 billion baht.
 

Printed Circuit Board Assemblies (PCBAs)

PCB assembly is one of the largest and fatest growing segments of Thailand's electronic industry. The sector continues to require large inputs of skilled labour in certain processes. The export value of PCB has grown apace in recent years. Growth for 1997 was 71 percent while in 1998 it recorded a 60 percent expansion - a highly respectable performance during these hard times. During the first seven months of 1999, exports of PCB totalled 15.2 billion baht.
 

ATTRACTIVE GOVERNMENT POLICIES

The Thailand Board of Investment (BOI) has contributed largely to the sector by promoting the industry and attracting multinationals in the process - mainly from Japan, the United States, Taiwan and other Asian NICs (newly industrialised countries).

The BOI promotes the electronics and electrical projects in Investment Promotion Zones 2 and 3. The Board has also extended the time frame for promoted projects to import machinery in the manufacture of electrical products from two to five years, effective January 1, 2000.
 

BOI-approved investment in electronics and electrical by sub sector, 1996-1999 (Jan-June)

	1996	1997	1998	1999
Electronics
Consumer	1,178	468	352	154
Industrial	25,657	1,365	703	2,346
Components	44,304	22,124	54,638	18,334
Sub-total	71,139	23,957	55,694	20,834
Electrical
Consumer	2,520	1,315	2,971	496
Industrial	800	1,670	0	760
Components	1,161	689	977	24
Sub-total	4,481	3,674	3,948	1,280
Total	75,620	27,631	59,642	22,114

Source: Board of Investment
 

Contacts

National Electronics and Computer Technology Center (NECTEC)
Ministry of Science, Technology and environment
Tel 644-8110
Hme page: www.nectec.or.th

Electrical & Electronics Institute
Ministry of Industry
Tel 280-7272
Home Page: www.thaieei.com

Electrical, Electronics & Allied Industries Club
The Federation of Thai Industries (FTI)
Tel 229-4255
Home Page: www.fti.or.th

The Electronics Association of Thailand
King Mongkut's Institute of Technology, North Bangkok
Tel 585-8541, etc. 8102
 
 
 
 

TEXTILES AND GARMENT INDUSTRY

The textiles industry has significantly contributed to economic development and employment in Thailand. The industry is experiencing difficulties at present due to declining purchasing power in both domestic and foreign markets, and fiercer price competition. Textiles ranked third in 1998 among Thailand's exports, behind electronic circuits boards and electrical (7 percent), cotton thread (2.1 percent), household textiles (2.2 percent) and others (7.2 percent) equipment, with a value of 217,101 million baht. Exports include garments (62.4 percent), fabric (16.2 percent), synthetic thread and yarn (5.7 percent), synthetic fibre (3).

In addition to declining demand and over supply in Asia, and high competition from low-end products, the Thai textile industry has faced severe liquidity problems over the past two years. Production has dropped by 20 percent, and many factories have closed.

Overview

The textile and garment industry chain consists of the fibre industry; the spinning yarn and thread industry; the knitting and weaving industry; the dyeing, bleaching, printing and finishing industry; and the garment industry. Manufacture is both capital intensive and labour intensive. Most technology and machinery in Thailand is out-dated, having been in use for more than 15 years. This results in low productivity, high operation costs, and low quality products. However, following the government's economic stimulus measures announced on 10 August 1999, import tariffs on textile and garment industry machines and parts were reduced from 30-35 percent to three percent. This will assist the industry in developing and improving competitiveness in the long term since manufacturers currently lack sufficient capital to invest in new technology.

There are two major export markets for Thailand's textiles and garments:
 

1. Quota markets (under the Multi-Fibre Agreement). This consists of the United States, Canada, Norway, and EU countries. In 1998, Canada abolished import quotas on three types of garment exports from Thailand: Women's clothing, children's shirts, and coats, apart from the men's shirt quota, which had been abolished in 1997.
2. Non-quota markets: These consist mainly of Japan, Poland, Saudi Arabia, Singapore, the United Arab Emirates, Kuwait, Hong Kong, China, and Russia.

Various new rules and regulations have been imposed on the world textile and garment trade in recent years. Firstly, in July 1996, the U.S. announced its new Rules of Origin for textile and garment imports. These strictly enforced the actual country of origin of the exports to the U.S., and broader categories. For example, Rules of Origin were applied to thread and yarn, and clothes exported to the U.S., which previously had not been classified. Assembly Rules, that is, the last country that assembles the garment, are applied for garment exports.

Secondly, Thailand may be curtailed by anti circumvention measures designed to prevent exporters from one country shipping their goods through a third country to avoid duties imposed on the original exporting country.

However, these rules will no longer exist after 1 January 2005 when the world's textile trade is due to be liberalised under the Agreement on Textiles and Clothing (ATC), in addition to import tariff reduction under ASEAN Free Trade Area (AFTA). Nevertheless, human rights concerns in the U.S., such as child labour, and environmental concerns among E.U. countries, such as harmful dyes causing skin cancer, will become increasingly important issues once tariff barriers fall and the textile trade is liberalised.

To ensure Thailand's competitiveness in the world market. Thai manufacturers need to improve the quality of products and need to operate to international standards so that they will not face technical barriers once trade is liberalised. Currently, only 18 factories out of 4,654 have been granted the ISO 9000 certification standard.

To develop the textile and garment industry, the government allocated soft loan funding through the EXIM Bank and the Industrial Finance Corporation of Thailand (IFCT) to Thai manufacturers to introduce new machines, with the condition that the old machines stop operating. However, not many companies were interested because they did not want to increase their liabilities, and the conditions were not sufficiently appealing. The funding expires in the year 2000. The Thai Textile Association has requested the government to extend the funding for another two years.

In addition to the above source of loans for business expansion, the government allocated some funds through the EXIM Bank to provide credit for cash-strapped exporters. The total amunt of Packing Credit that the EXIM Bank authorised through commercial banks totalled 17,546,126,500 million baht in 1996, 16,538,713,500 million baht in 1997, and 17,218,397,200 in 1998.

While there has been little change in the amount of Packing Credit over the past few years, the amount of Pre-Packing Shipment Financing Facility (PSF) credit, which started in 1996 and which directly authorises credit to exporters, has increased gradually. In 1996 and 1997, PSF credit, authorised for the textile and leather industries amounted to 1,278.966 million baht and 3,219,969 million baht respectively. In 1998, PSF credit authorised for the textile and garment industry alone, drastically increased to 4,694.012 million baht.
 

Fibre industry

There are two types of fibre natural and synthetic. Cotton is the most important natural fibre used in Thailand. However, domestic cotton production is not able to supply domestic demand, and as much as 90 percent of consumption has to be met with import. These come mainly from Australia, the United States, Mali and Sudan. Import decreased in 1997 and 1998 due to the weak baht, which caused higher import costs, and declining demand. The economic stimulus measures announced by the Government in August 1999 abolished import tariffs on cotton. This will further enhance Thailand's competitiveness in the textile industry.

Cotton fibre imports and exports to Thailand
 

	1996		1997		1998
	Quantity (Metric tons)	Value (Million baht)	Quantity (Metric tons)	Value (Million baht)	Quantity (Metric tons)	Value (Million baht)
Imports	365.00	17499.10	286.00	14584.50	282.00	18556.50
Exports	5.00	147.90	6.00	192.20	5.00	184.90

    Source: Business Economics Department
 

Synthetic fibre production is a capital-intensive industry, requiring high technology. Most of the manufacturers are joint ventures with foreign investors, mostly from Japan and Taiwan. Thai manufacturers produce medium quality polyester, nylon, acrylic and rayon. Most of the raw materials are imported, and high import tariffs were imposed - five to seven percent - that significantly increased production costs, and reduced competitiveness.

Synthetic fibre imports and exports to Thailand
 

	1996		1997		1998
	Quantity (Metric tons)	Value (Million baht)	Quantity (Metric tons)	Value (Million baht)	Quantity (Metric tons)	Value (Million baht)
Imports	80.20	154.70	81.20	136.10	71.20	103.30
Exports	162.10	248.70	178.90	226.70	328.30	266.10

    Source: Business Economics Department

The synthetic fibre industry is very price competitive, specifically polyester fibre, because of over-supply in past years. Thailand's major competitors are Taiwan, South Korea, Malaysia and Indonesia. Synthetic fibre imports have decreased due to falling demand, while exports increased 86.86 percent in 1998 as a result of the weaker baht.
 
 

Spinning yarn and thread industry

Spinning yarn and thread is a medium to high capital intensive industry. Most of the machines in use have been imported second hand, and have been in use for up to 20 years. As a result, production costs are high and there is a high rate of raw material losses; and the quality of thread is low and not competitive.

The domestic yarn and thread market has suffered in the face of dumping by Taiwanese, South Korean and Indonesian companies. The cheaper products have caused imports to rise, to the detriment small domestic manufacturers.
 

Yarn and thread imports and exports to Thailand
 

	1996		1997		1998
	Quantity (Metric tons)	Value (Million baht)	Quantity (Metric tons)	Value (Million baht)	Quantity (Metric tons)	Value (Million baht)
Imports	57,656.00	7,194.00	61,789.00	7,925.20	72,094.00	10,385.90
Exports	170,489.00	11548.10	190,788.00	16,009.00	184,818.00	16,173.90

Source: Business Economics Department

Major products exported are synthetic and cotton yarn and thread, to markets in Hong Kong, the U.S., South Korea, Taiwan and Japan. The volume of yarn and thread exports from Thailand increased 11.9 percent in 1997, but decreased 3.12 percent in 1998. The decrease illustrated fiercer competition, and the fact that Thai yarn and thread manufacturers are not competitive enough due to relative higher production costs than in Thina, Pakistan and India. These countries can produce cotton domestically, while Indonesia has a large-scale petrochemical industry that support synthetic fibre production, which lowers production costs. In addition, tariffs on polyester, nylon, viscro rayon and acrylic imports to Thailand are considered high, at 10 percent, compared to its competitors. This is a major cost, adding to the already-high cost of raw materials. As a result, Thai thread yarn exports are not price competitive.
 

Knitting and weaving industry

Most of the knitting and weaving factories use outdated machines, particularly in medium and small factories. The industry produces medium and low quality in 100 percent cotton, 100 percent synthetic and mixed fibre fabrics. Sixty percent of the production is woven fabric and 40 percent is knitted fabric.

Fifty percent of the raw materials used - cotton, synthetic yarn and thread - are imported.

Due to the decline in domestic consumption, over production has led to high price competition, to that extent that sales prices have dropped while production costs have risen. Some manufacturers, especially medium and small sized ones, have liquidity problems, and a number have closed.
 

Woven and knitted fabric imports and exports to Thailand
 

	1996		1997		1998
	Quantity (Metric tons)	Value (Million baht)	Quantity (Metric tons)	Value (Million baht)	Quantity (Metric tons)	Value (Million baht)
Imports	94,621.0	22,472.90	150,672.00	23,922.10	100,546.00	30,056.80
Exports	133,729.00	21,711.90	134,538.00	28,271.00	143,742.00	34,961.30

    Source: Business Economics Department
 

The import volume increased 59.24 percent in 1997, but decreased 33.27 percent in 1998. Taiwan, Japan, China, South Korea, Hong Kong and Indonesia are major sources of fabric imported to Thailand. Exports of fabric have increased slightly, 0.60 percent and 6.84 percent in 1997 and 1998 respectively. This include 85.3 percent woven fabric and 4.6 percent knitted fabric. Major export markets are the U.S. Italy, Hong Kong, Singapore, the United Arab Emirates, and Saudi Arabia.
 

Dyeing, bleaching, printing and finishing industry

This is a capital-intensive industry ilnvolving two main processes: the continuous process used in large factories, and the batch process operated in small and medium sized factories. The quality of finished textiles from the continuous process is higher and more accepted than that of the batch process, which requires experienced and skilled workers and which costs more. However, the continuous process faces problems of rising operation costs because many of the machines involved have not been running to full capacity - the consequences of the frequent changes that characterise the fashion industry.

The quality of dyeing, bleaching, printing and finishing is lower than acceptable standards, and many pollution problems have resulted. Most of the high quality dyed, bleached, printed and finished fabric is imported. Major Thai exports in this field go to Asian countries.
 

Garment industry

There are two kinds of garment, those made from woven fabric and those from knitted fabric. This is a labour-intensive industry. Most Thai garment manufacturers are small and operate out-dtaed machines. The CAD/CAM system is being introduced into large Thai garment factories to assist in designing, sizing and cutting. This reduces labour costs, as well as loss of cloth. The nature of the industry in Thailand is made to order. A contractor hires factories to manufacture specific designs, and sometimes raw materials.

Production costs in the garment industry have increased due to the higher cost of raw materials, electricity costs, textiles and accessories. Garment manufacturers targeting the domestic market have had a difficult time as consumer behaviour has changed to focus on good quality at low prices. Many manufacturers have closed as a result. In 1996, there were 2,890 garment factories that reduced to 2,856 factories in 1997 and 2,742 factories in 1998.

The export of Thai wool, cotton and man-made fibre garments slightly decreased in 1997, but increased in 1998. However, the 1998 volume was not as high as in 1996. This was because Thai manufacturers became less competitive in low-cost garments from countries such as China and Vietnam. In regard to medium to high quality products, Thailand is still competitive with these countries.

Thai exports in wool, cotton and man-made fibre garments, 1996-1998
 
 

Products	1996 (Thousand units)	1997 (Thousand units)	1998 (Thousand units)
Garments of wool, cotton and man-made fibre and other textile materials	277,276.00	257,636.00	266,824.00
Jerseys, pullovers, cardigans, knitted or crocheted	30,708.00	36,784.00	42,854.00
Babies' garments	12,716.00	13,686.00	19,515.00
Brassieres, corsets and parts thereof	2,196.00	1,846.00	2,633.00
Pantyhose, tights, stockings, socks	3,820.00	3,193.00	3,476.00
Gloves	2,209.00	2,470.00	2,673.00

Source: Business Economics Department

Investment opportunities

The Thai textile and garment export industry is being squeezed by cheaper products from countries with low labour costs, mainly China, Pakistan and Vietnam, and by high quality products made from Italy, Indonesia, South Korea, Taiwan and Japan. To increase Thailand's competitiveness, Thai manufacturers have to add more values to their products. Therefore, there are still investment opportunities in the industry as quality must be increased, and production costs reduced. New investment is needed in design, product development and expertise in manufacturing.

The most important issue to be kept in mind for new investment in the industry is that product development and quality improvement must be the overriding goals so that products made in Thailand can compete with international manufacturers once the textile and garment trade is fully liberalised.
 

Contacts

Export-Import Bank
1193 Phaholyothin Road, Bangkok 10400
Tel 2713700 
Fax. 2713204
Home Page: http://www.exim.go.th

Business Economic Department, Ministry of Commerce
Ratchadamneon Klang Road, Bangkok 10200
Tel 2826171-9
Fax. 2800775
Home Page: http://www.dbe.moc.go.th/

Thai Textile Manufacturing Association
454-460 Sukhumvit 22 Rd., Bangkok 10110
Tel. 2582023, 258-2044

Textile Division, Foreign Trade Department, Ministry of Commerce
44/100 Sanambinnum-Nonthaburi Road, Bangkrasor, Nonthaburi 11000
Tel 5474806-10

Textile Industry Division, Department of Industrial Promotion, 
Ministry of Industry
Soi Tremit, Rama IV Road, Prakanong, Bangkok 10110
Tel 3920540-2
Fax 3810431
 
 
 
 

GEMS AND JEWELLERY

Gemstones and jewellery are major export products for Thailand, ranking in the country's top 10 export products. Thai gems and jewellery are well accepted in the international market because of the high skill level of the craftsmen. The market has expanded steadily over the years. However, since 1996, expansion decreased due to the decline of the world economy and high competition. Eighty percent of gems and jewellery production in Thailand is for export.

Overview

Most Thai manufacturers are small and medium size businesses. More than 50 percent of raw materials are imported, especially rough diamonds, which are wholly imported. Other imported raw materials are natural precious stones, and gold and silver. To promote the industry, the government has exempted import tariffs on gold, which was 35 percent, and liberalised the import of gold and platinum, for August 1999.

Due to the rapid expansion of the industry in the past decade. Thailand depended heavily on importing raw materials, notably from India, Sri Lanka, Myanmar, the United States, Switzerland, and Brazil. The range of countries resulted in wide price fluctuations. In the past few years, some of these countries developed the skills of their workforce, to the extent that they became major competitors to Thailand in low-end products. As a result, exports of some kinds of raw materials were reserved for domestic manufactrers only. This forced some Thai manufacturers to invest in mining precious stones abroad. However, they did not receive much support from the government.

The government has, however, supported the industry by exempting value-added tax on imports of diamonds and precious, as well as restructuring import tariffs to enhance Thailand's competitiveness and to promote the county as a centre of the gems and jewellery trade.
 

Exports

Thailand exports both natural and synthetic precious stones and jewellery. The export value in 1997 and 1998 increased 2.4 percent and 3.0 percent respectively.

Exports of Thai gems and jewellery
 

	1996 (Million baht)	1997 (Million baht)	1998 (Million baht)
Value of gem and jewellery exports	56,262.90	57,619.30	59,354.60
Value of gem and jewellery imports	43,686.60	36,419.00	37,902.00

Source: Business Economics Department

Jewellery exports have the highest value, while synthetic precious stone exports account for the least value. In the past few years, the value of some export products has gradually decreased due to declining demand: Diamonds by 21.4 percent and 16.8 percent; and pearls and precious stones by 8.1 percent and 3.4 percent. However, the value of jewellery and imitation jewellery has increased slightly.
 

Exports by product
 

	1996  (Million baht)	1997  (Million baht)	1998  (Million baht)
Diamonds	20,230.3	15,899.5	13,219.2
Pearls and precious stones	10,497.6	9,643.7	9,315.6
Jewellery	21,277.5	27,645.5	31,764.5
Imitation jewellery	1,816.5	1,909.1	2,553.0
Synthetic precious stones	451.0	524.5	504.2

Source: Business Economics Department

Major Thai export markets are the U.S., E.U. countries, Hong Kong, Japan and Israel. Imports from Japan decreased due to its inactive economy and higher consumption tax, which was raised from three percent to five percent. Thai exports of silver jewellery costing more than US$18 adozen lost GSP privileges in 1998.

Thai high-end gems and jewellery products have to compete with well-recognised brand names, such as Cartier. For low-end products, Thai manufacturers have to compete with manufacturers from countries capable of producing with lower production costs, such as India and Myanmar. These countries are regarded as strong competitors as they also have abundant natural resources of raw material and low-cost labour.

The Thai gems and jewellery industry faces the challenge of improving even further the skill of its workforce, especially in design, tool and dye work, and mounting. As most Thai manufacturers in the industry are small and medium sized, they tend to have high production costs and a high percentage of raw material loss, due to out-of-date technology. In addition, not much effort has been made to expand into new markets.
 

Imports

Imports of gems and jewellery into Thailand mostly include raw materials, such as diamonds, gold, synthetic and natural precious stones, silver, pearls and platinum. The imported raw materials is cut and made into jewellery, and then exported. Diamonds account for the highest volume and value of imports, which dramatically increased during 1998-1999. However, in comparing one-karat diamond costs in 1996, 1997 and 1998, it is clear that the cost per karat in 1997 and 1998 was lower. It can be assumed that the quality of imported diamonds in 1997 and 1998 was lower than 1996, since the demand for high-quality diamonds, for both domestic and overseas markets, decreased. The market focused more on low-priced jewellery. In contrast, higher imports if silver, natural and synthetic precious stones, and semi-precious stones reflected higher demand for jewellery made of these materials.
 

Imports of gems and jewellery to Thailand, 1996-1998
 

Products	1996		1997		1998
	Quantity	Value	Quantity	Value	Quantity
Diamonds (Karat)	7,135,049.00	22,838.00	205,727,390.00	17,299.10	355,687,399.00
Gold	47.00	12,289.50	204.00	11,648.20	135.00
Precious stones	175,706.00	3,311.10	1,055,672.00	2,551.40	4,289,032.00
Silver	461.00	1,800.60	525.00	1,961.40	950.00
Synthetic precious stones	414.00	709.10	357.00	937.70	2,455.00
Platinum	2.00	484.90	15.00	376.10	13.00
Pearls	12.00	640.10	10.00	266.10
Semi-precious stones	3,459.00	1,193.00	2,059.00	1,015.20	45,927.00
Other jewellery		420.30		363.80

Source: Business Economics Department
 

Investment opportunities

There are still investment opportunities in raw material sourcing to support manufacture for export since Thailand lacks abundant raw materials for the industry. In addition, since the industry has a reputation for its skilled workforce, there are opportunities to invest in further skill development, which will increase the quality of products and enhance the industry's competitiveness. Jewellery design is another area that coiuld provide goods investment opportunities.
 

Contacts

Business Economic Department, Ministry of Commerce
Ratchadamneon Klang Road, Bangkok 10200
Tel 2826171-9
Fax 2800775
Homg Page: http://www.dbe.moc.go.th/

Export-Import Bank
1193 Phaholyothin Road, Bangkok 10400
Tel 2713700
Fax 2713204
Homg Page: http://www.exim.go.th

Federation of Thai Industries
Queen Sirikit National Convention Centre Zone C,
4th Floor, 60 New Rachadapisck Road,
Klongtoey, Bangkok 10110
Tel 2294255
Fax 2294941-2
Home Page: http://www.fti.or.th

Thai Gem & Jewellery Traders Association
942/152 Charn Isara Tower, Rama IV, Bangrak, Bangkok 10500
Tel 2353039
Fax 2675237-8
 
 
 
 

SHOES AND PARTS

The shoes and parts industry in Thailand has existed for more than 150 years, buyt it was only after World War II that it began to contribute to the Thai economy. The industry is both capital intensive in terms of high technology, and labour-intensive as it needs a number of well-trained and experienced workers. The quality of thai shoes is widely accepted on international markets.
 

Overview

Currently, there are more than 3,000 shoe manufacturers throughout Thailand, ninety percent of which are household manufacturers. The remainders are medium and large sized manufacturers. Thailand produces four main kinds of shoes: Sports shoes, leather shoes, rubber and plastic shoes, and flipers and sandals.

Thai shoe factories manufacture for both the domestic and export market, at a proportion of 50:50. For the domestic market, the main product is shoes for students. For export, large factories are licensed to produce or make to orfder for well-known international corporation, such as Nike, Adidas, Reebok and Coverse. A few factories undertake their own design and manufacture for export.

The increasing cost of waves in Thailand has lessened the industry's competitiveness. In the past three years, most foreign investors have come from Taiwan and South Korea. However, they have begun moving their production bases to countries with lower labour costs, such as Vietnam. However, quality and on-time delivery remain Thailand's competitive advantage.
 

Exports

The volume of shoes and parts exported from Thailand has been decreasing since 1996, with the notable exception of leather shoes. China and Indonesia are Thailand's major competitors in the United States sports shoe market, while Italy and Brazil and major competitors in the leather shoe market.

In 1996, Thailand totally exported 193.5 million pairs of shoes, declining 18.95 percent, to 156.8 million pairs, in 1997, and to 128.8 million pairs in 1998. However, the value of exports increased from 33,544.10 million baht in 1996 to 35,305.9 million baht in 1997, and 38,362.5 million baht in 1998, largely due to the weakening of the baht.
 

Thai exports of shoes and parts, 1996-1998
 

	1996 (Thousand pairs)	1997 (Thousand pairs)	1998 (Thousand pairs)
Rubber or plastic footwear	50,079.00	41,318.00	18,473.00
Sports footwear	51,010.00	49,514.00	46,729.00
Slippers	73,891.00	47,818.00	43,957.00
Footwear with leather outer soles	12,636.00	11,236.00	12,574.00
Other footwear	5,872.00	6,887.00	7,095.00

Source: Business Economics Department

Since the weakening of the baht against major currencies in mid-1997, there has been an increase in the number of production orders from abroad. However, Thai manufacturers have not able to increase production due to liquidity problems and the domestic credit squeeze.

Some raw materials have to be imported, mainly from Taiwan, South Korea, and the U.S. The imports are subject to tariffs ranging from 10 percent to 20 percent, reduced from 40 percent in 1997. Although import taxes are partly refunded by the Customs Department, the procedure takes time, adding to the burden the manufacturers.

Thai major export markets were the U.S. and the European Union for sports shoes; Japan, China, Singapore and Hong Kong for rubber and plastic shoes; and Saudi Arabia, Kuwait and the United Araba Emirates for leather shoes. Exports in 1999 were expected to decline if Thai shoe manufacturers were not able to expand their markets following the decision by Adidas to move its production order from Thailand to China and Vietnam.

Since 1, January, 1997, preferential treatment of shoe exports from Thailand to E.U. countries was abolished. An anti-dumping action of a 25 percent imports tax rate for leather shoes costing lesser than US$11 was also imposed on Thailand products.

In order to develop the shoe industry in Thailand, there was an attempt to allocate soft loans through the Industrial Finance Corporation of Thailand (IFCT) for machinery replacement. The Shoe Industry Association of Thailand, with assistance from the Department of Export Promotion, hired Italian stylists to develop designs to help promote Thai brand names.
 

Imports

Thailand imports shoes mostly from South Korea, Japan, E.U. countries, the U.S., and China. Following the reduction of import tariffs, increasing numbers of shoes have been imported. In 1996, 1.29 million pairs of shoes were imported. This increased to 2.04 million pairs in 1997, and to 2.09 million pairs in 1998. The total value of import accounted 1,285 milion baht in 1996 and increased to 2,041.6 million baht in 1997 and 2,098.8 million baht in 1998.
 

Investment opportunities

Thai shoe manufacturers should invest more in product research and development, specifically in the sports shoe industry where Thai manufacturers have the expertise. This will help Thailand establish recognised brand names and penetrate into new markets and to obtain market niches in existing markets.

There are also investment opportunities in fashion shoes, where designs change frequency in line with fashion trends. Fashion shoes need not be of high quality. Rather, the emphasis is on trendiness and affordability. The investment required in this niche is for highly-skilled designing, which Thai manufacturers need to rapidly develop.
 

Contacts

Business Economic Department, Ministry of Commerce
Ratchadammoen Klang Road, Bangkok 10200
Tel 2826171-9
Fax 2800775
Home Page: http:/www.dbe.moc.go.th/

Export Import Bank
1193 Phaholyothin Road, Bangkok 10400
Tel 2713700
Fax 2713204
Home Page: http://www.exim.go.th

Federation of Thai Industries
Queen Sirikit National Convention Center Zone C,
4th Floor, 60 New Rachadapisek Road,
Klongtocy, Bangkok 10110
Tel 2294255
Fax 2294941-2
Home Page: http://www.fti.or.th

Thai Footware Association
1298 Soi Udomsuk, Suthisarn Road, Huaykhwang, Bangkok 10320
Tel 6934568
Fax 6934569
 
 
 

PLASTICS INDUSTRY

The plastics industry in Thailand has suffered in the face of the economic crisis. In 1997, many plastic factories had started installing new machines, which coincided with the economic decline and which resulted in an over supply in the local market, and declining consumer demand. Seventy-five percent of plastic production in Thailand is for the local market, although high quality products are imported.

During the first three months of 1998, five percent of medium and small-sized plastic factories closed due to liquidity problems. The Thai Plastic Association estimated that 20 factories were closed during that time. As a result, 10 percent of the plastic workforce lost their jobs. Various measures, such as a 50 percent reduction in salaries and cutting the number of shifts, were implemented in order to overcome the problem.

The loss in value of the baht, which caused higher costs of imported raw materials, encouraged manufacturers in the plastic chain to co-operate with traders, covering products such as basic raw materials, plastic chain to co-operate with traders, covering products such as basic raw materials, plastic pellets, semi-products, ready-made products, and moulds and dies. The traders offered lower prices to domestic manufacturers and improved their credit terms. This co-operation resulted in lower manufacturing costs, which increased the competitiveness of Thai plastic products in world markets.

Since the crisis, lack of luquidity has been a major problem for plastic manufacturers. To ease the problem, plastic producers with a sound and long-standing relationship with clients abroad - five percent to 10 percent of the industry - were paid in cash. Foreign shareholders in some plastic manufacturing companies assisted the companies in locating new financial sources; and some manufacturers were helped by clients in the form of raw materials. In addition, the government allocated some funding to assist plastic manufactaurers. However, the fund was not enough to satisfy all needs.
 

Problems

The declining demand for plastic consumer products and engineering plastics, higher electricity and infrastructure costs, the lack of adequate government protection for the domestic industry, and the lack of government support for enetry into new markets are major obstacles facing the Thai plastics industry.

On January 1, 1997, the import tariff for petrochemical products was reduced from 30 percent to 20 percent. On August 10, 1999, the government announced a series of economic stimulus measures. These included the reduction of import tariffs on 11 raw materials, such as silicone in its primary form and cellulose, from 40 percent to 10 percent. However, many of Thailand's export markets in the Asia Pacific region impose high import tax rates, which is a major obstacles to Thai plastic product exporters increasing the volume of exports in these countries. For example, plastic products have been included in Malaysia's exclusion list, with the import tariff rising from 30 percent to 117 percent.
 

Exports

Since 1996, Thailand's plastics exports have fallen into three broad categories:
 

• Plastic pellets

• Sacks, bags and film

• Foil and tapes.

The leading export destinations are ASEAN countries, European Union countries, the United States, and Japan. Seventy-five percent of plastic production in Thailand is for the local market.

Following the installation of new machines in plastic factories in 1997, the quality of plastic products has improved to the extent that they are well accepted in world markets. Exports of plastic products have expanded steadily. In 1998, the export volume increased 61.95 percent to 2,151,025 metric tons from 1,328,143 metric tons in 1997 and from 860,053 metric tons in 1996. The value of exports also increased steadily from 54,850.10 million baht in 1996 to 72,600.10 million baht and 97,155.70 million baht in 1997 and the following year.
 

Thailand's plastics exports
 

	1996	1997	1998
Plastic pellets	488,048.00	917,254.00	1,664,274.00
Sacks and bags of plastic	100,543.00	118,592.00	131,501.00
Film, foil, tape, strip and other flat shapes of plastic	165,790.00	174,280.00	184,904.00

Source: Business Economics Department

Production costs are major obstacles to improving the competitiveness of exporters in world markets. The costs of natural gas, raw materials, labour, electricity, water and domestic plastic pellets in Thailand are higher than in competitor countries.

Currently, Thai plastic producers have to compete with China and Indonesia in low technology products, such as plastic bags. However, the loss in value of the baht has enabled Thai exporters to compete with countries with lower labour-costs as plastic pellets are quoted in US dollars. Thai exporters also have had to compete with South Korean and Japanese companies dumping plastic pellets in Southeast Asia, which dramatically reduced prices.

In addition to high production costs, Thailand's competitors, specifically Malaysia, imposed high import tariffs and some technical barrers, which reduced  Thai competitiveness in the industry. In the E.U. market, Thai plastic products faced increased tariff rates, from 3.6 percent to 7.2 percent, while China still receives GSP privileges, and Malaysia has negotiated a free-tax export quota to E.U. countries.

However, because of good co-operation in an investigation into dumping, the DU reduced import tariffs on sacks and bags of polyethylene or polypropylene strip or the like from Asia, from 94.9 percent to 60.8 percent.
 

Imports

Major imported plastic products include high-quality plastic pellets; film, foil, tape, strip and other flat shapes; plastic bags and cases; and plastic household/office marticles. The total volume of imported plastic products in 1997 decreased 10.16 percent over the previous year, from 852,947 metric tons in 1996 to 766,290 metric tons in 1997, and a further 9.53 percent, 693,299 metric tons, in 1998. This was a result of a decline in domestic consumption and higher import costs following the weakening of the baht.

According to the ASEAN Free Trade Area (AFTA) agreement, import tariffs on plastic products to Thailand will be gradually reduced to zero percent in the near future. This will provide an opportunity for imported plastic products to complete with domestic Thai manufacturers.
 

New investment

GE Plastics has committed to building its first factory in Thailand; with an investment of US$20 million. It will produce engineering plastics to support domestic demand, as well as exports to the Indochina market, worth 7.5 billion baht a year.

Thai Petrochemical Industry (TPI) issued 1,500 million baht loan shares in order to expand its production base in countries other than Vietnam and Indonesia. It is considering Myanmar and China as new locations. TPI is also planning a joint venture with a U.S. based company in upstream production. The products will be imported to Thailand as production costs in the U.S. are lower than in Thailand, even factoring in transportation costs.
 

Investment opportunities

Thai exports are in a position to export high-quality plastic products to obtain niche markets in emerging countries that have a high consumption rate, such as China and Vietnam. In regard to domestic consumption, a sustained recovery in the automobile industry will increase demand for engineering plastics, which investors should develop domestic product quality in line with customer demand.
 

Contacts

Business Economic Department, Ministry of Commerce
Ratchadamneon Klang Road, Bangkok 10200
Tel 2826171-9
Fax 2800775
Home Page: http:www.dbe.moc.go.th/

Export-Import Bank
1193 Phaholyothin Road, Bangkok 10400
Tel 2713700
Fax 2713204
Home Page: http:/www.exim.go.th

Federation of Thai Industries
Queen Sirikit National Convention Center Zone C,
4th Floor, 60 New Rachadapisek Road,
Klongtoey, Bangkok 10110
Tel 2294255
Fax 2294941-2
Home Page: http://www.fti.or.th

Thai Plastic Association
127/2 Payamai Road, Somdejchaopraya, Klongsan, Bangkok 10600
Tel 4389457-8
Fax 4372850

MACHINE TOOL INDUSTRY

Machine tools are defined into two main categories. Metal cutting machines and metal forming machines. Metal cutting machines include electrical discharge machines (EDMs), machining centres, lathes, drilling, borning, milling, grinding and sharpening machines. Metal forming machines are mainly presses. The industry uses two levels of technology: Low to medium-level as in conventional machine tools and medium to high-level as in Computer Numerical Controlled (CNC) machine tools.

The most salient features of this industry are:

• Prior to the onset of the financial crisis in mid-1997, the domestic market for machine tools had enjoyed solid annual double-digit growths for seven years. In 1997, the industry experienced relatively stunted growth of seven percent, and dropped sharply in 1998 with a negative growth of over 30 percent.

• The machine tools market in 1998 was worth 15.9 billion baht, of which about 95 percent was imported.

• Japan is the largest supplier of machine tools to the Thai market, followed by Taiwan and the United States respectively.

• Thai-owned manufactaurers of machine tools lack modern technolgy to produce sophisticated machine tools.

• Foreign direct investment in this industry is relatively low because of the high project investment costs. Besides, the current import duty on finished machine tools is only three percent, making imported products highly competitive with locally-assembled machines.

Overview

The machine tools market in Thailand had an estimated value of 15.9 billion baht in 1998, a large decline by over 30 percent from the 1997 level. In 1999, the local machine tool market continued to experience negative growth, but to a lesser degree of under 20 percent, due to the slight recovery of the automotive sector - the largest industrial end-using sector - in the third quarter of this year.

By the year 2003, the machine tool industry is expected to grow at a faster pace than the country's GDP when the overall economy is projected to have fully recovered. Thailand, proven to be the regional production hub for the automotive industry, the major export base for electronics products, and a large producer of fabricated metal products - including tools and dies and mould - will continue to require large volumes of machine tools.

Three industries that account for over 75 percent of total machine tool demand in terms of value are the automotive, the electronics and the fabricated metal industries. The local industry has a great demand for presses, accounting for about a quarter of total machine tool consumption.

The manufacturing industry uses conventional and CNC machine tools for production processes and in-house maintenance. There is an ongoing trend to use CNC machine tools more and more in a cross-section of Thai industry. Sub-contractors that are using conventional machine tools will have to upgrade their equipment if they are to meet the increasingly stringent demands of original equipment manufacturers. However, cost-effective conventional machine tools are still in demand at the low-end market where some finished products do not need sophisticated machine tools.
 

Imports of machine tools

Over 95 percent of machine tool consumption in Thailand is met by imports. The country imported machine tools worth 15 billion baht and 6.2 billion baht in 1998 and the first seven months of 1999, respectively. Of these, used or second-hand machine tools represented around 20 percent.

Japan has perennially been the largest supplier of NC/CNC machine tools to Thailand. During the months of January to July of 1999, Thailand imported machine tools worth 3.9 billion baht from Japan or 61 percent of total CIF value, Taiwan was a far second at about 639 million baht or 10 percent. Conventional machine tools are mainly imported from Taiwan and China.

Between 1993-1996, imports of machine tools grew rapidly in the range of 10-50 percent. In 1997, when the baht was floated, growth slipped to seven percent and further declined to negative 35 percent in 1998.
 

Thailand's imports of machine tools, 1997-1999

	1997	1998	1999 (Jan-July)
Cutting Machines
EDMs	303	236	106
Machining centres	2,658	2,866	416
Lathes	3,016	1,396	985
Boring-million-drilling machines	3,063	1,194	889
Grinding machines	2,076	1,240	1,196
Other metal cutting machines	2,662	1,335	757
Forming Machines
Presses	7,677	3,927	1,591
Other metal forming machines	1,735	2,934	248
Total	23,190	15,128	6,186
Year-on-year change (percent)	7%	-35%

Source: Customs Department
 

Import duties on machine tools were reduced from 30 percent to five percent in 1990, and to only three percent starting August 1999. The government's intention is to stimulate the expansion of the industrial sector and create greater equality among all investors, not only the larger ones that have Board of Investment (BOI) privileges. However, the reduction has had a negative impact on local machine tool manufacturers who do not export and who cannot, therefore, take advantage of the duty drawback. Import duties on some core raw materials are still high,, making the cost of local assembly restrictive.
 

Exports of machine tools

Thailand's machine tool exports at FOB value grew by 20 percent per annum during 1990-1998. In the first seven months of 1999, machine tool exports were valued at 1,334 million baht. Exports of new machine tools account for 80-90 percent of total export value (in estimated 1,134 million baht during the same period in 199). The rest are used or second-hand machine tools, which are exported by large using companies to their affiliates overseas or damaged machine tools that are sent to foreign-based suppliers for repair.

In this industry, EDMs are the largest export-earners for Thailand. The latest available figures for 1999 (Jan-July) show that EDMs represent nearly 75 percent of the country's new machine tool exports.

Thailand's traditional export markets for machine tools are Japan, Germany and the United States, which together accounted for over 70 percent of exports in the first seven months of 1999.

Under the ASEAN Free Trade Area (AFTA) programme, some low-medium technology machine tols are being exported duty free to countries such as Vietnam, Indonesia, Malaysia, Myanmar and Singapore; at three percent duty to the Philippines; at five percent duty to Laos; and at 10 percent duty to Brunei (which will be reduced to five percent by 2000).
 

Thailand's exports of machine tools, 1997-1999

	1997	1998	1999 (Jan-July)
Cutting Machines
EDMs	1,113	1,470	841
Machining centres	231	294	99
Lathes	69	59	25
Boring-million-drilling machines	80	111	9
Grinding machines	344	394	174
Other metal cutting machines	65	126	17
Forming Machines
Presses	140	108	52
Other metal forming machines	74	44	118
Total	2,116	2,605	1,334
Year-on-year change (percent)	2%	23%	-

Source: Customs Department
 

Machine tool manufacturers in Thailand

There are 15 known manufacturers of machine tools in Thailand. They are either 100 percent Thai-owned or fully owned by foreign investors. Thai-owned manufacturers are mostly small-scale with family style management and using low to medium technology in their manufacturing processes to produce conventional machine tools. Very few Thai firms have developed or upgraded their technologies to produce CNC machine tools.

Only four manufacturers have received investment promotion from the BOI. Among these, three are foreign-owned manufacturers (two Japanese and one Taiwanese). They manufacture mainly for export making them less vulerable to the negative impacts of the economic crisis in Thailand. In fact, their products have become more competitive in the global market because of the loss of value of the baht against major currencies. They produce CNC cutting machine tools including EDMs, machining centres and grinding machines.

Core components such as controls and electrical devices are produced by their parent companies abroad, or by affiliated companies, for further assembly into finished machine tools in Thailand. Production is mainly by assembly, and end-testing for quality.

Thai Machine Products, producer of CNC lathes and milling machines, is the sole Thai company that operates with promotional privileges granted by the BOI.

Some products and services supportive to machine tool manufacturing, such as body castings, printed circuit boardes, electrolysis and machine parts, are provided by well established-large Thai sub-contractors.

Foreign direct investment in this industry is relatively low because of large project investment costs, mainly due to the need for high technology. Also, foreign investors' perception of an inadequate and unskilled workforce in the industry continues to be a barrier. Further, the low three percent import duty on finished machine tools has enhanced opportunities for foreign suppliers to export machine tools to Thailand at competitive costs.
 

Attractive government policies

The Department of Industrial Promotion organises over 60 training courses every year on various machine processes.

The BOi promotes machine tool projects locating in Investment Promotion Zones 2 and 3. In addition to the standard BOI incentives, machine tool production also qualifies for promotion under "Supporting Industries" which are eligible for special BOI incentives, including the rights to:

• Site the production facility in any location

• Obtain eight years' corporate income tax exemption

• Obtain 100 percent import duty exemption on machinery imports

• Obtain 100 percent import duty exemption on mould and die imports

• Have up to 100 percent foreign ownership.

BOI-approved investments in machine tools as of September 1999

Sector	No. of Projects	Investment
Cutting	4	744.5
Forming Type	0	-

Note: All four are operational
Source: Board of Investment
 

Contacts

The Meal Working and Machinery Industries Development Institute (MIDI)
Department of Industrial Promotion, Ministry of Industry
Tel 367-8001
Web Page: www.dip.go.th
Director: Khun Nanthapith Narksarn

National Institute of Skill Development
Department of Skill Development, Ministry of Labour and Social Welfare
Tel 691-8436-7
Director: Khun Ratana Kanchanadul

Bureau of Industrial Enterprises Development
Department of Industrial Work, Ministry of Industry
Tel 246-4300, 247-9502
Web Page: www.dip.go.th
Director: Khun Pramote Wittayasuk
 
 
 
 
 
 

COMPUTER SOFTWARE
 
 

Thailand's software industry is considered an exciting emerging industry, and a driver of the country on the road to increased competitiveness on world markets. According to research on the Approach to the Development of the Software Industry in Thailand conducted by the National Electronics and Computer Technology Centre (NECTEC), the industry is one of the sunrise industries that plays an essential role in the IT sector, as software is a key IT component.

The software industry will help the country move away from reliance on inexpensive labour and domestic raw materials, which in turn will give it a competitive advantge over low-cost labour countries that are increasingly challenging Thailand on world markets.

After the domination of the hardware industry in the 1980s are early 1990s, the software industry has increasingly become an integral part of the government's strategy to raise industrial standards in Thailand.

According to the Association of Thai Computer Industry and the Computer Association of Thailand, software products and services can be generally categorised into two types. The first is application software. This includes industry-specific applications and cross-industry applications (i.e. accounting systems/word processing, etc.). Secondly, system software (i.e. OS/GUI/LAN/system utilities, etc.) enables a computer or a communication system to perform fundamental machine-oriented or user interface functions.
 
 

Government policy

As development in the software industry had remained relatively small, in 1992 the government initiated a systematic approach to a national IT policy for Thailand - IT2000 which was included in the Eighth National and Social Development Plan (1997-2001). Part of IT2000 involved the establishment of a Software Park to facilitate the development of the software industry in Thailand.

The Software Park Project will carry various activities to benefit software developers in software production in order to increase the growth of domestic software and software related industry, and to bring the industry up to international levels in terms of quantity and capabilities. It will serve as a focal point for vendors and users, a centre for software industry infrastructure (i.e. high speed telecommunications/computer networks), a research and development centre for software production, and a centre for technical production, marketing consultation and educational training. It also aims to develop Thailand into a regional centre of software production; both for domestic and regional markets, and, in the future, for the global market.

In a furthe step to assist the local software industry, in April 1994 the government reduced import tariffs on software from 20 percent to five percent, and issued copyright laws to embrace the industry. In 1998, a Memorandum of Understanding for the Software Park Project was prepared. International software companies such as Microsoft, Oracle, Sybase, Intel and Sun Microsystems, and about 20 local companies have committed to the project. The project highlights software companies' participation in technology transfer, education, training, seminars, with focus on support of developing software itself, rather than simply concentrating on sales volume.

The government has assumed the role of co-ordinator with financial institutes to address the issue of granting loans to software companies. The development of the industry and the implementation of projects will ensure will ensure that the industry will be able to comply with the Information Technology Agreement, which takes effect in 2006.
 
 

Market trends

About 300 local software firms are in the software market, and 90 percent of them small and medium enterprises. Most of software sold in the market is limited to localisation of existing overseas packaged software, especifically games and educational software.

Thailand's spending on software was estimated at 13 billion baht in 1996, due to aggressive demand, particularly in localised software and customised software for the domestic market, according to the Association of Thailand Computer Industry. Following the depreciation of the baht and the collapse of the economy in mid-1997, many software companies have adopted new strategic business partners and undergone restructuring in order to remain competitive. After steady growth up to 1997 the market value dropped by 14 percent or 942 million baht, to 5,910 million baht in 1998, due in main to dininishing demand for hardware.

Packaged software accounted for approximately 5,910 million baht from 1997 for large-scale systems, 300 million baht for medium-scale systems, 300 million baht for medium-scale systems, and 780 million baht from small-scale, and 780 million baht from small-scale systems. Workstation software will be 720 million baht and PC-based system software is expected to be worth 2.7 billion baht. Most of the PC-based system applications in 1997 were desktop and 60-70 percent of PC services contributed to training in education sector, the Association of Thai Computer Industry says.
 
 

The competitive environment

Thailand's software industry faces a challenge from the influx of foreign software, which accounts for almost 100 percent of total consumption. The trend towards market liberalisation has also contributed to increased imports. With support from the government, however, more Thai-owned enterprises are participating in the market. According to the Board of Investment (BOI), between March and May 1998, 40 software companies submitted applications to invest in the country, led by Thai-owned companies, with total investment costs projected at 880 million baht. The projects would generate employment for 1,690 people.

Despite Thailan'd small market in comparison to developed countries, many major foreign software companies have chosen to locate in Thailand, such as Microsoft, Lotus, Oracle, Informix, Sybase, SAP and IBM. The leading software in the domestic market is Microsoft's, with a 90 percent share - Adobe (i.e. Photoshop and Pagemaker), Lotus, Symantech and Macro Media. The most popular programs are World Processing and Spreadsheet.

In line with the trend towards netwok services, the pattern of software use is likely to shift to application servers. Internet nodes, forecasted to rise to 100 million baht by 2000, play a significant role in the structure of an organisation and the changing the way in which IT is used. This offers opportunities, particularly in increased investment.
 
 

Contacts

Computer Association of Thailand
128/61 6th Floor, Phayathai Plaza Building, 
Phayathai Road, Rachtevee, Bangkok 10400
Tel 2165860-2

National Electronics and Computer Technology Centre
NSTDA Building 73/1 Rama VI Road, Rachathewi, Bangkok 10400
Tel 6448150-99
Fax 6448137-8
Home Page: http://www.nectec.or.th

Board of Investment
555, Vipavadee-Rangsit Road, Jatujak, Bangkok 10900
Tel 5378111
Fax 5378177
Home Page: http://ww.boi.go.th
 
 
 

THE LOGISTICS INDUSTRY
 
 

Recently, Thailand's private sector has faced serere competition in international markets. This has placed mounting pressure on the supply chain, which was devastated in the wake of the economic crisis that broke in mid-1997. An efficient supply chain relies on logistics and distribution, not just as a supplement to business operations, but as its strategic heartbeat.

In the past five years, global management trends have emphasised the need to incorporate customer focus into logistics strategies. This has led several international corporations, particularly in the consumer products sector, to overhaul their logistics processes in order to create further competitive advantages. In Thailand, several large international corporations have adopted Efficient Customer Response (ECR) principles to increase flexibility and to effectively respond to fast changing consumer preferences.
 

Government policies

The planned privatisation in the transportation sector should lead to improve market mechanisms. Although delayed in the past, we expect the International Monetary Fund economic recovery plan adopted by Thailand to help revitalise the privatisation programs of Thai Airways International (THAI), the Express Transport Organization (ETO) and Thai Maritime Navigation (TMN).

It is worth noting that the end of any monopolistic positions is an essential step in this process. Again, the decision of the Port Authority of Thailand to revoke the ETO's exclusive right at the Bangkok port illustrates that the government encourages initiatives from the private sector, and wants to establish improved market practices.

In line with liberalisation trends, the State Railway of Thailand (SRT) has started to award contracts for various kinds of train services to the private sector. In 1997, the SRT permitted the Banpu Group to operate cargo trains, especially those carrying minerals. More recently, the SRT hired international consultants to study the feasibility of privatising container train operations. The SRT will also suggest that the government allow the private sector to play a dominant role in funding the construction and the management of the planned Inland Container Depots (ICD).

To build the competitiveness of Thai industry, to reduce the cost of operations, especially concerning inventory and transportation costs, and to promote Thailand as the business hub of Southeast Asia, the Board of investment (BOI) announced in June 1998 that logistics activities would be promoted. Effective 1999, the BOI is promoting logistic centres under Category 7.4 of its "List of Promoted Activities." The conditions are as follows:

Projects must have modern distribution centres, which maintain BOI approved computerised systems.

Shareholding requirements will not apply if the project primarily services international business.

Approved projects will receive import duty exemption for machinery regardless of zone.

The length of income tax holiday will depend on the zone in which the project is located.
 
 

Competitive situation and prospects

Market of logistics business

Generally, despite the economic slowdown, the market has the potential to expand dramatically. This is because the baht's depreciation will facilitate a growth in exports, and the increased use on the part of private firms of commercial documents and small goods that need urgent delivery. The market for the courier business grew by 10 percent in 1998.

In recent years, many overseas service providers have settled in Thailand, such as FedEx, DHL, UPS and TNT. Their sevices are more likely to concentrate more on international routes than domestic ones. Among these players, DHL has 40 percent of the market, followed by FedEx, UPS and TNT, DHL, with the biggest market share, plans to invest 10 million baht in five years in an Express Logistic Centre, in addition to its existing Service Centre.

Besides these players, Japanese firm Yamato has succeeded in providing a logistic service for the domestic automobile industry, notably Toyota. Given Thailand's position as the centre of the automobile industry in Southeast Asia, logistics for the automobile business is becoming increasingly important. Several firms have invested in their own logistics projects, such as Honda, Mitsubishi, Ford and Mazda. Similarly, logistics for the retail business is becoming increasingly competitive. Many foreign operaors have moved into the business, driving local firms to seek strategic alliances to survive. Measures include adopting advanced technology, forming joint ventures, or becoming sub-contractors with leading overseas operators.
 

Logistics business promotion in Thailand

Thailand's logistics business accounts for approximately five to six billion baht per year. It is expected to grow by 10 to 15 percent in the next four years. The policy of large manufacturers to outsource has been a major factor in the growth of the logistics service business. Cost-cutting during the economic recession and the promotion of exports has also contributed to the growth of the logistics business.
 

Skills development

Most international companies face the crucial challenge of transferring their technologies and know-how to their local subsidiaries, and ultimately to their employees. The related issue at stake is the ability to comply with initial contractual commitments made to customers, and confirm the higher performances supposedly achieved by specialised service providers.

The ned for initial high investment in training, combined with the high ratio of expatriates it requires, leads to higher entry costs with a presumably minimum of a five-year financial recovery period for start-ups.

Global changes in distribution patterns hve recently spawned innovations in the logistics industry in Thailand. The Efficient Customer Response is one such example. ECR is a broad set of principles that had a key impact on the entire supply chain of international consumer products companies, and ultimately on their general business performance. The concept, which first started in Thailand in 1996, seeks to leverage the strengths of the logistics process to bring quality products to the ultimate consumer in the most efficient and effective manner possible.
 

Contact

Board of Investment
555 Vipavadee-Rangsit Road, Jatujak, Bangkok 10900
Tel 5378111
Fax 5378177
Home Page: http://www.boi.go.th
 

E-COMMERCE
 

Electronic commerce is defined as doing business electronically. This includes the sharing of structured or unstructured business information by any electronic means (such as electronic mail or messaging, World Wide Web technology, electronic bulletin boards, smart cards, electronic funds transfers, and electronic data interchange). The sharing can take place among suppliers, customers, governmental bodies, and other partners in order to conduct and execute transactions in business, administrative, and consumer activities.
 
 

Types of E-commerce

There are two main types of E-commerce: business to consumer and business to business.

Business to consumer:

• Site look and feel is important, with an emphasis on design and graphics

• These sites are more willing to include

• Need for more varied "shipping metaphors"

• Typically require only a credit card buying model

• No requirement for follow-on transaction activity

• No EDI, only fax or E-mail notifications.

Business to business:

• Need to limit site access to authorised trading partners

• Multiple order types, including POs

• Multiple payment types: credit, procurement card

• Support for multiple buyers in process, routing and review of POs

• Support for various pricing approaches

• Multi-tier, RFQ, BID/ASK, etc.

• Integration with business processes: both buyers and sellers

• Potential need for EDI links as well as transaction work flow.

Opportunities that exist in Thailand

It is predicted that at the beginning of new century, E-commerce business will be worth around US$300 billion, according to the World Trade Organisation. The National Electronics and Computer Technology Centre (NECTEC) reported that Thailand now has 400,000 - 600,000 individual Internet subscribers and. Since the commercial service was started in 1995, about 50,000 host computers have been connected to the Internet and 2,500 domain names have been registered.

The E-commerce industry in Thailand grew strongly in the 12 months prior to the third quarter of 1999, and is expected to increase rapidly over the next three years. Industry experts predict that the E-commerce industry in Thailand will be worth about US$7 million baht (US$15 million) by 2003, according to a report by Thammasart University in Bangkok.

The opportunity of E-commerce business to become popular in Thailand arises from many factors, such as the local influence of E-commerce applications by multinational companies, changes in consumer behaviour to be concerned in the Internet, and the benefit of E-commerce in selling to large markets at lower cost.

Despite the increase in the use of the Internet in Thailand, there is a shortage of Internet consultants and experts to help build web sites. Position that are in short supply are web designers, web programmers, Internet networking service providers, web hosting service providers and web marketers. Nevertheless, Lehman Brothers Asia has noted that Thai companies should start using E-commerce sooner that later. Export businesses, government organisations and the education sector have increasingly made use of the Internet. In the latter sector, Thailand's School Net project seeks to enable every school in the country to access the Internet by 2002.
 
 

Thailand's E-commerce market

In comparison to the world leaders such as the United States and Europe, the Asian marmet is still developing in terjms of E-commerce business, and growth is expected to be upward. Of11 Asian countries studied, Thailand is deemed as one with a high potential market, according to a study by Anderson Consulting and the Economist Intelligence Unit.

In the early stages, it is expected that business to business E-commerce will be significantly bigger than business to consumer services. Business to business services will take the form of market research information, financial services, web hosting and design, cosulting, and generic business data.

Initially, local banks and financial institutes have implemented Thailand's business-to-business E-commerce more than trading companies. However, many retailers, including telecommunications firms, consumer product distributors, freight-forwarders, direct-selling companies and advertising agencies, have expressed keen interest in E-commerce business as an essential distribution channel to sell goods and services. These include TNT, a leading freight-forwarder, 7-Eleven convenience stores, the direct-selling firm Amway, and Ogilvy & Mather, an advertising company.

Concerning business-to-consumer E-commerce, the outlook is one of market expansion. In 1999, more than 50 local software application companies developed E-commerce applications for business consumers, addressed by Informix Software - a leading US-based software house for database management and web-site development. In addition, hardware firms such as Informix, Compaq, IBM and Sun are addressing the needs of consumers wanting to trade on the Internet.

In terms of implementation, there are more than 100 small and medium enterprises advertising and selling on web sites. However, most of them use E-commerce more as a public relations tool. Only 20 or 30 local companies actively use full E-commerce functions in creating online shopping, from product display via online catalogues to online ordering and payment.

This is caused mainly by the lack of clear lgeislation and an authorised mediator between vendors and purchasers in the electronic trading system, and inadequate procedures for electronic fund transfers and data protection. Nonetheless, recently, a local bank launched the concept of a new electronic trading system and it is encouraging people to participate. Siam Commercial Bank is the first local bank to adopt financial transactions through E-commerce.
 

Government participation

As the country embarks on the path of E-commerce, it is vital that the government keep pace with developments.

In general, the government's promotion of E-commerce business can be viewed at two levels - domestic and internationa. At the domestic level, the government concentrates on impoving the infrastructure for E-commerce, including telecommunications, the Internet itself, payment systems, the legal framework, and a certification authority.

According to the Ministry of Commerce, five policies have been announced to prepare the country for E-commerce business:
 

• Building trust and confidence in the E-commerce environment

• Broadening the reach of E-commerce to the widest possible range of small and medium enterprises

• Decreasing or climinating barriers to conducting E-commerce

• Enhancing legal and technical operations and the trading environment for E-commerce

• Encouraging co-operative and collaborative activities with international organisations.

Given these stated policies, government involvement in promoting E-commerce is initially being facilitated through the establishment of a special organisation to run a pilot project. The government has set aside a budget of five million baht for the establishment of the project, which will allow local firms to conduct trials to see how their business can trade across the network.

The project's home base is an Internet site at http://www.thaicommerce.net. It aims to boost both business to business and business to consumer E-commerce. At present, about 3,000 local people are participating.

In addition to the trial project, the government has agreed to set up the Certification Authority (CA) to ensure the reliability of businesses engaging in E-commerce.

The government is also working on a number of laws on E-commerce: an E-commerce law, an electronic data interchange law, a privacy data protection law, a computer crime law, an electronics digital law, an electronics fund transfer law, and a universal acces law. They are expected to be ready in 2000.

To expand E-commerce business internationally, it has been promoted by the government under the ASEAN Supporting Industry Database (ASID). This aims to assist component manufacturing firms in dealing with customers throughout the world electronically. Currently, about 8,000 firms in ASEAN have registered with the database, which is being managed by the Thai Board of Investment (BOI). The target is 27,000 companies by 2002. In addition, the idea of tax exemption on goods and services sold electronically is being addressed as Thailand is obliged under the Information Technology Agreement (ITA) to have zero tariffs on electronica and IT products by 2000.
 

Contacts

Ministry of Commerce
Sanam Chai Road, Bangkok 10200
Tel 2258411
Fax 2242160
Home Page: http://www.moc.go.th

National Electronics and Computer Technology Centre
NSTDA Building 73/1 Rama VI Road, Rachathewi, Bangkok 10400
tel 6448150-99
Fax 6448137-8
Home Page: http://www.nectec.or.th

Board of investment 
555 Vipavadee-Rangsit Road, Jatujak, Bangkok 10900
Tel 5378111
Fax. 5378177
Home Page: http://www.boi.go.th
 
 
 
 
 

THAI RESTAURANTS
 
 

Given the international popularity of Thai cuisine, there are opportunities for Thai enterpreneurs to establish restaurant businesses abroad, and for Thai cooks and staff to work in Thai restaurants world-wide. The estimated number of Thai-restaurants around the world is more than 5,000. The Ministry of Commerce has set a target to increase this number to 8,000 by the year 2003.

The Ministry of Commerce has a program to promote Thai dishes through famous restaurants in the United States, Europe and Japan, namely Denny's, Howad Johnson, Sizzler, and Royal Horse, by adding various well-known fast-food Thai dishes, such as Pad Thai, to the main menu of these restaurants.

In addition to the food promotion, the Ministry of Commerce, in co-operation with the Deplartment of Skill Development under the Ministry of Labour and Social Welfare, has initiated a program to certify and develop the skills of Thai cooks seeking to work in Thai restaurants abroad.

The skills test is divided into three levels: Assistant Thai cook, Thai cook and Thai Chef. An applicant is tested on general matters, such as personality and knowledge of cooking Thai food. The tests take the form of both written and practical knowledge, and are held at the Dusit Thani College. The main criteria focus on the principles of good nutrition and health, cooking economically, selection and maintenance of tools, period of time spent finished dishes, and the ability to work safely. Since the beginning of 1999, approxdimately 30 applicants have been granted certificates.

Additional training is also provided depending on an applicant's specific requirements.

Information for entrepreneurs interested in investing in Thai restaurants abroad is available at the Department of Export Promotion, prepared by Thai Trade Offices abroad. Available information covers:
 

• General information on countries and cities

• Existing Thai restaurants abroad, with their locations

• Documents and capital required, as well as procedures in establishing a restaurant business abroad

• Procedures to bring in Thai cooks

• Work permits

• Required qualifications for cooks

• Minimum wages

• Taxation

• Laws

• Clients

• Famous Thai dishes

The above program is one of many created to enhance opportunities for Thai investment abroad and to service exports. It will undoubtedly serve generate profits in the industry, and to publicise Thailand in general.
 

Contact

Department of Export Promotion, Ministry of Commerce
Rachadapisek Road, Lad Yao, Chatuchak, Bangkok 10900
Tel 5115066-77
Home Page: http://www.dep.moc.go.th
 
 
 
 
 

ENTERTAINMENT BUSINESS
 
 

The Department of Export Promotion (DEP) of Thailand, which falls under the Ministry of Commerce, specifically promotes the export of Thai entertainment products and services to foreign markets.

These include movies, music, animations, multimedia, movie production services, music production services, photo gallery libraries, radio programmes, film shooting equipment rental services, studio rental services, television programmes, concert and fashion show organisation, and after filming services.

From November 26-28, 1999, the DEP hosted the first Bangkok Entertainment Show Thailand'99 (Best'99). The event serves the dual functions of exposing the Thai entertainment business to foreign markets, while at the same time making Thai businesses aware of opportunities abroad.

The DEP has also offered to create a domain on its web site for Thai entertainment companies. This will make it easier for foreign companies to access information on the state of the industry in Thailand.
 

Films

The majority of Thai-made films exported are cultural, general documentaries, movies and advertisements. The former two mostly go to Australia and Japan. Thai movies, produced by companies such as Five Star Enterrainment Group Co. Ltd., are rental by companies from Hong Kong, Japan and Australia for broadcast in those countries. Advertisement films are mostly produced on order for customers in other countries.
 

Music

Thai music videos have featured on popular Asian music television programmes such as MTV. Thai pop songs and Northeastern country music cassette tapes are popular in Laos and Cambodia.
 

Opportunities within Thailand

Foreign companies choosing Thailand as a destination to make movies, videos and advertisements is a major source of income for the country.

In 1996, the industry generated 55,400,200 baht, increasing to 882,749,000 baht in 1997. The figure declined to 105,957,700 baht in 1998, while revenue for 1999 is expected to reach 368,263l,612 baht.

The Film Board of Thailand is the government agency responsible for monitoring foreign filming in Thailand. All applications to make films or videos have to be processed through the Board. Responsible government officers oversee the film/video production staff while they are in Thailand. The Film Board promotes filming locations through Tourism Authority of Thailand (TAT) offices, Thai embassies and consulates, and Thai Trade Centres. With foreign film-makers shooting in Thailand, the country has the opportunity to gain invaluable experience, while short-term work is also provided for crew, extras and support staff. Related businesses, such as transportation companies, hotels and the catering business also benefit.

The majority of foreign films made in Thailand are documentaries, followed by advertisement and promotion films, which includes still pictures. In volume terms, full-length movies are in the minority, but they generate the most revenue since they shoot for longer periods and employ more revenue since they shoot for longer periods and employ more people.

Japanese companies make the most documentaries in Thailand, while European companies and American companies mostly film full-length movies and advertisement and promotional films.
 
 

Contacts

Department of Export Promotion, Ministry of Commerce
22/27 Ratchadaphisck Road, Lad Yao, Chatuchak, Bangkok 10900
Tel 5115066-77
Tax 51210/9
Home Page: http://www.dep.moc.go.th

Tourism Authority of Thailand
Bamrung Muang Road, Bangkok
10100
Tel 6941222
Home Page: http://www.tat.go.th

Public Relations Department, Office of the Prime Minister
Soi Aree 7, Phahonyothin Road, Samsean Nai, Phayathai, Bangkok 10400
Tel 6182323
Home Page: http://www.prd.go.th