Japanese firms remain in Thailand 18 months after floods ravaged the country, and some are even growing their operations there. But many are hedging their bets by diversifying to Indonesia.
July 12, 2013
By Matt Rusling
When Thailand’s 2011 floods choked global supply chains and ground factories to a halt, media speculation was rife over whether Japanese companies would pack their bags.
The deluge flooded Bangkok – the home of most of Thailand’s industry and infrastructure – for months, causing production delays from Vietnam to Japan to North America.
But 18 months later, Japanese firms are ramping up their operations in the land of smiles, despite ongoing flood risks.
Foreign firms’ investments so far this year climbed 16 percent from the same period last year, with Japanese companies among the biggest foreign players. In a trend underscoring growing investor confidence, nearly 178 foreign enterprises have established new services and businesses in Thailand so far in 2013, according to Thailand’s Business Development Department.
Honda on Wednesday started construction of its new automobile production plant in Prachinburi Province, around 70 miles from Bangkok, at a cost of around $575 million. The plant is slated to become operational in 2015 and is expected to increase total output capacity in the country to 420,000 once the plant is completed.
Toyota spokeswoman Carly Schaffner told Borderless the car giant would remain in Thailand, forecasting continued growth in the company’s largest ASEAN production base after it exceeded 1.4M units in 2012.
Likewise, Nissan spokesman Paul Miles told Borderless the company considers Thailand its ASEAN business hub despite flood threats.
“There is no change in our strategy to keep Thailand as our strategic center for the ASEAN business,” he said, noting that Nissan in November announced plans to build an additional plant in Thailand.
Earlier this month Mazda announced it would invest nearly $300 million into a new company, Mazda Powertrain Manufacturing, and a new transmission plant in Chon Buri, around 40 miles from Bangkok.
Recent weeks also saw the Tokyo Chamber of Commerce sign a deal with Thailand’s Kasikorn Bank, which is expected to pave the way for more small and mid-size Japanese enterprises to enter Thailand.
Around 7,000 Japanese businesses operate in Thailand, making them that country’s largest foreign investors. And while flood fears have caused a handful to shift operations, experts said most will stay.
“(Japanese firms) will diversify investments to other countries, but they do not leave Thailand,” said Ibbotson Associates Japan President Nari Yamaguchi, emphasizing her opinions are her own.
As long as Thailand maintains the quality of its labor force, infrastructure and security, Japanese firms will remain, she told Borderless.
Diversifying to Indonesia
At the same time, however, many Japanese businesses are hedging their bets, with auto giants Honda and Toyota developing key export bases in Indonesia and pouring in hundreds of millions of dollars.
Indonesia shows “great promise in joining Thailand as the export hub of Asia,” said Japan External Trade Organization CEO Hiroyuki Ishige at a March symposium in Indonesia.
“Currently, we are seeing a boom in investment of Japanese companies in the country,” with gains spurred by Japanese automakers, he said.
He added that Japan’s investment value in Indonesia was up last year 60 percent year-on-year to around $2.4 billion.
Nissan spokesman Miles told Borderless the company is ramping up investment on the archipelago, and aims to tap the country’s growing customer base and Nissan’s second largest ASEAN market. The auto maker expects its market volume to grow 20 percent there by 2016, and passed the 1 million unit level last year, he said.
With a 200 million-strong population, many note the sheer size of Indonesia’s domestic market and labor force, both of which surpass those of Thailand.
Toyota Spokeswoman Schaffner added that the company’s two plants in Karawang are slated to expand annual production capacity early next year. The carmaker has positioned Indonesia as a key ASEAN production and supply base second only to Thailand, she told Borderless.
Still, studies find Thailand beats Indonesia in most categories important to businesses, and analysts said the archipelago needs time to beef up its ports, roads and other infrastructure in order to draw more foreign investment.
Flood control project faces delays
While floods remain remain foreign investors’ biggest concerns, Thailand has not yet implemented the infrastructure needed to prevent another deluge.
And in a new development that could worry investors, a Thai court last month derailed plans for an $11 billion flood control system amid concerns over costs and possible environmental damage.
The project, which included plans for reservoirs and flood management infrastructure, could be delayed at least six months pending hearings, Thai media reported.
“Bangkok is at a very low lying area, all the industry is located in Bangkok,” said Vikram Nehru, a Southeast Asia expert at the Washington-based Carnegie Endowment.
“They haven’t invested appropriately in flood control,” the 20-year World Bank veteran told Borderless.
Moreover, a Jetro poll taken a year ago found half of Thailand’s Japanese businesses considered shifting their bases to Indonesia or Burma at the 2015 launch of the ASEAN Economic Community, when Thailand may face still competition from neighbors.
Photo Credit: Pixabay
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