(source: Thailand Investment Review, February 2016)
Thailand’s E&E Industry Flourishes
Thailand's dynamic Electrical & Electronics (E&E) industry is expanding to even greater heights, strengthening the country's position as a leading production base in Southeast Asia. Equipped with high output manufacturing facilities and backed by supportive government policies, this industry is a major export earner, contributing significantly to Thailand's national economy. In 2015 alone, the total export revenue earned amounted to THB 2 trillion (USD 54 billion), which accounted for 15% of the country’s Gross Domestic Product (GDP).
Since the inception of the first electronics factory in 1962 that assembled radios and televisions, the industry has grown in steps and bounds over the past five decades. According to the President of the Electronic and Computer Employers’ Association, Dr. Sampan Silapanad, Thailand is recognized for its manufacturing excellence and the capable management teams of companies in this industry can be relied upon to lead them into new directions.
Local Production Power Attracts Investors
As one of Thailand’s leading industries, this sector offers many lucrative opportunities for investment and growth. Its collective export value factors in prominently, accounting for 24% of Thailand’s total annual export revenues in 2015. The export values of electrical appliances and electronics were THB 803 billion (USD 22 billion) and THB 1.1 trillion (USD 32 billion) respectively.
Thailand’s solid reputation as one of the largest electrical appliance producers in ASEAN can partly be contributed to competitive labor costs and skilled manufacturing competencies. Air conditioners and refrigerators are two of the leading exports in the electrical appliance category and many top-level foreign firms have established a base of operations in the country. At present, Daikin Industries, Mitsubishi Electric Consumer Products and Fujitsu General are the three biggest players in the field when it comes to air conditioner production and exports.
Quite a few investment opportunities exist in the thriving air conditioner production segment. The demand for air conditioners continues to grow, as evidenced by the steadily increasing production volumes for three types of air conditioners. From 2005 to 2015, the Compound Annual Growth Rate (CAGR) for air conditioner separate type condensing units and air conditioner separate type fan coil units was 9% each; air conditioner compressors demonstrated a CAGR of 3%.
Thailand’s electronics industry continues to successfully forge ahead. The country is renowned for being the second largest global producer and exporter of data storage units like Hard Disk Drives (HDD). HDDs are the highest produced electronic item with a CAGR of up to 31 % (2005–2015). The HDD segment experienced a 7% growth in export value as measured from 2011, reaching an impressive figure of THB 430 billion (USD 12 billion) in 2015. Western Digital and Seagate are two of the major players in this thriving market. Other foreign companies, such as Fujitsu, LG Electronics, Sony and Samsung have also established local facilities for a variety of purposes ranging from production and assembly, to testing and Research &Development (R&D) in Thailand.
New Investment Opportunities in the E&E Industry
Thailand’s focus on innovation is opening up more exciting opportunities for further investment. Market shares for an inverter air conditioner type are expected to increase in the electrical sector. The demand for home appliances such as washing machines and Light-emitting diode (LED) bulbs is also growing. Dr. Silapanad believes that there are excellent opportunities for more HDD production since its growth rate has increased up to 40% due to the high demand for quality products and the increasing usage of cloud storage.
The global integrated circuit (IC) market also witnessed continued growth due to the high demand for ICs fostered by technological innovation. Aside of the existing investment opportunities in both microelectronic devices and HDDs, Thailand’s focus for the future involves developing smart gadgets and smart devices and these areas remain largely untapped.
Putting it All Together
Many foreign companies continue to favor Thailand for its world class industrial capabilities with efficient manufacturing processes, cost-saving labor and readily- available expertise. It’s excellent location, vast cornucopia of resources and vibrant industrial environment continues to put Thailand at the forefront when it comes to business. As one of the most dynamic economies in Southeast Asia, the future prospects for Thailand’s E&E industry look promising.
Thailand offers many benefits to electrical appliance and electronic producers. With decades of experience and tightly focused supporting clusters that facilitate collaboration between various supply chain activities, investors can expect a smooth business flow. Thailand also possesses a large pool of skilled workers drawn from 60 collaborative networks between government and accredited educational institutions. Many research centers and institutes were specially initiated to provide and support both in-house and public training for the Thai work force. Thai labor rates are also fairly competitive. From 2013-2014, Thailand’s salary growth rate rose by only 5%. That is quite low, compared to its neighboring countries. For instance, Vietnam and Indonesia’s salary growth rates are 8-11% and 11-16% respectively1. Finally, the government provides numerous incentives to investors in the E&E industry. As one of the most promoted sectors in the super cluster policy, investors can apply for many attractive tax and non-tax incentives.
Cluster Policy Spurs Thailand's Electrical and Electronics Industry Forward
Thailand’s Electrical and Electronics (E&E) industry has grown in leaps and bounds over the years achieving significant milestones. Consistent support from the government has helped the industry move forward sustainably and the Government’s new cluster policy provides further impetus for growth. Investor’s interest in making investments in the E&E industry remains strong as evidenced by The Board of Investment (BOI) data: 215 foreign projects were approved in 2015, with a total investment capital of THB 106 billion (USD 2.9 billion).
The cluster policy aims to support advanced technology activities and future industries, and encourages targeted industries to locate to manufacturing-based areas and areas with potential. Its main objective is to strengthen the industrial value chain, attract value-added investment, decentralize developments to local areas and create business opportunities for Small and Medium-Sized Enterprises (SMEs). As for the bigger picture, clustering aims to enable industries grouped together to forge beneficial links and potentially confer support and advantages to each other within cluster compositions, ultimately enhancing the country’s industrial competitiveness.
BOI tax incentives for the E&E industry which belongs to the Super Clusters category, include an 8-year corporate income tax exemption and an additional five-year reduction of 50%. Additionally, for future industries of significant importance, the Ministry of Finance will consider granting 10-15 years of corporate income tax exemption. There’s also an exemption of import duty on machinery. Some incentives under consideration include personal income tax exemption for renowned specialists (both Thai and foreigners) to work in specified areas and granting permanent residence to leading specialists. Non-tax incentives include permission for foreigners to own land to implement promoted activities and support to obtain visas and work permits.
The approval criteria for BOI cluster incentive packages include:
- activities classified under eligible BOI categories
- projects located in the designated provinces for each relevant cluster
- projects having cooperation with academic institutions/ research institutions/ centers of excellence in the designated areas e.g. Talent Mobility/ Work-Integrated Learning/ Co-operative Education/ Dual systems or other human resource or technological development cooperation as approved by the BOI
Applications must be submitted within 2016 and production needs to commence by the end of 2017.
The Work-Integrated Learning (WiL) program for instance, is a program initiated by the National Science Technology and Innovation Policy Office (STI). It is a blueprint for the workforce development policy, which aims to tackle the skilled labor shortage problem long-term, by producing vocational and undergraduate level workers who are well-qualified for their respective industries. The end goal is to have a successful collaboration between the industrial sector, educational sector and public sector. One of the pilot foreign companies in WiL includes the Siam Michelin Group. The STI’s WiL program targeting high-school graduates aims to supply 50,000 skilled workers to the industrial sector within the next 5 years.
Furthermore, in a move to shift the industrial sector from a labor-intensive model to one that employs advanced technologies, the government has identified 10 targeted industries that are expected to be the economic engines that drive forward future growth. ‘Smart electronics’ is one of these industries, and with the government’s focus on increasing the adoption of smart devices, the E&E industry looks set to skyrocket forward.