(source: Thailand Investment Review, September 2015)
The development and implementation of machinery was responsible for one of the great advances in human history, the industrial revolution. Machinery encompasses a vast range of products, ranging from huge industrial machines costing millions of dollars to the common lawn mower, but all machinery has one common defining feature: it either reduces or eliminates the amount of human work required to accomplish a task. Machinery plays a key role in the production of much of the country’s goods and services because nearly every workplace in every industry uses some form of machinery. From the oil derrick that pumps out oil to the commercial refrigerator in use by your favorite restaurant, machinery is mainly responsible for the way we live today. Thus, while most people never use or even see the machinery that makes their lifestyle possible, they use the products it makes every day.
Thailand’s machinery and metalworking industries currently employ a labor force of around 400,000 people and consist of approximately 50,000 enterprises. The limited supply of domestic high-end machinery and parts has left downstream Thai industries to look for imports. Machinery and parts currently rank in Thailand’s top five most imported goods with 694 billion baht worth imported in 2014. Japan was the primary source with 24.6% of the total, followed by China (21.3%) and the US (9.4%). Electrical machines and apparatus with individual functions (E&E) were the leading products with US$44.87 billion imported in 2014. Opportunities exist for suppliers to capitalize on this growing demand for more sophisticated machinery by providing domestic downstream industries with a local source.
Thailand’s status as a regional export hub allows local machinery and parts suppliers to benefit from the economic growth of its neighbors. Exports have grown 243% since 2004 (143 billion baht) to over 491 billion baht in 2014. Rapid development in the region coupled with favorable trade relations after the signing of the ASEAN Free Trade Agreement (AFTA) sparked this recent rise in Thai machinery and parts exports. The trend of export growth looks likely to continue as demand from developing nations such as Vietnam, Malaysia and Indonesia grows.
While Thailand is certainly a large producer of agricultural goods, it has also shifted to being a producer of packaged and processed foods. Due to this shift, there are ample opportunities available in the manufacturing of a number of different types of agro-machinery. For instance, there is a high demand for drying, cooling and purifying machines; fruit, vegetable and cereal processing machines, and also for animal feeding. With more than 10,000 food-processing companies operating, a high demand for packaging machinery has been created such as for filling, closing, sealing, wrapping and labeling machines. In 2014, 12.7 billion baht was spent on importing machinery into Thailand for this purpose, and 1.65 billion baht was spent on machinery for the preparation of meat and poultry.
Major imported food processing and packaging equipment generally originates from Japan, China, Germany, Italy and the United States. Japanese machinery leads the market with a 22% share of total imports. Imports from China dominated the low-end segment with 20%. Imports from Germany account or 12% share of the market, mainly at the higher end. Products from Italy and the United States each account for a 5% share of total imports.
Growth in Thailand’s automotive and E&E industries is expected to fuel demand for modern machine tools. Automotive and auto parts firms are the biggest buyers of machine tools, purchasing 35% of the domestic market. The supporting metalworking industry follows with 27% while the E&E industry buys 14%. With a limited number of domestic enterprises specializing in the manufacture of machine tools, most of the demand is met by imports that totaled 90 billion baht in 2014. On the other hand, the top three exported categories of machine tools in 2014 were parts and accessories for machines; machine tools for the removal of material; and lathes for removing metal.
Reflecting a growing demand, Thailand’s market for computer numerical controlled (CNC) machine tools remains heavily dependent on imports, half of which come from Japan, and the machinery and metalworking industry is keen to source more of these sophisticated machine tools domestically. The top exported categories of CNC machine tools being lathes and horizontal lathes (including turning centers) for removing metal. Additionally, tooling for high precision machining processes is needed, namely cutting, milling, grooving, shaving, grinding, polishing and threading.
Thailand’s world-class downstream manufacturing industries have boosted imports of industrial machinery, while the industrial machinery industry itself has rapidly developed as an exporter. Imports in 2014 totaled 591 billion baht, marking an 84% increase since 2004 (321 billion baht). Printing machinery saw the biggest increase in the same year with a 42.7% rise to 81,937 million baht in 2014.
In the decade leading up to 2014, Thailand’s exports of industrial machinery more than tripled from 133 billion baht in 2004 to a level of 453 billion baht. The main export of industrial machinery was printing machinery, refrigerating & freezing equipment, and air or vacuum pumps, gas compressors and fans. Printing machinery was the greatest export gainer in 2014 with an increase of over 450% from 1.76 billion baht in 2004 to 81.9 billion baht.
Molds and dies are essential inputs for downstream manufacturing. With Thailand’s automotive and electronics/electrical appliances (E&E) industries expected to grow, the prospects for the mold and die industry are just as bright. According to a Thai Tool and Die Industry Association (TDIA) survey, there are approximately 1,061 mold and die factories in Thailand. Of these factories, 90% produce molds and dies for plastic and metal, while the rest produce those for rubber, glass and ceramics.
Local mold and die manufacturers are only partly able to meet the increasingly sophisticated demands of Thailand’s downstream industries. exported US$203.5 million mainly to Japan, US and China. Closing this trade deficit presents an investment opportunity in Thailand’s mold and die industry, which is made even more attractive by growing downstream sectors and supportive government policies.
Thailand’s machinery and metalworking industry is bustling with activity especially as the demand for more sophisticated machinery continues to grow. This scenario also presents many attractive opportunities for investors since local industries can offer only a limited supply of high-end machinery and its spare parts, thus making many companies look in the direction of imports. Machinery actually ranks as Thailand’s top five imported goods, with the suppliers being mainly from Japan, China and the United States, in that order.
There are manifold reasons to choose Thailand as a machinery and metalworking production base. For starters, the country boasts of a strong and stable business climate. Furthermore, with the ever-growing domestic demand, the government is encouraging the development of national machinery and mold and dye clusters. The Land of Smiles also is Southeast Asia’s largest vehicle producer, world’s second largest manufacturer of pickup trucks; global leader in HDD components, world’s fourth largest fabricator of air conditioners and, with the world’s 19th highest agricultural output, it is the biggest exporter of rice, sugar, cassava, processed chicken, canned and frozen seafood and processed pineapple products.
Thailand has successfully negotiated many free trade agreements with various countries. This is hardly to be wondered at, since the country offers a superb infrastructure with an extensive network of roads, efficient international airports and deep sea ports, first-rate telecommunications, coupled with a labor cost-effective workforce and a government that imposes no unnecessary restrictions on manufacturers. With the upcoming inauguration of the ASEAN Economic Community, it looks to be a favorable time ahead for Thailand’s machinery industry, especially as the growth upswing from neighboring countries like Vietnam, Malaysia and Indonesia strengthens.
The new seven-year BOI investment promotion strategy (2015-2021) contains three activities that are related to the manufacture of machinery, equipment and parts. They are categorized as follows:
Group A2 activities carry an eight-year CIT exemption as well as an exemption of import duty on machinery, and raw materials used in the manufacture of products meant for export, along with other non-tax incentives.
- Automation machinery and/or automation equipment with engineering design. The condition is that projects must have a design control system that uses an embedded system.
Group A3 activities carry a five-year CIT exemption as well as an exemption of import duty on machinery, and raw materials used in the manufacture of products meant for export, along with other non-tax incentives.
- Machinery, equipment and parts and/or repair of molds and dies. The condition is the projects must have a part forming process with an engineering design.
Group A4 activities carry a three-year CIT exemption as well as an exemption of import duty on machinery, and raw materials used in the manufacture of products meant for export, along with other non-tax incentives.
- Assembling of machinery and machinery equipment. The condition is that projects must have an assembling process as approved by the BOI.
Offering excellent institutional support, the Thai government is aware of the need to support the continued development of the machinery and metalworking industries, as well as the technological capabilities of its workforce. Thailand offers many resources for research and development (R&D), technical training and industrial organization, including:
- Thai-German Institute (TGI)
- National metal and Materials Center (MTEC)
- Bureau of Supporting Industries Development (BSID)
- Metal-working and Machinery Industry Development Institute (MIDI)
- Thai Tool and Die Industry Association (TDIA)
- Thailand’s Institute of Scientific and Technology Research
- Thailand-Japan Technology Promotion Association (TJTPA)
- Metals and Materials Research Center – Kasetsart University
Thanks to rapid industrialization, Thailand has a growing need for machine tools. Regarding the current state of the Thai economy, machinery and metalworking continue to play an important role. In fact, these are forecasted to grow. Without doubt, there is bright export potential for all ASEAN markets. Moreover, it is believed that the market for machinery and metal working technology in the Asia-Pacific will expand substantially in the coming decades. The launch of the AEC and the Thai government’s infrastructure projects will generate increased need for specialized machinery and metal parts to tap into regional growth and to move the national economy up to the next level of development. Indeed, Thailand has the potential to become the Asia-Pacific’s distribution hub for agricultural machinery to cater to increasing demand domestically as well as from ASEAN, India, Australia and Africa. What is certain is that investments in machine tools and metal parts will continue to prove lucrative into the future, as Thailand steadily evolves into becoming an added-value economy.