(Source: Thailand Investment Review, February 2019)
On the back of seemingly relentless technological advancements, the electronics and IT industries have been experiencing a steady growth in global production over the past few years. According to the Japan Electronics and Information Technology Industries Association (JEITA), it is estimated that the industry expanded by 4% in 2018 to reach a value of USD 2,836.6 billion.
In line with the global growth in the electronics and IT industries, Asia remains a strong base for electrical and electronics (E&E) production, with China being the largest E&E producer globally. Asia is also the largest market for E&E, accounting for around 55% of all sales according to the Electrical and Electronics Manufacturing Global Market Report 2018 by Reportlinker.
Strong production and export base
With the largest E&E manufacturing base in the ASEAN region, Thailand was ranked as the world’s 13th largest exporter in 2017, according to the Bank of Thailand. The country was also reported to be among the world’s top 10 exporters for 6 electrical appliances, including air conditioners (2nd), washing machines (2nd), microwave ovens (3rd), compressors (6th), refrigerators (7th), and rice cooker (8th). Apart from home appliances, Thailand is also one of the world’s largest manufacturers of hard disk drives (HDDs). In 2019, the HDD segment is expected to reach an approximate export value of USD 12.6-13.1 billion.
Another major product of Thailand’s electronics industry is integrated circuits (ICs). The country is home to many global IC producers operating with advanced assembling technology. According to the Observatory of Economic Complexity, with an export value worth USD 12 billion, ICs accounted for 5.6% of Thailand’s total export value in 2017 with the main export markets being China, Hong Kong, and Singapore.
Thailand’s competitive advantage
As reported by the Office of Industrial Economics, nearly three quarters of the total output of Thailand’s appliances is for the export market. Against this backdrop, Thailand’s Free Trade agreements (FTAs) remain highly relevant to the competitiveness of the industry. The 12 Free Trade Agreements (FTAs) implemented by Thailand enable businesses in the country to earn the rewards of almost tariff-free trade with 17 different nations through both bilateral and multilateral agreements. Through these FTAs, almost all E&E parts can be imported tariff-free into FTA partner countries.
Apart from the FTAs, Thailand also offers a workforce that is not only cost competitive but also trained in the relevant skills. More than 700,000 workers are employed in the country’s E&E industry, including over 40,000 graduates with diploma certificates or higher qualifications in engineering, manufacturing, and construction as of 2017. To ensure Thailand’s education system continues to produce careerready graduates, the Thai government has launched, among others, the “Work-Integrated Learning Program” (WiL) with the aim of supplying an additional 50,000 skilled workers to the industrial sector over the next five years.
Bright investment Opportunities
Smart electronic devices are increasingly serving a variety of functions in modern homes and buildings, including security,energy efficiency, appliances, and entertainment. Through the Internet of things (IoT), devices and home appliances are equipped with software, sensors, actuators, and connectivity, allowing these devices to connect, interact, and exchange data. For example, a refrigerator with built-in sensors can alert inhabitants when the milk is about to run out. According to data and analytics firm, Global Data, the global IoT market is projected to reach USD 318 billion by 2023 at a compound annual growth rate (CAGR) of 20%, reflecting growing demand and higher adoption rates among consumers worldwide.
While Thailand’s robust electronics industry enables it to keep pace with the latest developments in smart electronics and IoT technology, the country’s strong digital infrastructure opens up a ready-made market. With an estimated 41 million people (around 60% of the population) connected to the internet, Thailand’s high Internet penetration provides huge potential and a solid foundation for electronic products with IoT technology.
In addition, the Thai automotive industry represents another promising industry contributing to the demand for electronics as the new generationof cars are increasingly equipped with electronics such as smart sensors, car navigation systems, and airbags. In fact, cars remain the product with the highest density of electronic components among all consumer machines. With that in mind, Thailand’s massive automotive production provides a huge market opportunity as the country produced 1.94 million units in 2017, while it was reported by the Asia Times that over 112 million sensors were used in the automotive industry in Thailand in the same year.
The BOI's incentives
Under section 5 of the general list of activities eligible for promotion, the Thailand Board of Investment (BOI) offers various incentives aimed at activities in the E&E industry. For example, activities involving the integration of high technology-such as the manufacturing of advanced technology electrical products with the ability to connect to the Internet of Things or with circuits or operation control systems, processing systems, embedded systems or embedded software-will be granted an 8-year corporate income tax (CIT) exemption provided that the product has its own design process. For the manufacturing of products without their own design process, such activity will receive a 5-year CIT exemption.
Apart from the incentives for activities involving the integration of high technology, the manufacture of electrical parts and/or equipment used for industry will receive a 5-year CIT exemption under the condition that the activity has its own product design, with a 3-year CIT exemption available if the activity does not have its own product design. Activities involving electronics design, including microelectronics design and embedded system design, may also receive an 8-year CIT exemption with no cap. Manufacturing telecommunication products is also eligible for at least a 5-year CIT exemption, while the manufacture of emission, transmission and reception devices used in fiber-optic and wireless communication systems is eligible for a higher-tier incentive with an 8-year CIT exemption. The incentives under section 5 also include the manufacturing of embedded software which qualifies for an 8-year CIT exemption with no cap, while digital services such as Software platforms, digital architecture design services, or even Fintech will also receive a 5-year CIT exemption. Meanwhile, the BOI also offers non-tax incentives including the permission to own land, to acquire relevant visas/work permits for foreign staff, and to take out or remit money abroad in a foreign currency.