Japan recommends a Thailand+1 industry model

Although Japan is easily the biggest foreign investor in Thailand, a recent survey by the Japan External Trade Organisation (Jetro) discovered 73 percent of companies are concerned about rising labour costs in Thailand. To allay these concerns a Thailand+1 industry model has been proposed, and talks are well underway to look into the ways and means of achieving just such an economic structure that would benefit all parties.

Kiminori Iwama, the economic attaché at the Japanese embassy in Bangkok, said Thailand, Japan, and near neighbours such as Cambodia, Laos, and Myanmar would benefit greatly from a Thailand+1 arrangement.

In simple terms, Japanese businesses operating inside Thailand would transfer the labour-intensive parts of their production processes to special economic zones inside Cambodia, Laos, and Myanmar. These economic zones would be close to the common border with Thailand.

This would allow Japanese companies to retain their business profile in Thailand, but take advantage of the lower wages structures currently in place in Cambodia, Laos, and Myanmar, thereby reducing costs. This would also give Japan a base to expand into those three neighbouring countries.

For Thailand, the benefits would mean more high-tech companies would be likely to set up business here. As the secretary-general of the Thai Board of Investment (BoI) noted at a seminar held to discuss the Thailand+1 proposal, the country remains very competitive because of its strong production base, supporting industries, and supply chain.

When the ASEAN Economic Community (AEC) comes into being at the end of 2015, the BoI believes Thailand’s already strong position will be enhanced rather than reduced. Indeed, a survey of Japanese executives by Nikkei Business Publications claimed 85 percent had no intention of revising their investment plans in Thailand.

The BoI said Japanese businesses had placed 194 projects before it in the first six months of this year, valued at 80.49 billion baht. With the political situation now more stable than it has been for some months, these applications are set to rise.

The World Bank has forecast the Thai economy to grow by 2.5 percent this year and 4.5 percent in 2015. The Bank of Thailand has disagreed with these estimates by quite a substantial margin, suggesting 2014 will see 3.4 percent growth and is aiming at 5.5 percent next year.

The BoI secretary-general claims the 700 billion baht worth of incentives is likely to be met, with most of these incentives centred on the service, power generation and logistics sectors.

At the seminar a more realistic appraisal came from the CP Group executive vice-president who, while noting Thailand was a crucial link in the Japanese automotive industry’s supply chain, sounded a note of caution when he said business confidence was returning but it would take more time before it became tangible.