Some factories expected to move out of Thailand

The director of the Thai Overseas Investment Promotion Division (TOI), Mrs Sirirporn Nuragsa, recently suggested that the minimum wage hike to 300 baht per day in the country would almost certainly compel a number of poor performing factories to relocate elsewhere in the region, most into Cambodia, Laos, and Vietnam.

Additionally, she added, there is a labour shortage and those factories in need of intensive labour will be looking to move into the three aforementioned ASEAN member states, as well as Myanmar, in an effort to reduce overall costs.

The TOI director said Cambodia, Laos, Myanmar and Vietnam would provide short-term benefits to Thai small and medium enterprises (SME’s) and the government would happily encourage local entrepreneurs to make the moves required to set up business in these neighbouring states.

While Thailand would lose their direct business input, if these SME’s took up the challenge of relocating nearby there would still be indirect benefits accruing. For example, if a Thai SME were to become successful in, say, the Cambodian marketplace, the profits generated might well be sufficient to warrant a new investment within Thailand in a related but less labour-intensive industry.

The exodus has already begun in many instances where small to medium-sized factories are no longer able to compete due to the higher minimum wage rate in Thailand compared to Cambodia, Laos, and Vietnam, in particular.

One prime example is the TK Garment Co Ltd. Its president claimed the increased manufacturing costs incurred by the rise in the minimum wage in Thailand last year had led to his factory production being moved to Cambodia.

TK Garment manufactures about 90 different brands and being a labour-intensive industry it needs to find places where it can employ a cheaper workforce. Although they have moved to Cambodia, the products they make can be exported to Thailand under the ASEAN Free Trade Agreement (AFTA) and so they can remain competitive.

Equally, Cambodian products still qualify for what is termed the Generalized System of Preferences (GSP) tariff, something not available to the majority of Thai-made products.

The president of TK Garment’s suggests Thai SME’s should be looking more and more at Cambodia as a place to invest, and the TOI agrees, suggesting Thai business people should be making fact-finding trips into the nearby region to source potential deals.

Cambodia, Laos, and Vietnam are still in the throes of opening up their economies and so competition is not as strong as elsewhere.

Myanmar, though very much in the news and clearly demonstrating a desire to recruit foreign investment, is a little different in that it is not easy for Thai SME’s to obtain information about setting up business, especially in Yangon, costs are rising quite quickly, and business laws are still catching up.