Thailand Manufacturing trends 2020
Our Thailand market expert – Kai Tuorila – answered frequently asked questions about the Thai manufacturing industry.
What are the biggest trends?
What are the dos and don’ts?
What are the best-untapped business opportunities for international companies?
“What are the main industries in Thailand?”
KAI TUORILA: The main industries in Thailand are the following:
ELECTRONIC (Export value in 2019: 32 billion USD)
During the last 20 years, Thailand has manufactured 40% of the world’s hard disk drives, and it continues to be 2nd largest exporter of air conditioners and washing machines. Among the other major export products include integrated circuits, broadcasting equipment, telephones, computers and many other kinds of electrical appliances and equipment. Around 70% of all output in this sector is bound for export. There are approximately 400 manufacturers in this sector. Notable brands are amongst Seagate, Panasonic, Mitsubishi, Samsung, Sony, Toshiba, and LG.
AUTOMOTIVE (Export value in 2019: 27.8 billion USD)
Since the mid-1990’s Thailand has belonged to among the top-10 car manufacturers in the world. In the lightweight commercial vehicle sector, Thailand is the 2nd largest in the world (after the USA). The automotive sector contributes nearly 12% of Thailand’s economic growth, employs around 500,000 people. In 2019 Thailand produced more than 2 million units annually with over 80% of all parts made locally. All leading car brands from Japan, USA, Europe and India, including Toyota, Isuzu, Honda, Mercedes, Mitsubishi, Nissan, BMW, Ford have their major manufacturing facilities in Thailand.
Being one of the car manufacturing hubs in the world, Thailand aims to be also among the leading countries in the electric vehicle (EV) manufacturing sector as well. Most of the major brands are already assembling hybrid models here, and are planning to do the same for full EVs.
GEM & JEWELRY (Export value in 2019: 16 billion USD)
The gem and jewelry industry has third-highest export value among all manufacturing sectors and employs nearly 1 million workers. Thailand is one of the world’s major centers of colored stone manufacturing and trading, and it’s known for its high-level skills in gemstone enhancement “Heat Treatment” and gemstone cutting.
RUBBER (Export value in 2019: 11.5 billion USD)
The rubber industry of Thailand covers all upstream, midstream and downstream industries in the supply chain. Almost all upstream production in Thailand is consumed as inputs into domestic midstream industries by converting materials into semi-finished products, such as ribbed smoked sheets, technically specified rubber, concentrated latex, compound rubber and skim rubber. Downstream players are manufacturers of items such as automobile tires, latex gloves, condoms, elastics, and rubber shoes, etc. Thailand was the world’s biggest supplier of concentrated latex and RSS in 2017, producing 71.2% and 66.9% of global exports, respectively. Thailand was also the source of 24.1% of exports of TSR (2nd world ranking) and 6.7% of exports of compound rubber (5th world ranking).
PLASTIC (Export value in 2019: 9.4 billion USD)
The emphasis in the Thai Plastic industry is in value-added and environment-friendly products. Driven by domestic demand, the plastic industry in Thailand has been consistently growing. Bioplastics are now widely regarded as the potential solution to address environmental problems. By far the packaging and food sector is the major consumer of plastic in Thailand. The country is a leading producer of the raw materials needed for bioplastic synthesis and is well equipped with advanced technology and technical expertise through all phases of the supply chain.
As an example, Indorama Ventures from Thailand, which produces 20% of all PET resins in the world, is also a leading company developing environmentally friendly recycling methods.
“What is the outlook for the main industries in 2020?”
KAI TUORILA: We can expect growth, let’s review each of the fore mentioned industries.
Growth of 3-5% per year by volume is expected and this expansion will be built on both growing domestic demand as well as export.
In 2020-2022, production is forecast to increase by up to 2% YoY. Some of those who bought cars under the very popular First Car Buyer Scheme 10 years ago (with heavy tax incentives) are expected to replace their vehicles and this is expected to add 300,000-400,000 units to demand (over normal 1 million cars bought domestically). The export volume is expected to stay a little over 1 million cars annually. The upcoming Thai EV regulation, and heavy investment incentives, will also spark new investment in the lithium-ion battery life cycle as well as R&D in EV.
GEM & JEWELRY
Thai gems and jewelry are still best known for their superior craftsmanship and design quality. Thailand’s gem and jeweler exports are forecasted to grow by as much as 5-10% in 2020, as the market is focused on the high-end and mid-market segments. According to the Thai Gem Trader association, exports could fetch more than 10% growth every year if local manufacturers upgrade innovation, marketing and branding, as import tariffs on most raw materials are near zero.
Output by the Thai rubber sector is forecast to slide through the period 2019-2021 as producers confront the problem of declining demand in export markets, especially as regards exports to China of sheet rubber and technically specified rubber. The market is expected to face the twin challenges of a persistent oversupply of products and subsequent high levels of stockholding, and pressure from additional supply coming on stream from new competitors in the CLMV region, where Chinese investors have been establishing new rubber plantations over the past few years. Despite this generally negative
Thailand has just officially banned the use of single-use plastic bags at the beginning of 2020. Packaging and printing industries are shifting to produce bio-flexible packaging products in line with the government’s policy to ban plastic packaging in the future. Food and beverage remain the key factor in driving the demand for plastic uses.
“What are the main trends in manufacturing in Thailand for 2020?”
KAI TUORILA: Under the current strategy, Thailand is transforming its economy into 4.0 – growth via innovation. Several new technologies will be disruptive and will have a widespread impact on the industry. These are as followed.
IoT: will manage the supply chains of smart factories and industries that are technologically-intensive, such as automobiles, electronics, retail stock management and even tracking patient health in new, connected hospitals. The IoT will use 5G wireless technology to support massive machine-to-machine communication links
Cloud: Low-cost option for corporations to be competitive in the digital era
3D Printing: rapidly design and produce goods at lower costs, may find a role in the supply chains of some industries, for example in fashion, auto parts, electronics, and machinery & equipment.
Automation of Knowledge: replicate skilled human work.
Robotic Process Automation: to assist with repetitive work or manage algorithmic big data collection and analysis will help to cut costs and increase efficiency.
Blockchain: allow data to be portioned out to users across a network but controlling access, making the data storage highly secure.
“What are the main innovations in manufacturing in Thailand? “
KAI TUORILA: Under the Thailand 4.0 – Innovation-driven economy, Thailand is heavily promoting new investments to
- Next-generation automotive
- Robotics and automation
- Smart electronics
- Advanced agriculture and biotechnology
- Biofuels and biochemical
- Aviation and logistics
In the present situation, Thailand is aiming also to transform Government operations into digital platforms such as Single Window for Visa and Work Permit, e-Government and living solutions, primarily to serve the consumer side of demand. In the recent World Bank’s annual ‘Ease of Doing Business’ rankings, Thailand rose to 21st position out of over 190 surveyed countries.
“What are the main challenges in manufacturing in your country for 2020?”
KAI TUORILA: Industry 4.0 is underpinned by five emerging technologies being used across the manufacturing value chain. Those are the Internet of Things (IoT), artificial intelligence (AI), 3D printing, advanced robotics, and wearables. However, manufacturers are slow in technology adoption because of relatively low labor costs and a shortage of experts. In addition to traditional large private and public sector companies driven development, new start-up company generation was born to create new innovations, especially in health, smart living, ageing and security solutions.
“What are the main opportunities in manufacturing in Thailand for 2020?”
KAI TUORILA: The 3 top opportunities, in my opinion, are the following:
Eastern Economic Corridor: 10 key industries have been supported by the Board of Investment to invest in Eastern Thailand in the form of privileges. These are next-generation automotive, intelligent electronics, advance agriculture, food processing, medical tourism, digital, robotics, aviation, healthcare and biofuel/chemical. Benefits from partaking in the EEC scheme include an exemption for income tax, import duty for machinery, 5-year work visa and land ownership, etc.
Electric vehicle: Thai Minister of Finance is considering a law that will establish the EV Battery Fund to collect Lithium battery tax from battery manufacturers who do not have a concrete plan for its life cycle management. Technologies for reuse and recycling of EV battery is currently attracting attention from these manufacturers.
Medical device: Demographic-wise, Thailand is en route to become a fully-fledged aging society in the coming decade, combine this with the rising trend of medical tourists and BOI privileges, Thailand has become the hot spot for medical device manufacturers to showcase and test the market.
“What are the DOs and DON’Ts for those who want to manufacture in your country?”
KAI TUORILA: Do your homework well before market entry, and do not forget that ‘know-who’ can be as important than ‘know-how’.
- Apply a fact-based approach and develop a strategy for your entry and growth in Thailand.
- Thailand is a long-term market. Plan establishment in phases and bring patience and perseverance. Expect red tape, bureaucracy and lengthy procedures.
- Hire carefully and go for competence and attitude – not low cost!
- Thailand can be very profitable if you have a strategy for price and cost.
- Focus on business objectives – Expect things not to go according to your plan. Study negotiation techniques – They will come handy both in business and privately
- The right partner can make it – the wrong partner may break it! Be thorough in the screening of local partners and choose carefully. Be very careful before entering a Joint Venture.
“What to keep in mind when looking for the right manufacturing partner?”
KAI TUORILA: Background check if the concerning partner has been involved in corruption or scandal cases before or not. Quality evaluation from the previous production.
“Does the US-China trade war have an impact on your country’s manufacturing industry in 2020?”
KAI TUORILA: In the short term, Thailand’s export-driven economy has suffered from declining component exports to companies in China, due to their declining orders from the US market.
In the midterm, Thai companies have gained new inquiries and orders from US companies, which have been looking to replace Chinese subcontractors and contract manufacturers. This can be seen especially in the metal and electronics industries.
In the long term, Thailand is gaining a new flow of foreign investments, especially from Chinese as well as other companies having their manufacturing presently based in China. This can be especially seen among rubber, metal, electrical and electronics industries.