OPPORTUNITIES IN THAILAND S MANUFACTURING SECTOR BUSINESS SWEDEN June 2015 Business Sweden in Thailand
BUSINESS SWEDEN SEES LARGE OPPORTUNITIES IN THE THAI MANUFACTURING SECTOR WITHIN SOLUTIONS AND MACHINERY FOR AUTOMATION, ENERGY EFFICIENCY, QUALITY & SAFETY, AND ECONOMIC CONTROL BUSINESS SWEDEN 2
INTRODUCTION THAILAND S MANUFACTURING SECTOR BRINGS OPPORTUNITIES TO SWEDISH COMPANIES HIGH POTENTIAL INDUSTRIES Several industries have a high demand of solutions and machinery for automation, energy efficiency, quality & safety, and economic control LOWER POTENTIAL INDUSTRIES Other larger industries in Thailand are less relevant from a demand of automation solutions perspective in the short term Automotive Automotive is the largest industry in Thailand, and the country is the biggest producer in South East Asia Machinery and equipment Local production appears to increase, but high-end and sophisticated machines still rely on foreign import Electronics and Electrical appliances Electronics production is large but focused on lower value added assembly for export Thailand is the largest electrical appliances manufacturer in SEA Rubber and plastics For plastics the main product is polymers which stands for around 5% of total exports Interesting sector but fairly low export value, FDI and growth Food processing Thailand is a large food producer with a growing export industry Chemicals Thailand has domestic chemical industry related to petrochemicals The industry in general is highly reliant on imported technologies THIS REPORT WILL GIVE AN OVERVIEW OF THE THREE IDENTIFIED HIGH POTENTIAL INDUSTRIES SOURCE: BOI, BMI, BUSINESS SWEDEN ANALYSIS, THAILAND CUSTOMS BUSINESS SWEDEN 19 AUGUST, 2015 3
90% 40-50% 5-10% DEMAND AUTOMOTIVE AUTOMOTIVE IS THE LARGEST INDUSTRY IN THAILAND AND THE COUNTRY IS THE BIGGEST PRODUCER IN SEA KEY FACTS AUTOMOTIVE INDUSTRY Among the top 15 automotive producers in the world, top 5 in Asia and number 1 in SEA. 1.88 million vehicles produced in 2014. About 60% of production is exported Production is dominated by Japanese companies e.g. Toyota, Honda, Mitsubishi, Nissan and Isuzu. Western major players are Ford, GM, Mercedes-Benz, Volvo, Scania and MAN 90% of OEM production is CKD** assembly, yet there is a well developed supplier industry with ~ 600 companies within Tier 1 and 1,700 Tier 2 and Tier 3 companies Labour costs are currently not the only automation driver, equally important is safety, economic control, quality, energy efficiency and environmental concerns Typical equipment demanded are; solutions for energy efficiency/environmental technology/fuel efficiency, equipment that enhance quality and safety, equipment and tooling for metal cutting and metal processing PRODUCTION OF VEHICLES NUMBER OF CBU* VEHICLES 2 500 000 2 000 000 1 500 000 1 000 000 500 000 0 Average local content 2013 2014 2015 2016 2017 2018 2019 Pickup truck Passenger cars Heavy trucks and bus SOLUTIONS THAT DECREASE ENERGY USE AND INCREASE QUALITY AND CONTROL ARE IN DEMAND SOURCE: THAILAND BOARD OF INVESTMENT (BOI), MINISTRY OF INDUSTRY, BMI, DESKTOP RESEARCH, BUSINESS SWEDEN ANALYSIS *CBU = Completely Built Up vehicle **CKD = Completely Knocked Down vehicle BUSINESS SWEDEN 19 AUGUST, 2015 4
DEMAND ELECTRONICS ELECTRONICS PRODUCTION IS LARGE BUT FOCUSED ON LOW VALUE ADDED ASSEMBLY FOR EXPORT KEY FACTS ELECTRONICS INDUSTRY Production is measured through export value since local market is almost non-existing Total export in 2014, 23.5 billion USD Leading products are Hard Disk Drives (HDD s), integrated circuits (ICs), semiconductors, compressors and equipment for mobile phones Examples of major companies are Hitachi, Fujitsu, Toshiba, LG Electronics, Western Digital, Seagate, Hutchinson, Philips and Schneider Production is focused on assembly and testing of HDDs, ICs, and other electronic components for export. Most equipment for production is imported and domestic presence of Tier 1-3 suppliers is far below the levels in other industries such as the automotive sector As the industry is focused on low value added assembly the demand for automation solutions is presently low ELECTRONICS & ELECTRICAL APPLIANCES* OUTPUT VALUE IN USD BILLION 60 50 40 30 20 10 0 31,2 33,2 Estimated CAGR 7% 35,4 37,9 40,6 43,4 46,4 49,5 2011 2012 2013e 2014f 2015f 2016f 2017f 2018f DEMAND FOR AUTOMATION IS LOW SINCE PRODUCTION IS FOCUSED ON ASSEMBLY SOURCE: REUTERS, KASIKORN BANK, BOI * COMBINED PRODUCTION BUSINESS SWEDEN 19 AUGUST, 2015 5
DEMAND ELECTRICAL APPLIANCES THAILAND IS THE LARGEST ELECTRICAL APPLIANCES MANUFACTURER IN SEA WITH A LARGE SUPPLIER BASE KEY FACTS ELECTRICAL APPLIANCES INDUSTRY Production is measured through export value: Total export in 2014, USD 32.3 billion Thailand is top 5 globally for production of air condition units and refrigerators. Washing machines and digital cameras are also among key products Almost all of the world s major electrical appliance manufacturers have presence in Thailand. Japanese manufacturers constitute half of the sector, with companies such as Sony, Nikon, and Canon. Other international investors include Acer, LG, and Electrolux There is a large presence of domestic suppliers and about 70% of content is sourced from Thailand There is a high focus to increase automation since labour costs have increased with 30 % in recent years Typical equipment demanded are: solutions for energy efficiency, equipment that enhance quality and safety, injection moulding machines, robots, machines and tooling for metal working and metal cutting DOMESTIC SALES OF ELECTRICAL APPLIANCES VALUE IN BILLION THAI BAHT 350 300 250 200 150 100 50 0 CAGR 8.2% 2008 2009 2010 2011 2012 2013 THE DEMAND FOR AUTOMATION SOLUTIONS IS EXPECTED TO GROW AT A STEADY PACE SOURCE: REUTERS, KASIKORN BANK, BOI BUSINESS SWEDEN 19 AUGUST, 2015 6
DEMAND FOOD THAILAND IS A LARGE FOOD PRODUCER WITH A GROWING EXPORT INDUSTRY KEY FACTS FOOD INDUSTRY Thailand is the largest food exporter in Southeast Asia with about 1,500 medium to large sized food processing companies Important industries are frozen seafood, canned fruit, chicken, rice and sugar processing Thailand has attracted a number of major MNC s such as Unilever, Nestlé and several large Japanese companies Around 60% of food processing equipment is imported. There are currently almost no high end equipment and part production in Thailand. Most high end equipment are imported from Japan, Korea, China, EU, or the US Demand for automation products and equipment are driven by tough import requirements on food safety and standards from high-potential markets l Typical equipment demanded are: refrigerating or freezing equipment, machinery or laboratory equipment for the treatment of materials, machinery for filling, closing, sealing, or labelling food containers EXPORT OF FOOD & DRINKS USD BILLION 35 30 25 20 15 10 5 0 22,9 22,9 23,6 CAGR 4.3% 25,0 26,6 28,3 30,0 32,0 2012 2013 2014 2015 2016f 2017f 2018f 2019f THAILAND IS DEPENDENT ON IMPORTS OF HIGH TECH EQUIPMENT FOR PRODUCTION SOURCE: BMI, DESKTOP RESEARCH, BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 19 AUGUST, 2015 7
DEMAND OVERVIEW THE LEVEL OF AUTOMATION IS INCREASING BUT GROWS FROM A LOW BASE TRENDS WITHIN AUTOMATION DEMAND Factors driving automation and investments in production lines are rising labour costs, demand for safety, economic control, quality control, energy efficiency and environmental concerns There is a focus among producers to call back production from suppliers, e.g. vertical integration The challenge lays with convincing and making the customers understand the benefits of automation. Many Tier 1-3 businesses are family run and the current generation have to convince their conservative parents and grandparents who usually have the final say in a investment decision New investment promotion policies in 2015 are expected to drive automation. According to the new policies, companies interested in incentives will have to begin adopting hi-tech manufacturing processes and in-house design of own upstream components. The new policies will give priority to projects engaging in R&D and use of advanced technologies LEVEL OF CAPITAL INTENSIVE PRODUCTION 5 4 3 2 1 0 4 1 1 Food processing 2 Electronics 2015 2020f 4 3 3 Electrical appliances 5 Automotive 5 = High educational level and processes that can be automated have been automated 3 = Moderate educational level and most of the processes are automated 1 = Reliance on unskilled labour in all production steps CONVINCING CUSTOMERS ABOUT THE BENEFITS OF THE PRODUCTS AND MAKING A BUSINESS CASE IS KEY SOURCE: BOARD OF INVESTMENT THAILAND, DESKTOP RESEARCH, BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 19 AUGUST, 2015 8
SETTING UP PRODUCTION IT TAKES APPROXIMATELY 6 MONTHS TO ESTABLISH A MANUFACTURING COMPANY IN THAILAND LEGISLATION AFFECTING MANUFACTURING EST. Foreign investments are governed by the Foreign Business Act (FBA) which regulates what business activities foreign companies can participate in. A foreign company is an entity where 50% or more of its shares are held by non-thai s Investment incentives are administered mainly through the Board of Investment (BOI) and the Industrial Estate Authority of Thailand (IEAT). BOI are to follow the guidelines provided in the Investment Promotion Act With BOI s permission, 100% foreign ownership is allowed for a manufacturing company and there are no local content requirements and no export requirements to take into consideration Foreign companies furthermore need to obtain a foreign business license (FBL). Depending on he business activity concerned licensed are approved either by the Cabinet or the Director-General at the Department of Business Development, Ministry of Commerce TIMEFRAME AND COST OF SETTING UP A COMPANY Joint Venture with max 49% foreign ownership will take around 1-3 weeks to register BOI promotion process takes around 3-5 months Applying for FBL normally takes at least 4-6 months Total time for completion of factory and company registration would take about 6 months Minimum registered capital for a manufacturing company Normally at least 2 million THB (64 000 USD) for Joint venture company with max 49% foreign ownership and foreign business license At least 1 million THB (around 32 000 USD) for BOI promotion Registered capital can be used as working capital/operational costs BUSINESS SWEDEN CAN SUPPORT YOU IN THE COMPANY SELECTION AND ESTABLISHMENT PROCESS SOURCE: MINISTRY OF COMMERCE, BOARD OF INVESTMENT THAILAND, DESKTOP RESEARCH BUSINESS SWEDEN 19 AUGUST, 2015 9
SETTING UP PRODUCTION INDUSTRIAL ZONES ARE MOSTLY LOCATED AROUND BANGKOK OR THE EASTERN SEABOARD OVERVIEW OF INDUSTRIAL AREAS IN THAILAND 20 out of 77 provinces in Thailand have industrial areas Around 80% of the manufacturing is located in or near Bangkok. Key provinces are: Ayutthaya Key industries are agriculture, automotive, electronics, and plastics Samut Prakan Key industries are agriculture, automotive, chemicals, and steel Holds the largest airport in Thailand, Suvarnabhumi International Airport Chonburi Key industries are agriculture, automotive, electronics, plastic, and steel Holds the largest seaport in Thailand, Port of Laem Chabang Rayong Key industries are agriculture, automotive, chemical, electronic, and steel Ayutthaya Bangkok Samut Prakan Chonburi Rayong INDUSTRIAL AREAS ARE CONVENIENTLY LOCATED WITH A DOMESTIC AND INTERNATIONAL REACH SOURCE: BOARD OF INVESTMENT THAILAND, DESKTOP RESEARCH BUSINESS SWEDEN 19 AUGUST, 2015 10
CONTACT US BUSINESS SWEDEN IN THAILAND Contact information Business Sweden 23 rd floor, Two Pacific Place 142 Sukhumvit road, Klongtoey, Bangkok 10110, Thailand T: +66 2 684 6884 E: asean@business-sweden.se W: www.business-sweden.se BUSINESS SWEDEN 11