1 manufacturing industry in thailand. 2 references: 1. peter warr (ed.) 1993, ch.2...
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1
Manufacturing Industry in Thailand
2
Manufacturing Industry in Thailand
References:1. Peter Warr (ed.) 1993, Ch.2
“Manufacturing” by Somsak Tambunlertchai
2. Medhi Krongkaew (ed.), Ch.1 “Thai Industrialization: An Overview” by Malcolm Falkus, and Ch. 3 “Export-Led Industrialization” by Suphat Suphachalasai
3
I. Industrial Growth and Structural Changes
High and sustained growth since 1960s: 10% growth since 1960s From 16% to 39% of total economy in the
past 30 years; now the largest sector Hit hard and declined sharply during the 1997
crisis, but continued to grow since then Declined again during the hamburger crisis in
2008-09
1970 1980 1988 1996 1997 1999
Agriculture 27.0% 20.6% 16.9% 9.5% 9.4% 10.1%
Manufacturing 16.0% 21.7% 23.0% 29.7% 30.2% 36.0%
Construction 5.3% 4.5% 4.0% 7.4% 5.7% 2.9%
Wholesale and Retail Trade 17.4% 16.9% 17.0% 16.5% 17.2% 16.0%
Transport and Communications
6.5% 6.7% 7.4% 7.4% 7.8% 9.4%
Banking 2.5% 2.8% 3.6% 7.1% 6.5% 3.2%
Real Estate ** ** ** 3.4% 3.3% 4.1%
Other Services 25.3% 26.8% 28.1% 18.9% 19.8% 18.4%
Gross Domestic Product, (GDP)
100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
4
55
2000 2001r 2002r 2003r 2004r 2005r 2006p
Agriculture 10.3% 10.4% 10.0% 10.5% 9.6% 9.0% 8.9%
Manufacturing 36.4% 36.2% 36.8% 38.0% 38.7% 38.9% 39.2%
Construction 2.5% 2.5% 2.5% 2.4% 2.4% 2.4% 2.4%
Wholesale and Retail Trade 15.8% 15.3% 14.8% 14.2% 14.0% 14.0% 13.8%
Transport and Communications 9.7% 10.1% 10.2% 9.8% 9.9% 10.0% 10.1%
Banking 2.8% 2.8% 3.0% 3.2% 3.4% 3.5% 3.4%
Real Estate 4.0% 4.0% 4.0% 3.9% 3.9% 3.9% 3.9%
Others 18.5% 18.8% 18.8% 18.0% 18.1% 18.2% 18.2%
Gross Domestic Product, (GDP) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
6
I. Industrial Growth and Structural Changes
From “import-substituting” during 1950s – late 1970s to “export-oriented” since 1980s
Manufactured exports exceeded agricultural exports since 1985; now accounted for over 80% of total
7
Exports by Sector
(%)
1961
1971
1981
1991
2000
Manufacturing 2 10 36 76 86
Agriculture 83 62 48 15 7
Fisheries0.4 2 4 6 3
Others 15 26 12 3 4
Total10
010
010
010
010
0
8
I. Industrial Growth and Structural Changes
Top ten export items (1998 – 2007): Computer parts, integrated circuits,
garments, motor vehicles, processed seafood, jewellry, rice, television sets, plastic pellets, rubber, iron/steel products, chemicals, oil products
9
I. Industrial Growth and Structural Changes
Shifted away from “food & beverages” (agro-based) towards labor-intensive industries (textiles, leather, shoes, toys, jewelry)
Later shifted from labor-intensive to higher technology, engineering-based (electronics, computers, transport equipment)
10
Value Added of Major Manufacturing Industries
(Percent
)
1996
1998
2000
2002 2,00
6Food Products and Beverages
16.8%
18.7%
15.8%
16.2%
15.6%
Textiles6.8%
7.7%
6.9%
6.4% 5.0%
Wearing Apparel7.5%
7.5%
6.5%
5.8% 5.1%
Refined Petroleum Products
8.4%
10.9%
9.5%
9.0% 7.0%
Other Non-metallic Mineral Products
5.8%
4.2%
4.3%
4.8% 4.8%
Machinery and Equipment
4.3%
3.6%
4.1%
4.2% 5.4%
Office and Computing Machinery
4.2%
6.1%
6.5%
5.6% 8.2%
Television and Communication Equipment
7.9%
8.3%
9.7%
8.4% 9.2%
Motor Vehicles7.7%
2.2%
5.2%
7.4%10.7
%
11
I. Industrial Growth and Structural Changes
Always import-dependent Producing finished products using imported
machine, components, raw materials Machine and raw materials always among top
import items
12
I. Industrial Growth and Structural Changes
Top ten import items (1998 – 2007):
Electrical machinery, Industrial machinery, integrated circuits, crude oil, chemicals, computer parts, iron & steel, metal products, precious stones, metallic ores, vehicle parts
13
I. Industrial Growth and Structural Changes
Assembly, low linkages, low-tech base Low labor absorption: below 15% of labor
force
14
Employment by Economic Sector
1971 1980 1987 2001 2003
Agriculture 77.8% 70.7% 60.0% 46.0% 44.9%
Manufacturing 5.6% 7.9% 11.0% 14.2% 14.7%
Construction 1.1% 1.9% 4.1% 4.2% 4.7%
Transport and Communication 1.3% 2.0% 2.7% 2.9% 2.8%
Commerce and Banking 6.9% 8.5% 11.9% 14.7% 15.4%
Others 7.3% 9.0% 10.3% 18.0% 17.5%
Total 100% 100% 100% 100% 100%
15
I. Industrial Growth and Structural Changes
The number is dominated by small factories: 90% of factories have less than 15 workers, most in the Northeast and North (mostly household manufacturing)
16
Distribution of Manufacturing by Size, Region and Number of Firms, 2007
Bangkok Vicinity Central North Northeast South Size Distribution
All sizes 9.05% 5.68% 10.12% 20.13% 47.01% 8.01% 457,968 100.00% 100.00%
1 - 15 8.25% 4.24% 9.62% 20.75% 48.99% 8.15% 431,675 100.00% 94.26%
16 - 25 22.75% 21.89% 12.93% 14.25% 21.94% 6.24% 8,096 100.00% 1.77%
26 - 30 21.09% 26.18% 12.35% 13.67% 20.97% 5.73% 2,494 100.00% 0.54%
31 - 50 24.70% 29.17% 15.65% 9.57% 15.24% 5.67% 5,150 100.00% 1.12%
51 - 200 22.30% 35.62% 22.13% 6.52% 8.11% 5.32% 6,977 100.00% 1.52%
more than 200 17.81% 35.77% 31.38% 5.29% 5.15% 4.61% 3,576 100.00% 0.78%
Number of FirmsSize (No. of
Employees) Whole country
17
I. Industrial Growth and Structural Changes
But employment is concentrated in large firms in Bangkok vicinity and Central region
18
Distribution of Manufacturing by Size, Region and Number of Working Persons, 2007
Bangkok Vicinity Central North Northeast South Size Distribution
All sizes 18.22% 27.83% 25.35% 8.80% 14.43% 5.37% 4,460,284 100.00% 100.00%
1 - 15 16.17% 7.95% 11.56% 18.47% 37.33% 8.52% 983,398 100.00% 22.05%
16 - 25 22.63% 21.91% 12.91% 14.28% 22.14% 6.12% 162,980 100.00% 3.65%
26 - 30 20.97% 26.20% 12.32% 13.67% 21.20% 5.65% 70,458 100.00% 1.58%
31 - 50 24.47% 29.93% 15.76% 9.33% 14.85% 5.66% 205,294 100.00% 4.60%
51 - 200 22.13% 36.14% 23.51% 6.04% 7.19% 4.98% 712,548 100.00% 15.98%
more than 200 16.95% 33.96% 33.85% 4.98% 6.18% 4.07% 2,325,606 100.00% 52.14%
Number of working personsSize (No. of
Employees) Whole country
19
Distribution of Manufacturing by Size, Region and Number of Employees, 2007
Bangkok Vicinity Central North Northeast South Size Distribution
All sizes 19.93% 31.76% 27.84% 5.90% 9.57% 5.00% 3,818,955 100.00% 100.00%
1 - 15 28.05% 13.55% 13.14% 12.41% 23.65% 9.20% 396,101 100.00% 10.37%
16 - 25 24.59% 23.94% 13.16% 8.24% 23.57% 6.49% 143,617 100.00% 3.76%
26 - 30 22.68% 28.37% 12.62% 8.05% 22.34% 5.93% 63,859 100.00% 1.67%
31 - 50 25.52% 31.20% 16.16% 6.09% 15.16% 5.87% 194,142 100.00% 5.08%
51 - 200 22.40% 36.61% 23.74% 5.00% 7.22% 5.02% 700,839 100.00% 18.35%
more than 200 16.97% 34.03% 33.89% 4.85% 6.19% 4.08% 2,320,397 100.00% 60.76%
Number of EmployeesSize (No. of
Employees) Whole country
20
I. Industrial Growth and Structural Changes
More than 80% of manufacturing value added is from large firms in Bangkok, vicinity and Central region
21
Distribution of Manufacturing by Size, Region and Value Added, 2007
Bangkok Vicinity Central North Northeast South Size Distribution
All sizes 17.50% 34.07% 37.29% 2.39% 4.03% 4.72% 1,758,758,484 100.00% 100.00%
1 - 15 40.38% 17.03% 10.59% 10.41% 13.44% 8.15% 91,084,371 100.00% 5.18%
16 - 25 31.53% 32.25% 15.40% 5.89% 8.80% 6.12% 29,253,651 100.00% 1.66%
26 - 30 26.50% 39.90% 12.31% 4.57% 11.08% 5.63% 15,822,896 100.00% 0.90%
31 - 50 25.88% 34.96% 20.56% 3.38% 4.38% 10.84% 61,663,302 100.00% 3.51%
51 - 200 17.77% 36.10% 32.83% 1.91% 3.54% 7.86% 253,557,180 100.00% 14.42%
more than 200 15.04% 34.79% 41.59% 1.78% 3.27% 3.54% 1,307,377,085 100.00% 74.34%
Size (No. of
Employees) Whole country
Value Added (thousand baht)
22
I. Industrial Growth and Structural Changes
Heavy concentration in and around Bangkok: 50% of industrial jobs are located in Bangkok, producing half of total manufacturing value added
Moving toward the Eastern Seaboard since 1980’s with new industrial estates, ports and gas-related industries
Many factories moved from Bangkok to Central since 2001
23
Distribution of Manufacturing by Region and Number of Firms, 2007 and 1997
Whole Country Bangkok Vicinity Central North Northeast South1997 100.00% 36.13% 23.41% 15.96% 8.97% 8.20% 7.33%2007 100.00% 22.18% 29.25% 18.36% 10.01% 14.58% 5.61%
All sizes of firmsNumber of firms
24
Distribution of Manufacturing by Region and Number of Working Persons, 2007 and 1997
Whole Country Bangkok Vicinity Central North Northeast South1997 100.00% 24.97% 35.16% 23.31% 5.53% 5.17% 5.85%2007 100.00% 18.80% 33.45% 29.25% 6.07% 7.95% 4.48%
All sizes of firmsNumber Working Persons
25
Distribution of Manufacturing by Region and Number of Employees, 2007 and 1997
Whole CountryBangkok Vicinity Central North Northeast South1997 100.00% 24.92% 35.35% 23.35% 5.46% 5.07% 5.83%2007 100.00% 18.99% 33.87% 29.54% 5.15% 7.94% 4.51%
All sizes of firmsNumber of Employees
26
Distribution of Manufacturing by Region and Value Added, 2007 and 1997
Whole Country Bangkok Vicinity Central North Northeast South1997 100.00% 25.54% 33.06% 29.53% 4.43% 3.10% 4.34%2007 100.00% 16.25% 35.00% 38.75% 1.95% 3.52% 4.53%
All sizes of firmsValue Added
27
REGIONAL DISTRIBUTION OF MANUFACTURING VALUE ADDED
REGION 1995 1997 1999 2001 2007 BANGKOK AND VICINITIES
62.7%
58.1%
57.0%
56.4%
47.1%
CENTRAL 6.5% 6.2% 5.9% 6.1%16.0
%WESTERN 3.5% 3.1% 3.2% 3.2% 2.3%
EASTERN16.6
%21.9
%23.0
%23.5
%22.9
%SOUTHERN 2.0% 2.0% 2.0% 2.1% 2.9%NORTHERN 3.8% 3.8% 3.9% 3.8% 4.4%NORTHEASTERN 4.9% 4.9% 5.0% 5.0% 4.4%WHOLE KINGDOM
100.0%
100.0%
100.0%
100.0%
100.0%
28
I. Industrial Growth and Structural Changes
Important role of foreign direct investment (FDI)
One-third of FDI flows into manufacturing, esp. textiles, electronic, transport equipment and machinery
Important sources: Japan, 4 NICs, U.S., E.U. 5% of total investment in manufacturing:
small but significant in technology
29
II. Factors Affecting Manufacturing Changes
High growth and investment Macroeconomic stability (but political
uncertainty) conservative macroeconomic policies
(except pre-crisis period) market-oriented economy with minimal
government intervention
30
II. Factors Affecting Manufacturing Changes
Abundant natural resources, e.g. marine products, fruits & vegetables, rubber
raw materials for industries Large supply of unskilled labor up to
1980s, but labor became more scarce and expensive, attracting workers from neighbors
31
II. Factors Affecting Manufacturing Changes
Active local entrepreneurs (traders-turned-industrialists), Chinese connection and bank financing
Favorable world industrial markets technology transfer of labor-intensive
industries industrial relocation from Japan and NICs economic integration, e.g. AFTA, attracting
new industries
32
II. Factors Affecting Manufacturing Changes
Constraints on economic and social infrastructure (roads, ports, electricity, water) and environment; serious in 1990s
Shortages of skilled labor (engineers, technicians); very serious in 1990s
Shortages of semi-skilled workers in recent years, after the crises
33
III. Policy Measures Government direct involvement through
state enterprises in production, as in 1950s failure
Infrastructure provision by government since 1960s
Development plans Transport (roads, rail, rivers, ports, airports) Communication (telephone, postal services) Power and water Industrial estates
34
III. Policy Measures
Border Measures Tariff protection in 1960s and 1970s
High for consumer goods, import-competing industries, and low for intermediate goods and capital goods
Lower tariffs in late 1980s Import surcharge and anti-dumping measures
Import quota not significant
35
III. Policy Measures Export promotion
Tariff reductions Tax rebates for imported raw materials used
in production for export Marketing: trade fairs, road shows
ASEAN economic integration and other free trade areas
36
III. Policy Measures
Investment promotion through Board of Investment (BOI)
“Promotional privileges”: 3-8 year period of exemption from profit tax, import taxes on machine and raw materials; land ownership by foreign investors; employment of foreign experts
37
III. Policy Measures
Regional dispersion 3 BOI Zones
1. Bangkok + surrounded
2. Zone 1- bordering provinces
3. Country areas Maximum Benefit
+ special zone for 3 southern provinces
38
III. Policy Measures
Integrated planning Eastern Seaboard: Industry,
Community planning + Social + Econ infrastructure (Port, Rail, Estates, Schools, Hospital etc.) Gas related + Heavy industries
Southern seaboard + Western seaboard
39
III. Policy Measures
Financial assistance through some financial institutions:
Industrial Finance Corporation of Thailand (IFCT) : abolished in 2004
Export-Import Bank SME Bank
40
III. Policy Measures
Exchange Rate Stable and overvalued in 1960 – 1980 Baht devaluation in 1984 basket peg More flexibility after July 1997:
managed float
41
III. Policy Measures
Others: Labor training
Tax incentive for training by firms Training institutes by government
42
III. Policy Measures
Industrial institutes Federation of Thai Industries;
institutes on textile, food, iron & steel, motor vehicles
Environment protection : Air, Water , Noise, Toxic, Solid Waste
Environment as a constraint on industrial growth?
43
IV. Future Directions Abrupt slowdown of exports in 1996
declining competitiveness, and industrial slowdown
Higher labor cost, no more labor surplus cf. China, India, VN, Indonesia
Recent labor shortage when factories reopen after the hamburger crisis
44
IV. Future Directions
Competition from low-cost countries More protected foreign markets,
despite Uruguay trade agreement Trading blocs, less Generalized System
of Preferences (GSP), voluntary export restraint (VER)
More trade opportunities with the Doha Round Agreement (when?, 2010?)
45
IV. Future Directions
Exporting industries declined during the hamburger crisis (2008-09)
Are we relying too much on the world market? (exports being 70% of GDP)
46
IV. Future Directions
Deteriorated natural resources Unsatisfactory technology transfer
from foreign investors, and limited R&D
Limited infrastructure How to upgrade industries?