Thailand courts Japanese businesses with grand tour of key industrial zone

by

Staff Writer

In the coastal area east of bustling Bangkok lies Thailand’s largest industrial zone, a production hub where hundreds of Japanese car- and auto parts makers had once rushed to gain a foothold in Southeast Asia.

As Japan and Thailand mark the 130th anniversary of diplomatic relations Tuesday, the Thai government is seizing the moment to revive Japanese investors’ enthusiasm with its plan to transform the industrial zone into a high-tech center for member countries of the Association of Southeast Asian Nations.

Earlier in September, the Thai government invited Minister of Economy, Trade and Industry Hiroshige Seko and more than 570 delegates from the private and public sectors — including major firms as well as smaller ones in Tokyo and other regions — on a three-day trip to the tropical country to promote new investment opportunities.

This approach by Thailand has been welcomed by Japan, whose presence in the ASEAN hub has been overshadowed by the emergence of other investors such as China.

In a gathering of the largest-ever business delegation invited to Government House in Bangkok, Thai Prime Minister Prayuth Chan-ocha courted Japan’s interest in the landmark “Thailand 4.0” economic program and repeatedly offered assurances that participants can “trust” Thailand’s growth potential.

The initiative is aimed at transforming Thailand’s largely agricultural and manufacturing economy toward a growth model led by high-tech industry.

To hasten the economic shift, the government has approved the development of the Eastern Economic Corridor, a special investment zone set in three coastal provinces east of Bangkok — Chachoengsao, Chon Buri and Rayong.

The technology hub will focus primarily on 10 “target industries” set by the Thai government. Among them are biochemical, medical and tourism sectors as well as next-generation automotive industry, including the electric vehicles segment. The government will offer strategic projects in the EEC with generous tax incentives, including exemptions from corporate income tax for up to 15 years, if investments are deemed particularly beneficial to Thailand’s industrial innovation.

Bangkok plans to use 1.5 trillion baht (¥5 trillion) in public and private investments in the first five years to upgrade the region’s industry and infrastructure. One such project is the expansion of the U-Tapao civil-military airport to make it the nation’s third-largest commercial airport, capable of handling up to 60 million passengers per year by 2032. Currently, the airport has capacity for about 3 million passengers per year.

Bangkok’s growth strategy is in keeping with Japan’s “connected industries” policy concept, which aims to upgrade existing businesses by creating a strong network across a variety of industries, Chan-ocha said, adding that Japan-Thailand cooperation in the EEC will make it “one of the most advanced industrial hubs and landmarks of Asia.”

Bangkok has high expectations, as Japan has had a prominent presence in Thailand, including 1,748 members in Bangkok’s Japan Chamber of Commerce as of April. Japan is the largest source of foreign direct investment for the Southeast Asian country.

As Asian rivals deepen their influence in ASEAN, Japan may see more reasons to accelerate the investment.

China and Thailand will reportedly begin constructing a 253-km high-speed railway between Bangkok and Nakhon Ratchasima that is likely a part of Beijing’s “One Belt, One Road” infrastructure initiative, in October. Japan and Thailand signed a memorandum of understanding in 2016 over building a 700-km railway for shinkansen linking Bangkok and the northern city of Chiang Mai. Construction of the line is slated to start as early as 2018.

Japan once exerted strong economic power in Thailand thanks to automakers such as Toyota Motor Corp. and Honda Motor Co., but its dominance has waned recently due to the rise of Chinese and South Korean electronics giants, said Singtong Lapisatepun, director-general of the department of East Asian affairs in Thailand’s foreign ministry.

“Take smartphones, for example. We constantly hear about brand names like Oppo and Huawei of China and Samsung (of South Korea). Unfortunately, however, we don’t hear Japanese names in this area,” he said.

Japanese investment in Thailand lost its momentum in recent years.

Last year, Japanese companies invested 79.6 billion baht to Thailand, according to the Japan External Trade Organization. The amount was about 23 percent of a 348.4 billion baht investment made in 2012.

Japanese investors harbor concerns over Thailand’s sluggish economic growth. The country has been struggling to escape the so-called middle-income trap, where the pace of expansion slows after the economy achieves middle-income status and the increasing cost of labor limits investment from abroad. Thailand’s rapidly graying population is also expected to hamper growth.

Another concern is competition from other ASEAN countries, including Vietnam, which offer cheaper labor relative to Thailand. Vietnam recorded 6.21 percent economic growth in 2016 compared with Thailand’s 3.2 percent, according to the foreign ministry.

The Thai government hopes its new initiative will further stimulate the economy.

At a business symposium held on the second day of the trip, Tokyo and Bangkok concluded seven memorandums of understanding to accelerate mutual cooperation for the development of the EEC. Two parties also signed a memorandum of intent in June and agreed to work together for the project.

At a news conference, Seko and Thailand’s deputy prime minister, Somkid Jatusripitak, a key person for the country’s economic policy, agreed that further cooperation in the EEC will bring about benefits for both Tokyo and Bangkok.

“For Japanese companies, Thailand is a significant core of ASEAN countries and its further growth as a hub of the Mekong area is extremely important for them,” Seko said. “I believe there is much room to contribute for Japanese companies, which have played important roles in Thailand’s industrial cluster, to become a part of its further growth.”

In response, Jatusripitak said the two countries “have great possibilities” in working together to develop human resources and businesses in the economic zone, urging more discussions to seek for further collaborative opportunities.

Bangkok considers Japan a significant partner in trade, investment and tourism as well as a close Asian ally with a rock-solid friendship not only at the diplomatic level, but also at the grass-roots level, Thai foreign ministry’s Lapisatepun said

“The friendship between Japan and Thailand is backed up by 130 years of diplomacy, a relationship that has continued for 600 years,” he said.

“Now is a very important time for Thailand’s economy, and there is no reason for Japan to miss this opportunity to become a part of it,” Lapisatepun said.

From the perspective of Japanese companies, expansion into Southeast Asia is one main reason to invest in Thailand.

Toshiya Matsuo, a director at Transcosmos (Thailand) Co., said, “Thailand is the core of other Southeast Asian countries, and success here will, without doubt, significantly increase our presence in the region and help us to expand our business in other Asian countries.”

Transcosmos, a Tokyo-based internet outsourcing service, has been doing business in the country since 2008. The company decided to launch its new e-commerce service in Thailand before expanding to other Southeast Asian countries, because Thailand’s strong industrial base makes it the least risky market for a new service, Matsuo said.

“I believe our (online) service will be a good match to what the Thai government wants to achieve through the Thailand 4.0 policy,” he said, adding that Transcosmos plans to increase investment in the Thai market.

Another participant Enrei Taka, a dentist from Fukuoka-based Yu-ki Co., said she believes Thailand could be one of the better options to expand her company’s anti-bacterial food business on foreign soil.

“The Thai government has been working really hard to promote its new policy,” she said. “I think now is the chance.”