At home abroad: Industrial companies are cautiously moving into foreign markets

Investment overseas has risen rapidly in recent years, especially in manufacturing. According to Bank of Thailand statistics, outward foreign direct investment (FDI) by Thai manufacturing companies in 2012 totalled $14.4bn, up from $8.5bn the previous year and $3.0bn in 2007. The largest manufacturing sub-sector for FDI that year was food products, with a total of $3.6bn invested abroad, followed by computer, electronic and optical products ($2.3bn), chemical products ($1.8bn) and beverages ($1.2bn). As of the end of 2012, according to Bloomberg, Thailand was the largest foreign direct investor in South-east Asia and the third largest in the Asia Pacific region, after China and Japan.

Deals Big & Small

Much of this activity is a result of smaller companies, such as makers of textiles and garments, moving capacity to nearby low-cost countries such as Myanmar and Cambodia. But major deals have also taken place and the sense is that large companies will continue with larger-scale transactions overseas. In January 2013, Thai Beverage acquired Fraser and Neave, a Singaporean conglomerate, for $11.2bn.

Siam Cement Group (SCG), Thailand’s largest company for composite building materials, has been particularly active. It is investing $400m in a cement plant in Maynmar, to become operational in 2016 with a capacity of 2m tonnes a year. The group is also looking to build a factory for fibre cement board, smart board and ceramic board in the Philippines; investing in a cement plant in Laos; and building a $170m plant in Cambodia with a capacity of 900,000 tonnes. Indonesia has been especially alluring: it is building a new 1.8m-tonne, $356m plant in West Java, which should be operational in 2015, and mulling the acquisition of existing plants in the country. In April 2013, the company’s CEO, Kan Trakulhoon, said that SCG’s total planned investments in the region would reach $1.5bn.

Japanese Partners

In a new twist on an old pattern, Japanese companies will be working with Thai companies to advance them internationally. Mitsui & Co, a Japanese general trading company, has vowed to co-invest regionally with its existing Thai partners, SCG and PTT. The company said it sees Thailand as a good place from which to take advantage of regional integration under the ASEAN Economic Community in 2015.

Thai companies are also considering activities outside the region. SCG was said to be a possible acquirer of Grohe, the German maker of bathroom fixtures, though the deal never materialised.

Official Support

In late 2012, the Board of Investment (BoI) established the Thailand Overseas Investment Centre to encourage and assist Thai companies in building and acquiring capacity abroad. The BoI is concerned that higher costs and the labour shortage are hurting the competitiveness of Thai industry and making it hard for companies to fill positions. In December 2012, Thailand’s unemployment rate was 0.62%. The board is coordinating its efforts with Myanmar, Cambodia, Vietnam, Laos, Indonesia and Singapore in a push focused primarily on electronics, agriculture, textiles and apparel, and construction.

The BoI is also worried about the expiry of trade privileges. For some industries, such changes will make it harder to manufacture domestically and perhaps necessitate a move overseas – especially to countries that have preferential trade terms with the EU. At the end of 2013, Thailand was dropped from the EU’s Generalised Scheme of Preferences (GSP), effective January 1, 2014. Meanwhile, its own free trade agreement with the EU has been delayed by unrest in the country. To top all, in Thailand’s own backyard, Myanmar had its GSP status with the EU reinstated as of July 2013, granting it duty-free access to the European single market.

The BoI says this new focus represents a pivot in its core strategy. Previous plans had been designed to encourage inward investment into Thailand. Its current plan is quite the opposite: the board is now committed to providing information about opportunities and regulations in the target countries and conducting training courses relevant to offshoring. This will include taking executives of Thai companies on missions abroad.

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The Report: Thailand 2014

Industry & Retail chapter from The Report: Thailand 2014

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