/24-7PressRelease/ - BANGKOK, THAILAND, July 08, 2008 - Infrastructure was still poor but these measures improved living standards and brought new roads, irrigation and land reform to the Bangkok region. The growing income gap caused an influx of rural workers into the capital. The government responded by promoting industrial development outside Bangkok and also began to promote export-oriented industries to leverage the nation's cheap labour. The Industrial Estate Authority of Thailand (IEAT) was established in 1972 under the Industry Ministry to oversee industrial development policies. The IEAT currently presides over almost 40 estates, some of which it owns and manages while others have private investors. Growth has stemmed from to favourable government policies, including allowing foreign ownership of industrial estate land (from 1977) and the development of government-funded infrastructure to support industries.
The first industrial estates were completed in the late 1970s, led by Bangchan Industrial Estate, which housed 51 companies producing a wide range of products. Another early estate, Lat Krabang, also near Bangkok, has a general industrial area and a duty-free export-processing zone (EPZ) for export-oriented manufacturers.
Prime Minister Gen Prem Tinsulanonda initiated the Eastern Seaboard Development Project to encourage development outside Bangkok and take advantage of proximity to the Gulf of Thailand. The project was approved in 1988, with Japan providing technical assistance and financing for many infrastructure projects. A major development during this period was Laem Chabang container port that was completed in 1991 and where capacity is now being expanded.
The IEAT in 1989 established Map Ta Phut Industrial Estate as a petrochemical and petroleum complex and logistics base in the Eastern Seaboard. With almost 60 factories employing 13,600 people, and a total investment of 470.4 billion baht, it is located near Map Ta Phut industrial port, where most of the raw materials for petrochemical and petroleum companies arrive.
The first private industrial estate, Bang Pakong (later renamed Amata Nakorn), was built by Amata Corp in the late 1980s. This was followed by Hemaraj's Chon Buri estate and a venture by Rojana, another major player.
The financial crisis in 1997 caused the devaluation of the baht, which made export industries more competitive. The industrial sector became a beneficiary as foreign direct investment (FDI) poured in when many manufacturers made Thailand their production base.
Much publicity has focused on the automotive sector and the government's plan to transform Thailand into ''Detroit of the East.'' The Eastern Seaboard Industrial Estate (ESIE) in Rayong is one of the most integrated automotive industrial estates in the world. Although the Board of Investment (BoI) started supporting auto assembly plants in 1961, the industry truly gained steam in the mid-1990s, when AutoAlliance, a joint venture between Ford and Mazda, began to make pickup trucks for local and overseas markets. General Motors and Toyota soon followed. Thailand is the second largest local market and exporter of one-ton pickup trucks, behind only the US. This creates economies of scale, while Thailand's trade privileges within Asean give it access to a sizeable regional market as well.
The automotive industry is strategically vital, both for its ability to compete globally and because of the high local value-added content of parts. Many automotive parts companies, including manufacturers of glass, plastics, metal processing, steel service centres, forging plants, chemicals and other related activities have located themselves in ESIE. The next step is to move upstream from assembly into value-added services such as research and development (R&D). To this end, Toyota has set up an R&D centre in Thailand, the only one located in Asia (outside Japan), while Honda is also building a similar centre that is expected to open next year.
Thailand overtook Singapore as the world's largest manufacturer of hard disk drives (HDDs) in 2006 and HDDs now account for more than 50% of all electronics exports from Thailand. The sector has grown substantially over the past decade, and now employs more than 100,000 workers generating more than 400 billion baht in exports.
In 2007, the BoI approved tax privileges for eco-car assemblers. Carmakers including Honda, Toyota, Suzuki, Ford-Mazda, Tata and Mitsubishi have all chosen Thailand as their base for car and eco-car manufacturing. Combined with investment by parts suppliers, this should support Thailand's industrial sector in the short to medium term.
Going forward, I believe Thailand will encounter increasing competition for its role as a manufacturing base. China is now considered to be the ''world's factory'', while Vietnam was seeing strong FDI until its recent problems. To compete, Thailand will have to increase its attractiveness to potential investors through the use of expanded tax privileges and better infrastructure while developing human talent to provide a well-trained, readily available workforce.
About CB Richard Ellis Thailand
James Pitchon is Executive Director and Head of Industrial Services of CB Richard Ellis. This article is the third of a weekly series examining the evolution of the Thai property market to mark the 20th anniversary of CBRE in Thailand. For more information, please visit http://www.cbre.co.th
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