Why are many western companies moving production of their goods from China to Thailand so rapidly these days? This is a question asked by many analysts, which is best explained by understanding the competitive abilities of Thailand contrasted by the difficulties faced by China.
There can be no doubt that Thailand faces a viable and potentially lucrative opportunity because of the US-China trade war. But Thailand offers other competitive advantages that are often overlooked. It could be that much of Asia may not entirely escape the fallout of that trade war with Trump, even so, for Thailand’s manufacturing industries the future looks bright.
Geography and demographics in Thailand
As far as geography is concerned Thailand is perfectly positioned to benefit optimally from China’s export problems. For starters it is closer to Europe and Africa and much of the Middle East. Then, it has an amazing demographic of young workers, whereas China is at the beginning of a long struggle with an ageing population (following in the footsteps of Japan). At least five Asian countries stand to benefit from the ongoing tension between China and the US. At this point in time, there is little hope that a quick solution can be found for the current situation because both leaders seem to be adamant to stand their ground. Four countries in Asia seem to be more directly involved with the China-US situation but among them. Thailand seems to be in a better position to profit handsomely because of China’s problems.
Some challenges to overcome
The other contenders in the Asian region include Korea and Japan who have the opportunity to benefit substantially from investment and trade because they are in the same geographical area but they are not individually involved in the conflict between the US and China. Like we have already said there are many benefits but one could also expect a measure of damage and as far as Thailand is concerned the possible impact of the tariff rates could hold many threats for Thailand. Look at it this way the destruction of the current trade has an impact on those Thailand industries who are supplying goods which are of an intermediate nature because they are part of the planetary value chain. Sound policies will have to be implemented to deal with those issues.
A possible US recession
We frequently hear talk of another US recession. Yes, it may be looming on the horizon and such a weakening in the US markets could impact negatively on new and costly manufacturing investments in Thailand. Naturally this may affect the Thai economy, yet which economy is not affected in a world that is so interconnected? It might help to follow a policy of diversification as far as exports are concerned in order to decrease the possible impact of lower demand for products from Thailand. This is precisely why Thailand is rapidly increasing its trade with the world: to have more diversity.
A China vs Thailand comparison
Several legal obstructions exist as far as exports are concerned when doing business in China which is not the case in Thailand. When it comes to sophisticated infrastructure Thailand compares very well with its larger neighbor because they too have lots of airports and seaports. According to well-established import and export companies it is a lot easier to move products around in Thailand compared to China where there are many restrictions and a lot of interprovincial tariffs which can make things complicated as far as exports are concerned. The one area where Thailand may experience problems is because they have a higher labor rate than China which might make it very difficult to produce products at a competitive price. This however, will change given the ageing demographics of China.
For those who are familiar with Bangkok, they feel that the overall impression in the city is one of a truly international environment. This, by contrast, is not that evident in Shenzhen or even in Hong Kong. Although there are fewer English signs on the streets, Bangkok is more exposed to Western influences and that influence is more evident every day. As far as advertising agencies are concerned there are many who claim that Thailand has a significantly more sophisticated marketing industry than China. Even basic things such as radio and the outdoor advertising seen on the streets is also a substantially higher quality in Bangkok compared to Beijing.
Both countries are striving for a high level of nationality and individuality but that fervor is less forceful in Thailand. There still seems to be a lot of national anger in China and there is also a strong motivation for the country and its people to prove itself – while Thailand on the other hand has to a large extent found its place among the nations of the world. Many of us are familiar with the saying if something is too good to be true then it often is simply too good to be true. This can also be applied to the slightly lower labor costs in China which are very often accompanied by inferior quality of workmanship. This is definitely something to consider when companies expand into Thailand.
The Textile & Garment Industry example
One of Thailand’s key industries in the textile & garment industry, worth over USD5$ billion in exports in 2018 and is expected to grow 5% in 2019, spurred on by the US-China trade dispute. SUPA International based in Thailand is one of Asia’s largest garment manufacturers, with clients including Under Armor & Nike. It is benefiting optimally from Thailand’s skilled workforce and low labor costs in the garment manufacturing industry. This company has acted swiftly to benefit from the drastic move by President Trump – with a plan in place to expand its factory operations to ensure that it can benefit optimally from the situation. They will thus be able to accommodate many of the US clothing brands are looking to move production from China to Thailand.
Conclusion
Anyone familiar with Thailand’s economy and capabilities will know that they have sophisticated export facilities which can handle a wide variety of export products such as electronics, machinery, motor vehicles and many other high-quality products. Many exporters feel that in some of these areas Thailand is starting to overtake its Chinese counterpart. The most notable downside in China, is the close involvement of government in private businesses – and the fact that intellectual property has little to no protection. Many western brands have experienced that professional standards are higher in Thailand compared to China and likewise, service levels, as well as education, are of a better standard in Thailand.
