Attracting and keeping foreign direct investment in Thailand
See "Seagate shifts B40bn project to Malaysia" (business, front page)By Jon Fernquest
[Introduction|Vocabulary|Article]
[Reading Questions|Answers]
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Seagate Technology, one of the world's largest hard-disk drive (HDD) manufacturers and a major employer and exporter in Thailand has decided to locate its next 40 billion baht project in Malaysia instead of Thailand.
This is a good opportunity to look at the factors that attract foreign direct investment to a country.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. What is Seagate's world ranking among hard-disk drive manufacturers?
2. Where is Seagate's corporate headquarters?
3. When did Seagate first start its operations in Thailand?
4. How large are Seagate's Thailand operations compared to the other countries?
5. What is the value of the Seagate foreign direct investment project?
6. Was Thailand among the final candidates (short-listed) for the project?
7. Which country finally got the project? Why?
8. Why did Dr. Somkid lead a roadshow to the US last week?
9. What BOI investment promotion privilege could have helped Thailand get the Seagate project?
10. What human resources problem in Thailand may have been a factor behind Seagate's decision?
11. What key management technique does the electronics industry rely on that the Thai customs department has to adapt to better if Thailand is to be competitive with other countries?
Article
Seagate shifts B40bn project to Malaysia
Investment privileges lure firm over border
PHUSADEE ARUNMAS, CHATRUDEE THEPARAT and YUTHANA PRAIWAN
Seagate Technology, the world's largest maker of hard-disk drives, has decided not to expand in Thailand but to invest 40 billion baht in a project in Malaysia instead.
The shift by one of Thailand's largest employers and exporters was confirmed by Somkid Jatusripitak, caretaker deputy prime minister and commerce minister.
Thailand had been shortlisted for expansion by the company, but Malaysia had offered better incentives.
California-based Seagate entered Thailand in 1988 and has developed the operation into its largest in the world. Executives declined to comment on the company's investment plan yesterday.
According to recent reports, Seagate was one of several US companies to have relocated investments to other countries in the Asean, such as Vietnam and Malaysia, due to Thailand's political and economic uncertainties and better investment incentives elsewhere.
Dr Somkid, who also chairs the Board of Investment, led a roadshow in the United States last week to try to turn investment confidence around.
Chakramon Phasukvanich, the permanent secretary for the Industry Ministry, said Seagate's shift in investment showed that Thailand had failed to support the company and the industry in terms of human resources and investment promotion privileges.
"[Southeast Asia] is highly competitive in the fight for foreign direct investment. We need to improve our comparative advantage in all aspects, including investment privileges," he said.
Other foreign investors were likely to follow suit, he warned.
According to Mr Chakramon, Seagate had approached the BoI before finding better opportunities elsewhere.
A proposal earlier this month from caretaker finance minister Thanong Bidaya to extend BoI tax breaks - to 15 years from seven now - alongside other improvements, had come too late.
One official at the National Economic and Social Development Board (NESDB) said a key factor behind Seagate's decision was likely to have been labour shortages in the country.
Thanin Pa-Em, the director of the NESDB's Competitiveness Development Office, said several industries in Thailand were facing skilled labour shortages. Efforts by state agencies, including the Education Ministry, to improve skills had been slow, Mr Thanin said.
Another obstacle was the lack of clear customs procedures or one-stop service for electronics producers, Mr Thanin added. The industry relies heavily on just-in-time logistics to manage its products and supply chain.
However, despite the setback, Mr Thanin said that positioning Thailand as a regional hub for the electronics sector and hard disk-drive industry remained a top development priority.
Vocabulary (in article)
x was confirmed by y - when you believe x but are not sure and y knows for sure and tells you that you are right
shortlisted - the final short list of final candidates for a job, project, or award
operation, operations - doing a business like the manufacturing or distribution
incentives - something that encourages you to do something (for example a percentage of the money that you make selling another persons products)
relocated - move to new location
roadshow - traveling with a team of people to promote something (making presentations and putting ona a show)
human resources - Labor used as an input into the production process (Source)
investment promotion privileges - incentives offered to companies to promote investment in Thailand
foreign direct investment (FDI) - investment in a foreign-based assembly or manufacturing facility
Source) (See Wikipedia)
x approaches y about z - x talks to y asking them for help with z
a tax break - a tax reduction
a key factor - an important reason why something happened
customs - the government agency that controls the flow of goods imported into a country, collecting taxes and duties on these goods
one-stop service - only one step in a government procedure (usually replacing several time-consuming steps)
logistics - "The management of both inbound and outbound materials, parts, supplies, and finished goods. Includes such activities as; production scheduling, forecasting, customer service, order entry, inventory control, and product allocation among customers" (Source) (See Wikipedia on logistics)
just-in-time - "Logistics systems designed to deliver parts to a production process as they are needed, not before" (Source). (See Wikipedia on just-in-time)
supply chain - The sequence of steps, often done in different firms and/or locations, needed to produce a final good from primary factors, starting with processing of raw materials, continuing with production of perhaps a series of intermediate inputs, and ending with final assembly and distribution.
(Source: http://www-personal.umich.edu/~alandear/glossary/s.html)
a setback - a difficulty (they were making progress and advancing then there was a problem
positioning Thailand as x - making it so investors consider Thailand a good place to do business x
a hub - an important center for an activity
corporate headquarters - the physical location where the highest levels of management in a corporation work (for example New York city where many businesses are located for easy high level face-to-face business meetings, before the internet many support employees like IT used to be located at corporate headquarters also, now they are usually located outside of cities in less expensive areas like New Jersey)
Answer Key:
1. What is Seagate's world ranking among hard disk manufacturers?
Seagate is ranked number one.
It is the world's largest hard-disk manufacturer.
2. Where is Seagate's corporate headquarters?
California.
3. When did Seagate first start its operations in Thailand?
In 1988.
4. How large are Seagate's Thailand operations compared to the other countries?
Seagate's Thailand operations are the largest.
5. What is the value of the Seagate foreign direct investment project?
It is a 40 billion baht project.
6. Was Thailand among the final candidates (short-listed) for the project?
Yes, it was shortlisted. Thailand was one of the final candidates.
7. Which country finally got the project? Why?
Malaysia got the project by offering better incentives.
8. Why did Dr. Somkid lead a roadshow to the US last week?
To promote investment in Thailand. Several US companies have relocated investments to other countries in Southeast Asia due to better incentives and political uncertainty in Thailand.
9. What BOI investment promotion privilege could have helped Thailand get the Seagate project?
Extending BOI tax breaks for foreign direct investment from seven to 15 years.
10. What human resources problem in Thailand may have been a factor behind Seagate's decision?
A skilled labour shortage in several industries including electronics.
11. What key management technique does the electronics industry rely on that the Thai customs department has to adapt to better if Thailand is to be competitive with other countries?
The electronics industry uses just-in-time logistics in its supply chain, so customs has to offer a one-stop service and make its procedures clearer.
