European FDI in Thailand for Japanese markets?
Race to the bottom...or the top?
By Jon Fernquest[Introduction|Vocabulary|Article]
[Reading Questions|Answers]
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Free Trade Agreements (FTAs) can bring unexpected benefits.
The Thai-Japan FTA may attract high quality Foreign Direct Investment (FDI) from Europe.
Thai workers may acquire valuable skills and experience from apprenticeships in European companies producing for the Japanese market in Thailand.
Some anti-globalisation activists argue that FDI inevitably causes a "race to the bottom." This means that large developed countries like the US or Europe invest in less-developed countries to get around laws, regulations, and unions in their own country. For example, a developed country may have strict laws about dumping toxic wastes. A company saves a lot of money if they do business in a less developed country that does not have these regulations Eventually, the more developed country has to eliminate regulations to attract back the business and FDI becomes a race to the bottom with lower and lower standards in all countries, developed and undeveloped, for everything from toxic waste to trade unions.
Some FDI, however, is not a race to the bottom.
Today's article looks at the potential that the Thai-Japan FTA has for attracting high-quality European FDI in Thailand that targets the Japanese market.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. What kind of investors could the Thai-Japan FTA attract? Why?
2. What factors currently limit European interest in Thai FDI?
3. How do industrial land costs compare between Europe and Thailand?
4. Are high prices for industrial land in Thailand a fixed and inflexible thing?
5. What pressures from what country might lead to eventual price reduction in Thai industrial land?
(Inference needed here)
6. Are Thai companies involved in the development of industrial estates and infrastructure in Vietnam? Give the name of one development.
(Inference needed here)
7. Is quality or quantity of Thai labour the problem that besets European FDI and operations in Thailand? Why do you think?
(For open discussion)
8.What seems to be the main factor drawing European FDI to Thailand?
9. What European countries are especially interested in FDI in Thailand?
10. What scale of investment have the Thai and French government targetted for FDI in Thailand?
11. What advantages might there be to encouraging small scale investment as opposed to the normally emphasized large-scale investment?
12. What specifically interests Italian investors in Thailand?
Bangkok Post Article: Monday April 02, 2007
Japan FTA could attract Europeans
Land prices still high for many investors ARANEE JAIIMSINThe pending free trade agreement between Thailand and Japan could make Thailand more attractive to European investors looking for bases to supply the Japanese market, a Board of Investment (BoI) expert said.
Europeans need more convincing to choose Thailand because they believe industrial land costs in the country are relatively high and skilled workers are in short supply, said Pannee Chengsuttha, the economic counsellor in the BoI's Paris office.
She said many European investors had complained that land prices in industrial estates in Thailand were as high as in western Europe.
Minimum land prices in Amata Nakorn Industrial Estate in Chon Buri are four million baht per rai. At Amata City in Rayong the price is 2.3 million baht, while the 304 Industrial Estate in Prachin Buri leases sites at 1-2 million baht per rai, depending on the location.
Miss Panee said that Vietnam was emerging as a serious competitor to Thailand. While foreign investors in Vietnam cannot own land, the communist country offers considerably lower costs for leased land. SET-listed Amata Corp, for example, charges 56,000 baht per rai per year at its Amata Bien Hoa estate in Vietnam.
"What the BoI can do is to explain to European investors that land prices in local industrial estates are negotiable," she said.
While European investors were satisfied with the quality of Thai skilled labour, they were concerned about insufficient labour supply, said Miss Pannee.
She said the labour turnover rate in Thailand was as high as 30%, compared with nearly zero in some European countries such as Switzerland.
On the other hand, many European investors are interested in setting up businesses in Thailand because of privileges they could enjoy from the free trade agreements that Thailand has made with other countries, particularly Japan.
"European investors realise that their markets include free trade agreement partners of Thailand so they are really huge," said Miss Pannee.
She reports high interest among investors from the United Kingdom, France and Italy in particular.
During the first two months of this year, there were 16 applications worth 2.19 billion baht from European investors for BoI investment privileges. Last year, investment projects from Europe totalled 160 ventures worth 35.28 billion baht.
Miss Pannee said two UK companies were about to seek BoI privileges for regional offices in Thailand, with each venture worth at least 10 million baht.
The Thai and French governments, meanwhile, have set a target of 400 French small and medium-sized investors in Thailand by 2009, compared with 350 at the end of 2005.
Investors from Italy are also looking to Thailand in order to reduce their production costs and strengthen their competitiveness against China. Italian investors like to source metal parts, automotive and plastic parts from Thailand to serve their industries.
Vocabulary (in discussion above)
globalisation - the worldwide trend towards increasing integration and interdependence (in economics, technology, culture, and politics) (See Wikipedia on anti-globalisation and globalisation)
inevitably - will happen for sure
Foreign Direct Investment (FDI) - money invested in a country from outside the country by foreign businesses (FDI consists of businesses or assets owned in the country in contrast to portfolio investment which consists of stocks and bonds that are owned)
race to the bottom - "when competition between nations or states (over investment capital, for example) leads to the progressive dismantling of regulatory standards. This theory states that this reduction of regulation, welfare, taxes, and trade barriers will increase poverty, and drive the poor to the few remaining areas that retain protections. In the end this theory argues that this will force the last remaining states to drop their protections in order to survive." (See Wikipedia)
bilateral - between two countries
multilateral - between many countries
Free Trade Agreement (FTA) - an agreement to reduce tariffs and other barriers to trade, usually bilateral between two countries: Japan-Thailand, US-Thai, China-Thai (since the multilateral WTO has failed lately, FTAs have become much more important)
pending - waiting for final approval, not yet authorized
apprenticeship - when a worker learns a skilled trade (welding, carpentry, machinist) by working under an experienced worker who teaches them
apprentice - the unskilled worker learning from a skilled worker
skilled labour, skilled labourers - workers with some skill that requires training and apprenticeship (for example machinists, welders)
in short supply, insufficient labour supply -
Board of Investment (BoI) - Thai government agency that promotes investment in Thailand, encourages new technologies and industries to come to Thailand by providing incentives (privileges) to companies to invest in Thailand
an incentive x given to y to do z - giving reward x to encourage person or company y to do z
BOI investment privileges, BOI privileges - BOI incentives
a real estate development, a real estate developer - real estate developers buy land and then build on it, examples include residential developments (with houses) and industrial estates (with factories)
infrastructure - publicly provided services such as water, continuous electricity, roads, transportation, and toxic waste disposal that make everyday life and business possible
an industrial estate - a large area of land prepared with infrastructure for running factories on (this infrastructure is even more important in countries like Burma where there are big problems with electricity, roads, and transportation)
leases sites, leased land - a lease is an agreement to rent land and buildings on the land for a period of time (a long-term lease is the next best alternative in countries which prohibit foreign ownership of land)
set a target of - set a goal of, set a quantity to reach in the future
source parts - find a company that produces parts you need to produce your product, find someone who can suppply the parts you need
Answer Key:
1. What kind of investors could the Thai-Japan FTA attract? Why?
The Thai-Japan FTA could attract European companies "looking for bases to supply the Japanese market."
2. What factors currently limit European interest in Thai FDI?
a. Industrial land costs are high in Thailand.
b. Skilled workers are in short supply in Thailand.
3. How do industrial land costs compare between Europe and Thailand?
Many European companies feel that the price of industrial land is about the same in Thailand and western Europe.
("She said many European investors had complained that land prices in industrial estates in Thailand were as high as in western Europe.")
4. Are high prices for industrial land in Thailand a fixed and inflexible thing?
No, the BOI states that "land prices in local industrial estates are negotiable."
("'What the BoI can do is to explain to European investors that land prices in local industrial estates are negotiable,' she said.")
5. What pressures from what country might lead to eventual price reduction in Thai industrial land?
(Inference needed here)
Competitive pressures from Vietnam. Vietnam offers considerably lower costs for leased land.
("Miss Panee said that Vietnam was emerging as a serious competitor to Thailand. While foreign investors in Vietnam cannot own land, the communist country offers considerably lower costs for leased land.")
6. Are Thai companies involved in the development of industrial estates and infrastructure in Vietnam? Give the name of one development.
(Inference needed here)
Yes, Amata Corporation is apparently Thai because it is listed on the Stock Exchange of Thailand (SET). Amata developed the Bien Hoa Industrial Estate in Vietnam.
("SET-listed Amata Corp, for example, charges 56,000 baht per rai per year at its Amata Bien Hoa estate in Vietnam.")
7. Is quality or quantity of Thai labour the problem that besets European FDI and operations in Thailand? Why do you think?
(For open discussion)
There is an insufficient supply of skilled labour in Thailand and the labour turnover rate is high at 30% compared to very low rates in Europe such as nearly 0% in Switzerland.
This might be due to Thai workers leaving to start their own businesses after gaining experience or moving to higher positions in Thai firms after serving an apprenticeship and acquiring knowledge in a European firm. For example, I knew a Thai building contractor who gained his experience for a large Japanese multinational building tall office buildings in Bangkok.
8.What seems to be the main factor drawing European FDI to Thailand?
Access to markets via Thailand's FTAs with third countries such as Japan, China, and ASEAN.
("...many European investors are interested in setting up businesses in Thailand because of privileges they could enjoy from the free trade agreements that Thailand has made with other countries, particularly Japan...European investors realise that their markets include free trade agreement partners of Thailand so they are really huge..."
9. What European countries are especially interested in FDI in Thailand?
The BOI reports high interest from the United Kingdom, France and Italy.
10. What scale of investment have the Thai and French government targetted for FDI in Thailand?
They have targetted small and medium-sized investors.
("The Thai and French governments, meanwhile, have set a target of 400 French small and medium-sized investors in Thailand by 2009, compared with 350 at the end of 2005.")
11. What advantages might there be to encouraging small scale investment as opposed to the normally emphasized large-scale investment?
It might be easier to attract small-scale investment, because there are more small companies and there is a lot of competition among countries such as China and India to attract the money behind large-scale investment.
12. What specifically interests Italian investors in Thailand?
a. Reduction of production costs.
b. Strengthening competitiveness against China.
c. Sourcing parts (automotive, plastic, metal)
