Strong baht, lack of skilled workers
problem for Japanese investment in Thailand
By Jon Fernquest |
The effect of the strong baht on Japanese investment in Thailand as well as other factors are discussed in a front page article in the business section of today's Bangkok Post:
"Japan-based companies are likely to continue delaying investment decisions as the strong baht has hurt their profits, the Japan Bank for International Co-operation (JBIC) said yesterday. Citing JBIC's annual survey of 600 Japanese firms released late 2007, Susumu Ushida, the bank's Japan-based senior economist, said the survey found that Japanese firms with a production base in Thailand saw earnings drop compared to the previous report.Thailand is an export base for three main Japanese sectors - automobiles, general machinery and electronics and electrical appliances. The strong baht against the falling US dollar has cut into their profit margins.
The Thai currency remained at a 10- year high yesterday, trading at 32.25/28 baht against the dollar, slightly up from Monday's close of 32.26/30, according to Bangkok Bank.
JBIC added that if the baht rose further or even remained at the current level, Japanese investments in Thailand would slow down."
A return to a fixed exchange rate has been proposed as a way to restrain baht appreciation as the dollar falls.
Some Japanese investors counter that it is really exchange rate stability that is most important issue and that such stability is also possible under the current floating exchange rate regime:
Prime Minister Samak Sundaravej has ordered a study looking at a return to a fixed exchange rate, but Japanese investors said currency stability was the key. Yuhei Ohmi, chief representative of JBIC in Bangkok, said stability was essential regardless of whether the exchange rate was fixed or floated."I personally think that a stable foreign-exchange rate is their concern, making them feel more comfortable, rather than a fixed or floated system," said Mr Ohmi...
Mr Ohmi also said lifting the controversial 30% reserve rule would benefit investment sentiment here
Labour markets are also a factor in plans for Japanese investment in Thailand.
First, Japanese investors find there is a shortage of skilled labour to meet their needs:
Thailand was considered a good investment location for raw material industries, but the lack of quality human resources was a critical factor, said the survey.The relocation of automobile and electronics makers from Japan to Thailand was almost complete, following the pace set by companies in the steel, chemicals and glass industries.
However, Thailand must develop more skilled workers to serve their investments, he said.
In addition to this shortage of skilled labour, Thailand faces downward pressures on wages caused by the rising economies and export capabilities of neighbors such as Vietnam:
The electrical and electronics industry has seen its competitiveness threatened by cheaper labour from Vietnam, he said. Many of these companies indicated that rising labour costs were a problem faced in Thailand...
(Source: Bangkok Post, business section, 27-02-08, page B1, Nareerat Wiriyapong, temp-link)
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Vocabulary:
Japan-based companies - companies with their headquarters and most of their operations in Japan (even though a lot of their business is outside the country)
Japan Bank for International Co-operation (JBIC) - promote economical cooperation between Japan and oversea countries by providing resources to foreign investments and by fostering international commerce, plays a major role in promoting Japanese exports and imports, and the country's activities overseas (See Wikipedia)
cite X to support Y - mention X as proof or evidence of Y
X with a production base in Y - company X produces a lot of its goods in country Y
X is an export base for Y - Y manufactures and exports from country X
cut into profit margins - reduce profits
an exchange rate regime - the set of rules that determine a country's exchange rate
a fixed exchange rate - when the value of a country's currency is given a fixed value in another currency such as the dollar (example: 25 baht per dollar) (or a set of currencies suc has the dollar, the yen, and the Chinese yuan)
a floating exchange rate - when an exchange rate is allowed to move up and down in value depending on supply and demand for the currency
stability - not changing suddenly and unpredictably
exchange rate stability - when the currency's value does not change suddenly and unpredictably (thus making business easier and more predictable)
X was the key - X was the most important factor for success
essential - extremely important and necessary
X regardless of whether Y or not Y - X is true if Y is true or not true, Y is irrelevant to truth of X
lifting the controversial 30% reserve rule -
investment sentiment - whether investors are positive or negative, confident or not confident about making investments
meet their needs - satisfy their needs
human resources - the workers in a company and their skills (factories, machines, computers are resources but not "human" resources)
a critical factor - one of the most important factors
the pace of Z - the speed at which Z moves
X follows the pace set by Y - Y moves quickly, X also moves quickly, just like Y
