Pioneer Thailand

Pioneer, a Japanese electrical appliance maker which turned Thailand into a production centre for some products two years ago, will shift half its car-radio production in Thailand to its factory in China, “where labour is cheaper and tax is lower”, said Somkid Pintong, senior manager of Pioneer Thailand.

Pioneer Japan

Even small and medium-scale Thai firms are planning to relocate production to China. They include Fang Agri Foods Products Co, a cannery, and A.V. Glory Co, a Chiang Mai firm that makes toys from cloth.

“Thailand used to be able to compete with other countries because of its competitive costs and central location for exporting. But these advantages no longer hold,” said Yutasak Satheantiyanggoor, the food company’s owner and president.

China was now a major competitor offering a broad economic base with high consumption and production potential. Amid a gloomy global economy, China was a beacon for Asia, he said. China’s membership of the World Trade Organisation would only hasten the shift in foreign investment seen in recent years away from Asean, including Thailand.

Mr Yutasak said his company was considering an investment of 50 million baht in China, with Hokkien the most likely manufacturing base. Relocation talks had started and an agreement was expected early next year.

The investment would involve setting up a new factory as a joint venture with Chinese partners and ultimately merging with a fruit cannery based in China.

The move was necessary, he said, as Chinese competitors had undercut his company’s prices by 20-30% for all five products: fruit, fruit juice, pickled vegetables, bamboo shoots and mushrooms.

“Given the lower costs for the same product quality, Chinese products are increasingly present in the global market,” he said.

Chinese canned products were pushing Thai brands into retreat. For example, given the shortage of lychees and longans in Thailand, and consequent higher prices, the company had to import the raw fruits from China in the first place.

The company last year posted 106 million baht in sales revenue, of which exports accounted for 90% and domestic sales 10%. Japan accounted for 60% of the exports, the European Union 30% and Southeast Asia 10%.

Arunee Vesvarut, the managing director of A.V. Glory, said competitors in China had undercut the firm’s prices by up to 50%.

The popularity of “smart toys” made from cloth had a downside as cheap products from China were now dominating the market for hand-made toys, she said.

In the first three months this year, her firm’s exports were disappointing in the face of Chinese competition and the economic slowdown.

Ms Arunee said the company expected to obtain equal revenue from the domestic and export markets this year, instead of trying to export all its products. The company hoped to differentiate its products from cheap alternatives by focusing on quality, design and variety.

However, the Federation of Thai Industries (FTI) claims that it will not be easy for business operators to move their bases to China due to the country’s existing regulations ahead of liberalisation under WTO rules.

Saengchai Ekpatanatarnich, the chairman of the FTI’s labour affairs committee, conceded that China’s accession to the WTO would create competitive pressures for less competitive export industries abroad. But at the same time, China would be required to open its domestic market to competition.

Thailand appeared to have advantages over China, particularly in the high-quality food and fashion industries, he said, as the country had abundant raw materials, highly skilled workers and reasonable wages, he said.

 

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