Make money in Thailand while you train for China’s WTO boom
BANGKOK: Australian companies contemplating investing in China should seriously consider minimising their risk by first establishing a beachhead in Thailand, according to an Australian supply-chain expert, David Edwards.
“Many corporations are thinking of a China+1 strategy,” he said.
Under the China+1 theory, foreign companies first test their proposed Asian operation in Thailand or elsewhere in Southeast Asia.
With China’s WTO accession, within the next 10 years foreign investors will be able to own 100 per cent of most kinds of business there.
“A decade from now it will be a fantastic opportunity. But why go in now?”
Mr Edwards is a managing partner of Logistics Bureau (Asia) Ltd, a three-way joint-venture between Logistics Bureau (Australia) and the Brooker Group.
He said that many joint ventures in China had either failed or not made money.
“Get your boards used to operating in Asia while you wait for China’s WTO benefits to eventually flow through,” he said.
“Use Thailand as a learning base by building a reasonably good business here while you develop your China plan.”
The supply-chain process of the retail consumer market sector is pretty well advanced here compared to other countries in Southeast Asia.
Overseas operators such as Makro and Tesco have lifted the standards and these advances have filtered down through the labour force, the suppliers and the sub-suppliers.
Our own Australian company chose to establish Thai operations because the country’s supply-chain processes are fairly well advanced.
“We sell our services to people who already understand supply-chain management.”
To compete successfully after China’s WTO accession, companies will need to take advantage of the current window of opportunity to get their costs in order.
Efficient supply-chain management is the key issue.
In the US, logistics costs are about 10 per cent of the country’s gross domestic product; in China they are estimated at between 30 and 35 per cent of GDP.
Although no studies have been done, logistics costs in Thailand are between 22 and 25 per cent of GDP.
China’s costs are higher because its inter-provincial infrastructure is not so well developed. Moving goods between provinces can be fraught with rules and regulations.
“Thailand has good infrastructure and its supply-chain development is halfway between that of China and the USA.”
Mr Edwards said Thailand would be an excellent place to test his China+1 strategy because companies serving the domestic market had a lot of reasonably low-cost choices and could move goods through a road network, via a well-developed transport infrastructure.
The Eastern Seaboard’s highly-developed infrastructure and the Board of Investment privileges were also important supply-chain cost-saving elements.
“They’ve brought many suppliers and buyers together – so it’s much more efficient to do business on the Eastern Seaboard,” he said.
In the long run, to successfully compete with China, we need to get much more efficient. In about 15 years, China will have sorted out most of its cost-raising supply chain issues.
“The market winners will be those who can get their products to the market most efficiently.”