China has long held the role of the ideal manufacturing hub. It’s generally low cost labor, and fantastic infrastructure has made it the go to source for many companies. Despite its rising wages, in part due to a country wide shift to increase medium to high tech manufacturing, China still holds some major competitive advantages over its smaller fellow nations. However, with the increasing ambivalence caused by rising tariffs and the U.S.- China trade war, many are looking into alternative sourcing options.
Thailand is one of the more interesting countries in Southeast Asia that is trying to make its mark known as a major player in the world of manufacturing. It holds its own unique advantages and disadvantages, but how does it compare to those of China?
A large portion of Thai goods are linked to China’s supply chain, so the U.S.- China trade war has had impact on the country as well. Exports have fallen since the start of the war. Thailand exported roughly $249.8 billion worth of good worldwide from its manufacturing sector in 2018. This is just a fraction of China’s number, but a much larger percentage of its GDP. This output is largely driven by a skilled Thai workforce and high labor productivity. With a population of 69 million people, there is a 90+ percent national literacy rate and a high rate of workers graduating from an engineering, tech, and science related field of study. However, a highly skilled workforce creates a relatively high cost of labor.
Thailand’s labor cost may be less attractive than China’s. Relatively, Thailand has a high minimum wage that is only expected to increase due to a decline in surplus labor and a push for more from workers. Despite an overall wage increase across China, smaller provinces, where many factories are located, still often have a lower minimum wage in comparison. In part due to its population size of about 1.4 billion people, there is a wider range of quality and skill options available in China to meet various budgets and needs.
Over the years China has blazed a well-worn trail, making the manufacturing path very clear there. Though Thailand doesn’t have quite the size, its infrastructure is generally quite good as well, especially in the larger cities. Some of the country’s eastern provinces have proven to be successful manufacturing hubs for decades in the areas of automobiles, petrochemicals, and electronics. The Thai communications infrastructure is already impressive, and with new government initiatives we can expect to see nation-wide improvements in transportation within the next 10 years. In addition, the new Eastern Economic Corridor (EEC), part of the Thailand 4.0 project, aims to foster innovation in targeted industries in order to transform Thai industries from manufacturing-based to high-tech. This is not dissimilar to the movement in China in recent years. Though again, this transformation doesn’t necessarily bode well to keeping a low cost environment.
Another thing to note is that Thailand is a country that has shown some political instability. With a handful of protests and military coups occurring over the last several years, rapid shifts in political power and social order could potentially pose a threat to manufacturing and sourcing from the country if the occurrences haven’t proven to have leveled out.
The business climate in Thailand is generally welcoming though and has improved considerably for high tech business in the last few years. However, due to the government’s Foreign Investment Laws, which has been tightening to foreign investment, it can be somewhat tricky to establish operations in the country. Foreigners are not allowed to fully own a company in Thailand except for 100% export in a bonded zone, or except for U.S. citizens under the US Treaty of Amity. Local sourcing is generally required at over 30% to qualify for made in Thailand. Generally, it is necessary to have a local Thai citizen own over 51% of a business to have a “foreign” business registered. Plus, foreigners are not allowed to own real estate.
There are some great opportunities for doing business in Thailand right now, but the retreat from China may not be so straight forward. The right time for your business in Thailand depends on specific factors of your business, industry, and goals, which may or may not fit the Thai law criterion. If low-cost and ease of access are high priorities, there’s a chance China may still be your best bet.