Destination Thailand – the next manufacturing hub for Australia?

Our preoccupation with larger and more complex markets such as China and India has resulted in the smaller member states of ASEAN being overlooked, despite the many advantages for Australian businesses; however, Thailand has grown for 25 years above an average rate of 7% or more, and by 2020 is expected to move into the World Bank’s high income category.

Although one million Australian tourists are expected to visit in 2012, most are not aware that Thailand has become a production base for a multitude of household names including Toyota, Honda, Mazda, Isuzu, Ford, Sony, Toshiba, Western Digital, Seagate, Nikon, Canon, Hewlett Packard, Dell and Apple.
Thailand has become Japan’s manufacturing hinterland and earned itself the nickname “Detroit of the East”. It produced 1.5 million vehicles last year, dwarfing Australia’s output of 225,000. And yet Thailand was omitted from the Australia in the Asian Century white paper priority list in favour of countries such as China, India and Indonesia – to the dismay of the highly engaged and influential Australian diaspora living there.   
One of the most compelling assets for Australian businesses seeking to expand into Thailand rests within the Australian community in the country. Even though they are outnumbered by the British and Americans, they are disproportionately influential for their size.  Of the 3,500 Australian residents, over 40% have lived in Thailand in excess of 10 years – with many having committed over 15 years of their lives to this country. Could this perhaps be an overlooked source of competitive advantage for Australian businesses?
Long-term commitments resonate with Asian businesses. 
The success of Australian businesses in Thailand could indeed be a reflection of what appears to be an uncharacteristic commitment made to the region by many Australians who now call Thailand home. 
While it may appear that the Federal Government’s Asian Century white paper has, in its consultation phase, largely bypassed the valuable expertise that exists in this elite group, there are many who remain eager to help their Australian comrades integrate into Thailand.
John Pollard, CEO of Meinhardt Asia Pacific – ranked among the largest independent engineering consulting firms globally – has lived in Thailand for over 15 years and is confounded by delegations from Australia who repeatedly make fly-by visits to Thailand, on their way to much tougher business destinations like Vietnam and Indonesia. 
Thailand is ranked 17th in the world as compared with 98th for Vietnam and 129th for Indonesia by World Bank in ease of doing business. 
Peter Harper, an architect and founder of Harper Design Studios, has also made Thailand his home for over 15 years and attributes his success to creating an organisation that mirrors the strong bonds and village-like relationships that infuse Thai society. Harper believes moving to Thailand offered him the opportunity to work on a diverse portfolio of architectural projects that he may not have been able to access so early in his career in Australia.
A leading Australian automotive supplier, Futuris, has grown from 50 to nearly a thousand employees in Thailand in a matter of two years.  Senior management at Futuris attribute their success in Thailand to sparse local competition and a domestic market that is larger than Australia. A winning formula waiting to be tapped by other companies seeking growth.    
The list goes on. 
Another source of advantage for Thailand lies in its strategic position within the ASEAN region, which is only set to improve as new economic corridors and road networks are built throughout the rest of the decade. Thailand is an attractive hub for Australian firms to access Myanmar and the Greater Mekong Subregion. It is proving itself as a convenient logistics hub to serve international markets.
Add to this the Thai Board of Investment, which offers highly attractive tax incentives to businesses, a forceful Australian chamber of commerce (AustCham) and golf caddies who hold your umbrella and line up your shot  – and it catapults Thailand into being amongst the easiest places to do business in ASEAN.   
Thailand’s manufacturing sector is now 16% larger than Australia and growing fast due to exports. Its manufactured exports are 400% larger than Australia. In fact, to maintain its manufacturing competitiveness, Thailand is now importing lower cost workers from Laos and Cambodia. 
So what can we learn from countries like Thailand who are importing cheaper labour to stay competitive? Perhaps the right question in the Asian Century is not how to protect Australian jobs from going off-shore, but how we can leverage our individual national strengths within an integrated Asia. 
One example of the ”new business model” proposed by the Asian Century white paper is to  take advantage of Australian capabilities at the high end of the value chain, while simultaneously linking them into regional supply chains and production networks. In fact, Thailand presents the best opportunity for Australian businesses to break into lucrative but difficult-to-penetrate Japanese supply chains.
A critical factor towards execution of this model lies in the retention of sufficient manufacturing and engineering capability in Australia to underpin research, design, prototyping and other vital steps that precede full-scale production. According to the Prime Minister’s Manufacturing Taskforce, 85,600 manufacturing jobs are expected to be lost in the next five years. Perhaps one way to save some of these jobs and to create new ones is to consider how to leverage Thailand as a base for expansion and international competitiveness of Australian manufacturers. 
By Rohini Kappadath
Rohini Kappadath is Director of Cross Border Business at Pitcher Partners accountants, auditors, advisors.

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