Thailand+1 equals gains for Japanese companies

Japanese investors are recommending a Thailand+1 model to maintain foreign investment here at home.

According to Kiminori Iwama, economic minister at the Japanese embassy in Bangkok, both Thailand and its neighbours would benefit from such an arrangement.

Even though statistics provided by Thailand's Board of Investment (BoI) clearly show that the Japanese remain the biggest foreign investors in Thailand, a survey by the Japan External Trade Organization (Jetro) found that 73% of companies are concerned about rising labour costs in Thailand.

Since the end last year, the Thai and Japanese governments have discussed the direction of Thailand+1. This is a business model in which Japanese companies operating in Thailand's industrial clusters transfer labour-intensive parts of their production to special economic zones in Cambodia, Laos and Myanmar near the borders with Thailand.

Thailand would have more high-tech companies coming in as labour-intensive industries move to neighbouring countries, which offer lower wages. Japan would benefit by having a base to expand into Myanmar, Laos and Cambodia.

In the first half of 2014, the value of applications for investment privileges from Japanese firms was worth 80.49 billion baht from 194 projects.

The BoI remains optimistic after another survey of Japanese executives, conducted by Nikkei Business Publications, said 85% have no intention of revising their investment plans in Thailand.

"Thailand has a strong production base, supporting industries and supply chain, making the country very competitive," said Udom Wongviwatchai, secretary-general of the BoI.

"It could also be used for Japanese companies to expand to neighbouring countries in preparation for the Asean Economic Community."

Business confidence has improved after the tumultuous first half and pending projects are gaining BoI approval.

Mr Udom said the decision by the US and EU to scale back cooperation with Thailand after the coup had yet to affect businesses, as investment continued to flow into the country.

Sarasin Viraphol, executive vice-president of CP Group, said business confidence was returning, "but for it to be more tangible will take time".

The response of the US and EU was anticipated, but Japanese companies will continue to flock here for the opportunities, he said.

He noted Thailand was a crucial link in the Japanese automotive supply chain.

The World Bank forecasts Thai economic growth of 2.5% in 2014 and 4.5% in 2015. The Bank of Thailand puts the estimates at 3.4% and 5.5%, respectively.

The goal of achieving 700 billion baht worth of incentives is likely to be met, and there are no plans to revise the goal.

Most investments are in the service sector, power generation and logistics, Mr Udom said.

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