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10 September 2013
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Costs may force SME relocation

4 sectors expected to move output bases to neighbouring states

Companies in four sectors are expected to gradually relocate their manufacturing bases to neighbouring countries due to rising labour costs at home, according to the Thailand Development Research Institute.

The TDRI is urging the government to speed up the establishment of a one-stop service to facilitate businesses – especially small and medium-sized enterprises (SMEs) – in making their investment decisions.

Speaking during the “Direction for Relocation of Labour-intensive Industries into Neighbouring Countries” seminar yesterday, TDRI president Somkiat Tangkitvanich said a number of labour-intensive industries would likely relocate to Myanmar, Vietnam and Cambodia, given the recent hike in the Thai minimum daily wage to Bt300.

His remarks are based on a TDRI study that will be forwarded for consideration by the Joint Standing Committee on Commerce, Industry and Banking.

Somkiat urged the state sector to establish a one-stop service to help SMEs choose between having a Thai manufacturing base and one in a neighbouring country, promote SME investment abroad and provide basic and in-depth information about the tax and trade benefits of foreign investment, legal issues and other matters.

Both Thai and foreign investors – particularly in the garment, shoes, leather products, jewellery and accessories industries – may relocate their manufacturing bases to neighbouring countries, and especially to Myanmar and Vietnam, which have quality human resources and low raw-material costs, Somkiat said.

Myanmar could become an export base for third-country manufacturers as the United States is considering lifting its economic sanctions against the nation and allowing it to benefit from Generalised System of Preferences (GSP) benefits. The European Union is also considering granting GSP privileges to Myanmar, he said.

Despite its higher land and electricity costs, Myanmar has much lower wages than its neighbours, he said. This means its total production costs are some 10-15 per cent lower than in neighbouring countries.

Somkiat said the strengths of Vietnam, which has GSP benefits from several countries, included a high-growth market, quality workers and low wages.

The country’s weaknesses, meanwhile, are its uncertain legal issues, a 5-per-cent annual rise in wages, and problems in macroeconomic stability with non-performing loans, high inflation and a relatively undeveloped infrastructure.

The TDRI chief said it remained difficult for SMEs to relocate their manufacturing bases to these countries, given investment constraints, legal and regulatory uncertainties, political instability, relatively undeveloped infrastructure, and different languages and culture.

However, among the most advantageous places for relocation currently is the former Myanmar capital, Yangon, and nearby cities, due to their better infrastructure, he said.

To retain foreign direct investment in Thailand, the government should also accelerate the setting up of special economic zones, in particular providing areas with lower wages than in other parts of the country, Somkiat said.

He suggested such measures would be appropriate only for the short and medium terms, as Thailand’s wages would continue rising along with the country’s growth in the longer term.

Solutions for manufacturers include the adding of value to their products, making increased use of machinery instead of labour, plus more focus on research and development, design and brand development, Somkiat said.