Manufacturing Outside China: It’s Thailand’s Time, Part 2

As more companies look to diversify their Asian supplier base, Thailand often wins out as the best-fit destination. Vietnam has been flooded with the early movers. As a result, their factories are at capacity, their costs are rising, and they are less willing to compete for new business (i.e. – give our clients good deals). See Sourcing in Vietnam: a Good Alternative to China?  Taiwan and South Korea are great for certain products, but too expensive for most. For many products, Thailand just works.

Thailand’s business environment for foreign companies has becoming increasingly welcoming to foreign investment. Thailand has made big investments in infrastructure (new roads, ports, trains, airports, etc.) and much of this has been geared towards improving upon its export-driven economy.

Thailand’s government is constantly talking about the increasing opportunities for Thailand stemming from the US-China trade war and it has made clear that it intends to compete aggressively for that business.  One of my good contacts at the Thailand Board of Investment recently told me that the mantra in Thailand these days is to make investing by foreign companies easy. Just last month the Thai government announced an additional package of incentives to encourage foreign companies to relocate their production from Thailand to China. See Thailand Offers 50% Tax Break to Entice Manufacturers Fleeing China.

One of the things that often surprises our clients is how seriously Thai companies typically take the contracts they sign. Industry Week highlighted this in Finding a Fit in Thailand:

Once you sign a contract [in Thailand], it is upheld. . . . We don’t need to worry about the quality of the products or whether it was built to the correct specifications.  I can’t say that about other countries.

The World Bank ranks Thailand 35 out of 190 countries in terms of its enforcing contracts, tied with Portugal and only three slots behind the United Kingdom.

Thailand also has a good history with protecting intellectual property. Per Industry Week, “IP protection isn’t a problem in Thailand [because] unlike China, the people in Thailand are not looking to open their own businesses. . . . And the turnover rate for employers is extremely low compared with other Asian countries.”

Lastly, and as everyone who has ever been to Thailand well knows, it is a great place to visit.

Of course, the most important question for any company wanting to use Thailand as its supplier-base is whether it is equipped to make your specific product. Is there a company/factory with the skills, equipment, level of automation, and capacity required?  Does this Thai company/factory have the access to needed raw materials and components and can it make my product at a competitive cost and at the level of quality we require?

Our usual answer to the first question is a quick yes. Thailand has a large and diverse manufacturing base with a focus on exporting. In its most recent Global Manufacturing Competitive Index, Delloite ranked Thailand 14th in the world, ahead of every other country in Southeast Asia except Singapore, which is a much higher cost country.  Thailand has factories making just about everything these days, but no country does everything well and no country (except maybe China) has “automatic” capacity at every level of quality. This means our answer to the second question is usually a “yes” or a “maybe” but with the proviso that we need to talk with our government and factory contacts to find out whether there is a factory that can make your specific product at the costings and the quality you require.

For more on Thailand for manufacturing, check out Manufacturing Outside China: It’s Thailand’s Time and for more on moving your manufacturing from China, check out Moving Your Manufacturing Out of China: The Initial Decisions and Moving Manufacturing from China: Where you Gonna Run?