Manufacturing Industry In Southeast Asia

By Yu Yichun

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Manufacturing Industry In Southeast Asia

By Yu Yichun

At Laem Chabang Port， Thailand， brand new Mirage sedans produced in Thailand being loaded onto a ship headed to Japan

Twenty-five kilometers north of Pattaya，one of Thailand's most popular tourist destinations， trucks roar by， carrying large containers set to be placed on oceanbound tanker ships. Occupying an area of 10.5 million square meters， Laem Chabang is not only Thailand's largest port， but also an indication of Thailand's manufacturing potential.

According to the 2016 Global Manufacturing Competitiveness Index report， released by Deloitte Touche Tohmatsu Limited and the US Council on Competitiveness， four countries in Southeast Asia—Malaysia， Thailand， Indonesia and Vietnam—are on the rise. Thanks to their relatively low labor costs， flexible manufacturing capabilities and ever-expanding markets， they are expected to rank among the world's Top 15 in manufacturing by 2020.

A Giant Manufacturing Base

Each year， millions of new cars assembled in Thailand are shipped from Laem Chabang to more than 30 main ports in the world， before being transferred to terminals in more than 100 countries and regions. Mass volume of shipment has made Laem Chabang Wharf A5 Asia's largest （and the world's fourth largest） automobile roll-on，roll-off terminal.

“After more than 50 years' development， Thailand's automobile industry has become quite mature， especially in the past two decades，” said Nan Rong， President of Nan Rong Folks Limited， a listed company in Thailand. “Since car production has been completely localized， auto parts factories can be seen everywhere along the expressway connecting Bangkok with ［neighboring］Chonburi Province. And there are new factories established every day.”

The company is mainly engaged in automobile shipment for a total of 18 brands from Japan， Germany and the US with an assembly line in Thailand. An average of 4，000-5，000 motor vehicles are loaded for export atLaem Chabang's Wharf A5 every day.

The automobile industry is one of the most promising in Thailand's manufacturing sector. Many countries in Southeast Asia are believed to have a bright future in manufacturing because of their advantages in labor costs and demographics. Yao Jinlong， a professor of economics at the Business School of Malaysia's Sunway University， said that Southeast Asia is now progressing in a way similar to that of China over the past three decades—meaning a giant manufacturing base is taking shape in Southeast Asia—and changing the global manufacturing industry. As the added value of China's manufacturing industry keeps rising， other regional countries with a competitive edge in labor cost and raw materials are moving into the manufacturing industry at fairly low costs.

According to the development goal of the ASEAN Economic Community， free flow of goods， service， capital and labor force will be realized within its 10 member states. By strengthening complementary sectors in trade， ASEAN countries are expected to unleash greater market attractiveness and increased potential.

Ever-Expanding Consumer Groups

Huang Ruoshi， Head of Deloitte Southeast Asia Industrial Product & Service，pointed out that Southeast Asian countries，such as Indonesia， Malaysia， Thailand and Vietnam， continue to attract attention from global manufacturers due to skilled labor forces and increasing productivity.

LG Display， a branch of South Korean conglomerate LG Group， has signed an agreement with Trang Due Industrial Park in Haiphong， Vietnam， for renting a complex covering 40.4 hectares to produce LED and OLED displays. That is the second largest investment of the LG Group in the Park， and the complex is the world's 10th LG display manufacturing base.

Cheng Zhibin， the Asian Regional Director of TCL Corporation， a Chinese multinational electronics company， said that TCL has already established partnerships with enterprises in Thailand and Indonesia. At present， the corporation is considering the possibility of opening new factories in India with more favorable conditions in terms of labor force， manufacturing maturity and potential market size.

According to the International Yearbook of Industrial Statistics 2016， published by the United Nations Industrial Development Organization in February， India and Indonesia have become two of the world's top 10 manufacturing powers due to their tremendous production capacity.

The growth of consumer groups is another driving force for the development of the manufacturing industry in Southeast Asia. Considering the large number of local consumers， TCL chose to launch its new TV products on May 17 in Thailand. Meanwhile，since its entry into the Thai air-conditioning market in 2013， TCL has become the fastest-growing brand in terms of sales volume，with 22，000 air-conditioners sold in Thailand last year. With consumers' growing needs for compact cars in the medium-to-long term，Japanese automobile manufacturer Toyota recently announced plans to set up new factories in Malaysia.

Besides traditional advantages in labor force and raw materials， some Southeast Asian countries have formulated ambitious long-term development plans to take new measures to strengthen their competitiveness in the manufacturing industry. For example，in order to attract foreign enterprises to set up long-term operations， Malaysia's East Coast Economic Region has implemented supporting measures， including a 10-year exemption of income tax， import tax and sales tax on machinery and equipment.

More and more manufacturing products from Southeast Asia have emerged in the global apparel， food， automobile and electronics markets.

The Need for Quality Investment and Technology

Advanced manufacturing technology is the key to greater competiveness in the future. Emerging economies possess advantages in labor and raw materials， but advanced economies retain their dominance in labor productivity. Despite relatively high production costs， some have succeeded in maintaining manufacturing competitiveness due to a mature labor force， a favorable investment environment， abundant investment in research and development， modern infrastructure and managerial expertise. For Southeast Asian countries， all these strengths are in urgent demand.

According to Yao， to improve productivity and quality， Southeast Asian countries need to cultivate large numbers of scientific and engineering talents. Meanwhile， they have to increase investment in both public and private sectors for research and development and innovation.

“What's more， they should make efforts to attract investments from advanced economies and formulate policies to introduce cutting-edge manufacturing technologies， so as to strengthen their independent scientific and technological innovation capacity，” Yao said.

As a newly emerged high-tech manufacturing center in Asia， Vietnam is now catching close attention from international giants Microsoft， Samsung， LG， Intel， Nokia and Fuji Xerox. All these high-tech enterprises have set up new factories in Vietnam over the years.

“Since 2013， the 10 ASEAN member states have received more foreign direct investment than that of China， which further proves that the number of investment destinations for low added-value manufacturing shows a rising trend，” said David Mann， Chief Asia Economist at Standard Chartered， a Londonbased bank. “We have noticed that some economies in Southeast Asia are attracting a number of mature enterprises. Opening up to international investment is helpful for these countries to introduce advanced technologies. And the combination of technologies and low labor costs plays a crucial role in enhancing their manufacturing competitiveness.”