Thailand 4.0 Improves Prospects for Foreign Machinery Importers

Thai demand for imported machinery and machinery parts has been falling continuously over the last three years. The political instability, reaching its peak in the 2014 Coup d’état, continues to hamper economic activity. In 2015, machinery imports again fell by 8.6% compared to the previous year, reaching 19.5 billion USD. While China continuous to solidify its position in the market, other major exporters such as Japan and Germany see their import share dwindling. Alone in the past year Germany witnessed its 2014 import share of 10.6% drop by almost three percentage points. However, there seems to be new light on the horizon. With Thailand 4.0 the Thai government has brought forward an ambitious integrated development concept aimed at rejuvenating the economy. For high-tech machinery providers, the moment to position themselves strategically on Thailand´s path of progress has come.

Under Thailand 4.0, the government aims to improve productivity and thus the international competitiveness of the Thai economy. In order to achieve these targets, the new economic plan focuses on enhancing research, innovation and higher-value production. In total, ten industrial sectors are being given priority, reaching from traditionally reliable core sectors such as automotive, electronics and foodstuff to futuristic business branches like robotics, aviation, biochemistry and medical technology. In addition, the government has recognized the key role of the digital economy in the country´s development ambitions and is actively fostering the latter through initiatives under the “National Digital Economy Masterplan 2016-2020”, including the implementation of a countrywide broadband network.

For the country to reach its ambitious goals, greater automatization will be inevitable.  Out of Thailand´s 50,000 machine manufacturers the vast majority are small and medium sized players providing only basic machinery. For high-tech machinery on the other hand, inland companies rely heavily on imports. Especially, in the aviation sector, the foodstuff industry, plastics processing and in the infrastructure sector demand for foreign high-tech machinery is expected to increase.

The aviation sector, in particular, is at the heart of the government´s hopes, seeing chances in the sector’s similarities with Thailand´s well established automotive sector. Indeed, well-known companies such as Primus, Driessen, MRAS and Rolls-Royce have recently expanded their activities into this sector.

Thailand successfully managed to position itself as the “Kitchen of the world” and the market for food processing remains highly dynamic. With its more than 10,000 companies and a production value of 28 billion USD the foodstuff sector is ideally positioned to become one of the country´s growth pillars. This, however, will require continuous investments in technological renewal in order to meet rising international quality and safety standards. Foreign exporters of processing and packaging machinery are well positioned to benefit.

Moreover, according to the government’s infrastructure plan more than 55 billion USD will flow into infrastructure projects until 2022, mainly in roads (33%), public transport (30%), railway (26%) and to a lesser extend in ports (5%) and airports (3%). These investments are forecast to boost the construction industry, increasing demand for construction machinery.

Demand for plastics processing machines, too, bears great potential as specialized machinery of this kind is urgently needed in not only the packaging sector but also the E&E industry, the automotive and other sectors.

Often forgotten is the ASEAN region´s great demand for increasingly high-tech textile, leather, wood and paper processing machinery. While these industries are known to be lower-value sectors, they have become increasingly integrated, moving away, for instance, from simple dying and sewing tasks to higher-value segments, using high-tech synthetic yarns, investing in research and producing complex products such as outdoor clothing. High-tech machines are in demand, not only in Thailand, but also in neighbouring countries like Vietnam, gearing up for its TPP membership.

BDG Insights

Companies positioning themselves in Thailand not only benefit from local growth impulses but stand to benefit from growing economic integration under the ASEAN Economic Community Free Trade Area. Thailand is well positioned as a gateway to the region. Companies producing or assembling their products for the ASEAN market in Thailand not only benefit from the comparatively well-skilled workforce necessary for high-tech production as well as cost benefits, but, under the condition of 40% local product content, they would also enjoy zero tariff rates when exporting to other ASEAN countries. As the ASEAN economies move up the value chain, demand for high-tech machinery will skyrocket. While an export strategy is a starting point, in order to position themselves competitively in the long-term and compete with lower cost Asian competition, producers will have to establish local operations and research centres, shaping their products to the needs of the local market.

Sources: 1, 2