The Rise of Car Manufacturing in Thailand

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The prominence of the auto industry in Thailand is generally not widely known. In fact, Thailand is the seventh largest auto exporter in the world. It manufactured 2.45 million cars in 2012, 1 million of which were exported, giving it the nickname “Detroit of the East”.

The rise of car manufacturing in Thailand is a result of government policies implemented after the Asian financial crisis of 1997. The Thai government broadly deregulated the auto sector, allowed international manufacturers to start operating in Thailand without requiring them to engage in joint ventures with local partners, and reduced the corporate tax rate from 30% to 20%.

The results of these policies were investment in car manufacturing plants, primarily by Japanese auto makers. The top three carmakers in Thailand right now are Honda, Isuzu and Toyota.  However, companies from other countries, such as Ford, are starting to follow the lead of the Japanese and are shifting their manufacturing operations to Thailand from more costly places such as Australia.

The economic influence of the car industry in Thailand reaches far beyond car assembly itself. Over 80% of the parts used in cars manufactured in Thailand come from local companies. These local companies also export about $5 billion worth of parts.

The result of this industry for the Thai population has been that the country is almost at full employment. In fact, labor shortages are inhibiting the further expansion of the market. It is possible that in the future, manufacturers will be tempted to expand their production in Indonesia. However, for now, Thailand outperforms Indonesia with regard to competitiveness, infrastructure, business environment, tax incentives and labor costs, among other indicators.

The example of Thailand shows that the governments of developing countries can, with intelligent policies, drive economic growth at home while benefiting international economic players. Through its reforms, the Thai government was able to transform an economic crisis into an opportunity. Perhaps some of the developed countries experiencing economic troubles right now could learn from this example.

– Caroline Poterio Martinez

Source: The Economist
Photo: Japan Times

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