5 minute read
Electronics manufacturing in Thailand on the rise as global demand shifts
Frank Malerius
Thailand's electronics industry is booming, and the first manufacturers are relocating their businesses from the People's Republic of China to the country in order to avoid US import barriers. However, primary products are scarce there.
The electronics sector is almost as important for Thailand as the automotive industry, as it contributes around 13 percent to the country's gross domestic product (GDP). It also generates by far the largest export earnings, with industry goods worth 46.2 billion US dollars (US$) having been exported in 2023. That’s an increase of almost 30 percent compared to 2019. More than 90 percent of domestic production is destined for export, and more than a quarter of these deliveries go to the USA, with another quarter to Hong Kong and China. A third quarter goes to ASEAN and the EU.
Thailand does not produce high technology. There, so-called EMS (Electronic Manufacturing Services) produce mass-produced goods to order. The most important product is computer hard disks (HDDs). This is followed by integrated circuits (ICs), which are fitted with semiconductor components such as diodes or transistors. Large international electronics companies such as Samsung, Panasonic, HP and Western Digital, as well as small and medium-sized manufacturers, produce components for cars, laptops, mobile phones, and household goods all over the world in several industry clusters in central and northern Thailand.
With its focus on HDDs and ICs, the Thai electronics industry is predominantly located in the midstream sector. In addition, air conditioning systems, as well as office and household electronics, are manufactured in the downstream sector. By contrast, it has hardly been possible to establish a high value-added upstream sector with semiconductor design or wafer production. In this structure, the location is in competition with countries with a larger pool of cheap labour.
FEAR OF US SANCTIONS
Hope for further growth in the Thai electronics industry lies in the trade war between the US and China. This is because many US companies are no longer purchasing electronic goods produced in China, or by Chinese companies abroad –partly in anticipation of even stricter import restrictions that the next US administration may impose. These would affect an extremely price-driven market in which even minor tariff increases could lead to significant distortions. India has also been imposing import duties of 25 percent on printed circuit boards from China since April 2024.
Alongside Vietnam, Malaysia and the Philippines, Thailand is considered a potential alternative location to China for the production of electronics. These four countries have the largest electronics industries in ASEAN, but together they are still tiny compared to the enormity of China, which accounts for more than half of global industry production.
THE SUPPLY CHAIN REMAINS IN CHINA
However, relocating production out of China harbours its own fundamental challenges. A German manufacturer of printed circuit boards, which is mainly active in China but has set up a new production facility in Prachinburi, north-east of Bangkok, cites one difficulty in particular: there are hardly any local supplier structures. Preliminary products such as base materials, solder resist, or copper foil have to be delivered from China. In fact, due to a lack of supply in Thailand, three quarters of the supply chain has so far remained in China. Hopes are currently pinned on Taiwanese companies, among others, establishing supplier structures in Thailand in the coming years. A first step could be the plan by China's Yuzhuo Fine Chemical to build a factory for specialty chemicals needed for the production of integrated circuits, with the proposed location being the 304 Industrial Park in the province of Prachinburi.
A German-run company that has started assembling printed circuit boards in Thailand’s Eastern Economic Corridor must also continue to source most of its electronic components from China. It will be many years before a local supply chain for the electronics industry is widely available, but its development is crucial for the future of Thailand as an electronics centre. For many producers, preliminary products are the largest item in production costs.
The Thai Board of Investment (BOI) is promoting the location with a 2019 study by the Japanese external trade organisation JETRO, according to which Japanese electronics companies based in Thailand source 45 percent of their primary products in the country. However, this is unlikely to be an average industry figure.
LOWER WAGES, BUT LOWER PRODUCTIVITY
The German factory owner from Prachinburi went on to relate other inherent problems. For instance, if a machine breaks down there is no replacement within 24 hours, unlike in China. Instead, production in one area may be at a standstill for several days, depending on the need for spare parts. Additionally, qualified employees such as engineers are also difficult to find. Employees tend to have a reactive mentality and lack foresight, but they are loyal. Although wages are somewhat lower than in China, productivity is also lower. As a result of this, and the import of raw materials, the total costs in Thailand are around 15 percent higher than in China.
A plus point, on the other hand, is the professional work of the BOI, which has facilitated the rapid expansion of production and promotes the establishment of the electronics industry with tax incentives. In addition, the quality of life in Thailand is high.
IMPORTANT SUPPLIER FOR GERMANY
In Germany, Thailand is one of the ten most important suppliers of electronics. In 2023, 3.0 percent of industry imports came from the kingdom, with semiconductor products accounting for as much as 6.0 percent. However, even industry experts do not know exactly what proportion of the components manufactured in Thailand are used in which industries and applications. The German automotive industry is likely to be a major customer.
Electronics industry clusters in Thailand by province
Source: Industrial Technology Research Institute 2021
Contact details: Frank Malerius
Director Thailand, Cambodia, Myanmar and Laos
German Trade & Invest (GTAI)
https://www.gtai.de/en/invest
