Machinery Industry Overview For the past quarter century the economy of Thailand has experienced tremendous growth and diversification. The country has become more "international" and now finds itself being mentioned consistently in world rankings that cover sectors such as tourism, agricultural output, foreign investment, and auto manufacturing. Thailand is a global player that possesses economic weight and has positioned itself to lead ASEAN to the next level of regional integration. Yet it must be pointed out that Thailand's transformation has been driven and sustained by the utilization of industrial machinery whether in the rice fields, in factories, or in high-rise office buildings. The country's machinery and metalworking sector currently employs a labor force of around 400,000 people and comprises approximately 50,000 enterprises. Today, Thailand is a global leader in machinery and there are numerous opportunities to invest in this industry. As the country continues to modernize Thai industry has progressed forward in order to keep pace with economic expansion, but it is still dependent upon the importation of foreign industrial machinery for the immediate future. Yet there exists high demand for farm and food processing machinery, alternative energy usage/energy conservation equipment, textile machinery, automotive machinery, and moulds and dies. While Thailand is certainly a large producer of agricultural goods, it also has shifted to being a producer of packaged and processed foods. Due to this change, there are ample opportunities available for both local and foreign investors/ businesses in the manufacturing of a number of different types of agro-machinery. For instance, there is a high demand for drying, cooling and purifying machines; fruit, vegetable and cereal processing machines; and for animal feeding. Presently, there are more than 10,000 food-processing companies that have created a soaring need for packaging machinery, like filling, closing, sealing, wrapping and labeling machines. Furthermore, the Government of Thailand recently has placed more importance on both alternative energy usage and energy conservation, thereby opening additional investment opportunities in this area.
Nonetheless, Thailand is still dependent on a number of types of imported machinery, such as textile machinery for bleaching, dyeing, printing, and finishing. Additionally, machinery is needed not only by the burgeoning Thai recycling business and wellestablished metal industry sectors, but also for the assembly of electrical control systems and large plastic injectors. Similarly, CNC (computer numerical control) machines for metal works are in demand for high precision machining processes, namely cutting, milling, turning, grooving, shaving, grinding, polishing, and threading. As such, further investment opportunities exist in standard production machinery like packaging and test and control equipment. Thailand's manufacturing base is widening and deepening thereby necessitating the proper machinery, whether imported or locally produced, to maintain the country's economy on an upward trajectory. With this in mind, the manufacture of agro-machinery, alternative energy usage/energy conservation machinery, mould and die machinery are regarded as priority activities by the Board of Investment and thus eligible for promotion. Under the privileges, investors and businesses will enjoy exemptions of machinery import duties and an 8-year corporate income tax holiday. The food industry is among Thailand's most important economic engines. Its commercial earnings of US$32 billion in 2011, positions the Kingdom as the largest exporter of food products in the Asia-Pacific region but ranks 7th in the world. The main strengths of Thai agriculture lie in the country's climate, abundance of natural resources, land availability and farming traditions. It must be highlighted that agriculture now absorbs less than half of Thailand's labour pool, compared to 80% in the early 1960s and 70% as recently as the 1980s. Just as in its drive to transition to a knowledge-based economy, the country is ever more turning to innovation and technology to increase yields and production. Now, Thailand increasingly depends on high-quality machinery to meet food safety standards required by major markets like the European Union, Japan and the United States. Every year, food processing and packaging machinery valued at approximately Bt62.17 billion is imported. Of particular importance is how the overall value of Thai agriculture to the national economy has been further enhanced by the emergent investments in the food processing industry. It is estimated that Thailand has more than 10,000 food processing enterprises, both local and foreign firms. Some of these major companies are Nestle, Saha Pathana Inter Holding, Patum Rice Mill & Granary, Royal Friesland Foods NV, Unilever, Thai Union, Dole Thailand, Charoen Pokphand Group, Betagro, Saha Farms, Thai Beverage, Kellogg's, Kraft, PepsiCo, Del Monte, Procter & Gamble, Ajinomoto, and Effem Foods. With the inauguration of the ASEAN Economic Community scheduled for the 31st of December 2015, the food processing sector of Thailand will experience undoubtedly both an infusion of investment capital and a boom in plant construction/expansion once a more integrated Southeast Asian market emerges.
As a result, the industry's potential to undergo enlargement promises rising demand for food processing and packaging technologies and equipment. Moreover, the exportoriented nature of the sector requires a constant improvement in the capability and technology utilization of Thailand's food industry (production/processing/packaging) to meet international quality standards, food safety, and R&D requirements. Definitely, the trend towards globally recognized industry benchmarks offers good potential for US exports of food processing and packaging equipment, specifically ones with technologies that fulfill local requirements at a competitive price. Furthermore, the export value of food products from Thailand grew 20% in 2011, while imports of food processing and packaging machinery grew nearly 8%. Industry experts foresee additional increases in demand for food processing and packaging machinery. They believe the sector has strong potential to grow at close to 10% annually in the near term. Major suppliers have maintained their shares of the imported food processing and packaging market. Nowadays imports from China dominate the low-end segment with a 19% share of the market. For the upper-end of the market, where U.S. imports are competitive, imports from Japan have the largest share at 16%, with imports from Germany, considered to have the best quality, being second with a 9% market share. Interestingly, the most imported food processing and packaging machinery by value was equipment for filling, closing, sealing, encasing or labeling bottles with over Bt4.26 billion worth entering Thailand in 2010. And on a related note, Bt15.22 billion (US$486.63 million) was spent in 2012 on importing machinery into Thailand for the packaging of agricultural products, and Bt1.18 billion (US$37.42 million) was spent on machinery for the preparation of meat and poultry. Previously mentioned, Thailand's machinery and metalworking sectors currently comprise approximately 50,000 enterprises. A majority of these businesses fit the category of Thai-owned small- to medium-sized enterprises (SMEs) that not only produce basic machinery and parts, but also provide simple metalworking services. The domestic high-end machinery and parts market is limited to a small number of large enterprises that are foreign-owned – Japan having the biggest presence – and mostly promoted by Thailand's Board of Investment. Machinery and parts currently rank in Thailand's top 5 most imported goods with Bt605 billion worth imported in 2011. Meanwhile, electrical machines and accessories, having individual functions, were the leading products with an imported value of Bt45.05 billion in 2010. Accordingly, opportunities exist for suppliers to capitalize on this growing demand for more sophisticated machinery by providing domestic downstream industries with a local source. In fact, Thailand's world-class downstream manufacturing base has boosted imports of industrial machinery while the Thai industrial machinery sector itself has rapidly developed as an exporter. For instance, imports in 2010 totaled Bt366 billion. The major imported product categories were electrical machinery and accessories and air or vacuum pumps, gas compressors
and fans. Thailand's exports of industrial machinery, on the other hand, totaled Bt346 billion. The main exports of industrial machinery were printing machinery and printing type blocks.
And finally, growth in Thailand's automotive and E&E (electrical and electronics) industries is expected to fuel demand for modern machine tools. Automotive and auto parts firms are the biggest buyers of machine tools, purchasing 35% from the domestic market. The supporting metalworking industry follows with 27% while the E&E industry buys 14%. With a limited number of domestic enterprises specializing in the manufacture of machine tools, most of the demand is currently met by imports that totaled Bt63 billion in 2010.
Regarding the steel industry, 14.96 million tons of raw materials, semi-finished and finished products were imported into Thailand in 2011. Also, that same year 6.59 million tons of high-grade steel products were purchased from overseas like Japan, South Korea, Taiwan, European Union and the United States, which equated to 45% of overall steel demand. However, there was intense competition from Chinese steel products as imports rose from 0.65 million tons in 2009 to 1.9 million tons in 2011. And yet, that same year Thailand exported 0.73 million tons of steel products with 53% of total exports destined for ASEAN markets.
New major investments have originated from local sources and overseas enterprises. For example, in 2010 Mill Con Steel Industries invested Bt2.9 billion (US$87.6 million) on a melting shop to support its long products rolling operations with a capacity of 500,000 tons per year. Then in 2011 JFE Steel Corporation from Japan established a subsidiary in Thailand, JFE Steel Galvanizing Ltd., to produce high end hot-dip galvanized steel sheet with a capacity of 400,000 tons per year to serve the Thai automotive sector. Later in 2012 Nippon Steel Corporation invested Bt9.32 billion (US$300 million) to set up a subsidiary in Thailand, Nippon Steel Galvanizing Company, Ltd., and built a steel galvanizing production line. The main purpose of this mill is to supply hot-dip galvanized steel sheets for Thai automakers. Moreover, Tycoons Worldwide Group of Taiwan that same year announced that the company would invest about Bt1.76 billion (US$57 million) to build an electric furnace at its Thailand mill. The expected annual capacity of this new billet production line is 500,000 tons per year. Regarding the steel industry, 14.96 million tons of raw materials, semi-finished and finished products were imported into Thailand in 2011. Also, that same year 6.59 million tons of high-grade steel products were purchased from overseas like Japan, South Korea, Taiwan, European Union and the United States, which equated to 45% of overall steel demand. However, there was intense competition from Chinese steel products as imports rose from 0.65 million tons in 2009 to 1.9 million tons in 2011.
And yet, that same year Thailand exported 0.73 million tons of steel products with 53% of total exports destined for ASEAN markets. New major investments have originated from local sources and overseas enterprises. For example, in 2010 Mill Con Steel Industries invested Bt2.9 billion (US$87.6 million) on a melting shop to support its long products rolling operations with a capacity of 500,000 tons per year. Then in 2011 JFE Steel Corporation from Japan established a subsidiary in Thailand, JFE Steel Galvanizing Ltd., to produce high end hot-dip galvanized steel sheet with a capacity of 400,000 tons per year to serve the Thai automotive sector. Later in 2012 Nippon Steel Corporation invested Bt9.32 billion (US$300 million) to set up a subsidiary in Thailand, Nippon Steel Galvanizing Company, Ltd., and built a steel galvanizing production line. The main purpose of this mill is to supply hot-dip galvanized steel sheets for Thai automakers. Moreover, Tycoons Worldwide Group of Taiwan that same year announced that the company would invest about Bt1.76 billion (US$57 million) to build an electric furnace at its Thailand mill. The expected annual capacity of this new billet production line is 500,000 tons per year. As the Kingdom transitions into a knowledge based economy and its world-class industries, including its automotive, electronics, and food processing sectors, continue to evolve and expand, machinery and metalworking equipment in Thailand is in great demand. Consequently, imports of machinery and parts have risen dramatically. This heavy reliance on imported industrial machinery provides ample opportunity for suppliers in the production of agro-machinery, food processing and packaging machinery, alternative energy usage/energy conservation equipment, textile machinery, automotive machinery, construction equipment, moulds and dies, and standard machine tools. In fact, the BOI today provides a number of investment incentives to companies involved in the creation of products that are essential for the ongoing growth and advancement of the Thai economy. Enterprises classified by the BOI as "priority activities" are granted an 8-year corporate income tax holiday and exemption from import duties, regardless of location. These "priority activities" include the manufacture of:
Farming and food processing machinery Moulds and dies Jigs and fixtures Industrial machinery Sintered metal products
Equally important, the Government of Thailand is aware of the need to support the continued maturation of the machinery and metalworking industries, as well as the technological capabilities of its workforce. Indeed, in Thailand there are several
institutions that offer many resources for research and development (R&D), technical training and industrial organization (see list below).
Thai-German Institute (TGI) National Metal and Materials Center (MTEC) Bureau of Supporting Industries Development (BSID) Metal-Working and Machinery (MIDI) Thai Tool and Die Industry Association (TDIA) Thailand's Institute of Scientific and Technology Research Thailand-Japan Technology Promotion Association (TITPA) Metals and Materials Research Center – Kasetsart University
Thailand is growing moving away from its erstwhile dependency on low cost competitive labour. The growing sophistication and expansion of Thai manufacturing, along with the planned upgrades in the infrastructure of the country, have propelled demand for machinery and metalworking. This hardware need is often exclusively for products manufactured to meet the quantity and quality standards set by multinational corporations. Only a small number of companies in Thailand's industrial sector currently possess these capabilities and for the moment the majority of equipment orders are met by imports, which totaled more than Bt373.02 billion in 2007. Firms in Thailand would prefer local sources to meet this demand so an excellent investment opportunity is to be found in the Thai machinery and metalworking industries.