Thailand: Investors' Gateway to ASEAN
In the past couple of years, Japanese manufacturers and other domestic companies have been shifting their capital investments and operations from China to member states of the Association of Southeast Asian Nations (ASEAN), with the aim of developing new markets. Indeed, a new wave of Japanese investment is taking place in areas such as financial, retail, health, education and residential services. Actually, Japanese investment in Southeast Asia jumped 55% in the first six months of 2013 from the year before, to US$10.29 billion. A recent survey by the state-owned Japan Bank for International Cooperation (JBIC) found that 84% of responding companies planned to strengthen overseas operations within the next three years, compared with only 65.8% in 2009. Prime Minister Shinzo Abe of Japan is enthusiastic about the renewed focus on ties with the ASEAN community. "ASEAN and Japan are twin engines," Mr. Abe said in a speech in Singapore in July 2013, on one of his seven trips to Southeast Asia since taking office in December 2012. "ASEAN will play an enormously important role for the Japanese economy". In fact, Japanese firms have looked to the region as a site for manufacturing since the 1960s. During the 1990s, China attracted a larger share of Japanese overseas investment but starting last year, Japanese investment into China began to decline. Today, a second wave of investors and businesses from Japan, especially small and medium-size enterprises (SMEs), are seeking to invest in the ASEAN region
and believe that Thailand could be a trading hub for Southeast Asia despite the political turmoil affecting the Kingdom. The outward-looking economic policy of Prime Minister Shinzo Abe and Japan's shrinking domestic market are driving local companies to look for ventures outside, and ASEAN is very attractive due to low production costs, high growth potential, the region's large consumer market and the prospects of the ASEAN Economic Community (AEC). Plus, at a Japan-ASEAN summit held in Tokyo in December 2013, Prime Minister Abe pledged $20 billion of aid and loans to Southeast Asia, as he seeks to drive up exports and bolster friendships across the region. Much of the money, in the form of grants and loans, will go towards investment projects under the Greater Mekong Subregion (GMS) regional cooperation. ASEAN holds great strategic value for Japan. On 6 March 2014 at the Plaza AthĂŠnĂŠe Hotel, an international conference brought together 500 leading business people, policymakers and experts from Japan and ASEAN to look at the different kind of investment entering the region with participation from the Thai government. Entitled "Japan's New Wave of Overseas Investment: Thailand and ASEAN-Plus-One", the symposium was organized by The Nation along with the Yomiuri Shimbun and Japan News. The Thailand Convention and Exhibition Bureau provided logistical support, while the hosts were Krungsri Bank and Ananda Development. Among the speakers were Hisamichi Koga, vice president of the Japanese Chamber of Commerce in Bangkok; Kanetsugu Mike, vice chairman of Bank of Ayudhya and senior managing executive officer of Bank of TokyoMitsubishi UFJ; Setsuo Iuchi, president of JETRO Bangkok; and Shuichi Ikeda, chief representative of JICA Thailand. The keynote address was delivered by Heang Chhor, a senior partner of McKinsey & Company and author of the acclaimed book Reimaging Japan.
In terms of changing trends, Mr. Koga said that Thailand has been a favorite destination for investment in manufacturing for 40 years, and has grabbed now the attention of Japanese SMEs and non-manufacturing firms, especially those in the service sector. Mr. Koga added that non-manufacturing companies investing in Thailand have been overtaking manufacturers, as only 89 manufacturing firms registered in 2013 compared to 185 non-manufacturing firms registering in the same year. Citing information from the Japan Bank for International Cooperation (JBIC), he said Japanese firms are increasing investments abroad to cope with long-term appreciation of the yen and shrinking demand at home. "They are expanding in Asia, especially Thailand and ASEAN, where the population is big at 600 million people and still growing," Mr Koga said. Another speaker echoed this positive sentiment concerning the perception of the Kingdom on the part of Japanese government officials and corporate executives. "Thailand is a favorite venture destination because its geographical location puts it at the centre of a growing region," said Kanetsugu Mike, vice chairman of Krungsri Bank and senior managing executive officer of the Bank of TokyoMitsubishi UFJ (BTMU). Mr. Mike explained that the AEC would lift trade barriers and expand the market to 600 million people, offering large potential for market and GDP growth. In addition, the prospects of the Greater Mekong Sub-region (GMS) are attracting also Japanese investors. Likewise, Mr. Mike explained that an increase in Japanese businesses in Thailand had increased the demand for Japanese services, such as banking and food, which is why more and more SMEs and non-manufacturing firms are eyeing investment opportunities in the country.
Japan and ASEAN should engage in "leapfrog" collaboration and move beyond traditional manufacturing and service industries to other areas such as Internetbased economy, agriculture and education, a senior partner of McKinsey & Company emphasized. Mr. Heang Chhor, in his keynote address to the conference, stated that the question was not so much about the presence of opportunity or whether there should be more collaboration between Japan and ASEAN, which he believed would become more intense over the next two decades. Those areas identified for productive "leapfrog" collaboration cannot
be pursued by Japan alone; it requires the active participation of ASEAN as a single community. Indeed, ASEAN has been envisioned to be the "second leg" of an Internet-based economy for Japan. For instance, top-notch Japanese IT companies can set up their operations in the region and capture a much larger customer base. Moreover, Japan can leverage the agriculture-based economies of ASEAN to shape a cutting-edge "agriculture 2.0" network, as nowadays consumers are no longer just satisfied with cheap and enough food, but also hunger for high quality and safe foods, that can be supplied to consumers worldwide. Finally, Mr. Chhor suggested that Japan assist ASEAN in building up energy-efficient "smart cities" as well as collaborate more on education, including sending out teachers, young people, and veteran executives to the region for the purpose of cultural exchange and knowledge transfer. During the last session of the conference, Mr. Chokedee Kaewsang, deputy secretary-general of the Board of Investment (BOI), said improvement of regional infrastructure could enhance "ASEAN connectivity" substantially more than cutting the remaining import tariffs. As a matter of fact, he pointed out in his presentation that the AEC will convert the ASEAN region to become a key investment destination thereby presenting more prospects for Thailand to invest overseas. Furthermore, the Thai government must take steps to achieve balanced and sustainable economic development, heighten global competitiveness, and overcome the "middle income trap". Consequently, it is imperative for the Kingdom to focus on three core areas: 1. drafting a new investment promotion strategy; 2. improving Thailand's investment environment; and 3. reinforcing intra-ASEAN linkages, particularly with Cambodia, Laos, Myanmar, and Vietnam (CLMVs). Adopting such an approach would boost and complement Japan's current business model of "Thailand-Plus-One" in which Japanese companies operating in industrial clusters in Thailand transfer the labor-intensive parts of their production processes to special economic zones (SEZs) in neighboring countries. Regarding the investment promotion direction for the Thai economy, Mr. Kaewsang indicated that the BOI already has a draft outline of a restructured investment policy that would shift the agency's objectives (1) from broad-based investment promotion to focused and prioritized investment promotion, (2) from sector-based incentives to sector and merit-based incentives, (3) from zonebased incentives to promoting new regional clusters, (4) from tax incentivesoriented promotion to tax incentives and facilitation-oriented promotion, and (5) from promoting inbound investment to promoting both inbound and outbound investment. But these proposed policy targets are subject to approval from the new board members of the BOI. Mr. Kaewsang concluded his presentation by remarking that ASEAN's diversity and market are its strengths, providing openings for trade, investment, and economic growth. International supply chains can span the region to take
advantage of each country's comparative advantage. But without good connectivity, diversity may breed disparity rather than prosperity and opportunities. As tariff barriers to trade have fallen, infrastructure connectivity has become more relevant. Improving regional infrastructure then would do more to lower costs and increase trade and investment than would eliminating any remaining tariffs. Over the years, Japan has remained one of Thailand's premier trading partners. In 2013, Japan-Thailand trade value reached over US$63 billion. Not only is Japan the Kingdom's chief trading partner, it is also Thailand's largest foreign direct investor - with total BOI investment application value of over US$9 billion by the end of last year. Japan's fiscal interests span a variety of industries that fuel the Thai economy, especially in the automotive, electronics and chemical manufacturing sectors. Presently, Japan has expressed an interest in joining the Thai government's infrastructure projects, particularly the construction of a high-speed train network. For Japanese business executives and officials the new investment regime to be implemented by the Board of Investment would help Thailand move up the value chain and improve its competitiveness before the AEC is set up in late 2015. With the appropriate positioning in the region, the Kingdom will be able to attract more investments from Japan. According to the BOI, investment applications from Japan that were received by the BOI totaled US$33.6 billion over the last five years, mainly in the automotive, machinery, electrical appliances and electronics sectors. Clearly, the Japan-Thailand-ASEAN economic relationship is one that must be maintained and expanded.