AEC brings opportunities - and risks

Auto & Audio October 26, 2012 00:00

By Kanittha Panthong
The Nation

8,703 Viewed

Fresh investments likely, but parts-makers need to raise standards dramatically


It is undeniable that the coming of the Asean Economic Community (AEC) brings with it both opportunities and risks for the Thai auto parts industry. 
As Thailand formally enters the AEC in 2015, among the expected benefits include the birth of a much larger market place, with higher quality for raw materials and parts, as well as lower prices. This is a great chance for fresh investments and for Thai companies to raise their capabilities. Of course, Asean could well become an important parts production hub in the future. 
But there are concerns as well. The AEC will bring higher competition, causing parts-makers to raise their standards dramatically. If not, production bases could more easily be relocated from Thailand to other Asean countries. It could also lead to the exodus of Thai workers to other countries, where they can enjoy higher wages. 
Nevertheless, auto exports from Thailand are expected to rise as a result of the AEC. This means that Thai auto parts-makers need to quickly adapt to the new standards, says Achana Limpaitoon, president of the Thai Auto Parts Manufacturers Association (TAPMA). 
Achana says Thailand is ready as its auto industry has been around for 50 years. This makes it well prepared for the swift growth expected in the Asean automobile market. 
“If we look at the competitiveness of Thai auto parts-makers, we are presently the best in the region, since we have the largest number of companies – about 2,300. However, in reality, Thai parts-makers are facing many tough challenges such as increased labour costs, raw material costs, freight costs or even foreign-exchange rates. Surely, some of these issues may be only for the short term, but labour and raw material cost will be for the long term and would play a major role in determining the competitiveness of Thai businesses, especially SMEs,” she says. 
Thailand is also facing a shortage of skilled workers, and although the AEC could bring in unskilled labour from neighbouring countries, skilled labour in Thailand could be attracted to other countries. 
“During that period, the target for the Thai auto industry is to produce 2.5 million vehicles, which means we need almost 600,000 workers. But presently we have only 450,000 to 500,000 workers, and we will need to raise production efficiency, as well as bring in some unskilled labour. But then there is also the problem of the Bt300 minimum wage,” Achana points out. 
Parts-makers and education institutes are working together in setting up a strategic plan to accelerate the production of skilled workers to feed the industry. A foundation is also in the planning to help develop parts-makers in terms of technology transfer. 
“In addition, what we really need in developing the capabilities of parts-makers is the offering of testing services for parts that should correspond with the direction of global automotive technology,” she says. 
Achana says TAPMA recently proposed to the government that it reconsider the automotive testing centre project in order to raise the competitiveness of Thai companies in the global market place. 
“It would not only prepare us for the AEC but also for the 3-million-vehicle production in 2020,” she says. 
Talks are being held with related government agencies, including the Thai Automotive Institute (TAI) and the private sector. 
“It is time that Thailand had its own auto parts testing centre. SMEs have lacked facilities to test products, unlike larger companies, which have their own R&D centres,” she says. 
Investment for the testing centre will cost Bt6 billion, which could be shared equally between the government and private sector. A decision will be made within this year, Achana reveals. 
“With the large automotive industry development in Thailand , many auto companies have already designated Thailand as their R&D centre for new products, and this has made parts-makers adapt dramatically. The problem is that parts have to be sent back to Japan for testing, which requires much time and cost. And the TAI’s Bangpoo testing centre does not have the capacity. A larger testing centre in Thailand will both help and develop Thai parts-makers,” she points out. 
Achana says Thailand needs to raise its potential due to the AEC, since other member countries have already initiated similar projects. 
“Indonesia, which is our main competitor, has already started an eco-car project like ours, and the opening of Myanmar has attracted major auto parts investors, who are now adjusting their plans and preparing to use Myanmar as their production base for low-tech parts in order to reduce costs. As a result, Thailand needs to adjust its strategy and concentrate more on high-tech parts, just like what Taiwan did in the past,” she concludes.