Analysis Of Japanese FDI In Thai Automotive Industry

The aim of this paper is to analyse Nipponese FDI in Thai automotive industry. The paper starts with brief history of how Tai automotive industry started and go one of the most of import automotive manufacturer and exporter in ASEAN market and Nipponese market.

Thai automotive industry has strong domestic market and international markets that support the industry. Export of vehicles has increased dramatically after the connection of ASEAN ( Association of South-East Asia Nations ) . Free trade between ASEAN states eliminates tariff rate on cars and some of automotive parts. Free trade between Japan does non increase export of vehicles dramatically like ASEAN markets but JTEPA and AJCEP lower production cost and improved fight in Thai automotive industry. We have found out that FDI can increase productiveness through technological transportation.

Chapter 1: Introduction

Developing states like Thailand, we rely export as an engine of growing for the state with export histories more than two tierces of GDP growing ( Economy of Thailand, Wikipedia-2010 ) . The chief industry in Thailand is cars and automotive parts with the size of 11 % in entire industry ( Economy of Thailand, Wikipedia-2010 ) . Not merely the largest size that cars and automotive parts industry has better than other industries but Thailand has a strong automotive industry every bit good. In 2010 cars and automotive parts has grown more than 63 % ( Thai Automotive Industry Association ) . With more than 1.6 million autos are produced in this twelvemonth and this figure rank Thailand as 13th in the car production state in the universe ( Thai Automotive Industry Association ) Experts in automotive industry predicts that in 5 old ages Thailand will be rank top 10 in car production. However the car and automotive parts are non able to turn this fast if the industry does non hold Foreign Direct Investment ( FDI ) from abroad. We all know from economic sciences text book that FDI can increase production through A and K which stands for engineering and capital.

Y= A degree Fahrenheit ( K, L )

Caves ( 1974 ) suggested that there are 2 productivity effects from FDI. First consequence is called direct engineering transportation and 2nd consequence is called competitory force per unit area. He besides argued that FDI better host state productiveness through engineering transportation can happen when there is economic contact between foreign and local houses. Empirical grounds for addition in productiveness due to FDI will be discussed further in Literature Review subdivision. In this paper I will be concentrate on Nipponese automotive trade names since Nipponese automotive trade names dominates the market with market portion of more than 91 % . Figure 1 shows portion of market in automotive trade names in twelvemonth 2009 and 2010. This market portion is calculated by utilizing lone gross revenues figures of rider autos. In the automotive industry, there are 2 chief types of vehicles are produced which are rider autos and commercial autos. Types of vehicle production will be discussed subsequently in this paper.

With the largest industry in the state, high volume of productions and exports and immense market portions of Nipponese automotive trade names in Thailand, I truly think that Nipponese FDI flow into Thai automotive industry has some grade of important to Thai economic system in the hereafters

There are 2 aims and expected benefits from this senior research.

First, to research the state of affairs of Nipponese FDI in Thai automotive industry in present and tendencies in the hereafter. As I have mention above Nipponese automotive houses have important impact to Thai automotive industry by monolithic flow of FDI which addition engineering degree and productiveness as caves ( 1974 ) have suggested. Understanding the current state of affairss and have an thought of how hereafter of the industry will be like is of import and this leads to 2nd aims and expected benefits of this paper. Therefore 2nd aims and expected benefit is to propose policies to heighten the fight, productiveness and increase in engineering to Thai automotive industry. Basically suggest policies to better Thai automotive industry to profit the state.

Scope of my survey will concentrate on analysing domestic and international market and demo what the hereafter will be for these markets. International market will include ASEAN, CLMV and Japan. The ground to include international market is that Nipponese automotive houses see Thailand as vehicle production hubs for south-east Asia. For domestic market, my analysis of the market will get down from twelvemonth 1961 to current twelvemonth that is 2011. The ground to get down analyzes in twelvemonth 1961 is that Thailand get down production of vehicles on that twelvemonth with merely 525 vehicles are produced ( Thai Automotive Industry Association ) . However the chief analysis of Thai automotive industry will get down after twelvemonth 1997 that is the twelvemonth that Thailand faced with fiscal crisis. In add-on, analyze of future period will stop at twelvemonth 2015 that ‘s the twelvemonth that ASEAN Economics Community will be integrated. Analyze of future periods will use in all domestic, Japan and international market. For both Japan and international market, analyze of automotive market will get down from twelvemonth 2001 to present clip plus future which is until twelvemonth 2015.

Chapter 2: Literature Reappraisal

There are big figure of probe and surveies about FDI and automotive industry. This paper uses qualitative method to analyse Nipponese FDI in Thai automotive industry.

The survey conducted by Caves ( 1974 ) suggested that there are 2 productiveness consequence direct engineering transportation and increase in competitory force per unit area. He concluded that FDI better host state ‘s productiveness through engineering transportation. Transportation of engineering happened when there is contact between local and foreign houses.

The survey conducted by Wilbur et Al ( 2003 ) ( Foreign Investment and Productivity ) said that influx of FDI by Nipponese houses increased competition force per unit area in car assembly programs and automotive parts. Productivity is improved by competition force per unit area by Nipponese houses.

The survey conducted by Nickell ( 1996 ) concluded that competition tends to increase entire factor productiveness growing.

Most of the survey concluded that transportation of engineering and competitory force per unit area can excite the productiveness.

The survey conducted by Louis ( 1969 ) said that production of merchandise outside the state should get down when foreign market go big plenty to bring forth at mean cost lower than fringy cost plus transit and responsibilities.

The survey about free trade understandings with rubric of ( Final study of CEPEA Track Two: Phase I ) . CEPEA is free trade understandings between ASEAN plus other 6 6 states. the survey conclude that FTA can increase GDP. member of CEPEA will hold GDP growing norm of 2.11 % while ASEAN benefits more than other 6 states in CEPEA. with mean GDP growing for ASEAN is 3.83 % . Thailand benefit from CEPEA with growing of 4.78 % .

Chapter 3: Research Methodology

Chapter 3.1: Conceptual Framework.

The figure above shows conceptual model for this paper. My conceptual model starts with Japan. Most of Nipponese automotive houses invest in Thailand in the signifier of constructing mills in the state. These mills include both mill that produce car and automotive parts. Therefore these investings are recorded in Thailand as FDI from Japan. As in the figure FDI from Japan flows to Thailand. These FDI made Thailand go one of the most extremely technological in production and increase productiveness. At the early twelvemonth of vehicles production, Thailand produced vehicles less than demand in the state therefore at that clip Thailand had to import vehicles from abroad. However when Thailand became productive and figure of vehicle productions is greater than domestic demand, Thailand starts to export to other states like ASEAN and CLMV. Since so Thailand go one of the most of import vehicles manufacturers in ASEAN market. As degree of engineering and production quality increased, Thailand start to export to Japan. Export of Nipponese merchandise back to Japan is called re-import for Japan. Japan start to re-import vehicles from Thailand in twelvemonth 2010, since Nissan, March is no longer produced in Japan.

Now all of the demand for Nissan, March in Japan is supply by Thailand. Therefore we can see the pointer from Thailand to Japan. In add-on, Thailand has exported vehicles to Japan before twelvemonth 2010 but with really little volume of export. Thailand has exported vehicles to other states than ASEAN, CLMV and Japan but this paper will concentrate on merely these 3 markets as reference in range of survey. Exports of vehicles are non freely done. There are tariff and Non-Tariff Barrier ( NTB ) to each market. However Free Trade Agreement ( FTA ) in each market became one of the most of import functions to increase export of vehicles from Thailand. Footings of FTA for each market will be discussed subsequently in the documents.

Chapter 3.2: Datas Collections

Most of my informations are collected from Thai Automotive Industry Association or TAIA. However most of the statistics are available merely for the member of Thai Automotive Industry Association. Some of the chief statistics that are used in this paper are productions, gross revenues and exports of Thailand ‘s automotive industry since twelvemonth 1961. Gross saless of both rider autos and commercial autos divided into automotive trade names that are the member of Thai Automotive Industry Association.

These are the chief informations from Thai Automotive Industry Association. ( inside informations of statistic can be seen at appendix subdivision ) . Another beginning of my informations for this paper is The Customs Department. The imposts sections are used to happen the value of vehicles export to ASEAN, CLMV and Japan market from twelvemonth 2001 to 2010. Statisticss from the imposts sections are shown in million of baht alternatively of figure of vehicles like what statistics from Thai Automotive Industry Association gives. Finally the last chief beginning of informations used in this paper is Bank of Thailand ( BOT ) and Board of Investment ( BOI ) . FDI from Japan, USA and Korea are collected since twelvemonth 1970 to present clip.

Chapter 4: Overview of Automotive Industry

Automotive industry in Thailand started in twelvemonth 1961with merely 525 autos were produced and domestic gross revenues were 6860 autos. In twelvemonth 2010, more than 1.6 million autos were produced and more than 800,000 autos were sold domestically ( Thai Automotive Industry Association ) . Automotive industry can split its merchandise into 2 chief groups that are rider and commercial autos.

Passenger autos are divided into 6 groups harmonizing to engine size.

Engine between 1,201 – 1500 milliliter

Engine between 1,501 – 1,800cc

Engine between 1,801 – 2,000 milliliter

Engine between 2,001 – 2,500cc

Engine between 2,501 – 3,000 milliliter

Engine more than 3,000cc

Commercial autos are divided into classs below

Van Micro Buses

Buss

Picks Up less than 1 ton

1 ton Picks Up

Trucks between ( 5 dozenss – 10 dozenss )

Trucks more than 10 dozenss

There are merely 14 manufacturers bring forthing both rider autos and commercial autos in Thai automotive industry and merely 9 of them are bring forthing rider autos.

Chapter 5: Domestic Market.

Thailand has strong domestic and international automotive markets which are proved by figure of domestic productions, figure of domestic gross revenues and figure of autos exported. In twelvemonth 2010, Thailand produced more than 1.6 million autos and this rank Thailand as 13th topographic point in car production in the universe. In this chapter, merely domestic market will be discussed.

Productions of cars started in twelvemonth 1961 with merely 525 autos were produced by 4 innovators.

Thai Motor Industry Co. , Ltd. ,

Kannasoot Co. , Ltd. ,

Siam Khonlakarn and Nissan Co. , Ltd. ,

Thonburi Car Assembly

Thai Motor Industry Co. , Ltd. , was the first assembly works in Thailand. The company is supported by Anglo-Thai Motors Co. , Ltd. , which is Ford distributer in Thailand. Merchandises of the company were Anglia, Ford tractor and Consul 105, Ford truck. The 2nd company to set up a works in Thailand is called Kannasoot General Assembly which is FIAT distributer. Siam Khonlakarn and Nissan Co. , Ltd. , was the 3rd company to set up a works and is the first Nipponese car trade name to set up a works in Thailand. However the company was wholly operated by Thai people. The company is the distributer of Datsun and Nissan. Thonburi Car Assembly which is the distributer of Mercedes-Benz and truck industry was the forth company to get down production in the state. These four companies are able to function merely 7.65 % of domestic demands. The success of domestic production was due to proclamation of support for domestic auto assembly by authorities in twelvemonth 1960. Before 1960, there was merely one revenue enhancement rate on imported Complete Build Up ( CBU ) and Complete Knocked Down ( CKD ) parts. However in 1960, authorities had announced to maintain revenue enhancement rate on imported CBU unchanged and decreased revenue enhancement rate on imported CKD parts by 50 % . In add-on during 1964 to 1969, Board of Investment ( BOI ) had promoted the automotive assembly industry harmonizing to investing publicity Act. Harmonizing to this Act, more than 10 automotive assembly programs have joined the industry. 10 companies are listed below.

Pattana Automobile Co. , Ltd. ,

Prince Motor Thailand Co. , Ltd. ,

Toyota Motor Thailand Co. , Ltd. ,

Isuzu Motor ( Thailand ) Co. , Ltd. ,

Thai Hino Industry Co. , Ltd. ,

Thai Auto-Invent & A ; Assembly Co. , Ltd. ,

Nailerd Co. , Ltd. ,

Merchandise and Box Delivery Authority

International Engineering Co. , Ltd. ,

Bangchun General Assembly Co. , Ltd. ,

Although in 1969, Thailand has14 assembly programs with domestic production were 12,140 vehicles but this is tantamount to 18.55 % of domestic demand. After 1969, even though the productions of vehicles were non sufficient to run into domestic demand, BOI closed investing publicities for car assembly. Give the ground that excessively many assembly programs will neglect to make economic systems of graduated table. After proclamation of BOI there were merely 9 assembly programs in operations.

Figure 3: Domestic Production, Domestic Gross saless and Export ( 1988 – 2010 )

( Beginning: Thai Automotive Industry Association )

Thai automotive industry has domestic production capacity greater than domestic demand since 1988 with more than 150,000 vehicles were produced in that twelvemonth. Excess of domestic demand were exported and this was the twelvemonth that Thailand start exporting of vehicles. Thailand became export oriented since 1996 which is shown in figure 3 ; from point A in figure 3 represent the twelvemonth that Thailand became export oriented. Export of vehicles has grown more than 33 % on norm since the beginning of the exporting periods. One of the grounds to explicate this fast growing of export of automotive is production base. Mr. Atsuo Kurada, president of the Nipponese External Trade Organization ( JETRO ) in Bangkok said that “ Thailand has become a really favourable export and production base for Nipponese assembly programs ” he besides added that “ several auto-manufacturers have closed their Nipponese mills to switch production to Thailand ” .

Thai automotive industry has grown exponentially since the beginning of the production in 1961 to 1996 ; which are shown in figure 2. In 1997 due to Asia Financial Crisis, both domestic production and domestic gross revenues bead aggressively. This is shown in point B in figure 3. Domestic production in twelvemonth 1997 dropped by 35.47 % and domestic gross revenues decreased by 38.36 % . In twelvemonth 1998 these 2 figures have further dropped and make its highest negative growing of 56.11 % for domestic productions and 59.74 % for domestic gross revenues. However during the fiscal crisis, one thing that Thai automotive industry is making good is export.

Export has grown aggressively in both 1997 and 1998 with more than 200 % in growing rate in 1997 and more than 60 % in 1998. Thai automotive industry had gained benefit from this fiscal crisis since prostration of the Thai tical caused by the determination of the Thai authorities to drift the tical and this consequence in devalue of Thai tical. Thai made car were become more attractive. In 1999 one twelvemonth after immense bead in domestic production and gross revenues figure, Thai automotive industry was managed to keep high growing rate with more than 100 % in domestic production, 50 % addition in domestic gross revenues and export grow more than 80 % . Recovery of Thai automotive industry was miracle.

Another of import fiscal crisis that slowed down the growing of Thai automotive industry occurred in twelvemonth 2008. This fiscal crisis is caused by liquidness deficit in the United States banking system and leaded to severe planetary economic sciences recession. Due to 2008 fiscal crisis, domestic production had shrank by more than 28 % and gross revenues dropped by 10 % . Since the crisis lead to planetary economic sciences recession, exports of cars have damaged a batch with figure of vehicles decreased by more than 30 % . Drop in domestic production, domestic gross revenues and exports are shown in point C in figure 3.

In figure 3 we can detect that the industry recoil in twelvemonth 2010 particularly domestic production and export have grown more than 60 % . Domestic gross revenues besides grow more than 45 % . There must be some grounds that Thai automotive industry has recovered this fast. Fiscal crisis in 2008 was much bigger than 1997 Asia fiscal crisis and have consequence globally non merely Asia and ASEAN. One of the grounds behind this fast recovery of Thai automotive industry is the shifting of production base of Nissan, March. Nissan has announced that the company will switch their Nissan, March production base to Thailand. The ground behind shifting of production base is to minimise the production cost said by Nissan. The displacement in production base means that Nissan, March is no longer bring forth in Japan and all the production will be done in Thailand. Thus addition in domestic production must be demand for Nissan, March in Japan. Sharp addition in export should besides be consequence from displacement in production base by Nissan, March since we need to export Nissan, March back to Japan. Producing ain merchandise outside the state and import back to the state is called “ re-import ” . Nissan uses “ re-import ” scheme to cut down their production cost.

Switching of Nissan production base benefit more than merely increase in domestic production and export of vehicles but besides increase technological degree to each works associate with production of Nissan, March. This will increase productiveness and hopefully the technological cognition will be transfer to other assembly works in Thailand and hopefully increase productiveness of Thai automotive industry.

FDI plays an of import function in production of vehicle in Thailand particularly to technological degree and capital degree in the state

Figure 4: Flow of FDI to Automotive sector by Japan and USA

( Beginning: Board of Investment, BOI )

We can clearly see that Japan have invested more money in automotive sector than USA. This is non surprising figure since Japan has larger market portion in automotive market in Thailand. With the largest market portion that Nipponese assembly programs have, can FDI from Japan addition production of Thai automotive industry? The relationship between domestic production and Nipponese FDI are shown in the figure below. To see weather flow of Nipponese FDI has any positive consequence on domestic production, flow of Nipponese FDI is shown in horizontal axis ( unit in 1000s of 1000000s of tical ) and domestic production is shown in perpendicular axis. Method of ciphering correlativity coefficient is used to demo how Nipponese FDI and domestic production are correlated.

Figure 5: relationship between domestic production and Nipponese FDI

( Beginning: Thai Automotive Industry Association, TAIA and Board of Investment, BOI )

The consequence tells us that domestic production is positively extremely correlated with flow of Nipponese FDI with correlativity coefficient equal to 0.89 ( computation of correlativity coefficient is shown in appendix subdivision ) .

Therefore we can reason that flow of FDI particularly Nipponese FDI to automotive sector can excite figure of vehicles produced domestically. This consequence is same as what ( caves 1974 ) has concluded. He concluded that FDI has 2 chief effects on productiveness. First consequence is the technological transportation by oversea assembly programs and 2nd effects is the addition in competitory force per unit areas that will increase productiveness. However, we are non yet able to demo how addition in competitory force per unit area can increase the production.

Automotive industry is one of the strongest industries in Thailand with strong domestic market that support the industry. Thai automotive industry has grown steadily since the beginning of the production in 1961 but with some lag in growing rate during 1997 Asia fiscal crisis and 2008 fiscal crisis in USA. Both crisis are serious and have damaged planetary economic system but Thai automotive industry can still manage these crisis.

Foreign assembly programs are the cardinal function in this industry. I believe that Thai automotive industry can non turn this fast or retrieve this fast from major fiscal crisis without back uping from foreign assembly programs ; FDI from major automotive manufacturers and alteration in production scheme by Nissan. With the strength of domestic market that Thai automotive industry has, I believe that there still suites for turning and go one of the major car manufacturers and exporter in the universe.

Chapter 6: International Markets

In modern epoch, it ‘s impossible to avoid trading with other states particularly merchandising of merchandises that Thailand is good at bring forthing that is automobile. In this chapter we will be analysing international markets which include ASEAN markets and Nipponese market analysis of ASEAN market will be divided into 2 groups which are ASEAN-5 and CLMV. ASEAN-5 consists of Malaysia, Singapore, Indonesia, Brunei and Philippines while CLMV is joined by Cambodia, Lao, Myanmar and Viet Nam.

To get down with ASEAN has been one of the most of import parts for Thai automotive industry. The entire value of trading between ASEAN markets in 2010 is greater than 88,000 1000000s of tical. The ground to divide ASEAN market into 2 groups is that CLMV has joined ASEAN tardily. In order to fall in ASEAN for CLMV, they are required to subscribe ASEAN Free Trade Agreement ( AFTA ) . This understanding will extinguish duties and Non-Tariff Barriers ( NTB ) within ASEAN members. To accomplish this end, The Common Effective Preferential Tariff ( CEPT ) strategy is necessary for each ASEAN members. What this does to each ASEAN member is that each ASEAN members are required to use tariff rate between 0 to 5 % . Since CLMV has joined ASEAN tardily, some of the duty rate is non between 0 to 5 % yet. Thus it ‘s expensive for them to import cars from Thailand and comparing of vehicles export to ASEAN is non possible to make because ASEAN-5 ‘s duty rate is exempted from ASEAN member. Therefore it is necessary to split ASEAN into 2 groups.

The figure 6 below shows the value of car export to ASEAN. In twelvemonth 2001, the export value of car from Thailand to ASEAN-5 is really low. This is because at this point AFTA is non to the full operated yet. Even though ASEAN members have signed AFTA understandings in 1992. In twelvemonth 2003, AFTA is now to the full operated and this consequences in immense addition in export of automotive to ASEAN-5 which is shown in figure 6 point A.

Figure 6: Export of vehicles to ASEAN markets

A

( Beginning: The Customs Department )

Export of vehicles to ASEAN-5 market is turning at really fast rate with mean growing of more than 100 % since the beginning of 2001. After the connection of AFTA by ASEAN-5, Thailand can non disregard this market because of this immense value of export are traded between them. One of the grounds behind this big value of export of car is the production capacity that Thailand has. Figure 7 shows the production of vehicles by ASEAN-5 states.

From the figure above we can detect that Thailand has the highest vehicle production among ASEAN-5 states. Siam can bring forth automobile twice every bit good as Indonesia. Half of entire vehicles productions in ASEAN-5 states are coming from Thailand in both 2009 and 2010. The production capacity is now compared to population between ASEAN-5 green goodss. Size of population and production Capacity are shown in figure 8 below.

First, allow ‘s presume that each state in ASEAN-5 has same demand for car harmonizing to their populations. Therefore this average state with high population will demand more vehicles than state with lower population. By this premise, any state with population higher than Thailand should has production capacity higher than Thailand. For simpleness we will presume that demand of vehicles are supply by each state, no trades are involve. Thus state such as Indonesia, Philippines should hold higher production capacity than Thailand. But in world these 2 states have lower production capacity than Thailand. In order to function their domestic demand, they need to import. Therefore Thailand needs to provide their demand. As a consequence we saw immense addition in export of vehicles to ASEAN-5 states. From figure 7 and 8, we could state that Thailand has become automobile production hubs in South-East Asia.

The figure 9 below shows the export of car to CLMV markets. Export of vehicles to CLMV market is turning at really fast rate particularly Lao. Thai export to Lao with value of merely 120 million tical in twelvemonth 2001. After AFTA export of Lao has grown more than 40 times since 2001. In 2010 Thailand export vehicles to Lao with export value greater than 4,000 million tical. However value of export to Lao may seems really high in CLMV markets but when Value of car export to Lao is compared to ASEAN-5 state such as Indonesia, Thailand export vehicles to Indonesia with value about reached 30,000 million tical. That ‘s about 1/10 of Lao ‘s value. In figure 9, we noticed that Cambodia, Lao and Myanmar have higher export value than Vietnam. This is because these 3 states have boarder following to Thailand and it makes transit of vehicles much easier.

Figure 9: Export of car to CLMV markets

( Beginning: The Customs Department )

Both ASEAN-5 and CLMV markets have been one of the most of import markets for Thai automotive industry. As Thailand become more efficient in production of vehicles and technological degree has reached its standard degree accepted by most developed states. As a consequence export of vehicles to Nipponese market has been of import market for Thai automotive industry. Thailand has signed free trade understandings with Japan called Japan Thai Economic Partnership Agreement ( JTEPA ) in 2007. The intent of this trade is non merely the decrease or riddance of duty but besides focuses on preparation and technological transportation which will do Thai manufacturer become more competitory in World market. Thailand instantly removed duty on imported Nipponese steel by 50 % after sign language of JTEPA and will to the full extinguish duty on imported Nipponese steel in 2017. This will decidedly cut down cost to automotive assembly programs in Thailand and makes it more attractive to international markets. Another benefit from JTEPA is the riddance of duty on most of auto-parts by 2012. All auto-parts will be duty free in 2017. Again this will profit Thai automotive industry.

Another free trade understanding that Thai made with Japan is AJCEP which stands for ( ASEAN-Japan Comprehensive Economic Partnership ) . Actually this understanding is non between Thai and Japan but its ASEAN and Japan. The aims of this free trade understanding are transportation of engineering into ASEAN and better human resource. Of class, the chief aim is to cut down or extinguish duty between ASEAN states and Japan. However AJECP does non hold any benefit to Thai automotive industry since Duty for this industry is precisely the same as JTEPA. There are merely 71 merchandises that benefit from AJECP that are agricultural merchandises. These 2 free trade understandings, JTEPA and AJCEP does non increase the export value to Nipponese market but these 2 understandings decidedly increase Thailand ‘s fight to ASEAN and universe market because of decrease or riddance of duty on Nipponese imported steel and automotive parts.

The figure 10 shows the export value of car to Japan comparison with ASEAN markets. The values of exports are compared in 3 twelvemonth get downing from twelvemonth 2008, 2009 and 2010.

Figure 10: Export value of Automobile to Japan.

A

( Beginning: The Customs Department )

From figure 10 point A, we can see that Thailand export little value of vehicles to Japan particularly in twelvemonth 2009. We can seldom see the saloon on the figure. As reference above those 2 free trade understandings do non increase the size of export value to Japan. However, in twelvemonth 2010 we can see immense addition in export value of vehicles to Japan. This immense addition is due to switch in production base of Nissan, March. On July 2010, Nissan has announced to switch their Nissan, March production base to Thailand. The chief ground behind this determination is to take down the production cost. Nissan said that Thailand has high degree of engineering in production of cars and advantages in location since Thailand is located in centre of South-East Asia. By switching the production base to Thailand, Nissan can take down their production cost by 10 % . Currently Nissan, March is sold at less than 1 million hankerings or less than 370,000 tical. Japan. Shift in production base means that Nissan, March are no longer produced in Japan and demand for Nissan, March is served by Thailand. Thus the export value of vehicles to Japan sky rocketed. In add-on, switching in production base addition technological degree in Thailand and this will increase productiveness and fight to Thai automotive industry.

Thailand ‘s automotive industry has strong international market that could take Thailand to go one of the most of import automotive productions in the hereafter with high rate of growing in export value to ASEAN markets which includes ASEAN-5 and CLMV market and chance to spread out export of vehicles to new market such as Japan. Quality of automotive productions are going more and more acceptable by abroad. Thai automotive industry has a really bright hereafter.

Chapter 7: Swot Analysis

In this chapter, SWOT analysis is used to analyse Thai automotive industry in term of domestic production, domestic gross revenues and international gross revenues or export to international markets. In each subdivision, strength, failing, chance and menace will be analyzed by both experts and my sentiments towards Thai automotive industry.

Chapter 7.1: Strength of Thai automotive industry

The first strength of Thai automotive industry is the advantages in geographical location to go production hubs. Thailand is located in a centre of Asia and this gives us the chance to merchandise with states in Asia. Thus the geographical location gives chance for Thai automotive industry to spread out to new international market.

The 2nd strength of Thai automotive industry is the Joining of ASEAN members. ASEAN give us the chance to merchandise freely within the parts by AFTA. This benefit Thai automotive assembly programs since some constituents used in production of vehicles are expensive to bring forth domestically and AFTA aid assembly programs to take down their cost by importing of automotive parts.

The 3rd strength of Thai automotive industry is that Thailand has strong domestic and international market. Strong in this topographic point means value of vehicles sold. It ‘s strong plenty to back up the current production capacity of 1.6 million vehicles in 2010. If domestic and international market is non strong plenty, it is possible that Thai automotive assembly programs will diminish its production.

The forth strength of Thai automotive industry is high degree of technological transportations and productiveness by FDI from states like Japan and USA. We have shown that FDI is extremely positively correlated with productiveness. The production engineering has been developed from upstream to downstream industries.

Chapter 7.2: Failing of Thai Automotive Industry

It is difficult to believe of failing in Thai automotive industry because everything seems to be perfect in the industry. However, there must be failing in order to better the industry to the following degree.

The first failing of Thai automotive industry is restriction of communicating with foreign automotive assembly programs. Miscommunications between workers are common and this could take to lower productiveness and transportation of engineering is non maximized.

The 2nd failing of Thai automotive industry is machines and engineerings are to a great extent depending on foreign. It is expensive to purchase or replace machines used in production of vehicles since some machines are non able to bring forth domestically since it requires engineerings.

Chapter 7.3: Opportunity of Thai Automotive Industry

The first chance of Thai automotive industry is the enlargement of international markets due to free trade understandings by ASEAN. Such as Thailand-EU free trade understanding which could increase fight in automotive sectors. In add-on, it is chance for Thai automotive industry to larn engineerings from European.

The 2nd chance of Thai automotive Industry is switching of production base by major vehicles assembles suck as Toyota and Honda. Honda has merely introduced its new merchandise called Brio which is 2nd eco-car in Thailand after Nissan, March. Honda, Japan announced that switching of production base to Thailand is possible due to cheaper production cost and Honda believes that technological degree in Thailand is sufficient to bring forth the vehicles.

Chapter 7.4: Menace of Thai Automotive Industry.

The first menace of Thai automotive industry is the emerging of rivals in Asia such as India and China. China has really low production cost and this could do China go one of the most of import productions base for foreign assembly programs. Besides India has an advantage in human resource and this could give foreign assembly programs more option to take for their production base.

The 2nd menace of Thai automotive industry is the emerging of gray automotive market. Grey market in this topographic point means the concern proprietor import vehicles from abroad and sell it cheaper than official trader. Most of vehicles sold in this market are largely European trade name and some Nipponese trade name. This will cut down domestic gross revenues

The concluding menace of Thai automotive industry is the enlargement of public transit particularly BTS ( Bangkok Mass Transit System Company Limited ) which has extended 7 more BTS Stationss in Skhumvit line.

Thai automotive industry has more strength and chance than failing and menace that the industry faced. Support of strength and chance for Thai automotive industry will decidedly do industry stronger, cognizing failing and menace is of import. Improvement of failing and menace will do industry attractive to foreign investors.

Chapter 8: Future of Thai Automotive Industry

The hereafter of Thai automotive industry in my sentiment will be enlargement of international markets by free trade understanding mark by ASEAN. Example of free trade understanding would be Thailand-EU free trade understanding. The ground that I choose this free trade understanding is that EU is similar to ASEAN where many states are joined and EU is developed state. Thailand-EU free trade understandings should hold important impact to Thai automotive industry.

What are the benefits that Thai automotive industry could have by subscribing Thailand-EU free trade understandings? Expected benefits from this free trade understanding are similar to what Thailand benefit from AJCEP and JTEPA. Since both Japan and EU are developed states. As we saw from international market subdivisions, free trade understandings from Japan such as JTEPA and AJCEP does non increase the value of export straight and instantly unlike AFTA. When Thailand signed AFTA we noticed fast growing in both ASEAN-5 and CLMV market. Since these states need vehicles and AFTA allowed them to import vehicles from Thailand without Tariff rate. However, in JTEPA or AJCEP we did n’t see the alteration in value of export by Thailand to Japan. But these free trade understandings benefits in take downing production cost such as riddance of automotive parts and perchance transportation of technological. So since EU is really similar to Japan in the manner that both are developed states and do non necessitate to buy cars from Thailand and more significantly both Japan and EU have its ain automotive trade names. The benefit from Thailand-EU free trade understandings that Thailand could profit should be similar to what Thailand benefit from JTEPA and AJCEP. Such as lower production cost of European car trade name due to decrease or riddance of duty on automotive parts and perchance reassign of engineering. Expansion of international market is necessary for Thai automotive industry to go extremely skilled and technological production base in South-East Asia.

Chapter 9: Decision

In decision, the paper has analyzed Nipponese FDI in Thai automotive industry. The paper starts with brief history of how Tai automotive industry started and go one of the most of import automotive manufacturer and exporter in ASEAN market and Nipponese market.

Thai automotive industry has strong domestic market and international markets that support the industry. Export of vehicles has increased dramatically after the connection of ASEAN ( Association of South-East Asia Nations ) . Free trade between ASEAN states eliminates tariff rate on cars and some of automotive parts. Free trade between Japan does non increase export of vehicles dramatically like ASEAN markets but JTEPA and AJCEP lower production cost and improved fight in Thai automotive industry. We have found out that FDI can increase productiveness through technological transportation. Caves ( 1974 ) suggested that there are 2 effects on flow of FDI. FDI will increase productiveness through transportation of engineerings and increase in fight. From what we have discussed in SWOT analysis, Thai automotive industry has more strength over the failing and more chance are waiting in to better Thai automotive industry in the hereafters. From what paper illustrate, we could reason that Thailand is now become automotive production hubs in ASEAN.

Appendix

Appendix 1: Domestic Market Share in twelvemonth 2009 and 2010.

Beginning: Thai Automotive Industry Association

*Unit in figure of vehicles

Appendix 2: domestic production, gross revenues and export.

Beginning: Thai Automotive Industry Association.

*Unit in figure of vehicles

Appendix 3: Flow of FDI from Japan and USA

Beginning: Board of Investment

*unit in million of Baht

Appendix 4: relationship between Nipponese FDI and Production

Beginning: Board of Investment and Thai Automotive Industry Association

Appendix 5: Export of vehicles to ASEAN-5, CLMV and Japan

Beginning: Thai Automotive Industry Association