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Thai unrest has Japanese firms worried about future

Publication Date : 04-12-2013

 

Fears over the negative impact large antigovernment rallies in Bangkok could have on Japanese companies are rising. If the political instability in Thailand continues, a growing number of Japanese companies might reexamine their investment strategies in a nation that has become a vital production base.

Thailand’s largest shopping centre, in which the Isetan Bangkok department store is located, was closed Sunday because protesters had gathered at a nearby police headquarters. The store resumed operations Monday, but the number of customers has fallen since the demonstrations began.

According to Thai Airways, some tourists who had planned to depart for Thailand in December and January have asked to postpone their trips, saying they want to wait until the situation settles down.

JTB Corp. and other travel agencies have stepped up activities to gather information about the conditions in Thailand.

Nobuyuki Ishii, secretary general of the Japanese Chamber of Commerce, Bangkok, has expressed concern about the possible impact of the unrest.

“If the antigovernment demonstrations last much longer, adverse effects will appear in, for example, automobile sales. We can only hope the situation calms down as quickly as possible,” he said.

“The supply of parts to manufacturing plants may be stopped, and the movement of people may be obstructed,” Chubu Economic Federation Chairman Toshio Mita, who is also chairman of Chubu Electric Power Co., said at a press conference Monday. “I hope the situation will return to normal as soon as possible.”

The Thai Commerce Ministry is trying to minimise negative repercussions from the rallies. For example, the ministry opened new service counters for issuing certificates of origin, which indicate the country from which a product is made.

According to the Japanese Embassy in Thailand, there have been no problems in the issuance of work permits for employees, visas, customs clearance and other matters.

Many Japanese companies have plants and other business facilities in the suburbs of Bangkok and other provincial areas.

An official of a local affiliate of Honda Motor Co. said, “Employees’ commutes, operations and commodity distribution have not been adversely affected.”

However, how the situation will unfold remains difficult to predict.

According to the Thai Board of Investment, Japan is the largest investing country in Thailand. For Japanese automakers and electrical appliance manufacturers, the country is a leading production base.

According to the Japan External Trade Organisation, 1,458 Japanese companies were operating in Thailand as of April. In 2012, Japanese companies made 761 investments worth a total of 348.4 billion baht (about 1.11 trillion yen or US$11 billion).

This recent protests have underlined the difficult task Japanese companies face in managing investment risks in Thailand.

In Thailand, large-scale antigovernment demonstrations erupted in 2006, 2008 and 2010. Economists estimate the demonstrations in 2010 caused 460 billion yen worth of damage to that nation’s economy.

At the time, Mitsubishi Heavy Industries Ltd. closed an office of its local affiliate in Bangkok. Mos Food Services Inc., which was operating its Mos Burger chain in the country, suspended services at three restaurants in central Bangkok.

Massive floods in 2011 submerged the factories of automakers, major electrical appliance makers, parts makers and many other companies, forcing them to suspend production.

Canon Inc.’s plant, which manufactures ink-jet printers, halted production for about two months after the floods.

Sony Corp.’s plant, which manufactures digital cameras and other products, also suffered serious damage. The floods caused sales losses of about 200 billion yen and cut about 70 billion yen from operating profit in Sony’s fiscal 2011 consolidated business results.

Some Japanese companies have moved or plan to move operational bases from Thailand to nearby countries, such as Cambodia and Laos.

In October, Nikon Corp. established a new plant that makes single-lens reflex cameras in Laos and transferred part of its Thai plant production processes there.

If Thailand’s political instability drags on, an increasing number of Japanese companies might become reluctant to invest there. Compounding these fears is the fact that the current Thai administration raised the minimum wage in January 2013, pushing up labour costs.

Keiichiro Oizumi, a senior research fellow of the Japan Research Institute, said Japanese companies will likely continue to reevaluate their operations in Thailand.

“Moves to transfer some production processes to other countries with lower labor costs while keeping production bases in Thailand will also accelerate,” Oizumi said.

 

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