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Japanese firms still struggling to recover from Thai floods' impact

Publication Date : 05-10-2012

 

A year after floods in Thailand struck about 450 Japanese firms, more than 80 per cent of factories in seven submerged industrial parks have resumed operations. But restoration progress has varied according to sector and size, and firms now face additional challenges such as the slowdown of the global economy.

Thursday marked the one-year anniversary of the floods that submerged the industrial parks. Last month, small and midsize manufacturers of electronic components for home appliances restored most of their production equipment to pre-flooding levels. Yet operations stand at only about 40 per cent of capacity, and lights remain off at half of these factories.

One company executive said, "Only two-thirds of our clients have returned."

The executive said the company achieved only about 40 per cent of its sales target.

The company reduced its local factory workforce to one-third of the pre-flood number, but a Thai government measure introduced in April to drastically raise the minimum wage level has cut into profits.

Thus many companies have been plagued by three major challenges: the impact of the flood itself, the economic slowdown and wage increases.

"We're looking into whether we should continue our business operations here," the executive said.

For small and midsize companies hit by the flooding, resuming business with clients is of critical importance. However, an increasing number of industry leaders, particularly electronics makers, are leaving the country or partially relocating their operations.

Sumitomo Bakelite Co., a major manufacturer of electronic materials, moved its production of packaging materials for semiconductors from Thailand to Singapore in August. The company decided to close its badly damaged plant in Thailand as restoration would take a considerable amount of time.

Sony Corp. is also exploring alternate uses for its flood-hit plant with production of cameras and semiconductors suspended for the time being.

After two of its plants for car navigation systems and other products were submerged in the flooding, Pioneer Corp. shifted some of its Thai production to Malaysia and elsewhere.

Meanwhile, Nidec Corp. plans to reduce output of hard disk drive motors in Thailand.

Unlike big companies, however, small and midsize firms have found it difficult to respond by relocating, due to their limited operational strength.

"Relocation would be difficult if we took into account the hiring of new workers and training them from the start," an official of a Japanese manufacturer said.

Steady recovery for auto firms

Meanwhile, firms in automobile-related sectors have been recovering steadily. The Thai government's incentive program for car buyers, along with upbeat auto sales in Southeast Asia, have provided a boost.

"The importance [of Thailand] as a production base and a consumer market remains completely unchanged," an official from Honda Motor Co. said.

Other automakers have also increased production in the country.

In January, Toyota Motor Corp. announced plans to build its fourth factory in Thailand. The plans will benefit small and midsize auto parts makers struck by the floods.

According to the Industrial Estate Authority of Thailand, 81.5 per cent of factories in seven industrial parks submerged by the floods had resumed operations as of Monday, and about 80 per cent of Japanese firms appear to be fully or partially operational. With the relationship between Japan and China having become troubled, some observers predict Thailand will enjoy increased importance as a production base in Asia.

But some firms have been asked to accept changes of terms by insurance companies when renewing disaster insurance contracts.

"We may not be able to get insurance coverage," an automaker official said.

Now facing the problem of future disaster insurance coverage, disaster-hit companies have since been paying close attention to the Thai government's disaster-response policies.

Nagata is a correspondent based in Bangkok.

 

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