Japanese start looking elsewhere
Higher costs, strong baht taking their toll
UMESH PANDEY
Japanese investors, the country's largest single group of investors, are looking at other destinations in the region as Thailand becomes less competitive amid rising costs and an appreciating currency, the Japan External Trade Organisation (Jetro) said yesterday.
''When we asked companies what their future plans were, a majority of the companies responded by saying that they would maintain their position as they were applying a wait-and-see approach,'' Jetro president Yoichi Kato said.
''Japanese companies are now looking for investment destinations such as Vietnam, China and India rather than focusing just on Thailand,'' he said in a clear reference to the shifting trend of companies to consider other countries due to the various negative factors affecting Thailand.
In a veiled reference to the ongoing political drift and strengthening Thai currency, Mr Kato said the stronger baht was taking a toll on Japanese companies that have used Thailand as a manufacturing hub.
''If there was a government through elections as has been promised by the incumbent government, it would send a positive signal to the investment community, as has been evidenced by the sharp increase in the capital markets over the past few days after the government reaffirmed that elections would be held by this year-end,'' he said.
''Japanese companies would like to see the currency hover around 37.25 baht to a dollar although they have budgeted 35.85 in their books,'' Mr Kato said, adding that with the currency at 34.50 to a dollar the companies were under constant strain.
''If it continues this way then companies would need to move to the value-added segment to make higher returns rather than rely on lower cost as a tool to remain competitive,'' he said.
The twice-yearly Jetro survey, conducted from April 27 to May 23, found that the baht's appreciation was the top concern for Japanese companies in Thailand, followed by political instability, economic policies and increasing labour costs.
The survey showed that 64% of respondents thought currency was the key concern, followed by 44% who cited political stability, 43% current economic policies and 40% rising labour costs.
Japanese investors, who account for close to 50% of foreign direct investment (FDI) into the country, have remained sceptical about the country's policies. Changes to the Foreign Business Act spooked many companies that have invested in the country over the past few decades.
Mr Kato said that Jetro's survey of 351 Japanese companies in Thailand showed for the first time in nine years that investment sentiment here had declined.
''This is the first time we are witnessing such a trend,'' he said, adding that close to 58% of respondents said they would maintain their positions and only 17% would expand.
Mr Kato added that most investors were concerned about the foreign exchange fluctuation, while they also feared excessive competition, the continued rise in raw material prices and political instability.
All these factors, he said, had helped countries such as Vietnam, India and China become more attractive destinations for Japanese investment.
source: Bangkok Post 05.07.2007