Thread: Foreign Investors Angry With Thailand's Flood Response

Foreign Investors Angry With Thailand's Flood Response
Kaori Enjoji
Sunday, 23 Oct 2011

BANGKOK — Foreign investors in Thailand are increasingly angered by the Thai government’s response to the floods that have ravaged many of its key industrial zones, saying when they can resume production will depend on how quickly the authorities can release accurate information.


Flood waters surround an industrial complex October 20, 2011 in the neighboring provinces of Bangkok, Thailand.
Getty Images

“They kept telling us, it’s going to be fine,” said Hiroshi Minami, president of Rohm Integrated Systems Thailand, one of the largest Japanese makers. Its factory in Navanakorn, the nation’s oldest and largest industrial zone, has halted production for nearly a week and the first floor is almost entirely submerged.

“We could have taken critical equipment to the third floor and saved them. Now they are at risk of rusting away,” Minami said.

His frustrations are shared by many of the 450 Japanese companies affected by Thailand’s worst flooding in half a century. A factory that makes Sony’s [SNE 20.71 0.48 (+2.37%) ] high-end cameras, Honda’s [HMC 30.55 0.88 (+2.97%) ] main auto assembly plant, Toshiba’s chip factory are just a few of the companies directly affected.

No Japanese auto maker will be able to produce this week in Thailand.

J.P. Morgan auto analyst Kohei Takahashi says his best case scenario for Honda is production hold lasting three months and costing 15 billion yen in operating profits. The supply shortage is likely to affect the rest of the ASEAN region, he said.

The impact could be prolonged for pick-up truck makers like Toyota and Isuzu, analysts say, because mostly all of the parts are locally procured. In a strategic move to offset the rising cost of the yen [JPY=X 76.33 0.17 (+0.22%) ], Nissan [NSANY 0.00 0.19 (+1.05%) ] decided to move production of its flagship March model to Thailand, while Mitsubishi Motors has announced to build its global small car in the country.

The government, which came to power in August, has failed in attempts to stop the waters from seeping into Bangkok as many canals lacing the capital looked set to overflow. Volunteer workers filled sandbags all along the Chao Phraya river, while residents north of Bangkok waded through knee-deep water to move household items to higher ground. The highways have turned into parking lots as driver abandoned their cars on them to escape the flooding.

Seven industrial parks have been evacuated, disrupting supply chains in industries like electronic and automobile. Many companies said they had not even been able to enter their facilities, let alone estimate the estimate of the damage and costs to operations.

“Japan is Thailand’s biggest investor. They’re the biggest employers here and they have contributed to the economy tremendously,” said Seiya Sukegawa, a senior economist at the Japan External Trade Organization. “There will be a huge impact if they no longer feel it is right to do business here. If the government does not help businesses recover, many SMEs could go under.”

Japanese direct investment into Thailand has more than quadrupled in the last decade to total US$27.8 billion in 2010.

The government says it has budgeted almost 100 billion baht for the reconstruction, adding that he is counting on industries to recover quickly as insurance policies kick in.

“Corporations within the industrial estate are in fact multinational corporations and they all had comprehensive insurance. They are very strong,” said finance minister Thirachai Phuvanatnaranubala in an interview.

"We won’t be able to use anything for a while," said Yasunari Kuwano, general manager at ball bearing giant Minebea. Thailand generates half of the company’s 270 billion yen sales to PC makers, appliance makers and mobile phone companies. “We can’t even get in to check.”

It is a double blow to Japanese manufacturers after the tsunami in their home country knocked our supply chains earlier this year. Still struggling to recover for lost business, a halt in production in one of the world’s fastest growing economies would undermine efforts to bounce back in the second half of the fiscal year. With risk of an economic slowdown globally, analysts say many manufacturers may be forced to revise down their full-year estimates when they start reporting third quarter results over the next several weeks.

Every day of lost production is an opportunity for rivals to take clients way, especially in intensely competitive industries like electronics, executives say.

“We’ll see if we can get a helicopter to airlift the inventory if some of it is useable,” Rohm’s Minami said.

cnbc.com

Originally Posted by Mid

The government says it has budgeted almost 100 billion baht for the reconstruction adding that he is counting on industries to recover quickly as insurance policies kick in.

Their silliness costs the rest of the world

Wot about the workers?

Yes the Government has been in power for a whole 2 months and they failed to write a law banning natural disasters. Unbelievable!

I am sure those foreigner investors are undercover PADites agents, nothing else, they have no right to criticize this government, since this government was elected by uneducated peasants who don't pay any tax or contribute significantly to the overall economy

Foreign investors need to look twice at Thailand, because this is a major supply chain event. The supply chain broke down in Japan after the tsunami and it caused a lot of problems.

Bottom line for foreign investors is that the waterways need to be fixed in future to minimise the chances of this not happening again, otherwise they will take their factories somewhere more secure to mitigate risk, and that will cost Thailand jobs.

Thats why there aren't many multinational factories in low-lying Bangladesh.

Originally Posted by Butterfly

I am sure those foreigner investors are undercover PADites agents, nothing else, they have no right to criticize this government, since this government was elected by uneducated peasants who don't pay any tax or contribute significantly to the overall economy

As usually Butters you have shown your own poor education. There are other forms of tax then income-tax which collect far more money for the government coffers.

Originally Posted by Sailing into trouble

Originally Posted by The_Ghost_Of_The_Moog

Foreign investors need to look twice at Thailand, because this is a major supply chain event. The supply chain broke down in Japan after the tsunami and it caused a lot of problems.

Get a grip!

The Multi nationals invest in Thailand cause it is cheap. This flood is a set back in profit margins. They will reinvest if they consider it in their long range profit forecasts.

There are numerous alternative locations in Asia.

Firms' risk management will now have to consider the chances of a repetition in Thailand every rainy season. Japanese companies having experienced two supply chain disruptions in one year are the most likely to be thinking hard.

It will become clear if Thailand is going to take steps to fix the infrastructure shortfalls, or explain it as a hundred-year-flood.

Moog is right, corporate HQ are probably already computing the costs of the flood and what to do next in terms of strategic risk,

the problem is Thailand has a lot to offer, so that will probably save them

Vietnam is too backward, maybe Malaysia is a good alternative

^ I have some Japanese friends in Bkk, several have moved to India as their companies relocated from Thailand. I think it's a significant number of companies over the last 10 years or so, but I'm no expert on the matter.

I have heard through the grapevine that around 700 foreign companies are considering relocating their businesses and this flooding is the straw that broke the camels back.

The sad part of this, and when a million Thai workers lose their jobs, it will be the foreigners who will be blamed.

Originally Posted by Butterfly

the problem is Thailand has a lot to offer, so that will probably save them

Thats true. It may save them. Foreign executives love coming to Thailand.

In Lehman, anytime some deal was mooted in Thailand, executives from New York would be clamouring to come over and help out, even though we told them their assistance wasn't needed. So much money was spent on travel, hotels and hands-free restaurants in Thailand.

I think I know why this phenomena occured but Thaivisa 'Lese Thaijeste' rules prevent me saying it.

Originally Posted by Loy Toy

I have heard through the grapevine that around 700 foreign companies are considering relocating their businesses and this flooding is the straw that broke the camels back.

non-sense, and you could wonder how someone could come to that conclusion in statistical terms

I think the government priority is going to be to solve that "Bangkok" canal grid issue to make sure those factories stay, and forget about the silly iPad and other silly populist ideas

Originally Posted by Loy Toy

I have heard through the grapevine that around 700 foreign companies are considering relocating their businesses and this flooding is the straw that broke the camels back.

The sad part of this, and when a million Thai workers lose their jobs, it will be the foreigners who will be blamed.

I wouldn't be sure to put a number to it. I certainly know of one Taiwanese company who set here and would now be looking at Vietnam as an option. The attractions of investing in Thailand were diluted by the "hidden" costs of doing business "legally" and making things happen at an acceptable pace.

They already manufacture in mainland China, yet underestimated the "other" costs of doing business and setting up by 50%. By then, of course, it was too late. Flooding and wholesale loss of machinery will prove a game changer for many comapnies.

Originally Posted by Butterfly

non-sense, and you could wonder how someone could come to that conclusion in statistical terms

A fact mate whether we like to admit it or not.

Most are sick and tired of the political infighting, the new immigration laws, raising the minimum wages etc etc etc, now these floods.

In fact some feel these floods are a blessing in disguise and the catalysis to finally make the move that was planned years ago.

Most are considering either Vietnam, Malaysia and or Indonesia.

There is no passion in this, if LT is correct it is because of cool calculations of total production costs contra profits.

The kind of foreign company's having moved here have done so purely based on maximizing profits, there is no emotional allegiance to Thailand.

So if other places now offer cheaper labor, reasonable infrastructure, political stability, less corruption and red tape, less natural disasters etc. so that the extra profits earned quickly will outweigh the costs of moving production, they will do so in a heartbeat.

"Multi-nationals all have insurance..." 99% of them are "self insured." Meaning they bear all costs associated with any and all insurance type claims. Nobody could afford to cover the losses of a Toyota, Honda, Chevron, Total, or Sony. Not even Lloyds of London would take that bet.

Originally Posted by larvidchr

Foreign investors in Thailand are increasingly angered by the Thai government’s response to the floods

So, we lacking a political "finger in the dyke" here?

Originally Posted by Mid

No Japanese auto maker will be able to produce this week in Thailand.

Tough titties Mr Okimura san!!
No doubt a little short supply in the current market can be accommodated and will recover in not too distant future. I am sure Thai production line workers will be happy to do overtime to help them with their own recovery problems?

With the recent announcement by the Yingluck government that a Tb100k subsidy is to be introduced for 1st time, new car buyers I'm sure the order books will fill fast once the insurance claim for the flood damaged 10 year old dmax are processed

We have not heard from the insurance companies as yet ... have we!!

I doubt very much if any Japanse industralist in Thailand would have knowing baught into the spin the author of this ever so mild "belt up" has published.
Never has been their style.

Now just what were those successes? After 2 months in office she's faced with a disaster beyond anyones imagination, but previous success, na, didn't happen. Same as Obama, not qualified to lead a pack of rats.

Originally Posted by Calgary

I keep searching for media articles that commend the hard working Ms. Y and the successes of Govt programs in the face of this disaster.

....and no environmental laws or regulation of labor and benefits. Cheap is Cheap!!!

Originally Posted by Sailing into trouble

But they wanted to build in a place with cheap land and cheap labour.

Originally Posted by Khun Custard

No doubt a little short supply in the current market can be accommodated and will recover in not too distant future.

Thats true, the supply chain can and will recover, but what these firms will be thinking about is how a repetition can be avoided next year.

The person in these companies who makes the call 'this might happen again, lets move' covers his bottomy parts better than some executive who says 'lets stay on, this was a one off'