SECTION [C] : KEY TO THAILAND'S SUCCESS

Incentives & Policies
The government encouraged foreign multinational corporations (MNCs) to establish their production bases in Thailand through various incentives and privileges, particularly by reducing automotive tariffs and tax incentives.

The abolishment of local content requirements since 2000 has attracted automotive assemblers, as well as world-class part and component manufacturers. The lifting of the local content requirement would make auto assemblers more flexible in parts sourcing, which in turn would increase cost efficiency. Also, getting approval for setting up plants in Thailand is relatively easy and fast. A plant can be constructed even before the approval is obtained. The reduction in bottlenecks in setting up plants makes Thailand a more attractive place to invest in.

In addition, the way auto manufacturers choose their vendors ensures the quality of their production. One vendor would be the sole supplier for a certain part of a car model. Vendors would bid to be the supplier and the vendor who succeeds in getting the contract would be the sole supplier for that particular part for as long as the car model is still in production. This would enable the car manufacturer to control the quality of the auto parts and components easily.

Role of the government

In Thailand, the private sector has been the leading force in the process of industrialisation, with the support of the government. Businesses have the freedom to pursue strategies to increase their competitiveness without having to comply with "political games".

The government does not exert any control on the automotive industry. The role of the government in the auto industry is limited to providing incentives only. The country is open to free competition among major world players. Foreign manufacturers are allowed to set up plants in Thailand without any local ownership requirement, thus eliminating any political or protectionism barriers for foreign investment.

Thailand's Board of Investment (BOI) has been placing emphasis on the promotion of supporting industries by granting special privileges. Strong supporting industries would support the competitiveness of local products to meet international standards. Supporting industries such as brake systems, electronic fuel injection systems, production of measuring device and equipment, etc, are provided with an eight-year corporate income tax holiday as well as exemption from import duty on machinery. Besides incentives, the BOI has also set up the BOI Unit for Industrial Linkages Development (BUILD) to develop subcontracting relationships between Thai part and component manufacturers and end-product assemblers, by assisting foreign assemblers and manufacturers with sourcing local quality parts and components from Thai SMEs.

Clustering Concept
Thailand has established industrial estates as platforms for Thai and foreign investment in assembly and manufacturing. This clustering concept consists of geographical concentration of certain industries, with three key sectors in the lead - automotive, consumer products and electronics. Most auto companies, including BMW, are located in the south of Bangkok, in the Rayong and Samutprakarn provinces of Thailand's Eastern Seaboard. The automotive cluster includes foreign and domestic assemblers, parts producers, as well as specialised suppliers.

The concept of clustering enables auto manufacturers and assemblers to work closely with auto part suppliers, thus increasing efficiency. It also enables the government to provide the relevant infrastructure to support the auto industry.

Foreign companies in Thailand are encouraged to locate in an industrial estate, through tax incentives, reduced import duties, and visa and work permit privileges. For example, in Rayong, one of the automotive clusters, foreign manufacturers and assemblers that set up plants there would be given 8 years of 100% tax exemption and the subsequent 5 years, 50% tax exemption.