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Thai floods reveal message for Australian business

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COMMENTS

25 October 2011 11:44

Mark Carroll is the Executive Director of the Australian-Thai Chamber of Commerce. The views expressed are his alone and do not necessarily represent those of the Chamber or its members.   

As the muddy flood waters in Thailand recede, they will reveal just how important the Thai economy is in regional and global terms.

Thailand is a manufacturing power-house. Countless small and large factories churn out a broad range of finished consumer goods for export, as well as component products vital to global supply chains. With many of these production facilities now underwater, the impact of the worst floods in decades will spill well beyond the rivers and tributaries of Thailand.

At least one percent (or a quarter of anticipated economic growth) is expected to be sliced from Thailand's gross domestic product this year. Many of the purpose-built industrial parks dotted around the country are inundated. Approximately 14,000 businesses within Thailand are said to be affected, including 1000 factories submerged in a quagmire the size of Tasmania.

The closures, supply chain shortages, labour absences, transport roadblocks and other flood-related factors will affect a number of major multinationals, including Toyota, Honda, Mazda, Isuzu, Ford, Sony, Sharp, Toshiba, Western Digital, Seagate, Nikon, Canon, Hewlett Packard, Dell and Apple.

The global output of hard drives is projected to fall by 30% because of the pivotal role Thailand plays in assembling hard drives and producing their components. Of the more than 1.6 million vehicles manufactured in Thailand yearly, there is an expected production drop of between 6000 and 10,000 units per day, along with dramatic shortages of auto component parts for export. It is not surprising some analysts are comparing the economic impact of the Thai floods with that of the terrible Japanese tsunami.

Damning for Australian business is that it has largely failed to recognise the importance of the Thai economy. Most Australians still see Thailand through the prism of beaches, bars and pretty girls. The US, China, Japan and Korea — among others — have moved past this perception of Thailand. It is a serious business destination for them. Australian businesses should follow their lead.

Australia will next year celebrate the 60th anniversary of diplomatic relations with Thailand. It is a deep and broad relationship treated very seriously by both governments. The Australian diplomatic presence in Thailand is one of its largest globally. Yet the same cannot be said for the business relationship.

Sure, merchandise trade is strong — Thailand is Australia's sixth most important merchandise trading partner — but investment tells a different story. In fact, Thailand's $A 4.99 billion of investment in Australia in 2010 was almost 250% greater than the $A 1.9 billion flowing the other way. The disparity can be partly explained by several large one-off Thai investments but that tells only part of the story.

The bigger picture is Australia's overall perception of Thailand. We don't see it as a serious business destination. Although Australian tourists flock to Thailand in their hundreds of thousands each year, some estimates put the Australian business community there at less than 3000. To be fair, Thailand's protectionist tendencies — particularly its Foreign Business Act — stymie participation in areas where Australia excels, for example professional services and mining. And corruption, political instability and graphic scenes of violence in Bangkok's CBD don't help Australian investor confidence.

However, Thailand's economic fundamentals remain strong. Its role as a production base is certain to increase and bold infrastructure projects (largely financed by overseas interests) are set to take advantage of Thailand's geography. It has great potential as a transport and logistics hub for goods moving south from China into Southeast Asia and the Pacific.

As a place to do business Thailand offers a strategic location, world-class infrastructure, cheap business inputs and a cost competitive labour force with good skills potential. Not to mention a welcoming society with tolerant attitudes. Just last week Thailand was positioned 17th by the World Bank in ease of doing business —  in East Asia only Singapore and Hong Kong ranked higher.

Australian companies have been slow to identify the business prospects in Thailand, but the receding floodwaters should reveal a new terrain of opportunity.

Photo, of business continuing in Thailand despite the flooding, by Flickr user Philip Roeland.

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