Huge Uncertainties For Unaffected Industrial Estates: Thailand Flood

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Huge uncertainties for unaffected industrial estates

Nalin Viboonchart,

Siriporn Chanjindamanee

The Nation

The industrial estates situated in the eastern part of Bangkok are at risk to face with low-lying floodwaters, as the Industry Ministry could not assure the safety.

Meanwhile, the Japan Chamber of Commerce (JCC) has asked the government to carefully drain out the water from the floodhit area to the Eastern part of Bangkok in order to reduce the impact not to spread to other industrial estates.

Payungsak Chartsuthipol, chairman of the Federation of Thai Industries (FTI), yesterday said, the private sector were still working on the preventive measures to protect the industrial estates in the East such as Bangpoo Industrial Estate, Bang Phli Industrial Estate, Wellgrow Industrial Estate, and Latkrabang Industrial Estate from the floods. The water that are being drained out from Ayutthaya province may cause floods in these industrial estates.

Five industrial estates in Ayutthaya province such as Rojana Industrial Park, Hi-Tech Industrial Estate, and Nava Nakorn Industrial Estate have been flooded. Bangkradee Industrial Estate located in Pathum Thani province is also at risk after Nava Nakorn was hit on Sunday.

Wannarat Charnnukul, Industry Minister, said it was difficult to confirm whether or not the industrial estates located in the ways that the water will be drained out will suffer from the floods.

Kyoichi Tanada, president of JCC and president of Toyota Motor Thailand, said the government had to be well planned for draining out water from the flood-hit areas to the Eastern part of Bangkok as there are many manufacturing plants located there. The government should gradually drain out water and control the amount of water released from Ayutthaya.

He said the relationship between Thailand and Japan was last for more than 600 years. Japanese investors foresee Thailand as its major manufacturing base outside Japan, particularly the automotive industry. After the flood problem is solved, the Japanese investors will still view Thailand as its important manufacturing base.

Setsuo Iuchi, president of Japan External Trade Organisation (Jetro), said the Jetro had issued the relief measures required the government to support so as to reduce the impact to the Japanese investors. They wants the government to drain out water as soon ad possible, and assist the flood-hit companies to move out the machinery from the industrial sites. The government should also release the updated information and relief measures in English language promptly.

He said the requirements also included the provision of subsidies for the companies that want to keep their labours during the suspended operation, the import tax exemption for machinery and parts needed for substitution. Besides, the Japanese investors also ask the SME Bank to provide financial services to the Japanese ones, and the exemption, reduction or deferred payment of corporate tax to the suffered companies.

They also ask the Board of Investment (BoI) to allow the suffered companies to restart their operations with new machinery as well as bringing out machinery to other sites outside Thailand without prior notice or permission.

Iuchi said many Japanese investors still consider investing in Thailand after they suffered from the tsunami in March this year. Jetro had to inform the accurate information about the floods in Thailand and let them make the judgement themselves whether they still want to invest in this country.

"We still hope that floods will not hit other industrial estates such as Bangpoo, Latkrabang, and Wellgrow so that the damage will be limited," he said

Payungsak restated that the industrial sector wanted the government to postpone the implementation of minimum wage hike to Bt300 until 2013, set up a fund to provide soft loans, to the companies that want to still hire workers to prevent the unemployment problem.

Deputy Prime Minister and Commerce Minister Kittirat Na-Ranong yesterday expressed his concern over the withdrawal of foreign investors’ production base if the government has no apparent guidance to resolve the damage from flooding.

"I concede that I’m worried about those who are foreign investors will move their production bases out of the countries after some industrial estates in the central region have been submerged by floodwaters," said he.

The nation's worst floods in five decades have closed about 1,000 factories operated by companies including Honda Motor Co and Canon Inc and disrupted supply chains for manufacturers such as Toyota Motor, Western Digital Corp, which relies Thailand for 60 per cent of production, may see exports from the country slide as much as 40 per cent to Bt120 billion ($3.9 billion) this year after floods shut two of its plants. The company counts HewlettPackard Co, Dell Inc and Acer Inc among its customers.

Flooding in recent months has devastated parts of Thailand, including areas where factories that produce parts for the Mac computer line. Some of those factories have been shut down, and Apple is now looking into what impact that may have on its computer production timeline.

"Our hearts go out to all of the people in Thailand who have experienced these devastating losses of life and property as a result of the monsoons and the flooding," Apple CEO Tim Cook said during the company's fourth fiscal quarter earnings call Tuesday afternoon. "There are several factories that are currently not operable and the recovery timeline for these factories is not known at this point."

-- The Nation 2011-10-20

[zakk9]

The Japanese are polite as always, but what really counts is what is being said in board rooms in Tokyo and elsewhere across Japan. I'm quite sure it haven't gone unnoticed that before the industrial estates were flooded, while they got flooded and after the water entered, the key question in this country has been: Will Bangkok be flooded?

Since it may take months to get the factories up and running again, those investors that can, have to increase capacity elsewhere, often in other countries. The big question for Thailand will be if they will replace damaged production equipment in this country. The next big question will be if enough will be done to prevent this from happening again. In a country that has been flooded more or less every year for centuries or longer, it might be an idea to consider something more permanent than sandbags for flood protection.

[Credo]

The Japanese might be more sympathetic after the earthquake and tsunami in Japan.

[zakk9]

The Japanese might be more sympathetic after the earthquake and tsunami in Japan.

Sympathetic maybe, but they don't invest in other countries to experience the same problems as they have at home. The large corporations affected by this will have losses amounting to billions, sometimes tens of billions of Baht. Add to that lost market shares and customer confidence. Nobody in their right mind will expose themselves to that if it can be avoided.

[wintermute]

The Japanese might be more sympathetic after the earthquake and tsunami in Japan.

Charity and sympathy end when corporate losses begin.

[nicky1982]

Totally agree with you could have not said it better myself..

[Credo]

Very true, but what would the cost be of relocating the businesses? Bringing them back to Japan wouldn't be a good idea given the risks of tsunami's and earthquakes (not to mention the shortage of electricity).

Other S.E. Asian countries have experienced similar levels of flooding. Is Vietnam or Cambodia a better option? Does the cost of relocating, rebuilding make sense? What other countries have the infrastructure for some of these businesses?

[EyesWideOpen]

I suspect that the Japanese companies will lick their wounds from this devastation and continue on. Easier to repair than to relocate. But if Thailand wishes to have additional investment by foreign companies in the future, THEY MUST come up with an actual working flood plan so this will not occur in the future. If there is hand wringing this year , and then the government's money is spent on useless submarines and fighters, and then more floods occur next year, you can kiss foreign investment good bye.......

[xthAi76s]

Very true, but what would the cost be of relocating the businesses? Bringing them back to Japan wouldn't be a good idea given the risks of tsunami's and earthquakes (not to mention the shortage of electricity).

Other S.E. Asian countries have experienced similar levels of flooding. Is Vietnam or Cambodia a better option? Does the cost of relocating, rebuilding make sense? What other countries have the infrastructure for some of these businesses?

I think what would worry these companies more than the risk management of natural disasters would be the logistics and management of the disaster by the government. There are no manufacturing countries in Asia where natural disasters are unlikely, but there are countries that seem to handle crisis better or worse. China (for all its flaws) comes to mind.

[zakk9]

Very true, but what would the cost be of relocating the businesses? Bringing them back to Japan wouldn't be a good idea given the risks of tsunami's and earthquakes (not to mention the shortage of electricity).

Other S.E. Asian countries have experienced similar levels of flooding. Is Vietnam or Cambodia a better option? Does the cost of relocating, rebuilding make sense? What other countries have the infrastructure for some of these businesses?

Training of production workers is probably the highest cost. Machinery can be moved, and if some of it has to be replaced because of water damage, the decision is even easier. Western Digital is already well established in Malaysia, and is probably increasing capacity there as fast as they can. Seagate, although not affected as seriously (yet) are also in Malaysia. Nikon has just moved some production from Sendai in Japan (which was heavily affected by the earthquake) to Malaysia. See a pattern here?

Vietnam is obviously an alternative too, as is Indonesia. The Japanese is building a huge industrial estate across the river from HCMC. As I understand it, they have the land for free for a certain number of years and pay for infrastructure in exchange. Cambodia will be an alternative for some, but it's a small country with limited resources. And don't count out Myanmar in five years or so. Things are happening fast there now, and industrialists are already queuing up for the party.

What all these countries have in common are functional education systems and relatively good English knowledge among large groups of the population (possible exception is Cambodia, but that's changing fast as well), while none of them have higher labour costs than Thailand.

To sum it up: This flood was rather untimely for Thailand.

[zakk9]

Very true, but what would the cost be of relocating the businesses? Bringing them back to Japan wouldn't be a good idea given the risks of tsunami's and earthquakes (not to mention the shortage of electricity).

Other S.E. Asian countries have experienced similar levels of flooding. Is Vietnam or Cambodia a better option? Does the cost of relocating, rebuilding make sense? What other countries have the infrastructure for some of these businesses?

I think what would worry these companies more than the risk management of natural disasters would be the logistics and management of the disaster by the government. There are no manufacturing countries in Asia where natural disasters are unlikely, but there are countries that seem to handle crisis better or worse. China (for all its flaws) comes to mind.

I agree about the risk management being the biggest obstacle for Thailand right now. Can anybody here guarantee that flood protection will be in place before next season, or will there be a da capo? Unfortunately, the Thai system (whatever that is) is working against the nation in cases like this.

[RedNIvar]

Very true, but what would the cost be of relocating the businesses? Bringing them back to Japan wouldn't be a good idea given the risks of tsunami's and earthquakes (not to mention the shortage of electricity).

Other S.E. Asian countries have experienced similar levels of flooding. Is Vietnam or Cambodia a better option? Does the cost of relocating, rebuilding make sense? What other countries have the infrastructure for some of these businesses?

MALAYSIA. Remember a lot of these companies especially at Rojana, Ji-Tech, Bangpa-in and Navanakorn are completely submerged. A large number of these companies have to build from scratch when the water recedes. That could be anyone's guess. A lot of these companies would most likely pay off their employees and either pull out or relocate else where. If you look at SEA, the two stable (politically and natural disaster) countries are Malaysia and Singapore. Singapore is a little too expensive. Malaysia has the industrial support base.

Edited October 20, 2011 by RedNIvar

[Credo]

Thanks for the replies. The cost for some of these companies might be less in those countries if they have existing factories. They don't have to go through all the legal hassles of locating a new business. They can simply expand.

How do wages and labor conditions compare between Malaysia and Thailand, especially with the 300 baht proposal (which will likely be delayed IMO)?

[passon]

I suspect that the Japanese companies will lick their wounds from this devastation and continue on. Easier to repair than to relocate. But if Thailand wishes to have additional investment by foreign companies in the future, THEY MUST come up with an actual working flood plan so this will not occur in the future. If there is hand wringing this year , and then the government's money is spent on useless submarines and fighters, and then more floods occur next year, you can kiss foreign investment good bye.......

It's extremely hard to lick a wound that is submerged underwater and impossible to continue on if there is no emphasis on flood water mitigation, as you eluded to. These companies will either collect the insurance to repair or replace the equipment that is currently underwater; I believe they will negotiate the replacement cost for all their damaged equipment at wholesale, and make up the difference in retail cost, which they may attempt to collect from the Thai government. A new machine is much more reliable than one that has been submerged underwater for a long period of time, which also allows these firms to relocate, if that is their intention. They will have plenty of time to decide their action plan. Risk management has a lot of tiers initiated into it and it is never a simple process, so there will be a cost ratio analysis of what is best for the bottom line based upon short and long term expectations and realizations. Thailand, as you said will have an opportunity to inject itself into that process and provide their assessment of its failure to control the floodwater and its short and long term approach to towards mitigating future events. Mere words will have a deafening effect on that process, so I suspect, in all things related to business, they will have one chance to make the right impression in order to salvage the damage that has already been done.

[EyesWideOpen]

I suspect that the Japanese companies will lick their wounds from this devastation and continue on. Easier to repair than to relocate. But if Thailand wishes to have additional investment by foreign companies in the future, THEY MUST come up with an actual working flood plan so this will not occur in the future. If there is hand wringing this year , and then the government's money is spent on useless submarines and fighters, and then more floods occur next year, you can kiss foreign investment good bye.......

It's extremely hard to lick a wound that is submerged underwater and impossible to continue on if there is no emphasis on flood water mitigation, as you eluded to. These companies will either collect the insurance to repair or replace the equipment that is currently underwater; I believe they will negotiate the replacement cost for all their damaged equipment at wholesale, and make up the difference in retail cost, which they may attempt to collect from the Thai government. A new machine is much more reliable than one that has been submerged underwater for a long period of time, which also allows these firms to relocate, if that is their intention. They will have plenty of time to decide their action plan. Risk management has a lot of tiers initiated into it and it is never a simple process, so there will be a cost ratio analysis of what is best for the bottom line based upon short and long term expectations and realizations. Thailand, as you said will have an opportunity to inject itself into that process and provide their assessment of its failure to control the floodwater and its short and long term approach to towards mitigating future events. Mere words will have a deafening effect on that process, so I suspect, in all things related to business, they will have one chance to make the right impression in order to salvage the damage that has already been done.

There may also be a bit of a culture clash as well. In Japanese culture an important concept is for people at the top to take responsibility. This is clearly demonstrated by the heads of companies that have committed suicide when their companies made a mistake. I am fairly sure that in the face of massive losses, the Japanese owners will be looking for entities here to take responsibility, and a clear cut plan showing how this will not occur in the future. The wringing of hands , and mumbling about acts of god is not going to cut it.......... Floods CAN be planned for, with political will and financing. Just look at Holland......

[zakk9]

There's also a psychological effect to bear in mind. Those companies exporting consumer electronics have been hit just before the Christmas season. Nikon stated in their press release that they had cameras in stock for about one month, and 90% of their DSLR are (were) being manufactured in Ayuttaya. Sony had a huge launch of a rather revolutionary new model, the NEX 7, less than a month ago. What I've heard now is that production was supposed to be in Ayuttaya as well. If that one misses the boat for Christmas, competitors will probably catch up before they're on track again.

Apart from the monetary losses, seeing competitive advantage turn into dust overnight isn't the best motivation to rebuild for the future in the same location.

[ronz28]

Thailand needs to do what every other place does = dig out some lakes/water reservoirs, build dams and generate hydroelectric power with the dams. Use the chain of lakes to protect Bangkok and the industrial area. Much cheaper than replacing everything after floods, ensures a consistent water supply for farming etc. when there is a drought and provides cheap clean hydroelectric power.

Edited October 20, 2011 by ronz28

[h90]

Thailand needs to do what every other place does = dig out some lakes/water reservoirs, build dams and generate hydroelectric power with the dams. Use the chain of lakes to protect Bangkok and the industrial area. Much cheaper than replacing everything after floods, ensures a consistent water supply for farming etc. when there is a drought and provides cheap clean hydroelectric power.

That won't help, because someone need to ensure that the lakes are empty before the flood starts and full before the water shortage starts.

[DLock]

Do you think the Japanese that had manufacturing plants in the Tsunami affected areas of Japan will risk rebuilding there again? I don't. They will relocate to safer areas. The Japanese by nature are conservative and logical.

That logic would dictate that they will probably consider relocating Thai plants to elsewhere in Thailand or potentially elsewhere in the region, given the major expense in fixing or replacing machinery and factories.

No doubt the Thai Government will send a group of smiling delegates to Japan to assure the Japanese companies that they are building water management infrastructure to cope with floods should they ever happen again.

But I also suspect that they may be beaten to Tokyo by delegates of Malaysia, Vietnam and possibly Singapore with tax incentives and proven infrastructure to appease the Japanese.

I wonder when Thaksin's next visit is scheduled for Japan? I don't think a case of Johnny Walker and a night of karaoke is going to fix this one.

[xthAi76s]

There's also a psychological effect to bear in mind. Those companies exporting consumer electronics have been hit just before the Christmas season. Nikon stated in their press release that they had cameras in stock for about one month, and 90% of their DSLR are (were) being manufactured in Ayuttaya. Sony had a huge launch of a rather revolutionary new model, the NEX 7, less than a month ago. What I've heard now is that production was supposed to be in Ayuttaya as well. If that one misses the boat for Christmas, competitors will probably catch up before they're on track again.

Apart from the monetary losses, seeing competitive advantage turn into dust overnight isn't the best motivation to rebuild for the future in the same location.

As a non-expert, it's just interesting that if indeed many of those mega industrial estates are built in flood plains, below or at sea level, how is it that they wouldn't build them up higher to protect them somewhat? It's baffling because ostensibly academic knowledge (and even ancient wisdom) has existed about the water situation here for a long time.

Perhaps the cost of engineering in some obvious safeguards (in a country that floods) for such large manufacturing bases was too expensive at the time? For a country turning out a pretty high number of civil/industrial engineers, it just seems odd.

[zakk9]

There's also a psychological effect to bear in mind. Those companies exporting consumer electronics have been hit just before the Christmas season. Nikon stated in their press release that they had cameras in stock for about one month, and 90% of their DSLR are (were) being manufactured in Ayuttaya. Sony had a huge launch of a rather revolutionary new model, the NEX 7, less than a month ago. What I've heard now is that production was supposed to be in Ayuttaya as well. If that one misses the boat for Christmas, competitors will probably catch up before they're on track again.

Apart from the monetary losses, seeing competitive advantage turn into dust overnight isn't the best motivation to rebuild for the future in the same location.

As a non-expert, it's just interesting that if indeed many of those mega industrial estates are built in flood plains, below or at sea level, how is it that they wouldn't build them up higher to protect them somewhat? It's baffling because ostensibly academic knowledge (and even ancient wisdom) has existed about the water situation here for a long time.

Perhaps the cost of engineering in some obvious safeguards (in a country that floods) for such large manufacturing bases was too expensive at the time? For a country turning out a pretty high number of civil/industrial engineers, it just seems odd.

Yes it's baffling, and yes, even ancient wisdom has existed about this, not least in Thailand, for centuries. Unfortunately, at some point in time, that wisdom seems to have gone down the drain (or the river).

[zakk9]

Thailand needs to do what every other place does = dig out some lakes/water reservoirs, build dams and generate hydroelectric power with the dams. Use the chain of lakes to protect Bangkok and the industrial area. Much cheaper than replacing everything after floods, ensures a consistent water supply for farming etc. when there is a drought and provides cheap clean hydroelectric power.

That won't help, because someone need to ensure that the lakes are empty before the flood starts and full before the water shortage starts.

They need to build a a huge canal, probably the size of the Chao Praya River, starting somewhere around Nakhon Sawan. Logically, it should go west of Bangkok and end at the coast in Samut Sakhon. During dry season, it could be used as a motorway, offering a faster road between north and south.

In most countries, land for this use would be expropriated at sensible prices. Here, if something like that should ever happen, the land will first be bought cheaply by cousins etc. of those in power, then resold to the state for ten times the price. Am I too pessimistic now?

[beppi]

Thanks for the replies. The cost for some of these companies might be less in those countries if they have existing factories. They don't have to go through all the legal hassles of locating a new business. They can simply expand.

How do wages and labor conditions compare between Malaysia and Thailand, especially with the 300 baht proposal (which will likely be delayed IMO)?

I am an expert on this and have advised one of the biggest companies now submerged on investment decisions in the past year (the relationship ended a few months ago when they decided not to diversify into Malaysia ...).

In Malaysia, cost is slightly (10-30%) higher for unskilled labour. This comes with the caveat that almost all of them need to be "imported" from Indonesia and services like travel, housing must be provided. On the upside, foreign workers are less likely to abscond (manufacturing operators in Thailand have a turnover rate of up to 50% per year!).

Cost of skilled labour (e.g. technicians) is comparable to Thailand. University graduates (fresh) get slightly more in Malaysia, but experienced engineers (5 years) there earn HALF of what you have to pay them in Thailand. (This of course fits the Thai elite, but ensures any operation that requires more brains than hands will go to Malaysia instead.)

Everything else (land, construction, services, locally sourced materials, etc.) costs substantially more in Malayisa, but this is offset by generous government grants and tax breaks, favourable investment climate, better infrastructure and a fast and efficient administration (minimum buerocracy and negligible corruption).

My personal choice (for high-tech manufacturing companies) was clear even before the floods.

Edited October 20, 2011 by beppi

[wintermute]

Everything else (land, construction, services, locally sourced materials, etc.) costs substantially more in Malayisa, but this is offset by generous government grants and tax breaks, favourable investment climate, better infrastructure and a fast and efficient administration (minimum buerocracy and negligible corruption).

My personal choice (for high-tech manufacturing companies) was clear even before the floods.

If Malaysia wasn't so intent on becoming a SEA islamic wonderland with backwards laws and politics then it would probably be on par with at least Singapore in development.

[ronz28]

Thailand needs to do what every other place does = dig out some lakes/water reservoirs, build dams and generate hydroelectric power with the dams. Use the chain of lakes to protect Bangkok and the industrial area. Much cheaper than replacing everything after floods, ensures a consistent water supply for farming etc. when there is a drought and provides cheap clean hydroelectric power.

That won't help, because someone need to ensure that the lakes are empty before the flood starts and full before the water shortage starts.

Yes, in my area there is a government river district that has the responsibility and authority to monitor the lake levels, controls the release of water from the dams for the production of hydroelectric power and flood control, and cuts off water to certain farmlands during extreme droughts to ensure adequate water supply for cities. All the cities have input but they must comply with the overall decisions made by the river authority for the overall good of the population of all those areas protected by the river flood control district. Prior to the flood control project and man-made lakes there was severe flooding in cities but now its unusual and minor when it happens. Thailand just needs whatever flood control projects will work for it.

Edited October 20, 2011 by ronz28