Sanyo Shuts Down Its Production Facilities In Thailand

[webfact]

SEMICONDUCTOR OUTPUT

Sanyo shutters Thai shop

Nalin Viboonchart

The Nation

Sanyo Semiconductor has decided to abandon its main production facilities in Thailand because of the recent flooding, which badly damaged its machinery and operations. The company is the first few foreign manufacturer since the disaster to announce an end to most production in the Kingdom.

The company says it will lay off about 1,600 workers and close its plant in Rojana Industrial Park permanently, said Somboon Hotrakul, director of the Electrical and Electronics Institute. However, he noted, there is currently a labour shortage in this industry.

Sanyo Semiconductor (Thailand), which has operated since 1990 producing semiconductors, transistors and large-scale integrated circuits, will close the flood-ravaged factory on December 25.

The company decided that since it would have to spend a lot of money repairing or replacing the damaged machinery, it would shut down the Rojana plant, though it "plans to maintain limited production at its Bang Pa-in site", according to its website.

Impact on supply chain

Sanyo Semiconductor (Thailand) is a business unit of US-based ON Semiconductor Corporation. The disruption at Ayutthaya's Rojana Industrial Park had an impact on the supply chain of ON Semiconductor worldwide.

The Rojana operations are estimated to have produced about 5-10 per cent of ON Semiconductor's worldwide output as measured by revenue of US$905.8 million (Bt27.92 billion) for the second quarter of this year.

"It has been determined that given the severity of the flood damage to the production facilities ON Semiconductor operates in Thailand, and the excessive cost required to recover and reconstruct these facilities, it is not financially viable for us to fully restart our probe, assembly and test operations in Thailand for an indefinite period, if at all," the company said.

"The bulk of the company's Thailand operations will be permanently transferred to other existing ON Semiconductor facilities that have available production equipment capacity and excess floor space, and to some external subcontractors as appropriate," it said.

Somboon said the Sanyo Semiconductor case had confirmed the institute's concern that some electronics companies would leave Thailand because of the damage they sustained from flooding.

The Electrical and Electronics Institute is keeping an eye on whether other electronics plants decide to close and flee Thailand because of the disaster.

The shutdown of the Sanyo factory will not affect the supply chain in the Thai electronics industry as most of its products are exported, he said.

The Sanyo decision follows that of Maxon Systems, a South Korean electronics firm, which recently decided to move one of its operations to Cambodia to avoid the planned rise in the Thai minimum wage to Bt300 per day in April, as well as uncertainty over future floods.

Somboon noted that Japanese electronics firms had faced two major problems this year, the tsunami in their own country in March and then the inundation in Thailand. These problems affected their operational results, so it is possible some of them will close their enterprises.

He said it was not clear whether other electronics companies would close their operations, as some of them were still evaluating the damage from the floods.

"It is expected to be a month or two before we see the clear picture. I believe that electronics companies are evaluating the damage, so the result [of that assessment] should come soon," he said.

Somboon added that the Thai electronics industry employed 500,000-600,000 workers. Because of its labour-intensive nature, it faces a shortage of 50,000-60,000 workers.

The institute will follow whether the shutdown of some plants affects the labour shortfall for the industry as a whole.

The company said on its website: "We have begun the process of communicating this difficult news to approximately 1,600 of our Thailand manufacturing employees."

-- The Nation 2011-12-10

[webfact]

Sanyo Semiconductor closing Ayutthaya factory

BANGKOK, Dec 10 - Sanyo Semiconductor (Thailand) announced Friday that it would close its factory in Ayutthaya, north of Bangkok, after the facility was severely damaged in the recent flooding, to shift its production line to other factories in the country.

In the statement, Sanyo Semiconductor said the flood caused extensive damage to the factory which was the operations unit of ON Semiconductor Corporation.

The operation’s shutdown has affected the semiconductor supply chain worldwide.

The company occupies approximately 160,000 square feet of production space and employs some 2,000 people at its Rojana Industrial Park factory.

ON Semiconductor’s Sanyo Semiconductor division currently operates wafer probe, assembly and test operations in Rojana Industrial Park.

Prolonged flooding of Rojana Industrial Park caused so much damage to the company's machinery and buildings and the rehabilitation cost would be too high, and was considered not economically viable.

The company said that it would be costly to restart the production line in Thailand so that the firm has decided to stop its operation at the factory in Ayutthaya.

Most of the workers' contract will end Dec 25 but some would be hired to retrieve machinery and equipment, and clean up the factory site before permanently closing, but the company plans to maintain a limited production line at its Bang Pa-in Industrial Estate in Ayutthaya.

The company occupies about 8,000 square feet of production space at its Bang Pa operation, employing approximately 150 people at this site.

The floods during October and November inundated seven industrial estates and parks in Ayutthaya and Pathum Thani, forcing hundreds of factories in the computer, electrical appliances and automotive industries to stop operating.

Although most estates and parks have resumed operations, the closures have interrupted global supply chains and are expected to impact computer sales next year. (MCOT online news)

-- TNA 2011-12-10

[haveaniceday]

Somboon added that the Thai electronics industry employed 500,000-600,000 workers. Because of its labour-intensive nature, it faces a shortage of 50,000-60,000 workers.

This supriseses me, I have meet many people claiming in that area that pre the "floods" that electronic factories were not hiring, laying off. Whats the truth?

[chooka]

I thought to operate a business in Thailand you had to hand over 51% of the controlling interest to Thai's. How can they simply shut up shop when they don't have control of the company. I was going to set a small business in Thailand but I wasn't going to use all my money and then give 51% away just didn't seem like good business sense to me.

[whybother]

I thought to operate a business in Thailand you had to hand over 51% of the controlling interest to Thai's. How can they simply shut up shop when they don't have control of the company. I was going to set a small business in Thailand but I wasn't going to use all my money and then give 51% away just didn't seem like good business sense to me.

As a BOI company or US Treaty of Amity company you can own more than 49%.

[LuckyLew]

I am surprised more large companies have not decided to do the same

IMO it is quite clear that the is no plan in place for corrective action to ensure

that flooding does not happen again

For so many companies to put yp with the issues in Thailand, the labor must

come very cheap or they must be getting a lot of business benefits.

[Tropicalevo]

This will be the first of many.

Higher wages, political instability, mass demonstrations, corruption, etc etc. It all adds up. Before the floods, it was too expensive to leave. Now it is too expensive to start again.

Edited December 10, 2011 by Tropicalevo

[Payboy]

Is it so much easier and cheaper to set up in Vietnam and still be able to spend the occasional weekend in Thaniya?

[jalansanitwong]

Most Japanese companies will stay because of the golf courses and girlie clubs. Why do you think they came here to start with ??????

[maidu]

Hello Sanyo execs, you could have paid me a million dollars to give advice earlier on. It would have been the smartest million dollars you ever spent. I would have advised you build your factory on higher ground, away from flood plains. P.S. I'm still for hire.

[JurgenG]

Somboon added that the Thai electronics industry employed 500,000-600,000 workers. Because of its labour-intensive nature, it faces a shortage of 50,000-60,000 workers.

This supriseses me, I have meet many people claiming in that area that pre the "floods" that electronic factories were not hiring, laying off. Whats the truth?

The truth is what you want to believe.

"The bulk of the company's Thailand operations will be permanently transferred to other existing ON Semiconductor facilities that have available production equipment capacity and excess floor space, and to some external subcontractors as appropriate," it (Sanyo) said.

They have excess production capacity, they have to cut down somewhere. Flood makes the choice easier but should not been seen as the primary reason of the factory shut down.

Crisis are always a good time to get rid of unwanted people and close unproductive site. Firing people is never popular. A crisis, here the flood, makes the perfect scapegoat.

[janverbeem]

Somboon added that the Thai electronics industry employed 500,000-600,000 workers. Because of its labour-intensive nature, it faces a shortage of 50,000-60,000 workers.

Anyone surprised about that?

[ronz28]

I hope they haven't left a polluted mess. Semiconductor production may have very toxic hazardous waste that might be cheaper for them to abandon but Thai government should require cleanup.

[Payboy]

I hope they haven't left a polluted mess. Semiconductor production may have very toxic hazardous waste that might be cheaper for them to abandon but Thai government should require cleanup.

Nothing that a few EM balls cannot solve.

[silverhawk_usa]

I hope they haven't left a polluted mess. Semiconductor production may have very toxic hazardous waste that might be cheaper for them to abandon but Thai government should require cleanup.

This is an astute observation, and clearly could be a large problem as other companies choose to pack up and leave. This is something that the government certainly should be prepared to address. (Yeah, like that will ever happen......)

[x5david]

<br /><font color="#1C2837"><font size="2"><i>Somboon added that the Thai electronics industry employed 500,000-600,000 workers. Because of its labour-intensive nature, it faces a shortage of 50,000-60,000 workers.</i></font></font><br /><font color="#1C2837"><font size="2"><br /></font></font><br /><font color="#1c2837"><font size="2">This supriseses me, I have meet many people claiming in that area that pre the "floods" that electronic factories were not hiring, laying off.  Whats the truth?</font></font><br />

<br /><br /><br />

The truth is anything except what comes out of a Thai person's mouth...always making it look good for Thailand, never state the real situation...

[maidu]

Proper clean up - while departing a toxic site. Are you kidding?

Reminds me of my little village here in northern Thailand. The pu yai ban requested a Bt.2,000 deposit for the truckers who were taking clay out of a hill for filling rice fields elsewhere. The money was supposed to ensure they'd fix the road after they had left. When the trucks had taken their fill (pun intended) and had thoroughly trashed the tarmac on the access road, they left without fixing the road (surprise!). The deposit was so ridiculously low, that it was easy to walk away from it, and leave the road destroyed.

[x5david]

<br />

<br />I hope they haven't left a polluted mess.  Semiconductor production may have very toxic hazardous waste that might be cheaper for them to abandon but Thai government should require cleanup.<br />

<br /><br />This is an astute observation, and clearly could be a large problem as other companies choose to pack up and leave.  This is something that the government certainly should be prepared to address.  (Yeah, like that will ever happen......)<br />

<br /><br /><br />

Not to worry, since a foreign company is involved you can bet they will wring every last dollar for clean-up, payoffs for leaving, etc etc. Just wish Thai companies were held to the same standard...

[x5david]

<br />Hello Sanyo execs,  you could have paid me a million dollars to give advice earlier on. It would have been the smartest million dollars you ever spent.  I would have advised you build your factory on higher ground, away from flood plains.   P.S.  I'm still for hire.<br />

<br /><br /><br />

Or in another country altogether...one with a better educated workforce and incentives to want to be here...

[virtualtraveller]

If there's a shortage of labour then there should be no need to raise the minimum wage, market forces would take care of that, and if you can't make (or sell) semi-conductors (needing at least some decree of skill) using labour that costs as little as 300 baht a day then you should perhaps quit.

[xthAi76s]

I hope they haven't left a polluted mess. Semiconductor production may have very toxic hazardous waste that might be cheaper for them to abandon but Thai government should require cleanup.

They are Japanese. Of course the company will take care of this kind of matter. The Thai government wouldn't probably care one way or another, though. It seems you have your understanding reversed.

[EyesWideOpen]

I thought to operate a business in Thailand you had to hand over 51% of the controlling interest to Thai's. How can they simply shut up shop when they don't have control of the company. I was going to set a small business in Thailand but I wasn't going to use all my money and then give 51% away just didn't seem like good business sense to me.

Not really sure how the large companies work out the corporate structure, but I do know that Honda, Sanyo, and others are NOT turning over 51 % of their business to a group of corrupt Thai "businessmen"........I think that only applies to small business owners that get screwed over by their Thai partners.

Regarding leaving, I think the companies were willing to put up with corruption and political instability. Apparently flooding and higher wages are the straw that broke the camel's back. I suspect many other companies are going to leave as well. The 300 baht minimum hike must have sounded great to the red buffaloes, but when everyone is jobless after being laid off it won't look so good then. The best thing the government could do now is to rescind that hike, and cite changing economic conditions. They are already in office, and have not done nearly all the other things they promised, so should not be a problem......

Regarding Thaniya, Nana Plaza and girls for Japanese businessmen, I suspect that when a bunch of Japanese companies move to Cambodia, that in short order there will be a bar area in PP catering to their business, full of cute Vietnamese girls to service them....... :jap:

[givenall]

Somboon added that the Thai electronics industry employed 500,000-600,000 workers. Because of its labour-intensive nature, it faces a shortage of 50,000-60,000 workers.

This supriseses me, I have meet many people claiming in that area that pre the "floods" that electronic factories were not hiring, laying off. Whats the truth?

Flood is not the biggest reason the raise in minimum wage is. the payroll costis one the biggest reason, the Semiconductor companies open facilities in lowwages country due to low margin. I would not be surprise all electroniccompanies move out d Thailand. Next would be car manufactures, although theymore rely on robots, but labor cost is also their big concern. This is what youget when the present government exchange promises for vote without concernabout the citizens, now unemployed citizens

[h90]

Somboon added that the Thai electronics industry employed 500,000-600,000 workers. Because of its labour-intensive nature, it faces a shortage of 50,000-60,000 workers.

This supriseses me, I have meet many people claiming in that area that pre the "floods" that electronic factories were not hiring, laying off. Whats the truth?

There are also a lot immigrants from Cambodia who got work permits because there is a shortage on labours

[h90]

I hope they haven't left a polluted mess. Semiconductor production may have very toxic hazardous waste that might be cheaper for them to abandon but Thai government should require cleanup.

I think this extra 500.000 Baht to have the official sign that everything is clean doesn't change much.

[h90]

If there's a shortage of labour then there should be no need to raise the minimum wage, market forces would take care of that, and if you can't make (or sell) semi-conductors (needing at least some decree of skill) using labour that costs as little as 300 baht a day then you should perhaps quit.

Don't forget the imported millions of cheap labor (officially with all the documents) from neighbor countries to keep the labor costs low.

Every government did that.

So that 300 Baht minimum wage is just a show for the red buffaloes. Easier would be to reduce cheap foreign labor force and wages will rise automatically and on market demand.

[geriatrickid]

Not to worry, since a foreign company is involved you can bet they will wring every last dollar for clean-up, payoffs for leaving, etc etc. Just wish Thai companies were held to the same standard...

Please provide an example of foreign companies that were targeted. I can't wait for your examples, as you obviously have based your statement on fact right?

[softgeorge]

I thought to operate a business in Thailand you had to hand over 51% of the controlling interest to Thai's. How can they simply shut up shop when they don't have control of the company. I was going to set a small business in Thailand but I wasn't going to use all my money and then give 51% away just didn't seem like good business sense to me.

Not really sure how the large companies work out the corporate structure, but I do know that Honda, Sanyo, and others are NOT turning over 51 % of their business to a group of corrupt Thai "businessmen"........I think that only applies to small business owners that get screwed over by their Thai partners.

Regarding leaving, I think the companies were willing to put up with corruption and political instability. Apparently flooding and higher wages are the straw that broke the camel's back. I suspect many other companies are going to leave as well. The 300 baht minimum hike must have sounded great to the red buffaloes, but when everyone is jobless after being laid off it won't look so good then. The best thing the government could do now is to rescind that hike, and cite changing economic conditions. They are already in office, and have not done nearly all the other things they promised, so should not be a problem......

Regarding Thaniya, Nana Plaza and girls for Japanese businessmen, I suspect that when a bunch of Japanese companies move to Cambodia, that in short order there will be a bar area in PP catering to their business, full of cute Vietnamese girls to service them....... :jap:

I was actually under the same impression. Farangs and foreign companies set up businesses in Thailand, they contribute 100% of the costs and finacial backing and thai's own 51% of the interests and control the companies/businesses. I always wondered why farangs invest thier retirement funds in small businesses (bars etc) in Thailand when they will never actually own them and only be the minor stakeholder. Excellent business risk for the thai's, they contribute 0% make a great profit if the business suceeds and loose nothing if it collapses.

[Thaddeus]

Some interesting facts about Sanyo on this site.

http://factsanddetails.com/japan.php?itemid=920&catid=24&subcatid=157

It's too early to say but what are the knock on effects of this news, what are the companies who manufacture consumer products using components made by Sanyo going to do?

[Caliguy]

If you're American, you can own 100% of the company here in Thailand.

"The Thailand Treaty of Amity permits American companies to hold majority of the shares or the whole company, branch office or representative office located in Thailand.

American companies may engage in business on the same basis as Thai companies, and are exempt from most of the restrictions of foreign investment imposed by the Alien Business Law of 1972."

http://www.siam-legal.com/Business-in-Thailand/US-Thai%20Amity.php

Don't be jelly!