Sanyo Shuts Down Its Production Facilities In Thailand

[drdoom6996]

Quick question....the minimum wage hike...how much of a hike was that as a percentage?

It does not seem like much if you just say the workers will get an extra $1.50 per day. But if the hike as a percentage is substantial it could have a serious impact on a business. A 25% hike in Labour Cost would be substantial.

A 25% increase in the cost of Labor to this country only means 2 things to me. Unemployment and Inflation.

[marquess]

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

My deepest sympathies to workers who will lose their jobs, another fine mess Teera and Banharn have gotten innocent Thais into, all because they wanted to save a third rice crop!

[Japhrodisiac]

Insurers are going to make a lot of these calls for the companies, without an adequate plan to prevent future flooding the insurance companies will not want to take the risk and either not provide coverage, or insist that the manufacturers find a better long term location. It's these types of cases that Thailand's consistent failure to address problems will come back to bite them.

[puipuitom]

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.

Hahaha, in Thailand ? Hand full of small papers, locally known as Thai Baht, and the field is declared as clean as a virgin jungle...

Bye-the-way: most is already flushed away. That's why so many have allergic reactions after going through the flood waters. Who cares ? All will be washed away in the sea.... and the fish will acumilate it in their bodies.. so will end upin people eating seafood. A few more who die of cancer in Thailand, nobody will notice that.

Amazing, you need a miricle to solve this !

[ozzieman05]

Thai wife is confused

How can new Government make Issan people rich as promised in 6 months

Thats easy I reply

Close all the factories or any thing else that employs Thais

Then they have less money than Issan people

Conclusion Issan people now rich compared to other who now have no jobs

[Just1Voice]

When I first read the article this morning, my first thought was - "Not surprised", and as others have pointed out, Sanyo and Maxim are just the first. More than likely there will be others following not far behind.

Some have mentioned corruption, both here and other Asian countries. While that's true to an extent, it would seem it doesn't quite reach to Singapore. A few months ago a major IT company was considering opening a new facility in S.E. Asia, and had narrowed the list down to 2 countries: Thailand and Singapore. They finally settled on Singapore. In an interview the owner of the company was asked why he chose Singapore over Thailand. He stated two major reasons.

First, he said he wasn't about to pay 30% of his start up costs as bribes to corrupt officials.

Second, his company deals with international clients, most of whom speak English, and he stated that while Singaporeans learn English as a second language in school, in Thailand he couldn't find enough educated, English speaking people to fill even ONE of their many offices of the new facility.

When the reporter pointed out that the cost of labor in Singapore was much higher, the man stated that a higher waged, educated, English speaking labor force was actually cheaper in the long run, as having a lower waged, less educated, non English speaking labor force would lose business for him.

This is just one of the multitude of problems staring Thailand in the face, and over the next few years it's going to get a lot uglier.

[atyclb]

<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...

I don't think they will hassle a Japanese company due to the ripple effect.

[TAWP]

The point was who is in charge? Who are the Thai directors, why are they always a secret? Why isn't the reporter talking to them? Wake up and read the point correctly.

The point is that in a BOI company you don't need any Thai directors.

The bigger the multi-nation company is, the easier to get approved. So don't expect to get approved or to not have 'mechanical resistance' when applying for VISA's for your foreign staff even as a BOI. They will still huff and puff and complain some...

[GOLDBUGGY]

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.

Most Farangs that I know who own small businesses, like bars, are married to Thai Women, and the bar is in there name. So it is not like pulling some Thai off the street and giving him 51% for doing nothing, as you imply. In many cases it is the opposite, but not all cases, where the Farang sits around drinking up the profits and his Thai Wife works hard trying to make ends meet. One reason I guess for such a high failure rate in this business. But even if you own 49% I understand that many can not get a work permit even in there own bar. So that may be part of it to.

[Japhrodisiac]

When I first read the article this morning, my first thought was - "Not surprised", and as others have pointed out, Sanyo and Maxim are just the first. More than likely there will be others following not far behind.

Some have mentioned corruption, both here and other Asian countries. While that's true to an extent, it would seem it doesn't quite reach to Singapore. A few months ago a major IT company was considering opening a new facility in S.E. Asia, and had narrowed the list down to 2 countries: Thailand and Singapore. They finally settled on Singapore. In an interview the owner of the company was asked why he chose Singapore over Thailand. He stated two major reasons.

First, he said he wasn't about to pay 30% of his start up costs as bribes to corrupt officials.

Second, his company deals with international clients, most of whom speak English, and he stated that while Singaporeans learn English as a second language in school, in Thailand he couldn't find enough educated, English speaking people to fill even ONE of their many offices of the new facility.

When the reporter pointed out that the cost of labor in Singapore was much higher, the man stated that a higher waged, educated, English speaking labor force was actually cheaper in the long run, as having a lower waged, less educated, non English speaking labor force would lose business for him.

This is just one of the multitude of problems staring Thailand in the face, and over the next few years it's going to get a lot uglier.

Add to that the fact that Singapore offers very favourable taxes rates and a tax free period for start ups, Thailand's revolving door of inadequate workers and relatively high taxes make things very costly in the long run.

[Phatcharanan]

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

Errrrrrrr cheap labour? The location of the seaports and airports?

You think major businesses locate because of 'girlie bars'?

What are you.........like 10 years old?

[newermonkey]

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.

No the 51% does not apply when they are doing business under the BOI, the company can stay 100% foreign owned.

[animatic]

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%.

And if the external branches of the company stop sending raw materials

or buying new machinery or placing Just In Time Orders from other parts of the supply chain,

these 51% thai investor shills have little choice but to bite the bullet and croak.

It also may be a valid excuse to get out of dealing with these locals,

and continued risk here during a world econo-down-turn.

If the systems as a whole says stuff it, what are they going to do with a bunch of destroyed machines??

This may be the tip of the iceburg.

Edited December 10, 2011 by animatic

[rakman]

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.

Hey, it was that polluted flood that made the mess. The semi-conductor factory was clean and pristine before the flood.. Thai government should pay them for damages. Hope they had flood insurance..

[elgato]

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.

It all went downstream

[diago]

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."

--------

Last I heard the Treaty of Amity expired quite some time ago and had not been renewed. Rumor had it that it was still unofficially being honored if you would like to put your trust in that. :-)

Later...

Don

[Thaddeus]

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."

--------

Last I heard the Treaty of Amity expired quite some time ago and had not been renewed. Rumor had it that it was still unofficially being honored if you would like to put your trust in that. :-)

Later...

Don

Thank you for that input.... the reality is that the treaty of amity is not in question here, especially because Sanyo is not an American company, just in case that had escaped anyone's attention.

The treaty of amity has always been over-shadowed by the treaty of greasing palms.

This situation has arisen because of too many palms and not enough grease.

[noitom]

Good question!! There is a residual fallout in the supply chain, distributors, suppliers, shippers..etc. Somboon from the institute also mentions Maxon. How many others does he know about that he is not saying? Why is Somboon, from the Electronics Institute, the only one the reporter is talking to? What about the Thai director who supposedly took out the 51%? Where is he/she? The reporter should be tracking him/her down for comments on the situation? What about seeking out any of the other Thai 51% partners in other companies? When will we hear about any of them? Secrecy, opaque operations.

Foreign companies set up under the Board of investment (BOI) are exempt from the rules restricting foreign ownership, depending on location and business type. Bang goes your little secrecy conspiracy.

The point was who is in charge? Who are the Thai directors, why are they always a secret? Why isn't the reporter talking to them? Wake up and read the point correctly.

You don't have a point. There is no requirement for 51% Thai ownership under BOI rules, therefore there is no need for Thai directors.

Are you trying to make the point that all those Japanese and foreign manufacturers in industrial parks do not have Thai directors? In other words the entire management structure and senior board level voting has no Thai presence? I don't know what you are eating for breakfast pal, but you should think about putting something different in your coffee.

[marjanjukic]

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

you are a wise Payboy

[LeeKat]

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

Sanyo is obviously not a big player here in semiconducter land, the most vulnerable in the business are always the first one to go

[PlastikbinLina]

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......)

I agree. In the interests of the Thai workers at Sanyo the government should offer to find a more suitable location for Sanyo and consider making a financial contribution especially as the number of famlies affected by the layoffs is significant. One thousand six hundred families will now be wondering where they can get work after 25 December. But perhaps there would be a knock on affect if they did offer to help Sanyo. How many other flood affected companies would be looking for the same deal?

[Thaddeus]

One thousand six hundred families will now be wondering where they can get work after 25 December.

Japan for some of them.

http://mdn.mainichi.jp/mdnnews/news/20111209p2a00m0na013000c.html

[dighambara]

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%.

HMMM - A while back, many European friends complained of America's special 'Treaty of Amity'. At the time, I investigated, even asking questions at the Embassy. The original treaty and all it's successors have long been dead.

SIDE NOTE:

Per the treaties of Amity, US Citizens were to be treated as Thai Citizens - NO VISA REQUIREMENT, NO PARTNERSHIP REQUIREMENT - COULD BUY LAND. I have been in and out of Thailand for over 45 years and a VISA was always required, although in the 1960's, I was told I could buy land.

So, I have long thought those Treaties had expired.

Edited December 11, 2011 by dighambara

[inkorat]

So people more clearly understand their options.

1. The law only restricts 100% ownership for certain categories of business here in Thailand (which happens to be most of them). Almost any business that is primarially for export can be owned 100% by a foreigner with no Thai partners (BOI approval helps). Some business categories are restricted and/or require a minimum registered capital, some do not. To get a work permit, you would need a minimum registered capital of 2 - 3 million Baht, or if you have a Thai wife and its a family business, they may agree to a lower amount.

2. You will need a minimum of 1 Director in a limited company and he/she could be a foreigner, but if it is a foreigner, he or she will need a work permit. There is no requirement for a Thai Director, but with the language and culture problems, many people have them. I have done it both ways in many countries in Asia and Thailand. Another Note: If you resign as a Director of a Thai company, you could still be liable for lidigation for two additional years.

3. The Treaty of Amity with the U.S.A. is still in effect and you do not need to be a big company. There was talk of ending this several years ago, which requires one of the parties to give the other party a 1 year notification, but to my knowledge, no one has given a notification yet. You can get more information on setting up a company with the treaty on the U.S. Embassy web site.

[inkorat]

An additional Note:

Under the Treaty of Amity you can not own land or operate some types of businesses, but the the list is not very long. Best to read it.

[DLock]

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

Sanyo is obviously not a big player here in semiconducter land, the most vulnerable in the business are always the first one to go

I do enjoy well thought out, constructive and argued points of view.

Unfortunately these 2 are neither.

[Arkady]

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%.

HMMM - A while back, many European friends complained of America's special 'Treaty of Amity'. At the time, I investigated, even asking questions at the Embassy. The original treaty and all it's successors have long been dead.

SIDE NOTE:

Per the treaties of Amity, US Citizens were to be treated as Thai Citizens - NO VISA REQUIREMENT, NO PARTNERSHIP REQUIREMENT - COULD BUY LAND. I have been in and out of Thailand for over 45 years and a VISA was always required, although in the 1960's, I was told I could buy land.

So, I have long thought those Treaties had expired.

The Thai-US Treaty of Amity and Economic Relations is still in force. Under its terms it can be terminated by either party giving 12 months' notice as per Article XIV, 4. Otherwise it remains in force and there is no need to renew it annually, in spite of what many ignoramuses who have never bothered to read it will happily tell you. The problem that Europeans and other non-US foreigners have with the treaty is that maintaining the treaty is in breach of other treaty obligations of both Thailand and the US to the WTO under the GATS agreement on services. WTO members were prohibited from extending Most Favoured Nation status to other WTO members after 2002. The WTO naively assumed when GATS was signed in 1992 that Thailand would solve this by giving all WTO members the same privileges as the US has under the treaty and/or scrapping the obnoxious Foreign Business Act completely. Unfortunately by 2002 GATS had already fallen by the wayside and Thailand had in 1999 promulgated an even more obnoxious version of the FBA. Strongly encouraged by the US WTO members ignored the GATS agreement wholesale by negotiating bilateral FTAs instead. There was a point when it seemed that Thailand might ditch the Amity Treaty in favour of an FTA with the US but the FTA never got done and both parties to the treaty prefer to maintain the status quo.

For those who are interested in this important topic, I have attached the English version of the 1966 treaty with the 2002 Commerce Ministry regulations relative to registration of treaty businesses in Thailand which I believe are still in force.

There is some confusion with the Treaty of Amity and Economic Relations and the various treaties, referred to in Section 86 of the Land Code, that Thailand had with Western countries and I think Japan that allowed foreigners to own limited quantities of land. I believe the last of these treaties expired soon after the current Land Code was promulgated in 1954 and none were renewed after that. Until the late 80s there were still some foreign businesses that owned land grandfathered under the treaties, e.g. HSBC, Standard Chartered Bank, Diethelm. The only remaining example I can think of of a foreign entity other than an embassy still owning land under a treaty referred to in Section 86 of the Land Code is the British Club's 10 rai in Silom/Surawong Roads. I think that the embassies that still own land, such as the British Embassy, hold it under separate treaties to do with diplomatic relations.

Treaty of Amity - Thailand US, 1966.docx

Edited December 11, 2011 by Arkady

[Arkady]

An additional Note:

Under the Treaty of Amity you can not own land or operate some types of businesses, but the the list is not very long. Best to read it.

The list is not very long but includes logistics, domestic transportation and financial services. The latter was the sticking point in the negotiations of the US Thai FTA in 2005. The US wanted their banks to be able open up shop in Thailand by simply registering with the Bank of Thailand, which would have had no say in the matter, if they met the pre-agreed criteria. Thaksin, to his credit in my opinion, wanted to go ahead with this but couldn't get it past his own cabinet. The negotiations were still on a back burner when he got booted in 2006. The US couldn't negotiated with a military installed government and then the presidential authority to approve an FTA without going back to Congress expired.

[Arkady]

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 think you have pretty much nailed it there. They are definitely not interested in having their businesses majority owned and controlled by a bunch useless Thai Chinese parasites. A lot have BOI privileges that allow 100% ownership which is also allowed for the 100% export businesses even without BOI. Others have got permission under the FBA for majority foreign ownership which is easier to get for manufacturers than service businesses. After the 1997 financial crisis permission was given virtually wholesale, since the Japanese were able to argue they needed to increase capital to expand and the Thai Chinese partners had largely over extended themselves with US dollar loans and property businesses. So they got diluted away or bought out. The Germans used the same mechanism to get rid of unwanted partners in BMW and Mercedes too leading to acrimonious law suits as the Thai Chinese screamed blue murder about foreigners taking Thailand away from the Thais.

Anyway back to your main point, the foreign ownership is no longer an issue. The problem is underlying lack of competitiveness that has been steadily eroded in Thailand over the last 20 years. No administration wants to invest in education as they know the masses won't swallow their lies any more, if they get a decent education. Thus Thais are left with crap teachers teaching crap syllabuses in crap schools and foreign investors who want to move beyond low value added assembly line work can't find the skilled labour to do it. Meanwhile, the floods and the new minimum wage that will cause inflation all the way up the salary scale is the last straw for some assembly line manufacturers. In addition to Cambodia, Burma will be very happy to mimic Thailand's golf and girls business model to attract manufacturing.

They can't find the skilled labour here, but will find it in brain drained Cambodia and Burma ?

The useless Thai-Chinese who went from mainly being the countries poor immigrants to the countries rich ?

The point you have missed is that foreign investors in Thailand are largely doing relatively low value added assembly work in Thailand which now has a shortage of labour and labour costs are being sharply hiked. Given sufficient infrastructure, which is not there yet, it will make sense for these businesses to relocate to Burma where there is still a plentiful supply of low value added labour. Meanwhile, Thailand has no plan to replace these industries with higher value added in the way that Japan, Korea, Taiwan, Singapore and Malaysia did when their time came because they refuse to educate the workforce for reasons on which I speculate above.

Of course the Thai Chinese jv partners or their forefathers were smart enough to accumulate enough wealth to qualify as jv partners. However, if you are a global brand coming to set up manufacturing in Thailand and you have done this around the world without local partners, what value can the Thai Chinese add? Most of those who tried to make a virtue of necessity by taking on local partners as real partners, rather than nominees have deeply regretted it. I can't think of a single example where that business model has worked out. There must be some and perhaps you will be able to cite a long list of them. I remember being told by Makro what benefit they got from partnering with the huge CP Group and they told me the only benefit was the CP CEO would assign his soothsayer to let them known the auspicious date for opening new branches. Local partners are all no doubt capable businessmen in their own right but Thailand's FBA encouraged damaging rent seeking behaviour by local partners in jvs to the detriment of local consumers and the country's competitiveness.

Edited December 11, 2011 by Arkady

[Orac]

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

you are a wise Payboy

According to their corporate website they are already there in Vietnam along with China and the Philippines.