As Thailand starts to lose its competitiveness in export markets, local businessmen see opportunities in investing overseas.

Thailand is currently ranked 23rd in the international export market with a share of 1.13%, down from 1.16% last year.  As Thailand's competitiveness in world exports stalls and even declines, Thais themselves are exploring investment opportunities abroad.  In 2006, annual overseas investments made by Thai businessmen stood at 35 billion baht, a sharp rise from 9.8 billion baht in 2001.  This is also forcing the Thai government, particularly the Board of Investment (BOI) to go back to the drawing books and look at further improving incentives and in lobbying the government for further modernization of regulations in areas such as employee hiring and retention, further simplification of customs paperwork, etc to maintain and enhance its competitiveness.

It is inevitable that major Thai investors seek to invest in Vietnam to gain advantages from the Hanoi government’s ambitious drive to up the country’s economic growth to 8% annually until 2010.

Recently, a seminar on ‘‘Exports and Overseas Investment’’ by the Export-Import Bank of Thailand was aimed to highlight opportunities in Vietnam, Cambodia, Laos, and Burma.  In May 2007, an important delegation visited Vietnam including a group of Thai investors from 40 well-known companies, including Siam Cement and Sahaviriya Steel Industries, that joined an event sponsored by Amata Corporation Plc to meet high-ranking economic officials in Hanoi.

Why Vietnam:

During the last 15 years, Vietnam’s GDP has grown at 7.5% per year on average. Last year, Vietnam recorded GDP growth of 8.2%, the world’s highest rate after China.

Low Labor Cost: 70% of Vietnam’s 85 million people are under 30 years of age, enabling the country to provide a secure workforce as well as low labor costs to investors on the long term.

Attractive Incentives:  The Vietnamese government had amended various laws covering investment, enterprise, land, and business competition to become more favorable to foreign investors.  For instance, foreign investors may invest in all sectors not specifically prohibited by law, which include telecommunications, newspapers, and retail businesses.

Foreign investors are allowed to acquire 100% shares in private firms.  Vietnam’s investment promotional privileges are very attractive as they offer a corporate tax holiday for 10 years for projects in promoted industries implemented between 2006 and 2020, compared to eight years granted by Thailand’s Board of Investment (BoI).  Furthermore, the Vietnamese government has promised to provide all necessary infrastructure, including roads, water systems, and electricity for factories in promoted industries.

Investing in mining in Vietnam is potentially lucrative as the country has abundant natural resources like high-grade coal, zinc, and copper.  It has the largest anthracite coal reserves in the world.

Thai Investors:

Two Large enterprises in Thailand, Siam Cement Group and CP, will invest US$9 billion in Vietnam within the next three years.  Siam Cement Group plans to invest in petrochemical projects in southern Vietnam and the CP Group plans to invest in agriculture.

Siam Cement:

Having successfully captured the Thai market and turned around its operations in the Philippines; the Siam Cement Group, Thailand’s largest industrial conglomerate, has set its sights on tapping the booming Vietnamese market in hopes of enhancing its status as a leading regional company.  Siam Cement has interests in a wide range of businesses from petrochemicals to cement and other building materials, as well as paper and packaging materials through Siam Pulp & Paper, the paper business unit of the group.  The planned investment in the paper business is part of the overall strategic plan of the company to expand its operations and to take advantage or Vietnam’s export boom and the increased demands for paper than improving living standards are creating.

In terms of the packaging business, although Siam Cement started to sell packaging paper almost 10 years ago, the company had no plan to set up a plant until after the sales volume of its packaging paper started to reach critical mass.  Given its booming economy, Vietnam’s demand for packaging paper is set to show steady growth in the years to come. The country is expected to expand by more than 8% per year, outpacing the 7.1% rate projected for the Asia Pacific region, with the Vietnamese government relying on exports as a key growth driver.  The new capacity in Vietnam will effectively increase Siam Cement’s packaging paper production to a combined 1.74 million tons per year — 1.32 million tons in Thailand, 200,000 tons in Philippines, and 220,000 tons in Vietnam.  Further, according to Siam Cement’s predictions demand for packaging paper in Vietnam will remain strong at around 580,000 tons per year in 2006, 45% of which was imported.

Siam Cement has chosen the My Phuoc Industrial Park in Binh Duong operated by Becamex, Vietnam’s leading industrial Park operators for its location.  Initially, Siam Cement will invest in Vietnam about 5.2 billion baht in the plant, with production expected to begin by mid-2009.

To further increase its presence in Vietnam, Siam Cement is also negotiating with prospective partners and conducting a feasibility study on a petrochemical complex in Vietnam with a production capacity of one million tonnes per year. Petronas, the Malaysian state energy flagship, is among the prospective partners.

Sahaviriya Steel Industries Plc

The Vietnamese government is interested in attracting foreign investment in capital and property development to increase domestic consumption of construction steel.  Vietnam can produce six million tons of construction steel per year but local demand is limited at 3.5 million tons.
Thai Rung Union Car Plc

Thai Rung Union Car Plc. sees large potential for the automotive and parts industry in Vietnam, where demand for passenger cars is rising by 80,000 units per year.  Vietnam’s automotive market is similar to the Thai market 25 years ago with plenty of room to expand.  Vietnam has a population of 85 million but not a wide array of consumer products.  Vietnam is already gaining a wider range of Japanese and Korean auto parts makers.  The competitiveness of Vietnam’s vehicle production with that in Thailand, however, appears more problematic although Thailand must continue to innovate and cut costs if it is to maintain its current advantage.     


Although Vietnam offers many opportunities to Thai companies, it also has some distinct weaknesses.  Among them:

Shortage of Raw Materials:

Siam Cement was heavily hit with this burden early in doing business in Vietnam.  In the packaging industry, most production companies try to keep costs down by using used packaging paper.  Although the end products may not be as soft as those made of virgin pulp, they are usable for white paper products, but with Vietnam’s industries focusing on exports, the supply of this used paper was very limited.  The raw materials available on the domestic market supported only about 20% of Siam Cement's need.  Its parent company, Siam Cement Plc, has been trying to procure various wastes from steel scrap to paper for reuse.  It also has been trying to source the raw materials from Japan, a country that has a tremendous amount of waste packaging paper.  This solution is not as straight forward as it seems though, as the problem is compounded large Chinese firms competing aggressively to absorb this waste from Japan.

Long-term Return on Investment

Profits in the early years in Vietnam have proved illusive for many companies.  Some Thai investors noted that investors should not expect a return on investment in the first few years.  Instead, they should focus on long-term potential.

Trust in Joint Ventures

Many Thai investors recommend foreign investors not to enter into partnerships with their Vietnamese counterparts unless they have total trust in them.  Many in Vietnam who have experienced the poverty of the recent past, look at the current period as potentially their sole chance to riches.  As such many Vietnamese companies have proved to have very short-term views, to have extreme problems with corruption and financial irregularities and in other ways be less than reliable partners than might be hoped.

High Land Prices

Thai investors should lease land plots on a long term as land prices have risen dramatically.  In South HCM City, land is now $2,000 (70,000 baht) per square meter while land downtown costs between $10,000 and $12,000 per sq m.  These prices are high by Thai standards as Bangkok remains one of the lowest cost cities in Asia for office and apartment rentals.

Prices are Rising

Although Vietnam labor prices are currently lower than those in Thailand and labor availability is greater, wages are rising particularly for managers, accountants, HR professionals, Engineers, etc.  Salaries for these positions can well be hiring than similar Thai counterparts.  Buyers thus need to do their research and remain flexible and vigilant in looking for ways to keep other costs lower.


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