Thailand
Announces New Incentives For Hard Disk Drive Industry
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Seagate Hard Disk
Drive -
Seagate has a large operation in Thailand
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Facts about the HDD
Industry in Thailand:
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- The capacity of hard disk drives
increases 60% annually
or 10 times every 5 years.
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- Seagate which has a large
operation in Thailand is
developing technology called Heat-Assisted Magnetic Recording
Technology (HAMR) to produce drives which can store 50,000 gigabytes
per square inch, equal to keeping the entire collection of the U.S.
Congressional Library on a disk drive the size of a coin.
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- In 1985, there were 60 HDD
manufacturers in the world.
After mergers, acquisitions and bankruptcies, there now remains only 7,
owing to fast-changing technology, low profit margins, capital
intensive R&D and the high bargaining power of PC manufacturers,
this could reduce even further.
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- It is predicted that non-computer
applications, such as
for video games, cameras and GPS navigation systems for automobiles,
will grow to be 21% of the market by 2006 and 40% by 2010.
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- Seagate is the HDD market leader
with an overall market
share of 34%, followed by Maxtor (23%), Western Digital (14%),
Hitachi-IBM (12%) and Fujitsu (4%).
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- Almost all HDD manufacturing in
Thailand is for export;
domestic consumption is merely 1%.
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As part
of its drive to boost Thailand’s position as a major
manufacturing base for the Hard Disk Drive (HDD) industry, the Thai
Board of Investment announced the expansion of its customized
incentives for this industry to include HDD parts suppliers in addition
to HDD manufacturers. As
well as increasing the ways to qualify for certain privileges, the new
regulations will allow both HDD parts suppliers and manufacturers to
receive up to
eight years of income tax holiday. These changes are designed to
support Thailand’s ambition to be the largest manufacturing base of
Hard Disk Drives worldwide.
Currently, Thailand ranks as the
world’s second largest producer of
hard Disk Drives with only Singapore exceeding it in terms of
output. Four out of five of the world’s largest manufacturers of
Hard Disk Drives produce and export from their Thailand
operations. The introduction of additional incentive packages is
expected to yield significant growth for the HDD industry in Thailand
over the next several years.
Thailand Board of
Investment (BOI) Incentives
As part of its plan, the BOI announced that
new HDD investment projects will be able to locate in any zone and
receive a wide range of industry-stimulating incentives:
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- To ensure
that BOI-promoted HDD
companies in all zones remain competitive in light of the rapidly
changing technology in this industry, they will be eligible to import
upgrade or replacement machinery duty-free for the life of the
promotion period.
- HDD
projects will receive corporate
income tax holidays as follows:
- Zone 1:
exemption of 4 years
- Zone 2:
exemption of 6 years
- Zone 3:
exemption of 8 years
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In a further incentive, these corporate income
tax holidays will not be limited to the amount of investment.
Approved
HDD projects will also receive an additional year’s
corporate income tax holiday for meeting each of the following
criteria:
1)
Average R&D or design
expenditures for the first 3 years must:
a.
Not be less than 1-2% of
annual
total sales, or
b. Not less than 50 million baht for HDD manufacturing, or
c. Not less than 15 million baht for HDD parts manufacturing.
2) At least 5% of the total workforce in the
first 3 years should consist of science and technology personnel with a
minimum of a Bachelor’s Degree in science, engineering or other fields
related to technology, R&D or design.
3) Average costs to train Thai staff for the
first 3 years are at least 1% of total payroll costs.
HDD projects will also receive an additional
two years corporate income tax holiday for meeting each of the
following criteria:
1) Cost of
developing vendors or costs of supporting related educational
institutes for the first 3 years must be at least:
- 1% of
annual total sales, or
- 150 Million baht for HDD
manufacturers, or
- 15 Million baht for HDD parts
manufacturers
2) Establish
an R&D center in Thailand
within 3 years
To qualify for this package of
incentives, a company must submit to the
BOI an action plan which identifies the ways in which the company will
interact with Thai entrepreneurs, Thai R&D facilities or Thai
educational institutions. Projects which have been approved for
promotion by the BOI, but have not yet earned any income, are also
eligible
to apply.
Through these initiatives, Thailand is
ideally situated to attract new
investors as well as to expand the operations of existing investors.
Through its long-term commitment to promoting HDD projects, the BOI
helps provide vital links between the industry and academic and
research institutions to further develop the Thai workforce’s
technological skill capacity, as well as to expand various support,
parts and components industries.
Thailand
Hard
Disk Drive Manufacturing - Striving To Take Over Top Spot
In a
courtesy call on Prime Minister Thaksin Shinawatra on March 15,
2004, Seagate Technology (Thailand) Co. and Western Digital Corporation
announced they would make large-scale new investments into Thailand’s
HDD
industry. After the meeting, the Minister of Industry Pinij Jarusombat
stated, “The Prime Minister is confident that Thailand can become the
world’s
biggest HDD production base now that these two giant HDD makers believe
in the country’s growth potential.”
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One of Thailand's main
sea
ports located in Rayong (BOI Zone 3)
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Western
Digital, Seagate, Hitachi Global Storage Technologies and
Fujitsu, four of the world’s five largest HDD manufacturers, all have
significant operations in Thailand. In 2003, Thailand shipped 54
million hard disk drives and 655 million hard disk drive parts valued
at US$5 billion, ranking it as the second largest hard disk drive (HDD)
manufacturing base in terms of volume, and the third largest in terms
of value with an overall market share of 24%. Thailand’s domestic
value-added for hard disk drives and parts is about 37-46%.
Thailand’s Board of Investment (BOI)
believes it has the winning
combination to attract even more HDD manufacturing, particularly from
Singapore. The BOI has designated the HDD industry a priority activity,
and its new investment packages are geared towards attracting companies
which will bring increasingly higher forms of technology into
Thailand. If you add in to the above new package of incentives,
Thailand’s cost-competitive, skilled labor pool, strong support of
industry, its central location in Asia and its generally friendly
environment for investors, it’s an almost unbeatable mixture that soon
should have Thailand acing out Singapore for the top slot.
Since the inception of Thailand’s HDD
industry over 20 years ago with
the opening of Seagate’s facility of 50 employees to produce E-Blocks
and Head Stack Assemblies (HSAs) for export, Thailand’s HDD industry
has grown dramatically as a spin-off from the HDD industry in
Singapore. Due to the need for meticulous production processes,
the high cost of labor
in Singapore has been a significant factor driving both American and
Singaporean companies to relocate their manufacturing facilities to
Thailand, Malaysia, the Philippines and China. At present, Singapore’s
HDD market share currently stands at 30-35%, only 6-10% greater than
Thailand’s.
Singapore is still a major
manufacturing base for Seagate and Maxtor,
as well as a major R&D Center for Seagate, but both see advantages
to relocating portions of their manufacturing operations to other
countries. Seagate, the world’s largest HDD manufacturer, employed
20,000 at its Singaporean operations in 1996 and 8,000 in 2002. Maxtor
does almost all of its manufacturing in Singapore but has plans to
shift some of its operations to a new factory in China in late
2004.Western-Digital no longer manufactures in Singapore and is
investing US$152 million this year to expand capacity at its two plants
in Thailand. Thailand has steadily built its HDD parts manufacturing
base over the last 20 years so it now includes 50-60 manufacturers,
providing almost all major HDD parts, and employs more than 90,000
workers. Manufacturing of parts not currently produced, such as wafers,
has been designated a priority activity by the BOI, thereby providing
maximum investment incentives to those companies which manufacture
them. Presently almost all of the HDD parts suppliers in Thailand
are foreign companies.
The
increasingly closer economic cooperation with the current HDD
leader, Singapore, and the August 2003 “one economy, two
countries”objective agreed upon by Prime Ministers Thaksin Shinawatra
and Prime Minster Goh Chok Tong of Singapore have added to Thailand’s
potential to realize its ambition to be #1 in HDD.
While China clearly has the potential
to become the dominant HDD hub in
Asia over the long haul, Thailand definitely has the potential to step
up and take the lead in the short run and possibly even in the longer
run. It takes at least 5-10 years to build a viable industry, and the
Chinese government does not currently consider hard disk drive
manufacturing a
priority industry.
Recent
Investments in the HDD Industry:
- Western Digital purchased the
shares of Read-Rite
Corporation, Thailand which it renamed Western Digital Bang Pa-In Co.,
Ltd., and is making additional investments into the company.
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- Minebea Thai Ltd. has invested in
a large Research and
Quality Center for HDD Parts in Ayudhya Province.
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- Fujitsu received a BOI
Certificate in August 2003 for a
project to expand its operations in manufacturing hard disk drives and
HDD
parts.
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- Seagate is in the BOI application
approval process for
two large HDD projects. As part of their plans, they will expand the
capacity of Seagate plant in Nakorn Ratchasima (Korat), located
northeast of Bangkok.
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- In March 2004 Hitachi Global
Storage Technologies
received BOI promotion to manufacture hard disk drives and data storage
device components (HGA head gimbal assemblies) at the 304 Industrial
Park in Prachinburi Province.
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Reported by:
Christopher W. Runckel,
a former senior US diplomat who served in many counties in Asia, is a
graduate of the University of Oregon and Lewis and Clark Law School. He
served as Deputy General Counsel of President Gerald Ford’s
Presidential Clemency
Board. Mr. Runckel is the principal and founder of Runckel &
Associates, a Portland, Oregon based consulting company that
assists businesses expand business opportunities in Asia. (www.business-in-asia.com)
Until April of 1999, Mr. Runckel was
Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel
lived and worked in Thailand for over six years. He was the first
permanently assigned U.S. diplomat to return to Vietnam after the
Vietnam War. In 1997, he was awarded the U.S. Department of States
highest award for service, the Distinguished Honor Award, for his
contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of
only two non-Ambassadors to receive this award in the 200-year history
of the U.S. diplomatic service.
Copyright,
2005 ©
Runckel & Associates
www.Business-in-Asia.com
