Look before you leap

Richard D Han, CEO of Hana Microelectronics, says Thai flood fears have worried the company’s customers, who are not sure if the disaster will be repeated next year.

This will influence Hana’s decision on where its factories should be located in the wake of massive floods in Thailand’s Ayutthaya province.

Hana Group is one of the country’s largest semiconductor packagers and suppliers of parts and components for the electronic, auto, medical and other sectors.

Its factory at High-Tech Industrial Estate in Ayutthaya was flooded from mid-October to early December, resulting in a disruption to the global supply chains for these industries.

Besides the Ayutthaya factory, Hana also has a factory in the northern province of Lamphun and one in China, near Shanghai.

“In fact, we’re going to expand the China factory because our customers are now nervous about Thailand and they are waiting to see what will happen in terms of infrastructure improvement.

“So China is one area [Hana is looking at], but there are also other parts of Thailand such as the Eastern Seaboard. But the problem is that there isn’t enough labour on the Eastern Seaboard, and labour costs are now relatively high.

“The Northeast region, such as Nakhon Ratchasima, is also a possible choice, but the Board of Investment should look at the tax incentives and other privileges to encourage people to go to these areas, because people don’t want to live and work in the middle of nowhere. They want to have a life after their work, so you have to create that.

“We have many Amercian customers. A lot of them are involved in devices that go into mobile phones and other consumer electronics. They can also use other suppliers, like those in Malaysia, China, Taiwan and Indonesia. They have choices, so this means that Thailand has to take pro-active measures to stay competitive.

On the Thai government’s planned increase of the minimum wage to Bt300 per day in seven provinces, including Bangkok, effective from April 2012, Han thinks this will have a significant impact on all manufacturers. 

“To be honest, it’s not coming at a good time. I understand that this is not so much about increasing the wage but it had more to do with winning the last election. The reality is that the world economy is now very weak due to the European debt crisis, while the US is not growing strongly. In addition, China is cooling down. It’s now the world’s second largest economy and has been a driver of the growth that we enjoy here in Thailand.

“If the Thai labour cost is no longer competitive compared to Indonesia, China, Malaysia and the Philippines, our customers will go somewhere else, so the impact will be significant.

“In fact, a wage hike is not the only problem, but the amount of such a hike and the timeframe are. China is also trying to double the daily wage, but over a period of five years. What they are trying to do here is nearly double the wage but over a six-month period. No one can absorb such an increase so quickly without a substantial cost and an affect on profitability. This will reduce the incentive to invest.

“Thailand should raise the minimum wage at a gradual pace so that manufacturers can adapt to it and grow with it. If you hit industries in one go [with this hefty wage hike], there will be many causalities.”