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Promising Smart Electronics Supply Chain

Oct 01. 2020
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Backed by a robust ecosystem of more than 2,550 enterprises, Thailand has been a globally leading manufacturer of Electrical and Electronic (E&E) appliances for decades. People’s shift towards working remotely and the evolution of the country’s vast automobile supply chain towards next-generation mobility and electric vehicles (EV) will further drive growth of the industry.

Data from the International Trade Center show that Thailand was the 16th largest Electrical and Electronic equipment (E&E) exporter worldwide during 2016-2019, during which it recorded a doubling of international shipments of ICT parts, semiconductors and electric control panels1.

Thailand’s solid reputation as one of the world’s largest and most advanced manufacturers of electrical products is backed up by data provided by Thailand’s Electrical and Electronics Institute (EEI), a unit operating under the Ministry of Industry (MOI)’s supervision. The EEI’s statistictics show that Thailand was the world’s second-largest exporter of air-conditioning units in 2019, accounting for 11% market share. The country was also the world’s largest exporter of washing machines in 2019 with 10% market share.

Even though the overall economy is suffering from the global Covid-19 pandemic, Thailand’s E&E industry is experiencing a gradual increase in both local and international sales. The official data reveal that Thailand’s exports of computers and parts grew at an accelerated pace of 18% year-on-year during January and April 2020, compared with 9% year-on-year growth from the same period the previous year, while shipments of air conditioning units held up during the period2.

 

Opportunities Amidst Crisis

People’s new norm of working remotely and shopping through e-commerce channels has been a boon to Thailand’s smart electronics and digital industry, which has seen a rise in the global demand for products, notably those related to cloud computing and storage and data centers.

Recently released by the EEI, the Manufacturing Production Index for the E&E industry reflects growth in the industry, with a 1% expansion recorded from January to May 2020 compared to the same period of the previous year. The findings from the EEI’s study show that the growth of Thailand’s electronics industry is relatively high compared with neighboring markets like Malaysia and Vietnam, which experienced contractions of 8.5% and 1% respectively during the same period.

Taking a closer look at some key electronics products, printed circuit board assembly (PCBA) and cable wires were among those recording the highest production growth in the first three months of 2020 at 55% and 43% respectively compared to the same period of 2019. This trend reflects Thailand’s status as a world leader in the export of PCBA. Indeed there has been a significant PCBA supply surge in recent months, with the total production of 162 million units in the first quarter of 2020 representing the highest recorded output since the fourth quarter of 2016. As for cable wire, another mainstay of Thailand’s E&E industry, the country’s production stood at around 20,000 tons in the first quarter of this year, compared with 13,000 tons in the same period of 2019.

At present, Thailand’s E&E industry has a total investment value of around USD76 billion, comprised of electronics worth USD 48 billion and electrical products worth USD 28 billion. Thailand is a key manufacturing base in the Asian supply chain for leading global manufacturers. Industry giants such as Seagate, HGST, Thai Samsung Electronics,

NMB-Minibea, CAL-COMP, Celestica, Western Digital, Sony Technology, Microchip Technology and Daikin Industries, produce E&E products in Thailand and distribute them across the globe.

 

EV Growth to Drive Smart Electronics Industry

The upward trend of Thailand’s E&E Industry is also attributed to the prominent automotive supply chain and its evolution towards electric vehicles (EV), responding to people’s desires for more eco-friendly and cost-effective mobility. The trend has resulted in the ongoing growth of foreign direct investment in Thailand’s EV industry. In June, Thailand’s Board of Investment reported a total of 24 approved incentives requests for EV-making projects with a combined capacity of 500,000 units per year. The investment made by top automotive brands such as BMW, Mitsubishi Motors, Audi, Toyota and Honda covers all types of EV in the market, including five hybrid electric vehicle projects, six plug-in hybrid electrical vehicle projects, and 13 battery- electric vehicle projects.

To ensure comprehensive coverage of all major aspects of the EV supply chain, the BOI has also approved 10 battery production projects with a total capacity of half a million units per year as well as two charging station production projects that will produce more than 4,400 outlets per year. These significant investments will not only pave the way towards more demand for the Smart Electronics Industry but also strengthen the whole supply chain as electronics products made in Thailand can now be used as final products.

A study by Kasikorn Research Center highlights the promising effects of the country’s EV market ternds on Thailand’s E&E industry. The prediction is based on the premise that evolution towards EV and Internet of Things electrical appliances will create enough demand to drive Thailand’s electronic exports to grow slightly by 0.2% in 2022, despite the gloomy global economic outlook. The forecast foresees that exports of E&E products will increase by USD 1.3 billion more than earlier expectations which is based on a contraction of the item shipments.

 

Favorable Tax Incentives and Trade Agreements

Thailand’s robust E&E ecosystem also benefits from the country’s favorable tax incentives provided by the BOI and the country’s free trade agreenments (FTAs). Currently, Thailand has 13 FTAs in force with 18 economies. As of 2019, Thailand’s active FTAs cover more than 62% of the country’s total export value. This enables businesses investing in Thailand to benefit from almost tariff-free trade through both bilateral and multilateral agreements. Through these FTAs, almost all of the E&E parts produced in Thailand can be traded tariff-free into FTA partner countries.

To ensure Thailand’s competitiveness, the country is currently negotiating six additional FTAs, including the Thailand-European Free Trade Association and the Regional Comprehensive Economic Partnership (RCEP) as well as Thailand-European Union, Pakistan-Thailand, Thailand-Turkey, and Thailand-Sri Lanka FTAs. As products in the smart electronics industry are usually assembled from various electrical parts from different countries, one obvious benefit from the expansion of Thailand’s FTAs is the increased ability of businesses and exporters in Thailand to claim tariff benefits throughout the supply chain under the Rules of Origin.

In addition to tax benefits from existing FTAs, enterprises in Thailand are also eligible for Corporate Income Tax (CIT) exemption for up to eight years. The BOI’s general list of activities eligible for promotion includes various tax incentives for activities in the E&E industry. Microelectronics design and embedded system design projects are eligible for an eight-year tax holiday with no cap. An additional 50% reduction of CIT for five years is also offered for investment activities located in the science and technology park.

Apart from the incentives based on industry eligibility, the BOI is also offering additional incentives for activities involving the integration of high technology to enhance research and development and production efficiency. This includes five to eight years of CIT exemption, depending on the ability to prove ownership of eligible products. The manufacturing of electrical products and parts used for industry (i.e., power inverters, distribution transformers, main circuit-breakers) can benefit from three to five years of CIT exemption, while the manufacturing of telecommunication products including emission, transmission and reception devices used in fiber-optic and wireless communication systems will be granted an 8-year CIT exemption. As part of the non-tax privileges, the BOI grants promoted non-Thai companies permission to own land and for their non-Thai shareholders to hold unlimited sharing holdings. Finally, the BOI grants so-called smart visas that enable high-skilled professionals, investors, executives, and entrepreneurs in startups in Thailand’s 13 targeted industries and their families to stay in the country to up to four years without having to obtain a work permit.

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reference

1    https://www.trademap.org/tradestat/Country_SelProduct_TS.aspx?nvpm=1%7c%7c%7c%7c%7c 85%7c%7c%7c2%7c1%7c1%7c2%7c2%7c1%7c2%7c1%7c1%7c1

2    https://www.bangkokpost.com/business/1904620/state-upbeat-on-full-year-exports

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