CONTENTS

March 2015 Volume 25 No. 3

Page

Subcontracting 1

News Bites / BOI Net Applications 2Thailand Moving Forward 5Thailand +1: Towards the AEC 6Thailand Advances in WEF Ranking 72015 Index of Economic Freedom 8Economic Outlook 8Company Interview: SCC Tech 9BOI’s Missions and Events 11Thailand Economy-At-A-Glance 12

Continued on P. 3

SubcontractingThailand rests upon a solid and productive industrial foundation. Even though the country plays host to a wide range of multinational corporations, the presence of a vibrant industrial parts and components sourcing sector (i.e. subcontracting) is what permits the Thai economy to be competitive on a global level.

What is subcontracting? It is a manufacturing strategy in which a company decides to outsource some or all of its production operations to a vendor. This process is considered better than a complete external procurement as there can be a tighter control on the product quality. In a typical subcontracting process, a manufacturing company provides raw materials/components to a subcontracting vendor. The vendor in turn processes these materials to turn them into a final product. This product (if not a finished product) is then used by the manufacturing company to carry out the rest of the operations to turn it into a finished product for the marketplace.

The key areas of industrial subcontracting are namely the metals, electronics, plastics and rubber industries as well as industrial ICT solutions and consulting services. Indeed, the subcontracting sector and the innovative materials it develops are integral to many of the products used in industry today. Without the subcontracting sector, the wheels of industry would grind to a screeching halt.

Buyers meet Sellers

NEWS BITES BOI NET APPLICATIONSSEZ Progress

On March 16, 2015, Gen. Prayut Chan-o-cha, Prime Minister, presided over the 2/2015 meeting of Policy Committee on Special Economic Zones, which included Deputy Prime Minister M.R. Pridiyathorn Devakula, concerned ministers and officials.

The Prime Minister handed over related policies to concerned agencies, and four newly-established sub-committees: 1) Sub-committee on privileges, boundaries, and one-stop service center in investment; 2) Sub-committee on Labors and one-stop service center in labor, public health and security; 3) Sub-committee on Infrastructure and customs; and 4) Sub-committee on land acquisition and management.

The Policy Committee on Special Economic Zones agreed to the establishment of an additional sub-committee which composes of representatives of the private sector to provide advices on marketing and convince investors to tangibly invest in the special economic zones. Also agreed on was the list of targeted industries which will receive high privileges if investing in the special economic zones: 1) agricultural, fishery and related industries, 2) ceramics, 3) textile, garment, and leather industries, 4) furniture manufacturing, 5) gem and jewelry, 6) medical equipment manufacturing, 7) automotive, machinery, and parts, 8) electrical appliances and electronics, 9) plastic production, 10) medicine production, 11) logistics, 12) industrial estates/zones, and 13) tourism related industries. Details of each group will be announced by the BOI. The Committee also approved targeted industries specifically for each and respective special economic zone in Tak, Sakaew, Trat, Mukdaharn, and Songkhla.

The Policy Committee also approved the 2nd phase of special economic zone development covering 63 sub-districts of 16 districts in 5 provinces, that is, Nongkhai (22 sub-districts), Chiang Rai (21 sub-districts), Nakhon Panom (13 sub-districts), Narathiwas (5 sub-districts), and Kanjanaburi (2 sub-districts); and on leasing/ transformation of land in 6 special economic zones to be used for the establishment of industrial estates (altogether 24,871 rai), that is, in Tak (14,858 rai), Sakaew (2,944 rai), Trat (740 rai), Mukdaharn (1,085 rai), Songkhla (1,095 rai), and Nongkhai (4,149 rai). Ministry of Interior is to work on details with regard to legal matters and compensation.

Better Transport

During the official visit to Japan on 7-9 February, the Prime Minister proposed a joint-venture model for collaboration in constructing a high-speed railway system. The railway network would enhance Thailand in trade and investment and would raise people’s income.

Suvarnabhumi Airport is preparing to cater to larger passenger traffic in the second quarter of Fiscal 2015, which is expected

2013(US$ = 30.06THB)

2014 (Jan)(US$ = 32.93 THB)

2015 (Jan)(US$ = 32.73 THB)

Number of projects Value Number of

projects Value Number of projects Value

Total Investment 2,237 34,334 70 612 36 234

Total Foreign Investment 1,132 16,227 51 351 18 18

By Sector

Agricultural Products 64 742 - - - -

Minerals / Ceramics 28 1,144 - - 1 0

Light Industries / Textiles 59 327 2 7 - -

Automotive / Metal Processing 378 7,668 15 126 4 8

Electrical / Electronics 207 2,784 11 9 5 4

Chemicals / Paper 124 722 6 72 4 3

Services 272 2,838 17 137 4 1

By Economy

Japan 562 8,746 26 137 5 6

Europe 132 972 7 77 3 1

Taiwan 53 216 2 3 3 4

USA 55 359 1 0 2 1

Hong Kong 39 624 3 61 1 0

Singapore 93 704 8 61 2 3

By Location

Central 366 3,339 12 37 9 9

East 586 7,897 28 202 8 9

South 180 4,990 11 113 1 0

Unit: US$ MillionNote: Investment projects with foreign equity participation from more than one country are reported in the figures for both countries.

to grow by 9 per cent year on year. The airport management has prepared to cope by installing 16 more passport readers and electronic charts, opening the Transfer Baggage Terminal to serve transit passengers, and improving taxi services among others.

March 2015

Page 2

Continued from P. 1

Continued on P. 4

Subcontracting is very useful in situations where the range of required capabilities for a project is too diverse to be possessed by a single general contractor. In such cases, subcontracting parts of the project that do not form the general contractor’s core competencies may assist in keeping costs under control and mitigate overall project risk.

A key player in Thailand’s subcontracting sector is the Thai Subcontracting Promotion Association (Thai Subcon). There are around 400 members in the Association now and they are all competent in manufacturing. Mostly comprised of SMEs, Thai Subcon members are engaged in the manufacture of diverse products that can be classified into four groups, including metal (casting, stamping and pressing), plastic, rubber & polymer, electrical/electronics and logistics, packaging & services. What the Association is emphasizing nowadays is intra-sectoral product trade and knowledge transfer among members in order to stimulate development. Larger companies can help small companies in improving the production segment, such as through the application of more efficient operating systems and training, as well as information exchange.

Equally important, the Association supports Thai entrepreneurs in gaining awareness of industry trends and in providing a network for members to obtain the latest government announcements, such as the SME promotion policies of the Board of Investment (BOI). Most SME companies think that applying for investment promotion is a complicated issue, but what the company obtains in return is massive, particularly with regards to tax incentives. The Association also encourages subcontractors to look into specialized areas, like alternative energy, that offer new market possibilities. Moreover, through Thai Subcon companies have the opportunity to attend training sessions and seminars put together by either the BOI or the National Science and Technology Development Agency (NSTDA).

Joint ventures, partnerships, and subcontracting prospects have long been at the core of international growth strategies of multinational corporations. To ensure that foreign companies receive full support on these matters in Thailand, the BOI has set up the BOI Unit for Industrial Linkage Development (BUILD).

BUILD acts as an intermediary between the manufacturers of ready-made products and small- and medium-sized manufacturers of parts. Moreover, it provides information on subcontracting opportunities and offers its support to buyer firms seeking sourcing networks in the country. Currently, BUILD supports sourcing service in the following industries: plastics and rubber, metal forming and fabrication, molds and die, assembly, and electronic manufacturing service. In fact, if a foreign investor is looking for a Thai supplier, subcontractor, or a joint-venture partner in Thailand, BUILD is prepared to provide the following services:

• Identifying suitable suppliers, subcontractors, and joint-venture partners

• Facilitating business contacts with Thai companies• Arranging visits to selected Thai companies• Organizing business-trip itineraries

The BOI takes additional steps to support the country’s subcontracting sector. For instance, it will host SUBCON Thailand 2015, ASEAN’s largest industrial subcontracting exhibition, from the 13th to the 16th of May at the Bangkok International Trade and Exhibition Center. Inaugurated in 2007, the annual event is expected to host more than 400 subcontractors from Thailand,

ASEAN and Japan, and attract more than 24,000 local and overseas buyers from 15 countries. World-class manufacturers, such as Mercedes Benz, Samsung Electronics, Isuzu Motors, Whirlpool, Thai Summit Autoparts Industry, Suzuki, Electrolux, Panasonic Motors, Honda Trading, Haier, and Mitsubishi Electric, will attend and interact with representatives of Thailand’s diverse industrial parts and components sourcing sector.

For many observers of the subcontracting segment in Thailand, there are good opportunities for Thai SMEs to move into the Aerospace and Medical Device industries. Medical devices and equipment are attractive because there is demand. At present, Thailand is home to 256 private hospitals all over the country and most of them have received international accreditation. Public hospitals in Thailand now account for roughly 55% of total medical device purchases and there is a need to upgrade their medical equipment with more sophisticated products. Demand for medical devices in Thailand is driven by medical facility improvements and replacement of old medical devices/equipment in public and private hospitals. For now, Thailand lags in the production of high-tech medical devices. Currently nearly all of the highly sophisticated equipment used in the country is imported.

Regarding the Aerospace industry, large corporations such as GE, Boeing, Rolls Royce and Airbus from the USA and Europe are not planning to manufacture parts in China. Thailand is in fact in a good position to become a production base for the aforementioned aerospace giants and has an excellent central location in the Asia-Pacific. Yet, these business opportunities will require new machinery, technology, and operating systems, like customized automation using flexible modular techniques and integrated software. Such technical knowledge will give Thai subcontractors a competitive edge, thereby lowering costs and

March 2015

Page 3

Continued from P. 3boosting efficiency, which will further advance Thailand as a major manufacturing hub.

Economic growth in the Asia-Pacific continues to outpace the rest of the world, thereby rapidly increasing its importance to the global economy. The AEC now looms on the horizon and is to be established formally at the end of 2015, creating further growth for the ASEAN region. Consequently, the Bank of Thailand (BOT) is confident in its projection of what it described as a V-shape recovery over the last six months of 2014. Factors making this a reality have included a resumption of state spending, the gradual return of private investment, and a steady pickup in the manufacturing industry.

Back in January 2015, the Bangkok Post reported that greater investment in supporting industries (i.e. Thai subcontracting sector) will be a crucial factor in strengthening the automotive industry to compete with other countries ahead of ASEAN economic integration. According to Mr. Arthit Wuthikaro, director-general of the Industrial Promotion Department (IPD), “Supporting industries such as industrial machinery and electronic parts are the backbone of Thailand’s car industry.” He further declared, “Rising capacity in those industries would help Thailand to increase its competitiveness.”

In cooperation with the Bureau of Supporting Industries Development, the IPD will focus on developing the capacities of Thai SMEs in the areas of human resources, technology and automation. The government also will assist SMEs to access financial support in order to increase productivity and upgrade machinery. Similarly, the government will build testing laboratories to reduce costs during product testing. And finally, the department will hold business-matching events to facilitate Thai SMEs in finding qualified partners to expand output and to enhance quality.

After the AEC is in force, the auto parts market is expected to

grow, boosting the domestic subcontracting industry given the close cooperation between the public and private sectors. In addition to higher demand in the AEC market, the subcontracting industry will be further fuelled by the second-phase eco-car project which involves 10 leading manufacturers with a total investment of at least Bt139 billion.

It has been suggested that small and mid-sized contractors should seek joint ventures with overseas firms to survive the upcoming ASEAN single market. Plus, many Thai subcontractors are small companies with 10 or so workers, making it difficult for them to conduct research and develop projects on their own. Meanwhile, Thai SMEs can lower costs by shifting production processes that require low technology to countries with lower labor costs. The subcontracting industry is important to create and sustain confidence amongst foreign investors. Providing government incentives is one approach, but overseas firms will not come to Thailand if there are no parts and components manufacturers for them.

The International Institute for Trade and Development (ITD) sees Thailand as one of the top five countries that can expect rising foreign direct investment (FDI) after AEC integration. Last year, the country recorded US$13 billion in foreign direct investment and is expected to see continuous growth once the AEC is operating. The Bank of Thailand has projected that Thailand’s 2015 GDP will grow by 3.5% with the AEC playing a major role. Beneficiaries will include multiple industries, but especially the Automotive, Auto Parts, Electronics & Electrical Appliance industries.

The AEC is supportive of Asia’s development as a dynamic global production hub. ASEAN is considered now one of the world’s most attractive subcontracting destinations and many large multinational corporations in a wide range of industries count on it for low cost, high quality production - especially from Thailand.

March 2015

Page 4

Thailand Moving Forward“Thailand Moving Forward” was an international conference that took place at the Dusit Thani Hotel in Bangkok in the closing days of January 2015. Organized by both The Nation and The Asian Wall Street Journal, and hosted by Siam Commercial Bank, the event covered a number of critical issues related to the future of the Thai economy, ranging from government policies to the adoption of a new business mindset. The symposium was designed as a platform for selected ministers to outline to a diverse audience their plans and for interaction with key business leaders of Thailand, whose roles and input are crucial to the eventual success of the country’s transformation.

At the moment, the Government is putting into place processes to reform Thailand’s political and economic systems. Indeed, economic restructuring is paramount and the current administration is aiming to turn Thailand as a regional springboard for foreign investors.

As the keynote speaker at the forum, Deputy Prime Minister MR Pridiyathorn Devakula declared that the Thai economy would recover this year due to capital injection from the government, which would stimulate the private sector. In addition to a surge of investment applications in December 2014, other factors that will propel economic recovery for this year include a stimulus package, a string of large infrastructure projects (particularly in transportation and logistics), and a new investment strategy.

MR Pridiyathorn stated that the government is aiming to convert Thailand into a regional business center, applying tax incentives to encourage MNCs to set up their international headquarters in the country and promoting investment in the digital economy, particularly the development of hard infrastructure (broadband, international gateways) and soft infrastructure (laws, regulations, policies. Furthermore, domestic consumption prompted by falling oil prices and an improving investment climate will drive economic growth to 4% for 2015. In fact, both domestic consumption and private investment have gained traction since the final quarter of last year and are major contributors to GDP, expanding by at least 2% during the October-to-December quarter. Moreover, about 1,500 of the 3,800 plants that won factory licenses late last year are expected to start up during the first quarter of 2015 after 1,608 plants began operating in the fourth quarter last year.

To sustain growth, MR Pridiyathorn said the current Thai government would focus on supporting new industries. The country aspires to be a hub of bioplastics, aviation, and alternative energies (renewables) as well as a regional leader in the production of eco-cars and hybrid vehicles (electric, bio-fuels, natural gas). Promoting Thailand as a headquarters for multinational companies is another priority of the Prayuth administration in pursuing sustainable development.

From a macro perspective, it is clear that reform and restructuring are the main targets of the Government. Minister of Energy Dr. Narongchai Akrasanee elaborated that “new form plus new function requires a new structure”. This formulaic approach will serve as the principal guideline to revive Thailand’s economy and to free the country from the shackles of the “middle-income trap”.

Accordingly, economic restructuring will be carried out and a multitude of measures will be enacted to improve productivity. For instance, there are policy-specific instruments that are focused on the creation of special economic zones, corporate income tax exemptions, export and tourism promotion, market integration with neighboring countries (GMS, ASEAN, East Asia), reorganization of SOEs, energy diversification, expansion of transportation and logistics, and ICT reform.

It is expected that the new structure of the Thai economy will revolve around three pillars: agriculture (with a focus on agri-business/commercial scale farming), industry (with a focus on tech-intensive enterprises and innovative consumer products), and services (with a focus on becoming a trading hub status for the region as well as for the global economy). Plus, the new structure will permit more manufacturing to occur in major provincial cities and border towns.

Among several non-government speakers was Dr. Sutapa Amornvivat, chief economist at Siam Commercial Bank, who noted that while the Thai economy can no longer depend on exports, easy money, and domestic consumption, inflation in Thailand is low and steady and therefore it will not act as a brake on consumption/spending. Moreover, investment in the country’s mass transportation system will have a positive ripple effect on economic advancement. Likewise, Mr. Ninnart Chaithirapinyo, a vice-chairman of Japanese car maker Toyota Motor Thailand, stated that “Border trade accounts for 80% of our annual exports to those countries, indicating Indochina is a potential new trade opportunity for Thai business sector.” He pointed out that Mae Sot and Mukdahan were good examples of developing the road infrastructure to connect with Myanmar and Laos, respectively.

The Government is taking a comprehensive reform effort and is addressing many areas of infrastructure improvement, mass transit, enhanced border trade all of which help to sustain Thailand as the place to invest in Asia.

At a seminar held in Japan the following month the deputy prime minister elaborated on this by noting that Thailand’s geographic location make it an ideal location for a regional trading hub. IHQ/ITC investment will benefit from no income tax from dividends and capital gains from investments in overseas subsidiaries; no tax on income received from providing certain services to subsidiaries, among others. He expressed the hope that this new package will contribute to higher growth in Thailand’s service sector and intra-ASEAN trade, as well as trade between ASEAN and other countries.

March 2015

Page 5

Thailand +1: Towards the AECIn September 2014, Prime Minister Prayuth Chan-ocha delivered a policy statement to the appointed National Legislative Assembly. His speech touched upon eleven key issues of importance but the prime minister paid close attention to the economic development of the country and boosting the competitiveness of Thai business operators and Thailand in Southeast Asia. “Accelerating our efforts to enhance our readiness, whether in the areas of transport and logistics connectivity, trade facilitation, development of border areas, or human resources development, will help promote Thailand’s role and ability to make best use of opportunities in the ASEAN Community”. As stated by the prime minister, such a course of action “will enable Thailand to raise living standards of the Thai people together with those of the peoples of ASEAN”. Moreover, the Prime Minister Prayuth told the audience that his government’s policies are based on His Majesty the King’s principle of sufficiency economy.

In preparation for the ASEAN Economic Community (AEC) in late 2015, Thailand will usher in a period of drastic change regarding its industrialization strategies. Following a historical trend of accepting direct investment from Japanese companies that set up production hubs in the country, Thailand has succeeded in advancing the formation of industrial clustering. Moreover, numerous business opportunities lie in various sectors of the expanding Thai consumer market, including food services, hospitality, and logistics, which continue to expand over the past few years. Now, eyeing the launch of the AEC in December 2015, repositioning Thailand as a strategic base in the center of Greater Mekong Subregion is a critical challenge for Japanese companies expanding in Asia.

Meanwhile, Cambodia, Laos and Myanmar (CLM) are drawing great attention from the world recently as the “last new frontier in Southeast Asia”. Global companies are taking much notice of these countries as new destinations for shifting their labor-extensive production hubs from China or other ASEAN member states where labor costs continue to rise. Due to these changing circumstances, the transportation infrastructure projects sponsored by the Asian Development Bank (ADB) is creating a possibility for a new business model called “Thailand Plus One”, by linking the benefits of lower labor costs in neighboring CLM and the industrial clusters of Thailand.

Looking to maximize the potential of this prospect, Nikkei BP, together with the Board of Investment of Thailand (BOI), organized a seminar entitled “Thailand +1 – Strategy and Opportunity for Japanese Companies” on 8 July 2014 in Bangkok, with the aim of stimulating further the economic relationship between Thailand and Japan for the immediate future. It was a great success in that the audience turnout was robust and the event achieved its primary goal of informing participants, specifically Japanese firms, about the benefits of adopting a “Thailand + 1” stratagem to deal with the new economic realities associated with the upcoming AEC. The geographical location of the country in Southeast Asia, its proximity to the resources and markets of CLM, and the advanced state of the Thai economy make Thailand the logical springboard for companies to expand their operations across ASEAN.

The concept of “Thailand Plus One” has been received enthusiastically by Prime Minister Prayuth Chan-ocha who views it as the perfect instrument to attract a new-wave of overseas investment to the country. Under the policy, foreign entrepreneurs who invest in Thailand will be offered the chance

to gain a business foothold in neighboring countries as well. The government would provide them with investment information and support.

Prime Minister Prayuth provided further details of this novel business model during a meeting with both executives of Thai companies that have invested in China and Thailand’s Asia Pacific Economic Cooperation (APEC) Business Advisory Council in Beijing back in November 2014. Later, government spokesperson Mr. Yongyuth Mayalarp said that the prime minister had informed the attendees that his administration was looking to increase foreign investment with the “Thailand Plus One” policy. As reported by the Bangkok Post, Mr. Yongyuth elaborated by declaring, “We plan to establish five special economic areas along the borders and have seven more in the next phase. As we hold talks with ASEAN members about transport connectivity, we will also help foreign investors expand their investments to our neighbors if they decide to invest here”.

It is no secret that Thailand is the manufacturing base for numerous products exported throughout the world, while its neighboring CLM countries have the potential to meet the supply chain needs of foreign companies in the ASEAN region.

In addition to embracing the “Thailand Plus One” approach, the administration of Prime Minister Prayuth Chan-ocha repeatedly has mentioned that Thai overseas investment is a national priority. Thailand’s Outbound Foreign Direct Investment (OFDI) has increased continuously since 2007, mostly to Singapore, Indonesia, Vietnam and Myanmar. During the last 5 years, more than two thirds of Thailand OFDI derived from the manufacturing and mining sectors, while wholesale, retail, financial and insurance and real estate were among the industries that Thai businessmen have demonstrated keen interest. The principal destination for Thai OFDI was to ASEAN countries, accounting for more than one fourth. The rest comprised of the European Union, Hong Kong, Japan and the United States.

To overcome domestic resource limitations and to seek new business horizons Thai entrepreneurs need to branch out overseas. Indeed, the targets for Thailand OFDI are market expansion and predominantly labor intensive industries, such as textiles and garments, shoes and leather, agriculture, food preparation, metal processing, auto parts and accessories, construction materials and real estate development. By the end of Q3-2014, the amount of Thailand accumulated OFDI was US$6.6 billion. The top destinations for Thai businesses were Indonesia, Vietnam and Myanmar.

When the region becomes one community under the ASEAN Economic Community later this year, the administration of Prime Minister Prayuth Chan-ocha is confident that Thailand can tap fully the benefits of economic integration. The expectation is for the country to turn the proverbial corner and experience once more uninterrupted growth, development, and prosperity. Accordingly, the Thai government views the comprehensive implementation of both the “Thailand Plus One” and Thailand OFDI strategies as the engines that will propel the country forward once the AEC is inaugurated.

March 2015

Page 6

Thailand Advances in WEF RankingThe Global Competitiveness Report 2014-2015, released by the World Economic Forum, contains competitive rankings of the world’s economies, based on its global competitive index. “GCI scores are calculated by drawing together country-level data covering 12 categories – the pillars of competitiveness – that collectively make up a comprehensive picture of a country’s competitiveness. The 12 pillars are: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.”

The Report notes that the recovery in the global economy is largely being driven by monetary policy. Productivity and competitiveness need to be raised through structural reforms, which will bring about high quality job creation and sustained prosperity.

Unfortunately, the global economy remains at risk as there has been insufficient progress in adopting and implementing reforms. Also, Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, notes that “The strained global geopolitical situation, the rise of income inequality, and the potential tightening of the financial conditions could put the still tentative recovery at risk and call for structural reforms to ensure more sustainable and inclusive growth.”

Thailand Investment Review would note here that the keystone of the Thai government’ economic development plan is to address income disparities that exist. This is not only reflected in the new BOI policies, which offer additional incentives to projects that locate in underdeveloped parts of the country, but also in the government’s special economic development zones that are located along Thailand’s border.

The Report also notes that “Economies that consistently rank high in the competitiveness rankings are those that are able to develop, attract and retain talent, and constantly introduce new and higher value-added products and services into the market.” Furthermore, common to the leading economies in the index is that they “possess a track record in developing, accessing and utilising available talent, as well as in making investments that boost innovation. These smart and targeted investments have been possible thanks to a coordinated approach based on strong collaboration between the public and private sectors.”

The TIR would again note that the Thai government has embarked on a course to move Thailand’s economic growth away from its erstwhile dependence on low cost labor and towards greater reliance on high-value added products and innovation, which is also reflected in the BOI policies. Perhaps nowhere is this more evident than in the commitment to supporting an environment for a digital economy to take hold in Thailand.

Asia has maintained its leading position with robust performance. The Report does underline that the “…competitiveness dynamics in South-East Asia are remarkable.” In fact, the five largest economies in the region, of which Thailand is the second largest economy, have all advanced in the competitive ranking. Thailand is now 31st.

A s D e p u t y P r i m e M i n i s t e r Pridiyathorn Devakula has noted in a recent addresses to foreign

investors “We are undertaking drastic reforms that not only reversed the downward spiral but are placing Thailand on an irreversible path to become a high income country.”

Thailand remains competitive and is becoming even more so. With the commitment to build out infrastructure, including port, rail and road improvements, the new BOI investment incentives, its policies for IHQ and ITC, and much more, Thailand remains the place to invest.

March 2015

Page 7

to NESDB, the Thai economy will grow by 3.5-4.5 percent. This growth will largely be due to: “(i) a gradual improvement in export sector in line with a recovery of the global economy, (ii) a recovery of private investment and tourism sector, (iii) an expedition of public expenditure and investment, (iv) a recovery of car sales and production, and (v) the decline in crude oil price.”

NESDB notes that in 2014 the BOI recorded its highest level ever for investment applications received. Moreover, it projects that private investment will grow by 5.0 percent, picking up from 4.8 percent in the last projection. Also, NESDB sees an expansion of investment in preparation for the forthcoming ASEAN Economic Community. Looking at auto production, NESDB writes that “production and domestic sale volumes in 2015 will be not less than 2.0 million and 780 thousand vehicles, respectively.”

Export value, private consumption and total investment will increase by 3.5 percent, 2.9 and 6.0 percent, respectively, while headline inflation is expected in the range of 0.0 – 1.0 percent, with the current account likely to have a surplus of 4.9 percent of GDP.

“The World Economy in 2015 is expected to grow by 3.5 percent, a gradual improvement from 3.2 percent in 2014 due to a robust growth of the US economy, which is expected to record the highest growth rate in 10 years. However, the Eurozone and the Japanese economies recovered slowly amidst rising deflationary pressures. At the same time, the Chinese economy is likely to slow down compared to 2014, whereas NIEs and ASEAN economies tend to perform better than 2014 due to a sharp drop in inflation.”

2015 Index of Economic FreedomThe Heritage Foundation has released in 2015 Index of Economic Freedom, covering 186 countries. This is the 21st edition of the Index “Launched in 1995, the Index evaluates countries in four broad policy areas that affect economic freedom: rule of law; limited government; regulatory efficiency; and open markets. There are 10 specific categories: property rights, freedom from corruption, fiscal freedom, government spending, business freedom, labor freedom, monetary freedom, trade freedom, investment freedom, and financial freedom. Scores in these categories are averaged to create an overall score.”

The Heritage Foundation writes that the findings of this year’s Index continue to demonstrate a strong link between economic freedom and the various dimensions of human development. “Those countries that have adopted some version of free-market capitalism, with economies supported by efficient regulations and open to the free flow of goods, services, and capital, have participated in an era of globalization and economic integration in which solutions to many of the world’s development problems have taken hold and generated real improvements in living standards.”

Thailand’s economic freedom score is 62.4, and is the 75th freest in the 2015 Index. There have been some improvements made in freedom from corruption, business freedom, labor freedom, monetary reform, fiscal freedom, and trade freedom. Thailand is now ranked 12th out of 42 countries in the Asia–Pacific region.

The government is undertaking a reform of the tax structure, it has introduced new investment incentives, worked to support an increase in cross-border trade, including by addressing labor issues, and is taking action on a wide range of issues to enhance Thailand’s economic standing. The country has managed to hold the line during the past years and is setting the stage for a future of growth and economic freedom.

Economic OutlookIn its Economic Outlook, Thai Economic Performance in Q4 and 2014 and Outlook for 2015, the National Economic and Social Development Board (NESDB) reports that the economy in Q4 grew by 2.3 percent. “On the expenditure side, main contributions were from, private consumption expenditure, private investment and government expenditure. On the production side, almost all sectors improved especially manufacturing, construction, and hotel and restaurants sectors which expanded for the first time in several quarters. Meanwhile, wholesale and retail trade and real estate sectors accelerated.”

With growth of only 0.7 percent in 2014, accompanied by low growth in private consumption and an investment contraction, the forecast for the current years offers relief. In 2015, according

March 2015

Page 8

Continued on P. 10

COMPANY INTERVIEW

SCC TechS m a l l a n d m e d i u m -size enterprises (SMEs) in Thai land today face domestic and international conditions that are changing rapidly. Correspondingly, Thai SMEs have a strategic and significant role in the

national economy. By providing opportunities for entrepreneurship and innovation, SMEs will foster greater participation in all sectors. In order to enable SME operators to compete effectively in the world market and to survive in the ASEAN Economic Community, business matching has been promoted between Thai SMEs and their foreign counterparts.

Thailand’s Third SME Promotion Master Plan (2012-2016) seeks to make SMEs the primary driving force of the Thai economy by giving importance to the development of their capacity, so that they may run their businesses using knowledge, creativity, innovation, and cultural uniqueness, both at the sectoral level and at the entrepreneurial level. According to the Office of Small and Medium Enterprises Promotion (OSMEP), the importance of SMEs is illustrated in the following figures. There are around 2.7 million SMEs in Thailand and they account for 37% of national GDP and employ 11 million people. While most of the SMEs are running domestic businesses, they represent 25% of Thailand’s exports. The government of Thailand defines an SME as any business with an annual turnover of not more than Bt200 million.

This month, the Thailand Investment Review team was afforded the chance to meet and speak with Mr. Somkiat Chupukcharoen,

Managing Director of SCC TECH. A number of questions were asked to learn more about the company as a Thai SME, its business activities, and the company’s future plans.

As a mid-sized enterprise, SCC TECH at present employs around 90 staff. The company aims to develop itself into a world-class company by enhancing its operations and human resources, especially in technology and skills. Likewise, SCC TECH seeks to fabricate high-quality products and to transform itself into a green and lean manufacturer. With those goals in mind, Khun Somkiat has pushed the company to comply with international standards and embedded SCC TECH into the global supply chain. In 2007, the company joined both the Department of Export Promotion and the Federation of Thai Industries. Then from 2008 to 2012 SCC TECH obtained certification for ISO 9001:2000, ISO 9001-2008, TS16949, and the Thailand Trust Mark. For Khun Somkiat, customer satisfaction is a key metric of the company success and that can be attained only with a quality product and professional service.

Established in November 2004 with registered capital of Bt20 million, the business focus of SCC TECH is the manufacturing of metal parts for automobiles, motorcycles, and machinery. For instance, Khun Somkiat mentioned that SCC TECH specializes in sprockets, latches, brackets, and hinges. In fact, motorcycle parts account for 50% of the company’s output, while automobiles and machinery account for 40% and 10%, respectively. SCC TECH exports some 25% of its manufactured goods to the US, EU, Japan, Vietnam, Indonesia, Pakistan, Philippines, and Myanmar. On the other hand, approximately 75% of its output is directed towards the Thai market.

SCC TECH started off as a family business and for the past three decades has reinvented itself to what it is today. The company set up shop in Samut Prakan some 11 years ago and its current facility covers an area of 5,000 sqm, with 4,000 sqm for production purposes. Khun Somkiat pointed out that the principal customers of SCC TECH in the car manufacturing sector are Nissan, Isuzu, Ford, and Chevrolet. Meanwhile, the company’s principal customers in the motorcycle manufacturing sector are Yamaha, Honda, Kawasaki, Suzuki, and Ducati. For 25 years the company has provided customized products for motorcycles. However, for the past five to six years SCC TECH has been providing parts for automobiles. Still, the future growth plans of the company call for a change of strategy that will shift the business focus of SCC TECH to medical devices. As observed by Khun Somkiat, the company possesses enough manufacturing capacity as the fabrication of medical tools entails the use of the same equipment.

The Board of Investment (BOI) has approved its “Seven-Year Investment Strategy” (2015-2021), with a focus on promoting investments that create value for Thailand and those that have a positive impact on society and the environment. According to Khun Somkiat, the BOI is the best way to do business as the government agency can provide assistance when dealing with import duties regarding machinery. The relationship in its

March 2015

Page 9

Continued from P. 9

embryonic stages but SCC TECH is eager to explore all options with the BOI in order to broaden its market reach. The company already submitted an application under the new investment promotion policy. As Khun Somkiat observed, the SME sector is large and expanding and as a result requires a close partnership with the BOI. One good example of this cooperation is business matchmaking with the BOI Unit for Industrial Linkage Development (BUILD).

The raising of the minimum wage has hindered the growth of the SME sector. Consequently, for many SMEs there has been a move towards automation, thereby resulting in the replacement of workers. Plus, there is not enough skilled labor for SMEs in Thailand as workers are more attracted to become employees of MNCs. Nonetheless, Khun Somkiat stressed that SMEs like SCC TECH are keen on elevating the skills and knowledge of their personnel. As such, training sessions and workshops organized by the Thai Subcontracting Promotion Association, the Thai-German Institute, the Department of Industrial Promotion, and the Bureau of Supporting Industries Development assist in the betterment of SCC TECH’s production line staff members. Furthermore, signed MOUs between Thai Subcon and a number of local universities and technical colleges, like the Thai-Nichi Institute of Technology and Rajanagarindra Rajabhat University, afford SCC TECH another venue to improve its human resource base.

Still, for Khun Somkiat, the key to the future success of SCC TECH is to drive new innovation, especially product design, rather than rely on customer orders as such a course of action would feed into the value added process. With this in mind, SCC TECH is not intimidated by the upcoming inauguration of the AEC. The company has set its sights on changing itself from a pure parts manufacturer to a trader of value added products along with the production of high quality parts. However, the mindset must change for Thailand to be more competitive. Quality must be emphasized rather than low cost quantity. But for the Thai SME sector to adapt properly there must be more information distributed by the government about the mechanics of the AEC. It is no secret that profit margins in the automotive sector for SMEs are small therefore there is a need to diversify regarding parts manufacturing, like for the medical and aerospace industries.

Since the company’s inception, SCC TECH has been a leader in the blanking, precision and press products industry, advancing both manufacturing and quality assurance technologies. SCC TECH constantly improves its technology through continuous R&D and upgrades its machinery in order to ensure total reliability for its finished products. Also, SCC TECH products meet all the stringent international standards regarding quality and safety. Indeed, through its process of innovation, SCC TECH creates products that are meant for peak performance. SCC TECH has set its standards comparable to established OEM requirements and regularly reviews its capability to maintain consistency in quality.

As Khun Somkiat declared, “There is no doubt that quality is extremely important to our customers. That is why we never rest in our attempts to make the very best possible products. The success of SCC TECH clearly shows that our manufacturing capacity and production standards more than meet the needs of our growing customer base.”

SCC TECH is a SME that is ready for the opportunities and challenges of not only of the ASEAN Economic Community, but also of the global market.

March 2015

Page 10

Minister of Commerce Gen. Chatchai Sarikulya, Minister of Tourism and Sports Kobkarn Wattanavrangkul, and BOI Senior Executive Investment Advisor Ajarin Pattanapanchai undertook a mission to Mumbai and New Delhi, India, to attend “the Trade Investment and Tourism Forum”. Ms. Ajarin later spoke at the “Business Forum, Thailand: Gateway to the ASEAN”, 25 February.

Deputy Prime Minister M.R. Pridiyathorn Devakula, together with Industry Minister Chakramon Phasukavanich and BOI executives, during the Japan Road Show to Tokyo, Nagoya and Osaka, 17-21 February, delivered the keynote speech at BOI seminar “New Investment Promotion Strategies: Towards Sustainable Growth” and held a Business Networking Lunch with Keidanren, NCCI, and Kankeiren.

BOI Deputy Secretary General Duangjai Asawachintachit, together with members of the Thailand Board of Investment Frankfurt and Paris offices, organized investment promotion missions to Belgium, Netherlands, and Spain, 16 – 20 February.

BOI Deputy Secretary General.Chokedee Kaewsang led a business delegation to Dhaka and Chittagong, the People’s Republic of Bangladesh, 31 January – 4 February. The delegation visited government agencies, industrial estates, factories and attended Thai- Bangladesh business matching with several chambers of commences in Bangladesh.

BOI’S MISSIONS AND EVENTS

BOI Senior Executive Investment Advisor Ajarin Pattanapanchai during an investment mission to San Francisco and San Jose, California, 1 – 8 March, where she spoke at BOI seminars on “Investment Opportunities in Thailand”.

BOI Deputy Secretary General.Chokedee Kaewsang led an investment mission to Ehime, Hiroshima, Fukuoka and Fukui, Japan, 7 – 13 March, meeting with potential investors in machinery, equipment and parts, among others.

March 2015

Page 11

THAILAND ECONOMY-AT-A-GLANCE

Source: Stock Exchange of Thailand

Source: Bank of ThailandSET Monthly Closing Values

International Reserves / Short-term Debt (%)

Exchange Rate Trends

Industrial Capacity Utilization (%)

Head Office, Office of the Board of Investment 555 Vibhavadi-Rangsit Road, Chatuchak, Bangkok 10900, ThailandTel: +66 (0) 2553 8111 Fax: +66 (0) 2553 8316 Website: www.boi.go.th E-mail: head@boi.go.thBEIJINGThailand Board of Investment, Beijing Office Royal Thai Embassy No.40 Guang Hua Road, Beijing, 100600, P.R.China Tel: (86-10) 6532-4510 Fax: (86-10) 6532-1620 E-mail: beijing@boi.go.th

FRANKFURTThailand Board of Investment, Frankfurt OfficeBethmannstr. 58, 5.OG60311 Frankfurt am Main Federal Republic of Germany Tel: (49 69) 92 91 230Fax: (49 69) 92 91 2320E-mail: fra@boi.go.th

GUANGZHOUThailand Board of Investment, Guangzhou OfficeRoyal Thai Consulate-General GuangzhouNo.36 Youhe Road, Haizhu District, Guangzhou, P.R.C 510310 Tel: +8620 8385 8988 Ext. 220-225 +8620 8387 7770 (Direct Line)

Fax: +8620 8387 2700 E-mail: guangzhou@boi.go.th

LOS ANGELES Thailand Board of Investment, Los Angeles Office Royal Thai Consulate-General 611 North Larchmont Boulevard, 3rd Floor, Los Angeles, CA 90004 USA Tel: (1-323) 960 1199Fax: (1-323) 960 1190E-mail: boila@boi.go.th

MUMBAIThailand Board of Investment,Mumbai OfficeRoyal Thai Consulate-General,1st Floor, Dalalmal House, Jamnalal Bajaj Marg, Nariman Point, Mumbai400 021 Republic of India Tel: (9122) 2204 1589-90 Fax: (9122) 2282 1071E-mail: mumbai@boi.go.th

NEW YORKThailand Board of Investment, New York Office 7 World Trade Center, 34th Floor, Suite F, 250 Greenwich Street, New York, NY 10007Tel: (1-212) 422 9009Fax: (1-212) 422 9119E-mail: nyc@boi.go.th

OSAKAThailand Board of Investment, Osaka Office Royal Thai Consulate-General, Osaka, Bangkok Bank Bldg. 7th Floor , 1-9-16 Kyutaro-Machi, Chuo-Ku, Osaka 541-0056 Japan Tel: (81-6) 6271-1395 Fax: (81-6) 6271-1394E-mail: osaka@boi.go.th

PARISThailand Board of Investment, Paris Office Ambassade Royale de Thailande, 8, Rue Greuze75116 Paris, FranceTel: (33 1) 5690 2600 (33 1) 5690 2601Fax: (33 1) 5690 2602E-mail: par@boi.go.th

SEOULThailand Board of Investment, Seoul Office#1804, 18th Floor, Koryo Daeyeongak Center,97 Toegye-ro, Jung-gu, Seoul, 100-706, Korea Tel: (822) 319-9998 Fax: (822) 319-9997E-mail: seoul@boi.go.th

SHANGHAIThailand Board of Investment, Shanghai OfficeRoyal Thai Consulate-General15 F., Crystal Century Tower, 567 Weihai Road, Shanghai, 200041, P.R.China Tel: (86-21) 6288-9728, (86-21) 6288-9729 Fax: (86-21) 6288-9730E-mail: shanghai@boi.go.th

STOCKHOLMThailand Board of Investment, Stockholm OfficeStureplan 4C 4th Floor 114 35 Stockholm, Sweden Tel: +46 (0)8 463 1158 +46 (0)8 463 1172 +46 (0)8 463 1174 to 75 Fax: +46 (0)8 463 1160 E-mail: stockholm@boi.go.th

SYDNEYThailand Board of Investment, Sydney Office 234 George Street, Sydney, Suite 101, Level 1,New South Wales 2000, Australia Tel: +61-2-9252-4884 Fax: +61-2-9252-4882E-mail: sydney@boi.go.th

TAIPEIThailand Board of Investment, Taipei Office Taipei World Trade Center 3rd Floor, Room 3E39-40, No.5, Xin-Yi Road, Sec.5Taipei 110, Taiwan, R.O.C. Tel: (886) 2-23456663Fax: (886) 2-23459223 E-mail: taipei@boi.go.th

TOKYOThailand Board of Investment, Tokyo Office Royal Thai Embassy8th Fl., Fukuda Building West,2-11-3 Akasaka, Minato-ku, Tokyo 107-0052 JapanTel: (81 3) 3582 1806Fax: (81 3) 3589 5176E-mail: tyo@boi.go.th

Facts about ThailandPopulation (2014) 65 millionASEAN Population 625 millionLiteracy Rate 96%Minimum Wage 300 Baht/day

GDP (2014) US$ 373.6 billionGDP per Capita (2014) US$5,445 GDP Growth (2014) 0.7%GDP Growth (2015, projected) 3.5-4.5%Export Growth (2014) -0.3%Export Growth (2015, projected) 3.5%

Trade Balance (2014) US$ 24.6 billionCurrent Account Balance (2014) US$ 14.2 billionInternational Reserves (2014) US$ 157.1 billionCapacity Utilization (2014) 60.48%Manufacturing Production Index (2014) 168.2Core Inflation (2015, projected) 1.59Headline Inflation (2015, projected) 1.89Consumer Price Index (Feb 2015) 106.15 (2011=100)

Corporate Income Tax 10-20%Withholding Tax 0-15%Value Added Tax 7%

Feb Average Exchange RatesUS$1 = 32.57 baht€1 = 36.99 baht£1 = 49.89 baht100 ¥ = 27.48 bahtCNY1 = 5.21 baht

Top 10 Exports 2015 (Jan)

Product Share Value (US$ bn)

1 Motor cars, parts and accessories 10.77 1.86 2 Automatic data processing machines

and parts thereof9.06 1.56

3 Precious stones and jewellery 5.63 0.97 4 Polymers of ethylene, propylene, etc

in primary forms3.97 0.68

5 Refine fuels 3.80 0.66 6 Electronic integrated circuits 3.51 0.60 7 Chemical products 3.30 0.57 8 Rubber products 3.19 0.55 9 Machinery and parts thereof 3.00 0.52

10 Iron and steel and their products 2.55 0.44 Total 17.25

Source: Ministry of Commerce

Source: Bank of Thailand

Source: Bank of Thailand BOI

March 2015

Page 12