Japanese companies, Thailand’s biggest foreign investors, may spend more to build factories in neighbors including Indonesia and Vietnam after the worst flooding in 70 years disrupted global production.
“Executives recognize the concentration risk after the floods,” said Takahiro Sekido, chief Japan economist at Credit Agricole CIB in Tokyo.
Prime Minister Yingluck Shinawatra has proposed spending 130 billion baht ($4.2 billion) on reconstruction and steps to prevent future floods. She seeks to reassure investors that Thailand remains a safe place for business, as companies including Pioneer Corp. (6773), Honda Motor Co. and Toyota Motor Corp. (7203) scrapped profit forecasts after the floods shut factories.
The disaster has rippled through the supply chains of Japanese auto and electronics makers, as parts shortages affected operations across the globe.
Honda plans to extend output reductions at six plants in the U.S. and Canada until next week because of deficiencies caused by the Thai floods, Japan’s third-largest carmaker said in a statement on Nov. 9.
Honda Chief Financial Officer Fumihiko Ike said on Oct. 31 that he hopes the Thai government will improve infrastructure, including water-drainage systems.
With a well-developed infrastructure, a free-enterprise economy, generally pro-investment policies, and strong export industries, Thailand enjoyed solid growth from 2000 to 2008 – averaging more than 4% per year – as it recovered from the Asian financial crisis of 1997-98. Thai exports – mostly machinery and electronic components, agricultural commodities, and jewelry – continue to drive the economy, accounting for as much as three-quarters of GDP. The global financial crisis of 2008-09 severely cut Thailand’s exports, with most sectors experiencing double-digit drops.
On the other hand Vietnam is a magnet for foreign direct investment. The success of doing business in Vietnam is greatly facilitated by the ability to put through effective corporate structure and financial management system to deal with foreign investment laws, taxation, accounting and foreign exchange issues in Vietnam.
The investment registration process and tax management in Vietnam is decentralized, with the municipal and provincial authorities having significant discretions on how businesses are established and managed from a tax and accounting angle. Having a good local partner, experienced staff and localized professional support would greatly assist in the initial start-up stage.