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Despite more challenges from both international and domestic factors, in particular the increase of minimum wage to 300 baht, Thai SMEs should not only prepare to handle the challenges, but they also need to take advantage of AEC liberalizations to expand trade and investment in nearby countries having an abundance of resources and lower manufacturing costs, which will help increase competitiveness.
The best trade and investment opportunities for Thai SMEs are Indonesia and the CLMV countries. However, to determine which markets should target for investment, SMEs need to determine which advantages their business would like to build upon.
Indonesia and Vietnam both benefit from having large markets thanks to their large populations. It is easier and faster to start business operations there compared to other CLMV countries. However, for labor-intensive industries, the best destinations to invest should be Cambodia and Myanmar.
Vietnam, which used to attract investments focused on low labor cost, is not as attractive as it used to be.
Due to labor shortages, Vietnam has had to increase its minimum wage around 25-30% in 2012, making wages 1.5 times higher in Vietnam than in Myanmar and Cambodia. Besides the attractive factors mentioned above, SMEs should also consider other factors such as the market needs, tax system, and investment regulations that restrict certain kinds of businesses. For example, Indonesia has rules against SME ownership in some sectors, such as a ban on foreign ownership of small retail businesses.
Meanwhile, SMEs should consider other costs such as land rents, especially in big cities like Ho Chi Minh, Hanoi, Rangoon and Mandalay. SMEs should invest in manufacturing operations outside of cities, or locate in industrial estates where rent is not as high. Industrial estates in Myanmar charge rents that are around the same rate as at Laem Chabang Industrial Estate in Thailand.
The growth in household spending in CLMV countries is an opportunity for SMEs in the trading business
Household spending in Cambodia and Vietnam is continually rising both for food and beverages and other household goods. Meanwhile, increasing use of cars and motorcycles has resulted in increasing spending on maintenance as well as higher demand for vehicle parts. There is also growing demand for residential constructions, which supports demand for construction materials; household products; and construction and design services.
The CLMV countries’ growth in household spending is an opportunity for Thai SMEs to engage in trade businesses, such as selling consumer goods or construction materials, operating small retail businesses, garages, car care centers and restaurants, because Thai goods and services are well known, in good standing and popular in these countries. Read More