Flooding in Thailand could force vehicle and heavy machinery makers to move their operations to nearby countries, says one of Asia’s most senior coporate analysts.
Japanese manufacturers have become increasingly reliant on the South East Asian country, attracted by its developed network of support industries and suppliers.
Takahiro Sekido, chief economist at Credit Agricole CIB in Tokyo told Bloomberg that: “Executives recognise the concentration risk after the floods.”
He added: “The recent trend of accelerating investment into Thailand will cool despite the fact that Thailand was such an ideal destination.”
The onset of the Monsoon in August has precipitated some of the worst flooding seen on mainland Thailand in living memory. In just three months, the floods have caused over 500 deaths, affected over 2.3 million people, and over $5 billion in damage.
Thailand is one of the region’s most important locations for Japanese production and companies such as Hitachi, Nissan and Toshiba have all announced they have halted production. Honda, Isuzu. and a unit of Mitsubishi Heavy Industries based north of Bangkok are also under threat from advancing flood water.
This is the second major disaster in 2011 to hit Japanese manufacturing following March’s Tsunami disaster; highlighting the country’s dependency on a relatively thin spread of industrial clusters.
Some companies have temporairily shifted production to other plants in the region, while many are reportedly considering diversifying their investments in the region and reducing Japanese reliance on Thailand. Japanese investment in the country increased by 30% in 2010 led by the automotive and machinery industries.
While they may look at adding facilities in Vietnam or Indonesia, Yoichi Yajima, business support centre representative for the Japan External Trade Organisation said that companies from his country will remain commited to Thailand for some time yet.
“I don’t expect a big withdrawal of investment from Thailand,” Yajima said. “As long as big firms like Toyota, Nissan, Honda, Toshiba or Hitachi stay here, their suppliers won’t leave.”
