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OeVtfEY
ALFRED
P.
WORKING PAPER
SLOAN SCHOOL OF MANAGEMENT
Japanese Investment and Influence
in
Thai Develo pment
Nobuko Ichikawa, Michael A. Cusumano,
and Karen R. Polenske
Massachusetts Institute of Technology
Sloan School WP# 3182-90/BPS
Draft: July 18,
1990
MASSACHUSETTS
INSTITUTE OF TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
Japanese Investment and Influence
Thai Development
in
Nobuko Ichikawa, Michael A. Cusumano,
and Karen R. Polenske
Massachusetts Institute of Technology
Sloan School WP# 3182-90/BPS
Draft: July 18,
Note:
1990
The authors'
affiliations,
respectively, are the
Thailand Development Research Institute Foundation,
Bangkok; the M.I.T. Sloan School of Management,
Cambridge, MA; and the M.I.T. Department of Urban
Studies and Planning, Cambridge, MA.
Address Correspondence
to:
Professor Michael A. Cusumano
MIT Sloan School
Room E52-555
Cambridge,
Tel.
Fax.
MA
of
Management
02139
(617) 253-2574
(617) 253-2660
SUMMARY
Economic planners and government
face
a
major decision:
whether
to
officials
encourage
in
Thailand
NIC's (Newly
a
Industrialized Country) type of strategy based on manufacturing
exports from the urbanized central region, which
require
increasing
dependence on foreign
technology, especially from Japan; or follow
will
probably
investment
a
and
NAIC's (Newly
Agro-lndustrialized Country) type of strategy based on agro-
industry exports, which
will
probably mean
less
rapid growth
overall but an improvement in rural conditions as well as
more
independence through investment from internal sources.
This
article
examines this choice from the perspective of Thailand as
well as
Japan,
We argue
industries
will
that
is
largest source o* aid and foreign investment.
its
a
combination
of
manufacturing
and
agro-
necessary for continued development and that this
require more cooperation between Thailand and Japan as
well as
more Japanese assistance.
ACKNOWLEDGEMENTS
The authors would
like to
thank the Japan Foundation and the
Takahashi Foundation (Minebea Corporation) for funding that
made
this
research possible.
Alice
Amsden
also contributed
helpful comments on an earlier version of the manuscript..
1.
INTRODUCTION
Economists as well as foreign investors often consider Thailand to be the
country most
likely
catch
to
up with Asia
s
Newly Industrialized Countries
(NICs), primarily Korea and Taiwan, which have grown rapidly since the 1960s
by exporting manufactured goods rather than agricultural products.
has been one of the fastest growing countries
the world, with much of
in
growth supported by manufacturing investments and output (Table
continues to be
a
Thailand
1).
its
also
It
promising site for foreign investment because of high growth
without much inflation, unstable exchange rates, or political turmoil, at least
in
comparison to many other developing countries.
[Table
Japan has
way
led the
1
here]
foreign investments, focusing on export-oriented
in
manufacturing sectors, such as electrical and electronics products as
chemical and non-metal goods.
for inflation)
Total
from Japan rose from $48 million
Japanese investments
compared
to
in
as
new and additional investment (unadjusted
in
1985 to $859 million
(Ministry of Foreign Affairs, 1988; Keizai Koho Center, 1989).
of
well
The
total
by mid-1989 had reached $3.5
Thailand
in
1988
stock
billion,
merely $871 million for the next largest investor, Taiwan (Sanger,
1990).
Despite this
record of growth
planners and government officials
in
and new investment,
however,
Thailand, as well as Japanese government
agencies, research institutes, and companies, have found themselves
of critical
economic
importance to the future of Thailand:
whether
to
debate
in a
encourage
a
NIC's
type of development based on manufacturing exports from the urbanized central
region,
or encourage
development
agricultural
based
a
on
products).
NAIC's (Newly Agro- Industrialized Country) type of
exports
"agro-industries"
from
(the
processing
of
Although the two approaches need not be mutually
1
exclusive,
the
advantage
of
sectors located
dilemma
Japanese
with'n
Thailand
investment,
that
is
which
is
concentrated
in
to
take
manufacturing
the central region of Thailand, but this type of investment
in
tends to worsen urban problems already existing
little to
many groups want
in
the Bangkok area and does
solve equally pressing problems related to rural poverty.
In
addition,
Thailand may not have the economic resources to build sufficient infrastructure
needed for industrial-based development such as required by foreign, especially
Japanese, manufacturing investments.
This article examines the conditions and policies influencing the course of
Thailand's economic development primarily from the perspective of Thailand's
biggest investor and foreign-aid donor
--
probable course of economic development
Japanese public and
argument
opposite
is
that
private
Japan
in
investment
on
--
order to understand the
in
Thailand as well as the impact of
combination of elements are pushing Thailand
a
with
directions,
a
slower,
a likely
potentially
a
heavier
path, even though domestic
mixed approach, combining agro-businesses with
some manufacturing, may actually be the wisest strategy
2.
in
Japanese investments especially making
emphasis on export-oriented manufacturing
conditions suggest
The major
development.
Thai
to follow.
INTERNAL FACTORS INFLUENCING THAI DEVELOPMENT
Two
and
internal factors
encouraged
development.
a
One,
have had an important impact on Thai development
mixture
political
of
manufacturing-based
stability,
has
helped
and
agriculture-based
make Thailand the most
attractive location for Japanese investors moving operations to Asia.
the Thai agricultural sector,
A second,
has contributed cheap labor and food as well as
surplus capital to support manufacturing investments while also providing raw
Numerous problems remain
materials and finished products for agro-industries.
in
agricultural
the
problems as
a
however,
sector,
Political Stability
the Japanese Chamber of Commerce
1988,
number
largest
Chamber
of
Thailand
to
registered members among the
of
Commerce
Japanese
in
as
a
place
ASEAN' countries (Japanese
investment
for
Abundant, cheap, and hard-working labor,
a
in
Southeast
Asia.
history of successful economic
performance with stable exchange rates and low
familiar to the Japanese,
Bangkok recorded the
in
This reflects the attractiveness of
Bangkok, 1989b).
firms
urban
to
Bangkok area.
result of migration into the
(a)
In
and these have contributed
cultural traditions
inflation,
and the foreign-investment promotion policies
of the
Thai government, including tax policies allowing foreign firms to remit most of
their profits back to their
frequently
for
cited
home countries (Smith, 1989a), are among the reasons
popularity.
Thailand's
stimulated by the Vietnam War created
a
In
addition,
high demand
in
economic growth
Thailand during the
1960s and early 1970s for Japanese goods, which Japanese firms had to produce
locally
to
because of the Thai government's import-substitution policies.
most other countries
good
relatively
political
during World War
Of
equal
Thailand's
II
or
political
all
East
relations
(Yamashita
greater
and Southeast Asia,
with
et al.,
importance
stability,
Southeast and East Asia.
China
in
In
at
least
Thailand,
Compared
Japan also maintained
which
it
did
not
colonize
1989).
than
in
these
factors
comparison
to
the 1980s, the Philippines,
appeared
other
to
be
countries
in
Korea, Taiwan, and
faced strong political challenges against state control and political
^
ASEAN is an abbreviation for the Association of Southeast Asian
Nations. Members, in addition to Thailand, include Indonesia, the Philippines,
Malaysia, Singapore, and Brunei.
decade,
Indonesia encountered less political turmoil
Malaysia and
corruption.
they
although
faced
from
among their ethnically diverse populations.
religious conflicts
neighboring countries,
these
stemming
problems
internal
Thailand's
constitutional
in
this
racial
and
In
contrast to
monarchy,
along with
harmony between ethnic Chinese and native Thai, who shared Buddhism
dominant religion, seemed
to
to create a social
and
environment amenable
political
economic investment.
The ouster
changes
in
Thailand's military dictators
of
the Thai political system
in
1973
Thailand,
that organized groups, such as university
in
suddenly
gained
decision
impact of the military on
(Suehiro,
Supported
1985).
administration
that
came
by
power
to
different
it
making for economic and
popularity
the
the
1988,
in
appears that
also
groups now active
in
Thai
of
the
public
same
the
particularly
Thai
stability.
in
time,
however,
country
the
planning
social
Chatichai
civilian
role
political
As part
1989).
of
politics
rapid
of this
that democratization
industrialization
in
as
well
this
as
the future.
and
urbanization,
Bangkok and surrounding areas, has caused serious problems
government that may threaten
the
consensus has emerged among the
a
economic development are necessary for Thailand to prosper
At
silent in
1976, Thailand successfully reduced the
in
military continued to decline in the late 1980s (Tasker,
evolution,
though
Even
influence.
national
experienced another military takeover
political
contributed to
also
urban workers, and farmers, which historically had been
students,
the
as the
economic success
and
for
political
These problems include poor housing conditions, crowded buses,
air
and water pollution, and recurrent floods worsened by land sinking from the
digging of deep
Board,
1986a).
industrial
In
wells
addition,
(National
activism
Economic and Social
Development
among Thai labor unions, especially
at
state-owned enterprises faced with government privatization plans, appeared to
be on the rise (International Labor Organization,
Paisal,
1987;
1988;
Handley, 1989).
1989;
The Agricultural Sector
(b)
The Thai agricultural sector has supported
ways.
Increases
in
industrialization
agricultural production have helped
provided cheap food and
also
Thai
addition.
agriculture
labor
carried
has
several
Agriculture
the manufacturing sector.
for
out
in
expand national income
and government revenues, creating surplus capital for investment.
has
Tasaka,
a
unique
role
as
a
In
source of
increasingly diversified exports, beginning with traditional products such as rice
and rubber; post-World War
II
products,
such as maize, tapioca,
kenaf, and
sugar; and then recent products, such as canned fruit and frozen chicken.
fact,
1988,
In
in
Thailand
one
is
of only a
In
few food exporters among developing countries.
105 billion baht worth of agricultural products out of 248 billion baht
gross domestic agricultural output were exported
{42"b of
Agricultural and marine product exports were decreasing
but
exports,
represented 43%
in
1985 and 31%
items, in 1988, rice (35 billion baht),
occupied second,
products (58
third,
billion)
rubber (26
and fourth positions,
in
agricultural output)
in
1988.
billion),
.
their share of total
In
terms of export
and tapioka (22
respectively,
billion)
following textile
(Thailand Development Research Institute Foundation, 1989)
.
Yet the traditional and the post-war agricultural exports seemed to have
reached
a
limit
in
the 1980s,
because some countries that formerly imported
large quantities of food achieved self-sufficiency, increasing competition among
food exporters (Ishida,
Thai companies and government officials were
1988).
trying to manage this situation by further diversifying Thailand's agricultural
products as well as attempting
the
export of chicken,
skillful
shrimp,
marketing efforts.
and other canned foods
Recent increases
in
suggest that this
approach has worked and Thailand has the potential to increase agro-industry
exports even further, which would help bring needed income to farmers
areas as well as earn foreign currency.
in
rural
Prrticulariy important to this trend
have been the emergence of large plantations, especially for palm cultivation,
actively promoted by the Thai
government
s
Board
Investment and run by
of
agro-businesses owned by Thai or by joint ventures with foreign investors, and
the formation of integrated production and distribution organizations that have
made serious
efforts
marketing,
observed
Suehiro,
as
improve
to
production
the chicken
in
1987b; Viraphong,
and
technology
(broiler)
industry
international
(Shigetomi,
1987;
1989).
Yet, although the agricultural sector has contributed to the development of
the Thai economy
in
various ways,
caused difficulties not only
to
in
agricultural areas but
One problem
the migration of farm workers.
in
is
urban areas as
this
has
well,
due
that government policies
have kept prices of food low and manufactured goods high,
to transfer surplus capital
and
rural poverty has continued
a
process that tends
from agriculture to manufacturing sectors.
of rapid increases in productivity for
manufacturing relative
In spite
to agriculture, the
government protects import-substitution manufacturing products through
import tax and regulation of the number of companies
in
one
field;
a
high
this keeps
prices for these manufactured goods high, while there are no similar measures
for agricultural products.
In
addition,
although
the
governments
official
policy
changed from
supporting import-substitute industrialization to export-oriented industrialization
in
the
early
1970s,
among manufacturing sectors,
so
far
only
the
textile
industry has been able to compete internationally, partly because of measures
favoring
import-substitution
Furthermore,
industries.
monthly wage for private employment
in
in
the agricultural
1987,
the average
sector was merely
compared
baht,
1,106
the manufacturing
in
The producers' price index
1987).
Office,
Statistical
baht
2,137
to
sector
(National
for the manufacturing
sector has also been consistently higher than that for agriculture (Japanese
Chamber
Commerce
of
manufacturing
over
in
Thus, while favoring domestic
1989a).
may have concentrated
agriculture
Thailand
investments,
industrial
Bangkok,
has
yet
develop
to
useful
capital
for
own manufacturing
its
exports, while this policy may also have prevented the agricultural sector from
increasing prices and accumulating capital
Investment
in
agriculture
source of employment
late
as
1986,
in
important because this sector
is
accounting for
Thailand,
the last year for which
Although the percentage
of
under
16
million
of total
employment as
agriculture has been declining, the
in
sector was
this
in
1980
in
67°6
the major
still
is
complete data are available (Table 2).
employment
absolute number of people working
from just
needs for further investment.
it
approximately
to
increasing,
still
17.8
million
in
rising
1986.
Furthermore, according to the sixth National Social and Economic Development
new workers are expected
Plan (1986-1991), approximately 3.9 million
the labor market (National Economic and Social Development Board,
is
unlikely
that
non-agricultural
sectors
can
As seen
if
in
productivity and incomes
a
comparison of Tables
1
in
20%
for
manufacturing,
which
in
It
to
leave
rural
areas,
the agricultural sector do not improve.
and
2,
agriculture, which occupied more
than two-thirds of the employed population,
Thailand's gross domestic product
1986b).
provide enough employment to
absorb these new workers as well as people expected
especially
to enter
accounted for
the mid-1980s,
accounted
for
population
[Table 2 here]
as
merely
less
opposed
8%
of
than
to
the
17% of
more than
employed
Continuing Rural (and Urban) Problems
(c)
Data on the level of urbanization (defined as the ratio of population living
in
municipal areas compared to the total population)
land tenancy, the amount of virgin land available for cultivation,
immigration,
as well as land productivity,
indicate that neglecting rural development has
all
created serious problems for Thailand
dramatic increases
in
to other
Indonesia,
merely
18%
38%
in
(Asian
number
the
Even
from agricultural areas.
compared
ASEAN
in
both rural and urban regions, with
in
people moving into metropolitan Bangkok
of
1985,
Thailand was
a
relatively rural society
countries, where the level of urbanization was 25%
and 40%
Malaysia,
Development
increase from approximately 13%
Office,
and domestic population
the
in
Bank,
in
Philippines.
In
although
this
1989),
both 1970 and
in
Thailand
it
in
was
represented an
1960 (National Statistical
1960 and 1970).
The 1980 census
data,
however,
show clearly that there was
far
more
migration from rural and urban communities to the Bangkok Metropolitan Area
and the surrounding region than from one rural area
rural
to
For
areas.
example,
the
net
inflow
of
to
another or from urban
migrants
to
the
Bangkok
Metropolitan Area and the surrounding five prefectures accounted for 90% of
the country's net migrants from 1975 to 1980 (National Statistical Office,
and
National
population
in
Economic
the
and
Social
Bangkok Metropolitan
increased from 2.1 million
in
in
the
From 1970
Board,
1986a).
The
total
Thon
Buri)
thus
(including
in
1986,
only part of which
to 1986, the annual population
the Bangkok Metropolitan Area averaged 3.5%, compared to 2.5%
for the whole nation.
in
Area
1960 to 5.8 million
came from natural population growth.
growth rate
Development
1980
During
this period
roughly 44%
of the population
Bangkok Metropolitan Area can be attributed
to
migration
growth
(National
Economic and Social Development Board, 1986a).
Other evidence
(the percentage of agricultural
worked
1975,
which rose 42%
it),
rented rather than owned by those who
land
area nationwide from 1975 to 1986 (Table 3).
in
the Central Region, 41% of
in
percentages were 27%
Northeast
poverty has been growing land tenancy
of the rise in rural
(Suehiro,
in
the North
all
In
farms consisted of rented land; these
Region,
17%
in
the South,
and 9%
the
in
By region, the Northeast, the major source
1980).
of
immigrants into Bangkok according to the 1980 census, experienced the largest
increase
after
as
residents,
land-holding levels inadequate to feed
shift to
a
Because Thai farm
152%.
exclude non-land holders who are rural
statistics
suggest
estimated to be as much
1975,
considered to be 25
rai
a
these numbers
family
(generally
for an average family).
[Table 3 here]
Responding
issued
a
land
government
amounted
to the increase in land
reform
law
to 7.6 million
was privately owned.
farmers.
In
million
addition,
1975 the Thai government
purchased land for distribution.
which
rai
Land affected
was public land and 2.6
5 million
By 1989, the reforms had transferred
million
3.1 million rai or
The Agricultural Land Reform Office (ALRO)
40% of the targeted land.
earmarked 2.7
of
rai,
in
gave farmers cultivating land owned by the
that
legal title as well as
tenancy,
or 54% of
ALRO
all
public
land
has purchased 361,830
owned targeted land and rented 67%
of
it
to
for
rai
also
distribution to poor
or 14% of the privately
farmers while reselling 12% on
a
"hire-purchase" basis and leaving 21% not allocated (Preyaluk, 1989a).
This
effort,
^
however,
has
had
limited
results.
Privately
owned land
Data for
Data for 1960, 1970, and 1980 are from the annual censuses.
are from projections by the Working Group on Population Projections,
comprising NESDB, NSO, and the Institute of Population Studies, Chulalongkorn
University
1986
.
targeted for distribution
landlords,
amounted
(Preyaluk,
1989a).
farmers,
to
merely
to
addition,
In
14%
which
of
much
reduc:-?
total
of
land
rent payments
their
under
tenancy
to
1986
in
the publicly owned land that was
distributed merely legalized the position of farmers illegally cultivating land,
and so the incomes
of these people did not
not solve the problem of high land rents
in
the Central
tenancy but with relatively low rents,
land
also did
For example, while
certain areas.
non-resident landlords dominate and there
Region,
concentration of
in
The land reform
change.
in
high
a
is
part of the
North, there are more resident landlords, but they continued to impose higher
rents on tenants (Suehiro,
1980).
At the same time, distribution of publicly owned land along with increases
in
the rural population as well as extensive commercial logging have destroyed
Thailand's forests,
as
little
lowest
29%
in
figure
which covered 53% of the nation
(Suehiro,
the late 1980s
among the ASEAN
1980;
countries,
in
Norani,
with
and perhaps as
1961
This was the
1989).
the
exception
heavily
of
urbanized Singapore (Economic and Social Commission for Asia and the Pacific,
1988)
.
The destruction
of forests causes various problems:
increased possibilities for flooding and
and quality
forests.
of water,
as well as potential
erosion,
damage
banned commercial
officially
difficult to enforce
Furthermore,
have suffered from
(Norani,
paddy production
in
in
January 1989 the Thai
although
been
has
this
rural
incomes
output and agricultural productivity.
While
Thailand between 1976 and 1985 grew from 15 million
metric tons to only 20 million, the average yield
kilogram per hectare
dependent on the
has become scarcer for farmers,
growth
in
logging,
in
the quantity
in
1989).
while land
little
reductions
to animals
These problems became so serious that
government
total
soil
damaged watersheds,
in
paddy
fields rose
1975 to merely 2,052 kilogram per hectare
10
from 1,825
in
1986.
In
output growth
contrast to the total
of
land
35%,
yield
grew only by
Cultivated land per capita has stayed the same, at 0.38 hectares
both 1970
in
This suggests that the increase of rice production came mainly from
and 1985.
the expansion
both
of
the
population
cultivating
of the lowest levels of productivity in
countries,
with output
fields
rice
not from productivity growth.
available for cultivation,
one
12%.
less
levels
paddy
and
area
Thailand had
In fact,
cultivation
land
among developing
than half of China and merely
a
third of
South Korea, as well as behind countries such as Afghanistan and India (Table
4).
In
addition. Thai farmers
in
the 1980s suffered from sharp declines
international market price for rice,
1980 to $216
in
which
fell
the
in
from about $424 per metric
in
1985 (nominal values), as well as for maize, casaba, and sugar
cane (Asian Development Bank, 1989).
[Table 4 here]
The
cultivation of different cash crops has diversified Thai agriculture and
created valuable export items, while skillful operations and marketing by Thai
agro-businesses have increased Thai agricultural production and exports.
the limited results of these efforts,
solve
problems such as
tenancy,
land
massive migration to Thailand
as well as of land
s
low
reform,
productivity
in
have
failed to
agriculture,
The Thai government
capital city.
is
Yet
and
aware
of
these problems but has placed more emphasis on developing Thailand's urban
and industrial infrastructure rather than agriculture.
especially evident
in
expensive examples such as the government's on-going
Eastern Seaboard projects,
which contain
plant, two ports, and two industrial parks.
also
insisted
that
This policy has been
large
migrations
a
natural-gas refinery,
Some Thai government
from
rural
areas,
a
fertilizer
officials
especially
from
have
the
Northeast, together with the expansion of cultivated land, have prevented land
fragmentation
and
raised
per
capita
rural
11
incomes,
because
migrants
are
This view acknowledges the Bangkok
generally surplus agricultural workers.
Metropolitan Area and the surrounding five prefectures as the center of growth
in
Thailand and emphasizes the benefits of improving this urban area, where
most industry and growth are concentrated,
the expense of agricultural
at
regions (National Economic and Social Development Board,
3.
1986b).
EXTERNAL FACTORS INFLUENCING THAI DEVELOPMENT
Whether export-oriented
absorb rural migrants
others
external
see
and this
not clear,
create
is
investment from countries
enough
Japanese
investment,
however,
has
not
Related to Thailand
s
to
and
officials
such as Japan as
political
critical
to
stability
as
grown over time but
only
gradually shifted from an emphasis on agriculture and
manufacturing.
employment
why government
continued economic development and perhaps
Thailand's
well.
is
can
industries
natural
appeal and the increase
in
resources to
manufacturing-
oriented investments has been growing political pressure on Japan to import
more manufacturing goods and the emergence
countries
in
Thailand as well as other
of
Southeast Asia as manufacturing bases for multinational firms from
Japan and other developed countries as well as from the NICs.
(a)
Japanese Investments
Japanese overseas investments started
along with
into
rapid economic growth at home,
international markets,
decisions
in
to
improvement
in
grow mainly after the
movement
Japan
s
of
late 1960s,
Japanese companies
balance of payments,
the Japanese government to allow more foreign investment.
In
and
the
second half of the 1970s, Japanese direct investments abroad ranged between $3
and $5
billion
per year,
but,
in
the first half of the 1980s,
12
they jumped to
approximately $8
billion
per year (nominal values) as the yen rose
made overseas assets appear
relatively inexpensive
in
value and
and production costs
high (Organization for Economic Cooperation and Development, 1987).
direct investment overseas
and
in
in
Japan
Japanese
1986 alone increased by 83% to over $22 billion
1988 reached 47 billion dollars.
in
terms of Japan's foreign investment stock, valued at more than $186
In
as
billion
July
of
followed
billion),
by Asia,
America,
Asia
America,
Latin
Europe,
operations,
with
($75
and Oceania and Africa,
invested
in
by far the largest
represented
also
manufacturing
overseas
represented the biggest share
with between $30 and $32 billion
respectively,
North
America
North
1989,
more than
$12
each area.
site
for
billion
After
Japan's
worth
of
investments (Table 5).
[Table 5 here]
In
terms of the number of companies investing,
North America as
site for
a
for 37% of the cumulative
investments
in
1988, primarily
Thailand
number
North America
to 29°6 for
and
to
electrical
China.
financial,
into
Asia accounted
Japanese firms investing abroad, compared
keizai,
From 1986
of 1988,
1990).
In
in
absolute terms,
Japanese
1985 to nearly $5.6 billion
in
the Korea, Taiwan, other NICs, as well as
in
to
Asia,
July
829 were
and service sectors.
new cases
of
manufacturing and 262
in
out of
1989,
in
Among
1,437
the manufacturing cases,
and electronic appliances and equipment had the highest concentration
(193 firms),
(Toyo
(Toyo
investments
Japanese firms expanding
commercial,
of
Asia increased from $1.4 billion
due
As
Japanese investment.
Asia actually exceeded
keizai,
followed by chemicals
(94)
and automobiles and auto parts (73)
1990).
Breaking down Japanese investments by the number of firms entering
individual
countries,
since
1986 Thailand has enjoyed the largest
13
number
of
Thailand also ranked second
cases.
States)
and Singapore, tended
Although other
ASEAN
countries, such as Indonesia
to be the object of larger projects
terms of the value of Japanese investments,
in
Thailand for the first time were the largest
countries (Kei;ai Koho Center, 1989).
in
(behind only the United
the world
the number of new investment cases from January 1988 through July
in
1989 (Toyo keizai, 1990).
in
in
and surpass Thailand
1988, Japanese investments
value among
in
all
the
in
ASEAN
This reflected both increasing labor costs
the Asian NICs (Clifford and Moore,
1989) as well as the general appeal of
Thailand to Japanese investors.
Although more recent information
prior to the large increases
degree
in
Japanese investments
have come
importance Japanese firms
of
manufacturing sectors.
As seen
by the Japanese Chamber
of
unavailable,
is
in
Table
Commerce
6,
in
more
occupy
to
in
1983,
indicate the
various
based on estimates from
half of
all
even
a
Thai
survey
affiliated with
domestic shipments (by
the electrical equipment and automobile industries and one-fourth or
in
of
Thailand,
Bangkok, Thai firms
Japanese companies accounted for more than
value)
in
data from
all
shipments
in
steel
and
textiles.
[Table 6 here]
(b) Asian Economic Integration
The other
factor encouraging Thailand to develop manufacturing industries
has been economic integration and the reorganization of industrial structures
and corresponding trade practices among Japan,
countries.
country.
a
and the ASEAN
Previously, under import-substitution promotion, individual
governments tried
produce
the NICs,
to
encourage foreign firms such as Japanese automakers
majority of their components locally, that
This
ASEAN
limited
industrial
development,
14
is,
in
to
the individual host
because of the small size of
and
markets
domestic
Since the early
1980s,
for
capabilities
limited
however,
countries
local
components
production.
have increasingly specialized
in
different kinds of products as well as parts of the production process, according
wage
to their technological capabilities,
At
resources.
between
the
ASEAN
same time,
ASEAN
competition
in
low-cost manufactured
goods
to locate labor-intensive
products from the NICs
countries and some machinery and electrical or electronic products
manufacturing from Japan
to the
Even for the same types
NICs.
they have tried to produce higher-priced goods
Other incentives behind
of
and natural
capital availability,
countries and the NICs, and between the NICs and Japan, have
pushed multinational companies
to
levels,
this reorganization
in
of products,
the NICs as well as Japan.
have been the rising popularity
Japanese products around the world since the 1960s, Japanese restrictions on
imports
of
accumulation
economic
manufactured
goods
the world's
of
successes
and
largest
trade
international criticism against
trade structure,
materials
in
its
into
its
trade
practices
domestic
and Japan's
market,
surpluses during the
1980s.
made Japan the target
Its
serious
of
relatively closed markets as well as "vertical"
which Japanese firms imported fuel and inexpensive raw
The type
and then exported high value-added finished goods.
of
imbalance occurred with developed countries, such as the United States, as well
as with developing countries,
especially
in
Asia, which provided resources for
Japanese industries but lagged far behind Japan
in
industrialization and had few
domestic firms capable of exporting manufactured goods to Japan
(Watanabe,
1985).
The Japanese government responded
opening domestic markets
to imports
more production operations overseas,
countries,
as
well
as
to
positively
to
these
criticisms
and encouraging Japanese firms
to the United States,
buy more manufactured goods
15
to
Europe, and
from
these
by
move
Asian
areas
(Economic Planning Agency, 1989).
investment had
fact
in
the export of
to
led
By the end
Japanese direct
of the 1980s,
goods from Japanese overseas
subsidiaries not only to Europe and the United States but also to Japan. This
was especially true for Japanese subsidiaries operating
on
report
178
firms
to
Japanese
the
Ministry
in
Asia. According to a
Industry (MITI), Asian NICs accounted for 60% ($707 million
of tota"
in
intra-company imports
imports
of
current values)
in
manufactured goods by major Japanese firms
NICs also accounted for 90% ($351
Asian
1987.
of
Trade and
International
of
million
dollars)
of
total
manufactured goods by these Japanese firms based on overseas
production contracts (Japan External Trade Organization, 1989).
Industrialization
the Asian NICs as well as
in
ASEAN
countries included
the growth of non-Japanese Asian firms able to supply manufactured products to
Japan.
Japanese imports
For example,
doubled between 1984 and 1988,
manufactured products more than
increasing from $40.6 billion to $91.8 billion
Between 1987 and 1988,
(unadjusted for inflation).
increased 47%, from
of
ASEAN
countries 49%,
imports from Asian NICs
and from China 58%.
These three
regions together accounted for 29% of total manufactured products imported into
Japan
in
1988 (Japan External Trade Organization,
Thailand was
a
major beneficiary of these trends, with Thai manufactured
products imported by Japan increasing by 144%
million in
1986 to $897 million
in
from
to 26%
Thailand
remained
a
in
only two years,
all
from $368
Manufactured
Japanese imports from Thailand
1988
in
terms
of
value,
accounting
for
$74
processed item, precious stones, that did not require much
investment.
produced by
The second
a
in
1988,
The largest manufactured product Japan imported
1986.
during
in
1988 (unadjusted for inflation).
products also accounted for 33% of
compared
1989).
largest
item,
skill
or
however, was bearings ($74 million),
single Japanese firm, Minebea,
16
million,
Ltd.
Thailand also exported $8
million
of
business-machinery parts to Japan
Organization, 1989).
in
(Japan External Trade
1987
addition, Thailand exported more than $15 million worth
In
of integrated circuits in 1987 to other countries (Thailand
Institute Foundation,
Development Research
1989).
Investments from the Asian NICs themselves contributed to development of
manufacturing capabilities
to
in
ASEAN
encourage further investment
direct
investment
from the
countries as well as China that were likely
the region.
in
NICs
Asian
In
approved
the 1980s,
by
local
for example,
governments
in
Malaysia, Indonesia, Thailand, the Philippines, and China (excluding NICs as host
countries)
accounted for 37%
value; this exceeded Japan
s
of
the total
largest
in
in
the world,
terms of
in
28% share of this investment (World Bank, 1989). "^
Major factors behind the increase
currency appreciation
approved investment
in
NICs' foreign investments seemed to be
Korea and Taiwan, the Taiwanese trade surplus (second
behind only Japan), increases
in
real
wages
in
all
NICs
countries, maintenance of major markets despite protectionist measures, and the
desire to secure natural
disputes both
in
well
(especially
Taiwan and Korea, as
Taiwan, also appeared
1989).
resources
to
Government policy
by Korean investors).
well as an
Labor
environmental movement
in
promoted overseas investments (Clifford and Moore,
in
Korea and Taiwan supported investments abroad as
but encouraged firms to retain production of more advanced products at
home, as seen
in
the previous discussion of Taiwanese investments
in
Thailand,
regional
economic
which focused on labor-intensive miscellaneous items.
Japanese
companies
were also
leaders
in
promoting
integration and the reorganization of production operations and trade.
In
the
^ The time periods for counting approved direct investments are as
follows: in the case of Malaysia, from 1982 to 1987; Indonesia, from 1982 to
1988; Thailand, from 1984 to 1989; Philippines, from 1982 to 1988; China, from
1983 to 1986.
17
Japanese companies
textile industry,
and
design
(Perry, 1989).
ASEAN
and Nissan were
from within the
ASEAN
in
Japan
while moving
more
countries and possibly to China
the electronics industry, several Japanese multinationals as
In
NICs companies have already
the NICs to
1989 were planning to locate product
production-technology development
factory operations from the NICs to
well as
in
countries.
in
In
shifted various production operations from
the automobile industry, Mitsubishi, Toyota,
the process of arranging
ASEAN
countries,
with
a
a
network
to
supply more parts
halving of tariffs on intra-regional
trade of components between units of the same manufacturers (Goldstein, 1990;
1989b; Sanger,
Smith,
Thailand
is
1990).
experiencing another increase
in
Japanese investment for parts
manufacturing along with the arrival of major Japanese manufacturers such as
Although there
Sharp.
is
widespread feeling that the Japanese are just
a
transferring vertically integrated manufacturing into Thailand and relying mainly
on Japanese affiliated parts manufacturers rather than
there
is
local
parts producers,
evidence that the Japanese are increasingly using Thai producers for
simpler plastic and metal parts, and teaching these suppliers how to upgrade
their
While
quality.
government and
dies.
local
plastic
mold-making
has
also
advanced,
the
Thai
industry have neglected production of metal molds and
Nevertheless, several Japanese joint ventures associated with car makers
have begun
to
export Thai-made molds and dies as well as supply the
market (Handley,
Economic
priority
1988).
Development
sector
and
In
Plan
in
addition,
announced
1986
the Thai government's
a
established
Fifth
National
new focus on metal working
the
Metalworking
and
local
as
a
Machinery
Industries Development Institute with Japanese grant aid.
These comments are based on personal interviews with Mr. Nagae
Tsutomu and Mr. Takeshi Izumi (Japan International Cooperation Agency
experts), carried out by Nobuko Ichikawa at the Metalworking and Machinery
18
Japanese imports
other countries
1988 of relatively advanced manufactured goods from
in
East and Southeast Asia provided examples of other kinds of
in
products that Japanese firms were considering for production
required fairly high investments
of labor for
capital
in
($218 million) and video recorders
radio
million),
($83 million),
($54 million) from Korea;
bearings
and watch components ($15
for electronic components
equipment as well as large amounts
battery-operated
and portable radios ($7 million) from Hong Kong;
($92 million)
receivers
Most
Thailand.
These products included audio components
assembly operations.
wrist watches
in
($47 million),
million)
($39 million),
TV
picture tubes
($18
from Singapore; chemical elements
piezo-electric crystals
($19 million),
microcomputers and microprocessors ($10 million), and camera parts ($4 million)
from
Malaysia;
computer parts
and
microphones
($3
Organization,
1989).
million)
from
($25
million),
diodes
Philippines
the
(Japan
($6
million),
External
and
Trade
These and other examples show how the increasing industrialization and
economic integration
in
beyond the control
pushing Thailand
of
to
East and Southeast Asia constitute an exogenous factor
Thai government and company officials that
expand
its
manufacturing sector.
In
is
strongly
particular,
company
efforts to reorganize their production systems in Japan, the NICs, and
ASEAN
countries, taking advantage of different capital, labor, technology, and natural
resources available
in
each country, as well as of political protectionism against
Japanese exports from Japan, have
new Japanese investment
in
led
Thailand to become the largest
site for
Soutiieast Asia and an important processing base for
firms from Japan as well as the NICs.
Industries Development Institute during June 1989.
19
4.
STRATEGIC ALTERNATIVES AND IMPLICATIONS
The NIC's versus NAIC's debate can be seen most
By the end
positions Thai planners have taken.
One supported
emerged:
in
the policy
two groups had
of the 1980s,
change that promotes labor-
structural
industrial
clearly
intensive export industries along with the improvement of import-substitution
The other supported
development
to
increase agricultural
income and expand the domestic market (Suehiro, 1987a).
As shown here, the
industries.
debate
is
complicated because each alternative presents
and benefits.
to
rural
Nor does
it
seem that,
pursue both strategies, although,
different set of costs
the long term, Thailand can afford not
in
in
a
the short term, the government may not
have the financial resources to support both manufacturing and agro-business
development.
To pursue increased foreign investment
Thailand
water
will
heavy industries, for example,
need immediate and extensive investment to expand urban roads,
waste
supplies,
infrastructure.
processing
and
port
The government has moved
Seaboard Project,
started
in
facilities,
in
similar
the 1970s initially to utilize natural gas
interest rates and slow growth
in
types
of
in
in
Siam
part because of high
the Thai economy during the early 1980s.
It
decided to continue, because of the requirements of new foreign investors,
primarily
the Japanese,
and the need
The government
Bangkok.
industries,
attract more
also
felt
to
it
reduce congestion
was
important
in
a
concerns.
to
in
the
port
promote
of
basic
such as petrochemicals and iron, that would create jobs as well as
advanced manufacturing investments. The whole development
Eastern Seaboard and the building of two deep-sea ports
baht
and
this direction with the Eastern
The government once suspended the project
Bay.
later
in
will
of the
cost 133.5 billion
joint-venture investment between the national government and private
All
individual
sub-projects are scheduled for completion by 1996
20
The targeted areas,
1989b).
(Preyaluk,
drive from Bangkok,
will
Japanese government
s
operate as
financing
located about a one-and-a-half hour
The
huge production and export zone.
a
organization
Overseas Economic Cooperation Fund (OECF),
for
is
a
developing
projects.
The
major financial supporter,
the construction of the two ports, water mains, gas-separation and
investing
in
fertilizer
plants,
as
industrial
as
well
real
estate
and engineering services
(Overseas Economic Cooperation Fund, 1987).
Thailand
also
faces
shortage of engineers,
a
which
are
essential
for
This problem
technology transfer and localization of production operations.
cannot be solved quickly because of the small number of engineers produced
Thai colleges
(approximately 2,500
Accordingly,
the
Thailand's
small
low
(Myers and Chalongphob, 1989).
and technological
labor
skilled
of
level
1986)
in
and medium-sized companies makes
serve as subcontractors
local
suppliers, although,
in
components production
in
the long run, Thailand
will
in
them
to
for
for Japanese
Japanese firms have
investors with high standards for quality and cost control.
helped by making direct investments
know-how
difficult
it
new manufacturing industries, especially
in
in
to
complement
need to develop more
domestic capabilities to attract further investment and increase manufacturing
exports.
As
a result,
the NIC's strategy
will
require support for education and
supplier industries as well as basic industries, such as steel, machinery, and
chemicals,
in
order to reduce dependence on foreign imports of capital goods,
intermediate goods, and basic industrial raw materials, especially from Japan.
The
intensified
development may prove
well.
Agriculture
slow shift from 82%
Statistical
Office,
to
be
a
heavy
represented
still
in
expected
urbanization
a
accompany
type
of
burden for the Thai government
as
65°6 of
to
total
employment
1960 compared to other countries
1960,
1987).
For example,
21
a
in
in
NIC's
1987,
a
rather
East Asia (National
Korean agriculture's share
of
employment was only 59%
was 47%
1965 and 18%
in
1965 and
in
fell
to 26%
had
less
agricultural
industrialized
when
industrialization
has proceeded more slowly
growth
rapid
began
slower
confrontations
pace
in
Nevertheless,
a
organized
shift in
and
labor
it
On the
may
in
whereas
leaving the country
positive
side,
prevented
have
management
(Yasuda,
non-agricultural employment to
Taiwan or Korea today would require Thailand
speed of employment creation
mid-1960s,
the
Thailand,
industrialization
of
between
Taiwan
in
employment and were more
in
dependent on agricultural employment.
relatively
while
1985,
1985 (International Labor Organization, 1965, 1985).
in
Korea and Taiwan already
heavily
in
a
this
more
1987).
similar to
level
to accelerate dramatically the
A rapid transition
manufacturing and services.
from an agricultural to industrial society would also require massive migration
from
rural
areas
to
Thailand,
central
which
would
infrastructure investments to accommodate these people.
most
industrial
activities
Thailand
in
are
already
then
need
massive
As discussed
concentrated
earlier,
highly-
in
congested Bangkok and the surrounding area, which produced 62% of Thailand's
gross domestic industrial output
in
The
1986.
central region, including
Bangkok
and the surrounding five prefectures, accounted for 82% (Thailand Development
To improve deteriorating environmental
Research Institute Foundation, 1989).
conditions and over-congestion requires dispersing industrial activities outside of
Bangkok rather than encouraging more investment there.
promotes
economic
foreign
gap
investment
between
this
in
and
the
other
Central
areas,
region
A NIC's strategy
may
especially
also
the
that
worsen
the
disadvantaged
Northeast, although Thai government officials seem to believe that the Eastern
Seaboard Project
Bangkok
will
reduce urban
problems by encouraging firms to leave
(National Social and Economic Development Board,
Another question
is
whether the fragile
22
political
system
1981).
in
Thailand
will
be
able to support the changes that
have
Taiwan
industrialized
people
experienced
labor
and the number
An
increased.
a
NIC's strategy might bring.
and
turmoil
political
as
Both Korea and
economies
their
urbanized middle-class and working-class
of
transformation
accelerated
Thailand
of
from
agricultural to an industrial society, while improving income levels through
employment
manufacturing
in
especially
turmoil,
may
sectors,
the government does
if
lead
also
not
labor
to
and
an
new
political
adequately seek solutions to
major problems such as rural poverty and urban congestion.
If
follows
it
a
challenges as well.
NAIC's
It
will
government faces numerous
Thai
need more ports, rural roads, factories, and
still
and waste-processing
irrigation
the
strategy,
facilities,
advanced manufacturing industries.
although perhaps less than for more
Even for agro-businesses, furthermore,
Thailand must develop new foreign markets and sales techniques to increase
exports, especially with growing international competition
There are nearby large potential markets
thus
a
in
would probably aid Thailand's agricultural development.
seems difficult
of
increasing.
may change
take
full
poverty,
As
productivity
result,
a
advantage
resulting
of
as
in
Politically,
Thailand
however,
Thailand
in
been
has
the agricultural sector.
relatively
low
and
not
although new investment and agricultural technology
foreign
a
a
NAIC's strategy and failure
investment may
much or more
Also under
NIC's approach.
intervene more
in
in
economic growth under
this trend,
of
income would have to
rural
come primarily from domestic investment and growth
agricultural
region
carry out under present conditions.
to
Under the NAIC's strategy, improvement
Yet
agricultural goods.
Vietnam, Laos, and Cambodia, and
economic policy targeting the Northeast
regional
this policy
in
social
be too
and
slow
political
to
solve
rural
unrest as under
NAIC's approach, the government would have
the economy to bring about
23
a
to
a
to
fairer distribution of land as
among agro-businesses,
profits
as
well
and farmers;
merchants,
wholesale
however, the traditional policy of the Thai government, reinforced
involvement of the government
and
Social
to
brings
(National
on which the NAIC's
constraints
Technology
certain
forward and backward linkages
expansion
an
to
promote agro-industries,
processing agricultural products
create
free-market economy
a
in
been
has
the 1987limit
the
Economic
Development Board, 1987).
A policy
based,
Development Plan,
Economic and Social
National
1991
in
well.
accumulated
is
for
not easily applicable to other industries;
agro-industries are fewer, and less likely to
in
than
jobs,
of
is
as
strategy
in
manufacturing
such
sectors
as
iron,
electronics, or automobile assembly; uncontrolled agricultural expansion will also
contribute to the destruction of valuable natural resources such as Thailand's
forests.
will
Thus,
a
probably not expand Thailand
meet future needs
5.
NAIC's strategy has both negative and positive aspects, and
s
industrial structure and
of the population or
overcome rural as
economy enough
well as
to
urban poverty.
CONCLUSION
On the surface, the NAIC's approach appears
would
rely
problems
primarily on
in
Thailand
such
development and employment
congestion
in
resources,
domestic
as
in
rural
the Bangkok area as much as
productivity has lagged
in
have many benefits.
It
address most directly pressing
poverty
rural areas,
to
by
promoting
agricultural
and not encourage further urban
a
NIC's strategy.
Agricultural
Thailand, making the NAIC's strategy somewhat risky,
although further manufacturing investments
will
require costly infrastructure
investments without providing employment for the vast majority of Thailand's
population, which remain largely
in
rural areas but
24
may continue
to migrate to
Bangkok under
NIC's strategy, worsening existing urban congestion.
a
Meanwhile,
Japan's
and
industrialization
growing
economic
NIC's model.
integration
in
Thailand,
countries
move closer
terms of economic activity and employment,
In
in
in
the
of millions
domestic production and export sales as well as 250,000 jobs by
On the other hand, Japan has
mid-1989 (Toyo keizai, 1990).
the Thai government to invest
expense
at the
to
as
the results of
Japanese investments have been positive, generating the equivalent
of dollars
well
as
among the ASEAN
incentives for Thailand to
are providing strong
general,
influence
in
for example,
of,
encouraged
also
costly projects such as the Eastern Seaboard,
more investment
in
agriculture,
land reform,
education, public transportation, health care, or homes for the rural and urban
poor.
the past, the Thai government has tried to put an equal emphasis on
In
investment
in
has
situation
both agricultural and non-agricultural industries, but
made
this
increasingly
difficult
(National
its
financial
Economic and Social
Development Board, 1987).
Nor do Thai government
officials
and planners, or private citizens, fully
since the government
what direction Thailand follows,
control
unlikely to
is
exclude much-needed foreign investment and technology, especially from Japan.
Many Thai businessmen, workers, and government leaders want the
benefits of
Japanese investment, such as new jobs, technology transfers, and access
to
and companies want access
to
foreign markets.
Japanese government
officials
Thailand's resources, labor, and markets, especially as
which
loans
Because
large-scale
of recent
production base from
Japan has provided aid to Thailand, mainly
to export.
for
a
projects
(Overseas
Economic Cooperation
in
the form of
Fund,
1987).
economic growth, however, the Japanese government plans to
cut off grants for Thailand and restrict future aid to loans (Duangkamol, 1989).
This
could
become
a
major problem,
since the Japanese expect
25
Thailand to
continue constructing an industrial infrastructure as well as maintain
political
stability.
In
conclusion, choosing either
NIC's or NAIC's strategy
a
probably not
is
desirable for Thailand, since both approaches have different benefits.
long
run,
in
addition
to
agro-industries,
manufacturing sectors as called for
Thailand
will
have
to
the NIC's approach, because
in
it
seem possible that agricultural productivity and agro-business markets
enough
to solve Thailand's
the industrialized
become
a
Central
region.
will
also
have
to
for Thailand
does not
will
grow
construct an appropriate
rural areas, such as roads, utilities, education, housing,
solution
develop
Regardless of whether Thailand tries to
infrastructure for further industrial development as well as invest
alternative,
the
problems of rural poverty and halt migration into
NIC or NAIC, the country
NAIC's
In
therefore,
does
not
appear
to
be
in
support for
and health care.
The
and
final
a
but rather an intermediate strategy.
distinct
If
balanced with
gradual manufacturing investments as well as continued assistance from Japan
but targeted more toward solving rural problems, this should help Thailand move
from
a
primarily
economy,
utilizing
agricultural
its
society
to
a
mixed agricultural and industrial
domestic natural and human resources rather than relying
too heavily on foreign investment and influence.
26
Table
1:
(
Gross Domestic Product by Industrial Secto r
U.S. $1,000, 000, 000 nominal values, %
Gross Domestic Product
Breakdown by Sector
Agriculture
Manufacturing
Trade
and 1988)
)
1975
1985
1988
$303
$1,014
$1,466
(%)
26.9
Services
Others
Total
(1 975
100.0
100.0
Table
3:
(
Farm Land Rented (19 75 and
rai
[1
rai
=
0.16 hectare], %
1
986)
)
Change
Land Area
Year
Nationwide
320,696,888
1975
(100%)
1986
19,240,941
1986
686,181
^71.9
1986
5,928,489
+73.9
1986
3,247,668
+251. 9
1986
9,378,603
MO.
Rented Land
Ml.
South
44,196,992
(18.8)
North
106,027,680
(33.1)
Northeast
105,533,963
(32.9)
Central
64,923,253
(20.2)
Source: Preyaluk (1989a), p. 233.
("o)
Table 4: Paddy Yield Comparison, Selected Years (1975-1988)
(
kilograms of rice produced per hectare
Country
)
Table
5:
(
Japan's Overseas Investment Stock by Regio n and
U.S. $1,000, 000, %
Industry
)
I
ndustry (1989)
Table
Share of Japan- Affiliated Firms
6:
(
%
Thai Manu facturin g Output (1983)
)
Industry
Japan-Affiliated Firms*
Textiles
28.8
Automobiles
57.1
Steel
24.7
Foodstuffs
Chemicals
3.1
11.3
56.2
Electrical
*Note:
in
This share was calculated on the basis of a questionnaire sent
individual firms collecting data on total output and
to
The figures were then adjusted by total
employment in each sector at Japan-affiliated firms. Sectoral
value-added data were used to estimate total shipments and
employment.
calculate the share of Japan-affiliated firms.
Source: Japanese Chamber of Commerce
31
in
Bangkok (1984),
p.
10.
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