The “Thailand Plus One” initiative has stimulated investments in Thailand and its neighbouring countries for several years. However, as dynamics evolve in the region and on the global stage, the viability of this approach has come under scrutiny.
Aat Pisanwanich, an economic analyst and Asean affairs advisor at Intelligence Research Consultant Co Ltd, said Thailand needs to adapt to these changes to maintain its pivotal hub status amid transformations.
What is Thailand Plus One and what are its objectives?
The initiative was mentioned in a survey carried out by the Japan External Trade Organization (Jetro) concerning the business sentiment of Japanese corporations in Thailand in the first quarter of 2013.
In the chapter entitled “Business Base for Thailand-Plus-One Policy”, Jetro defined this initiative.
Mr Aat said the term gained further recognition in Jetro’s 2014 report on global trade and investment to make Japan a base for business circulation, with Jetro’s headquarters in Tokyo and the Ministry of Economy, Trade and Industry endorsing and promoting the term at the national level.
The primary goal of this initiative is to position Thailand as a centre for significant Japanese industrial investments in Southeast Asia, leverages its strengths in logistics while incorporating neighbouring countries such as Cambodia, Laos, Myanmar and Vietnam (CLMV) into the industrial supply chain.
This approach takes advantage of the competitive labour costs and abundant workforces in these neighbouring countries.
Among the major sectors using the Thailand Plus One approach are automotive and auto parts, with Thailand serving as a vital production hub in the region. The electronics and electrical sectors in Thailand focus on the production of hard disk drives and semiconductor packaging.
Textiles and garments is another important sector utilising the initiative, particularly when it comes to design and advanced textiles.
What are the benefits for investors and countries?
Investor benefits are based on the country in which they choose to invest. These advantages include tax holidays, export privileges such as the Generalized System of Preferences and free trade agreements, land ownership rights, economic zones, integrated supply chains, and lower labour costs.
Mr Aat said this policy has enabled Japanese investors to reduce their production costs by relocating labour-intensive industries, while continuing to operate their advanced manufacturing processes in Thailand that include quality control, R and D and logistics.
They can also diversify their risks, reducing reliance on China or Thailand as they learned lessons from Japan’s 2011 tsunami and Thailand’s massive floods during the same year.
Japanese investors can create a regional value chain by linking supply chains in Thailand to the CLMV countries.
As a result, he said Thailand retained its position as a hub of Japanese industries within Southeast Asia, particularly in the automotive and electronics sectors.
For CLMV countries, foreign direct investment (FDI) from Japan has increased, especially in Cambodia, where the focus has been on garments and wire harness production. In Vietnam, the electronics industry has expanded significantly.
These investments created numerous employment opportunities, including in textile and footwear factories in Cambodia and Myanmar, and electronics assembly plants in Vietnam.
Moreover, workers in CLMV countries benefited from skills improvement through exposure to Japanese standards, said Mr Aat.
How does Thailand Plus One affect Thailand?
Thailand maintained its hub status for Japanese industries in Southeast Asia, particularly for the automotive and electronics industries, by utilising advanced manufacturing processes, he said.
However, the sectors requiring low-cost labour such as textiles and garments have relocated to CLMV countries, resulting in job losses in certain areas of Thailand.
Competition also increased from Vietnam, which developed its own supply chains as some Japanese firms relocated their operations to Vietnam without integrating their supply chains with those in Thailand.
Is this policy still appropriate under current conditions?
Mr Aat said adjustments are necessary as both the CLMV region and the global landscape have changed.
Labour costs in CLMV countries have been rising, with Cambodia and Vietnam continuously increasing wages, making them less competitive than in 2013.
In particular, Vietnam has transitioned from a “low-cost labour” economy to become a growing technology hub that competes directly with Thailand.
Political instability is another concern, as Myanmar’s 2021 coup heightened risks for Japanese investors, while Cambodia continues to experience both military and civilian unrest.
Furthermore, Vietnam has attracted significant FDI from Japan, South Korea and Western nations, strengthening its position as a major production hub.
In response to these shifts, he said Thailand may need to adapt policies, potentially rebranding as “Thailand Plus Innovation” to position the country as a regional centre for R and D, digital industries, and green industries, which align with global trends and demand.
Which policies should Thailand adopt to promote investment and cooperation with other countries?
Thai government leaders have said it aims to become the high-value innovation and production hub of Southeast Asia, linking a green and resilient supply chain with CLMV countries, Japan, the US, Europe, South Korea and Taiwan.
The focus is on strategic industries such as electric vehicles (EVs) and related components, such as batteries, inverters, and wire harnesses, along with a comprehensive EV charging infrastructure.
Other priorities include advancing the semiconductor and electronics sector, promoting alternative protein and functional food industries, and establishing green data centres powered by renewable energy to meet environmental, social and governance standards as well as growing demand among global tech companies such as Google, Microsoft, Amazon Web Services and Alibaba Cloud.
Mr Aat said Thailand must enhance digital finance technologies, such as e-payments, digital lending and blockchain, while strengthening cybersecurity to ensure data safety for investors, particularly those from Japan, Europe and the US.
In addition, he said the country must develop an artificial intelligence and digital R and D centre for emerging technologies, including machine learning, the Internet of Things and robotics.