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Industry Focus: Thailand Continues to Attract Investment in Rubber Industry With abundant natural resources and a perfect business location, Thailand stands tall as the world’s No. 1 producer and exporter of natural rubber. About 3.82 million metric tons of the material is made here annually, while a movement for added value sweeps across the local industry. A renewable resource, rubber wood is also an increasingly popular alternative to hardwood timber as environmental awareness takes root in society.

Production in Thailand is classified into three major categories: primary processed rubber, block rubber, and sheet and concentrated rubber. Of all rubber processed in the country, 65% goes into vehicle tires, gloves and elastic products. When considering those particular lines, tires account for 60% of the lump sum, gloves nearly 14% and elastic items about 13%. The country manufactures nearly 59 million rubber inner tubes, 20 million motorcycle tires and about the same in passenger car tires, and 18 million bicycle tires. It also makes 11 billion rubber gloves. Other major lines of the versatile material produced locally are moldings, gaskets, cushioning, adhesives, belting, wire and cable sheathing, roofing, balloons, toys, sporting goods and medical devices. Thailand’s many advantages attract substantial investment by foreign, joint venture and domestic manufacturers in the rubber industry and related sectors. Many of the world’s leading rubber product companies already run facilities in the country, including Bridgestone Natural Rubber, Michelin-Siam, Dunlop, Von Bundit, Sri Trang

Agro-Industry, Top Glove, Ansell, Thai Hua, Thaitech Rubber, Southland, B.Right, Teck Bee Hang, Tavorn, Hadsyn, Siam Indo, Thai Rubber Latex, A One, and Numhua. Besides being the biggest exporter of high-quality rubber, Thailand sets the trends in R&D work on this important material. Each year the country sends thousands of fresh science and engineering graduates into the rubber labs and plantations, fueling innovation in the local industry. Thailand’s rubber R&D spending exceeds that of competitor countries such as Indonesia and Malaysia. Several global manufacturers, including Michelin and Bridgestone, have picked Thailand for their advanced R&D centers as well as production bases. Characterized by vitality as well as prosperity, the export sector absorbs nearly 90% of Thailand’s natural rubber production. In 2011, exports of the material totaled 397 billion baht. That weighed in at more than 2.9 million metric tons. By intraregional comparison, Indonesia exports 2.2 million metric tons of its natural rubber production annually, followed by Malaysia at 800,000 and Vietnam with 770,000. According to statistics from the Rubber Research Institute of Thailand, the top five markets for Thai- made rubber products by value continue to be China (a 43% share), Malaysia (12%), Japan (11%), the European Union (9%) and the United States (7%). By material type, the front-running exports are standard Thai rubber, ribbed smoked sheet, concentrated latex and crepe. While the rubber products export sector whirs along, Thailand’s domestic market is also generating powerful demand for the material. So robust is local production of rubber that barely 1% of the substance consumed in the country is imported. Domestic demand will remain on the upswing for years to come. This is true especially with Thailand’s automotive industry powering toward the global top 10 and sales of rubber gloves and condoms increasing as consumers become more concerned with good hygiene.

Excellent Location for Investment Thailand gives rubber product investors much more than a copious supply of the raw material. As an excellent location, the country provides a highly skilled but affordable workforce, world-class industrial estates, deep network of component suppliers, vibrant domestic economy, supportive government policies and strategic location at the heart of Asia. Investors enjoy good utilities and service, and a reliable transportation infrastructure for smooth connections and product deliveries. As a bonus, Thailand’s friendly people and sophisticated educational and health care facilities help make living here more comfortable for foreign entrepreneurs.

Recognizing its many advantages as a regional and global hub, international organizations continue to rate the country as a very efficient and lucrative investment destination. In its 2013 survey, the World Bank ranks Thailand an impressive 18th out of 185 countries among the easiest places to do business. This is very much a forward-moving industry as economic growth creates greater consumer need for rubber products such as auto tires and gloves. The International Rubber Study Group (IRSG) projects global rubber demand hitting 27.2 million metric tons in 2012. Demand for synthetic rubber is seen growing by 5.5% and that for natural rubber by 4.6% this year. The world’s biggest consumer right now is China at 3.75 million metric tons. Next is India on 1.06 million, the United States at 879,000 and Japan with 789,000. As a result, global production of natural rubber will be 5.1% higher this year than in 2011. Natural rubber output worldwide is forecast to reach 13.77 million metric tons in 2020, with consistent and solid growth on an annual basis. Production is predicted to jump by 17.6% in 2020 after 12.9% in 2015.

A hefty 90% of output in eight years, or 12.46 million metric tons, is to come from producers in Asia. Under the rest of the global breakdown, Africa will process about 855,000 metric tons and Latin America 449,000 in 2020.

Following Thailand’s current annual output of 3.82 million metric tons, the top five of natural rubber producing countries is rounded out by Indonesia at 2.54 million, Vietnam at 1.31 million, China with 1.29 million and India with 1.18 million. The Thai Rubber Association emphasizes that the Asia-Pacific region already accounts for well over half of global rubber demand and will remain the world’s highest growth area in coming years. What this means is continued good business for rubber enterprises operating in Thailand. Indeed, the local industry is well-situated in a high-demand region such as Southeast Asia. Rubber product investors will see Thailand become an even more attractive business center with the launch of the ASEAN Economic Community (AEC) in 2015. That year the 10 member countries of ASEAN, or the Association of Southeast Asian Nations, will liberalize trade and investment among them, enabling the free flow of goods, services, capital and people across the regional bloc. This huge seamless market comprising Thailand, Singapore, Malaysia, Indonesia, Vietnam, Cambodia, Laos, Myanmar, Brunei and the Philippines offers rubber entrepreneurs easy access to 600 million consumers. The proximity of Thailand’s production sites to regional markets will enable the just-in-time delivery essential to manufacturers of complex rubber products in countries throughout the AEC. Benefits from the AEC also include lower costs, technology sharing, and an overall sharpening of competitiveness. Investors in Thailand likewise enjoy efficient regional market access through the country’s free trade agreements with Japan, China, South Korea, India, Australia and New Zealand. In addition, Thailand is a member of the Association of Natural Rubber Producing Countries, keeping operators abreast of key industry issues. Currently, Thailand has more than 2.72 million hectares of rubber trees under cultivation. The heart of rubber production is the area in the south from Chumpon Province all the way to the border with Malaysia. A monsoon climate helps Thai farmers achieve high yields of about 1.76 tons of rubber per hectare. Small landholders with four hectares or less represent 95% of national cultivation. The industry is mainly controlled by large processing plants that purchase the material through local dealers. While major goals for the industry include the incorporation of sophisticated technology into processes and creating value- added products, there is another key component of the growth plan ─ the continued expansion of planted area. Entrepreneurs are sure to benefit from the rubber industry’s increasing capacity under the government’s program for more plantations nationwide. Nurtured by a strategic multibillion-baht budget, new plantations of rubber saplings are being planted in the northern, eastern and central regions, in complement of the southern part of the

country that is already well-established as a production center. More than 100,000 planters are expected to benefit from this expansion, which aims to increase Thailand’s natural rubber supply by an additional 250,000 metric tons per year from 2017.

Strong Backing both Public and Private The Thailand Board of Investment (BOI) offers a range of fiscal and non-tax incentives for rubber investors. In fact, to help promote the sustainable development of the industry, the BOI classifies the manufacture of natural rubber products as a priority activity. Tax-based benefits for investors include exemption or reduction of import duties on machinery and raw materials, and corporate income tax exemptions and reductions. Non-tax incentives include permission to bring in foreign experts and technicians, own land, and take or remit foreign currency abroad. Additionally, foreign businesses are entitled to 100% ownership of projects. As another advantage, the One Start One Stop Investment Center (OSOS) operating under the BOI makes investment in the country even easier. The mission of the OSOS is to facilitate the entry of new investors and provide assistance to existing businesses seeking to expand. It also serves as a focal point for businesses when dealing with the government, as representatives of more than 20 different agencies from 10 ministries are stationed at the OSOS. Located in the same building as the OSOS is the One Stop Service Center for Visas and Work Permits, which issues work permits and long-term visas in three hours or less. With sound policies and effective practices in place, numerous other state and semi-governmental bodies also play vital roles in promoting the continued prosperity of the Thai rubber industry. These include the National Science and Technology Development Agency, Department of Industrial Promotion, National Metal and Materials Research Center (MTEC) and National Center for Genetic Engineering and Biotechnology (BIOTEC).

Like so many aunts, uncles and cousins, a tight bevy of institutes and trade associations also lends meaningful assistance to the industry. Among these are the Rubber Research Institute of Thailand, Research and Development Institute of Industrial Production Technology at Kasetsart University, Prince of Songkla University, Thai-German Institute, Rubber Estate Organization and Polymer Society. Investment opportunities abound in Thailand’s rubber industry. Value-added production is especially fertile for growth. According to experts, demand remains high for new projects in tires and tubes for automobiles, piping and tubing for tires, gaskets and seals, gloves, elastic, hoses, condoms, furniture from rubber wood, and products made from organic rubber. Because of its exceptional strength, medium-density fiberboard made of rubber wood is one specific area ripe with investment possibilities. Looking to opportunities even further afield, the BOI is encouraging investors that have bases in Thailand to cultivate business relations with enterprises in other rubber producing nations. At seminars during BOI Fair 2011, for example, possible partnerships between Thai and Indian companies were promoted, as India is not only the world’s 2nd biggest consumer of rubber but also the fifth largest maker. It was explained that rubber product businesses in Thailand could harvest substantial benefits through expansion tie-ins with Indian companies, particularly since India’s northeastern states are positioned as an effective overland route for traders with China and Myanmar. Forward-thinking investors continue to gear up new projects in Thailand’s rubber industry. In one of the latest examples, in September 2012 it was Sumitomo Rubber (Thailand) that announced plans to invest 3.9 billion baht in tire manufacturing. Such projects are an indication of companies’ strong confidence in the local business environment.

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MDA Consulting SEA Co., Ltd.