Thailand Rises From Floods

Neither last year's devastating flooding nor the Red Shirt political turmoil that preceded it has kept Thailand's economy down or scared electronics manufacturers away from the Asian country. In fact, with the economy growing and IT spending surging, Thailand has become even more attractive for manufacturers seeking to diversify their supply chain and boost sales.

This year, the Thai economy is forecast to grow a sizzling 5.5 percent, according to the International Monetary Fund. And IDC reports that IT spending there will rocket up to $11 billion, second behind only Indonesia among ASEAN nations. Thailand's Central Bank said economic growth in 2013 is projected to be an even stronger 7.5 percent.

It's a positive recovery story that tells as much about the tenacity of Thailand's local enterprises as it does about the desire of international investors and manufacturers to keep developing the nation as a counterweight to China's domination of manufacturing in the region. For Thai businesses and the government, a quick recovery from last year's flooding demonstrates clearly to foreign investors that the country's competitive position can be maintained even in the face of overwhelming odds.

And for the hundreds of foreign businesses operating in Thailand, especially the electronics industry's hard disk drive sector, the country remains a vital procurement, subassembly, and manufacturing hub that can help shield their operations from becoming too dependent on China.

The economic recovery required special coordination between the government and businesses. Last year's frighteningly intense floods pointed to the delicate location of plants near the Chao Phraya River. For instance, companies that supply components to hard disk drive manufacturers were heavily impacted by the flooding. The disruption hurt companies downstream in the supply chain and drove PC sales down for the entire year.

Like the floods, the memory of the 2011 disruptions is receding fast, helped by fiscal measures coordinated by the Bank of Thailand (BOT). The IMF has supported the central bank's actions but is now concerned that the fiscal stimuli could be counterproductive if not properly managed. According to the BOT, the IMF has made these observations:

1. The Thai authorities' policy response to last year's floods has propelled the strong recovery... The short-term outlook is favorable, but significant downside risks still remain due to uncertainties from the global economy and the progress of flood-prevention measures.
2. The current expansionary fiscal and monetary stances are appropriate. However, the authorities should unwind the supportive policy stance as the recovery takes hold and move to a medium-term consolidation path. The main challenge is to speed up reconstruction while maintaining macroeconomic stability and promoting inclusive growth.

The IDC assessment is even more salutary. The research firm said IT spending is rising strongly in Thailand "despite the current gloomy global economy and the recent flood crisis that brought the nation's business activities to a standstill." It's not just the government that is writing big infrastructure checks for the IT market, though. "Consumers and enterprises alike are spending big money on technology."

Chris Morris, associate vice president of IDC Asia/Pacific, said Thai demand for IT services is being driven "mainly by investment in facilities for manufacturing exports and a fast-growing consumer sector."

This must be sweet music to multinational companies. Thailand is bouncing back as a manufacturing center and helping to relieve pressures on the supply chain and insulate it from the single-sourcing jeopardy posed by China. It is also a growing market for high-tech equipment. It's a win-win all the way.