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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 {complink 7014|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.

21 comments on “Thailand Rises From Floods

  1. SunitaT
    May 11, 2012

    @Bolaji, thanks for the post. Great to know that thai economy is bouncing back from floods. Has the manufacturing  fully recover to its pre-flood level? Can we expect softening of memory prices ?

  2. t.alex
    May 12, 2012

    What is likely the strong push for IT spending in Thailand?

  3. prabhakar_deosthali
    May 13, 2012

    Ii is really commendable that Thailand which was  a country only known for its beaches , food and the popular Thai massage is now emerging as a Electronics manufacturing hub.

    When somebody's daily bread depends upon something , the strength to fight against all odds automatically comes.  So it shows that for Thailand , the electronics industry is slowly becoming its backbone industry.

  4. Taimoor Zubar
    May 13, 2012

    I also had similar questions about how the prices of disks and memory will be affected now that the crisis after flood is over. Since disks and memory are primary components in many other finished electronic products, we may also see a dip in their prices if disks and memory become cheaper.

  5. Taimoor Zubar
    May 13, 2012

    So it shows that for Thailand , the electronics industry is slowly becoming its backbone industry”

    @Prabhakar: I think it greatly shows the commitment of the government and their dedication towards improving the economy through the electronics industry. Although tourism has a major share in Thailand's economy, the government is not content with it. They want to see the electronics industry growing and lifting the economy.

  6. ITempire
    May 13, 2012

    Its always good to hear about about role of ASEAN countries in electronics industry as many of their contributions are overshadowed by the likes of Japan and China. It needs to appreciated that efforts are being made to diversify the supply-side of electronic components. However, its more important to take flood-prevention measures as these can hamper the growth process year in year out.

  7. ITempire
    May 13, 2012

    @ TaimoorZ

    Thailand is the 20th most populous country of the world hence it has a large human resource pool. Therefore, relying solely on tourism wont help the cause so government is rightly, not content with the dependancy on tourism.  

  8. Houngbo_Hospice
    May 13, 2012

    @WakasAltaf:

    relying solely on tourism wont help

    I agree, the tourism business will not suffice to provide good living conditions for all the Taiwanese population and it is an imperative that they find other revenue sources. Good for them they have well recovered from the flood disaster.

  9. Houngbo_Hospice
    May 13, 2012

    @TaimoorZ 

    “I also had similar questions about how the prices of disks and memory will be affected “

    The most important thing is that the thai flood recovery will “relieve pressures on the supply chain” and it will therefore positively affect pricing.

  10. FLYINGSCOT
    May 14, 2012

    With most of Europe wrapped up in depressing austerity measures it is a breath of fresh air to see Thailand positively investing and consuming on all fronts and growing itself out of a tough situation.  I wish Europe would do a bit more of this.

  11. bolaji ojo
    May 14, 2012

    Tirlapur, From what I've read so far, Thailand has recovered fully from the floods in the manufacturing areas. The recovery in the general economy is ongoing and the full benefits of the fiscal stimuli injected by the government haven't completely kick in so there are upside opportunities.

  12. bolaji ojo
    May 14, 2012

    T.Alex, The increase in IT spending in Thailand is coming from three different sectors, all of them connected. The government is working on infrastructure improvements, businesses are doing the same especially in the telecom service provider market and consumers are fascinated with smartphones. This trend is not unique to Thailand in Asia but it is ramping in the country because of the relative political stability it has begun to enjoy after the turmoil of recent years.

  13. ahdand
    May 15, 2012

    Yes and it shows how powerful the online services are. Many did contribute towards the cause because of the online awareness programs

  14. bolaji ojo
    May 15, 2012

    The concern many have in the case of Europe is the feeling they've just been lumbering from one solution to another. Perhaps it is easier for a country to recover from a natural disaster than it is to recover from a man-made disaster!

  15. Mr. Roques
    May 15, 2012

    Have they taken the precautions to avoid the impact of a new possible flood? You can't plan for a complete natural disaster but you certainly can't afford to make the same mistake.

  16. Daniel
    May 16, 2012

    waqasAltaf, disasters are natural and most of the countries are facing similar situations once in a while. But how early they can recover from the disaster is important. That's entirely depends up on how the local governments are stable and capable for doing things at the root level. Post disaster is really a mess for most of the authorities/governments to restore the normal business and living standard. More over in case of FDI, much assurance is also required at international level.

  17. Daniel
    May 16, 2012

    Roques, nobody can predict when natural disasters can occur or happens. For certain disasters like flood, volcano etc we can take some precaution steps but it may not be feasible always for small countries like Thailand especially in industrial sector.

  18. ITempire
    May 16, 2012

    @ Jacob

    “More over in case of FDI, much assurance is also required at international level.”

    The only way to give assurance to potential investors which can contribute to FDI is to show them the effectiveness of flood prevention measures that have been redeveloped because right now the main risk to economic progress is flood in Thailand. 

  19. Mr. Roques
    June 22, 2012

    But certain countries have higher risks, and you plan for that. It may not happen and you can't plan for the worst, but something must be done.

  20. Daniel
    June 25, 2012

    “Right now the main risk to economic progress is flood in Thailand”

    Waqas, I don't think so. As of now the major issue is with economic slowdown and financial crisis. Most of the EU countries are struggling with slow growth rate and economic slowdowns. In Asian countries, inflation rates are going up with lower growth rate and in US some other financial crisis. Ok, I agreed that last year Japanese tsunami and Thailand flood had accelerated these situations.

  21. ITempire
    June 25, 2012

    @ Jacob

    Its not the flood or any natural disaster that actually damages the economy many of the times, its the perception that economy would be under crisis and therefore such expectation causes further damages. One obvious reason is the tourists not visiting the country.

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