Japanese Industries in Thailand History of the Advance of Japanese Enterprises and Environmental Issues in Thailand Contents

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1 Japanese Industries in Thailand History of the Advance of Japanese Enterprises and Environmental Issues in Thailand Yu Hashimoto Contents Introduction Body Chapter 1 History of the advance of Japanese enterprises into Thailand 1-1 Anti-Japanese movement in the 1970s 1-2 Asian economic crisis and the advance of Japanese enterprises Chapter 2 Current situation of Japanese enterprises 2-1 FTA and the trend of Japanese industries in Thailand 2-2 Environmental issues in Thailand Chapter 3 Japanese enterprises responsibility for Thailand 3-1 Efforts of enterprises 3-2 Future tasks Conclusion Books and materials for reference Cited literature 1

<<Introduction>> In the summer of 2010, I applied for the JENESYS Programme implemented by the Japanese Government and had the opportunity to participate in a six-day dispatch program to Bangkok,

There was a Japanese manufacturer s TV set in the home of a local high school student that I visited, and I was told that the most popular TV programs in that home were Japanese cartoons.

2 <<Introduction>> In the summer of 2010, I applied for the JENESYS Programme implemented by the Japanese Government and had the opportunity to participate in a six-day dispatch program to Bangkok, Thailand. What surprised me there was the magnitude of influence given to Thailand by Japan. There was a Japanese manufacturer s TV set in the home of a local high school student that I visited, and I was told that the most popular TV programs in that home were Japanese cartoons. Also, when I met with students who were learning Japanese, I felt their strong willingness to acquire Japanese language skills. Their motives for learning Japanese include becoming an interpreter or working as a resident officer in the Thai Embassy in Japan. Their clear sense of purpose stuck out in my mind. In such an environment the most impressive aspect about the Japanese presence in Thailand was the advance of Japanese enterprises. When I ran through the town by car, I could see a lot of Japanese enterprises large signs that were noticeable from a long distance (see Photo 1). In addition, most vehicles running on the roads of Thailand had been made by Japanese auto manufacturers. At that time, I learned for the first time that many Japanese enterprises are present in Thailand and I became interested in the history of the advancement of Japanese enterprises into Thailand. I also could really sense some problems of Thailand while I was staying in that country. In particular, what worried me was the volume of trash littered alongside streets, along with other environmental issues, including air pollution due to traffic congestion (see Photo 2). I realized that Thailand had already approached the status of a developed country. At the same time, I thought the above problems should be solved. In conjunction with such contemporary condition, the words of a local guide concerned me. When our conversation turned to the circumstances of automobiles in Thailand, the guide told me that there was no concept of an eco-friendly car in that country. Instead, the guide was absolutely amazed at my explanation of the Japanese tax credit scheme for purchasing eco-friendly cars. In fact, I didn t see any famous hybrid cars in Thailand. I had doubts about the posture of Japanese auto manufacturers, because they advertised their products focusing on eco-friendly cars in Japan but not in Thailand. From the above circumstances, I took an interest in Japanese industries in Thailand. In this paper, I first examine the history of the advancement of Japanese enterprises into Thailand and the current situation of Japanese enterprises. Second, I introduce Japanese enterprises efforts on environmental issues in Thailand through some case examples, and then I present future tasks. Photo 1: Japanese enterprises huge signs photographed by the author in Thailand 2

3 Photo 2: Trash issue and traffic congestion photographed by the author in Thailand 3

4 <<Body>> Chapter 1 History of the advancement of Japanese enterprises into Thailand 1-1 Anti-Japanese movement in the 1970s The overseas advancement of Japanese enterprises was activated from the 1960 s to the early 1970 s. It was triggered by domestic conditions including labor shortage and wage growth, as well as appreciation of the yen. However, such economic advancement of Japan lacked consideration to the local society and faced strong opposition from Southeast Asian countries, who believed that Japan was trying to economically dominate them. The strength of Japan s economy at that time, the world second largest in terms of GDP (gross domestic product), was seen as a threat to the people of Southeast Asia. Their fears came to the surface as an anti-japanese movement, which arose in Thailand, among other countries. In his book ASEAN and Japan, Toshiaki Arai describes the atmosphere when Prime Minister Tanaka visited Thailand in 1974, as follows. Tanaka was greeted in Thailand amid the anti-japanese movement. Students in Thailand started refusing Japanese products in 1970 and developed a boycott of Japanese commercial goods in (Snip). The representative of students questioned the way in which Japanese enterprises advanced into Thailand at a meeting and grilled Japanese Government by saying that Japan had exported polluting enterprises to Thailand. 1 [Emphasis added] The Japanese Government was shocked at the objection of young people in Thailand. The Japanese government understood the necessity of restoring the relationship with people in Thailand and promised to supervise Japanese enterprises that had advanced into that country. In the wake of this sequence of events, Japanese enterprises tried to unite with local society in Thailand. 1-2 The Asian economic crisis and the advancement of Japanese enterprises Japan was seeking the way to improve relations. Years after Tanaka s visit to Thailand, Japan reached a turning point; the Asian economic crisis that started in Thailand in 1997 and expanded to all of East Asia. This economic crisis was triggered by confusion in the financial industry arising from the sudden fall of the Thai baht. Thailand suffered great damage from this economic crisis. At that time, Japan led the van of donor countries and extended a helping hand of relief to Thailand. 4

5 Japan Germany Denmark Australia Austria Figure 1 Amount of aid money to Thailand by major donors 2 Figure 1 shows the amount of aid money (net accumulated expenditure from 1995 to 1998) to Thailand by major donors. The amount of Japanese aid money in the late 1990s when the Asian economic crisis occurred was about twenty times that of Germany in second place. The support of the Japanese Government was overwhelmingly large in comparison with other donors and, needless to say, received high appraisal from the Thai Government. Afterwards, the share of Japanese ODA (official development assistance) maintained a share of about 70 to 80 percent of the total aid money to Thailand through (The volume of ODA turned to a net negative amount from 2003, because of the Thai government s repayment of past yen loans.) (million baht) Japan USA Taiwan Singapore UK Figure 2 Top 5 countries of investment to Thailand (January through June) 5

6 The negative image of Japan in Thailand in the 1970s was gradually wiped out thanks to the ODA from the Japanese Government in the wake of the economic crisis. The infrastructure development by ODA has progressed. For example, 22.8 billion yen was invested in Laem Chabang Port, from yen loans. 3 Laem Chabang Port has grown to become the largest port in Thailand and serves as the center of overseas trade. These factors generated by Japanese ODA boosted the advancement of Japanese enterprises into Thailand. As shown in Figure 2, among the direct investment conducted in Thailand from 1985 to 2002, the direct investment by Japanese capital is the largest in terms of monetary amount. The direct investment from Japan is more than double that from the U.S.A. in second place. As for the balance of Japanese direct investment into Asia, Thailand is in second place after China. Even as seen from Japan, Thailand has become the largest production foothold in Southeast Asia (as of the end of 2007) 4. The response to the Asian economic crisis was not limited to an increase of aid money from Japan. As another result, more and more small and medium-sized enterprises advanced into Thailand. In response to the collapse of Thai baht, Japanese major enterprises gave up purchasing parts from Japan and switched their policies to procure parts in Thailand. Because of such actions of Japanese major enterprises, their subcontracting of small and medium-sized enterprise advanced to Thailand. In 2000, three years since the Asian economic crisis, the number of direct investments from Japan to Thailand exceeded the previous peak in 1995 and reached a new high. However, the amount of investment in 2000 was only around the half that in It seems that this is because the proportion of small and medium-sized enterprises increased, and the investment amount per case decreased. Consequently, the proportion of small and medium-sized enterprise among Japanese enterprises in Thailand has increased. 6

7 Chapter 2 Current situation of Japanese enterprises 2-1 FTA and the trend of Japanese industries in Thailand Now one cannot talk about the situation of Japanese enterprises in Thailand without talking about FTA (Free Trade Agreement). FTA is a new trade mechanism where the customs duties between two countries or regions are eliminated as a general rule. FTA removes barriers between countries, so-called customs duties, and can form one transboundary trade region. A typical FTA is the East Asia FTA that was concluded by six advanced East Asian countries I, including Thailand. Based on this agreement, customs duties among these six countries were eliminated as a general rule in January This elimination of customs duties offers immeasurable advantage to Japanese enterprises in Thailand when they export their products to other East Asian countries. Among East Asian countries, Thailand, in particular, has a high technological capability cultivated by Japanese enterprises that have operated there for many years. In addition, the elimination of customs duties by this FTA provides price competitiveness. In many cases, the immediate use of this FTA is for the export of automobiles. In the first half of 2010, the East Asia FTA was used for 90 percent of commercial vehicle exports (less than five tons) and 70 percent of passenger vehicle exports 5. From the above facts, it is understood that Thailand has reached a stage of economic development within East Asia, a huge trade region. This appears remarkably in the automobile industry. In the future also, direct investment from Japan to Thailand is expected to increase due to Japanese enterprises noting advantages brought by this FTA. 2-2 Environmental issues in Thailand The Thai economy is currently growing at a remarkable pace. However, this is causing environmental problems, centering on Bangkok, where population and industry are concentrated, and four surrounding provinces (Nonthaburi, Pathumthani, Samut Prakan, and Nakhon Pathom). In Particular, contamination of river water, air pollution by automobiles and factories, and pollution by improperly disposed waste, especially hazardous waste, are becoming serious. Although, in order to address this pollution, the Thai government is working on measures such as development of environmental laws, strengthening of environmental control, and improvement of disposing facilities, these measures cannot catch up with the pollution generated by rapid economic growth. Therefore, the Thai Government hopes that Japanese enterprises that are actively operating in Thailand will supplement, by utilizing their business skills cultivated in Japan, the aspects of environmental problems to which the Thai Government cannot extend its power. Responding to these actions in Thailand, Japanese enterprises show an attitude of perceiving environmental measures as important business challenges. In September 2004, the Japanese Chamber of Commerce, Bangkok (JCC), consisting of Japanese enterprises operating in Thailand, conducted the Questionnaire survey on environmental problems that Japanese enterprises in Thailand are facing for its members engaged in manufacturing. 6 According to this survey result, around 90% of members recognize the importance of environmental issues as business challenges, including 49.7% which consider them very important and 42.5% I Thailand, Indonesia, Singapore, Brunei, Malaysia, and the Philippines, countries in the East Asian region where economic development has progressed 7

8 that consider them rather important. As described at the beginning of Chapter 1, there is a history that the advance of Japanese enterprises was criticized by Thai people as causing environmental destruction. From these conditions and the past anti-japan movement, it can be said that Japanese enterprises operating in Thailand find themselves in the situation where they should face environmental problems in Thailand. 8

9 Chapter 3 Japanese enterprises responsibility for Thailand 3-1 Efforts of enterprises As described above, the advance of Japanese automobile enterprises into Thailand is remarkable. As I mentioned, the automobile industry triggered me to have doubts about Japanese enterprises. Meanwhile, the Japanese automobile industry began to move toward improvement of the environment in Thailand by introducing eco-friendly cars. In December, 2010 a certain manufacturer started the sales of eco-friendly cars in Thailand. This manufacturer had already sold hybrid cars since They must have confirmed the demand for hybrid cars in Thailand. In fact, the environment-related business that makes such environmental measures a selling point is budding in Thailand. Another automobile manufacturer announced in December, 2010 that it reached an agreement with the Thai Government to conduct joint research for the proof test run of electric vehicle (EV) in Thailand. Also, they expect to operate a new factory for the production of eco-friendly cars in March, Even in the field of solar energy generation, Thailand is positive about introducing solar energy generation for reduction of energy import cost. A certain Japanese manufacturer announced in December, 2010 that it had received bulk orders for solar cells generating a total of 204,000 kilowatts from a power producer in Thailand. These solar cells are planned to be delivered to 34 solar power plants currently being constructed in the northeastern area of Thailand in the next three to four years. The order volume is estimated at about 30 to 40 billion yen, making it the largest-ever scale order to a Japanese manufacturer from a single client. This must be good news for Japanese solar power business, which is losing ground to Chinese competitors in the world share. A similar trend can be seen in the field of recycling. A certain Japanese enterprise recycles defective printed circuit boards in Thailand, refining material silver from them and exporting the silver to Japan. 7 These businesses secure resources and prevent the occurrence of environmental pollution generated by exhaust gas and waste substances in Thailand. Even more, these businesses can create a new industry by importing into Thailand hybrid cars, solar energy generation, and recycling technology, which have been cultivated in Japan by enterprises. In a word, these are Japanese enterprises new efforts of environmental measures to secure a Win-Win (mutual benefit) relationship between Thailand and Japan. 3-2 Future tasks A Japanese automobile manufacturer has already launched the sales of hybrid cars in Thailand and will continue. Meanwhile, I found an indication that presents a new task for this industry from the Environment Society Consideration Enhancement Research Work in Japanese ODA and Private Sector s Overseas Operation in FY2005 (project by Ministry of the Environment) 8. It is cited here. The client enterprises of a certain Thai capital auto parts manufacturer are automobile manufacturers of countries such as Japan, the U.S.A., and South Korea. (Snip) Every 9

10 Japanese automobile manufacturer producing automobiles in Thailand and neighboring countries purchases parts from said manufacturer. According to this parts manufacturer, the Japanese automobile manufacturers have very strict standards for product quality. On the other hand, their requirements in the environmental aspect are rough (for example, a request of responding to the regulation of EU), and they don t inspect the factories. [Emphasis added] This material reveals the real situation that Japanese automobile manufacturers in Thailand don t pay attention to the environment measures of local suppliers. If Japanese automobile manufacturers really give serious consideration to the environmental issues in Thailand, they should spread the sense of environmental protection to the Thai capital suppliers. For this purpose, it is essential that Japanese major enterprises already achieving good results take the initiative in transferring their knowledge and know-how about environmental measures to local enterprises. It is necessary not only to advance efforts on environmental consideration, but also to examine multipronged measures. Also, there is an issue of CSR (corporate social responsibility) of small and medium-sized enterprises. There is a question about the obtaining of ISO14001 II certification in the Questionnaire survey on environmental problems which Japanese enterprises in Thailand are facing by JCC that was introduced in Chapter 2. ISO14001 is an international standard for environmental management. According to the result of JCC survey, 45.7% of Japanese enterprises operating in Thailand gave answers of Already obtained. Meanwhile, the person in charge of this survey analyzes as follows. Most enterprises that obtain the ISO14001 certification and the eco label are limited to large enterprises, foreign capital enterprises, and exporting enterprises incorporated into the supply chains of client enterprises in developed countries. (Snip) In order to improve environmental conditions that remain serious, it is indispensable to have measures for small and medium-sized enterprises 9. As already revealed, a lot of small and medium-sized enterprises have launched operations in Thailand in recent years. Amid this situation, the lack of environmental consideration by small and medium-sized enterprises should be solved immediately. However, many small and medium-sized enterprises lack sufficient budget, human resources, and knowledge for environmental measures and barely implement daily countermeasures against water contamination and air pollution. As a realistic plan for the future, major Japanese enterprises must offer assistance to this issue as well as the issue of local subcontractors. Of course, needless to say, small and medium-sized enterprises should not spare any effort. (see Figure 3) II International standard on the environment, established for aiming at minimizing environmental impact from organizational activities 10

11 Japanese major enterprises Japanese small and medium-sized enterprises Thai enterprises Figure 3 Image chart of burden sharing for environmental issues in Thailand 11

12 <<Conclusion>> I had not imagined that I would be so interested in Thailand before I was dispatched to Thailand. I think that everything started because I felt the charm in the country itself named Thailand. And therewith, as written previously, when I actually went there I immediately felt a connection between Thailand and Japan in many fields. Thailand and Japan are already in an inseparable relationship in both economical and cultural aspects. The industrial relationship will be strengthened more and more by East Asia FTA in the future. As regards the lack of environmental consideration by Japanese enterprises in Thailand, a catalyst for why I chose this theme, I could confirm that enterprises felt similarly and were trying to improve. During my conduct of this study, a Japanese automobile manufacturer started to sell eco cars. On the other hand, I found a new task that major enterprises need to pay attention to small and medium-sized enterprises and local enterprises in Thailand. A past mistake is repeated if one seeks only one s own profit without uniting with local society. I assume the ideal situation to be a Win-Win relationship. That is, the environmental issues in Thailand are improved by the creation of industry that utilizes the technology cultivated in Japan by Japanese enterprises. Simultaneously, Japanese enterprises can find a new opportunity for environmental business and can obtain credibility within Thailand. This is a relationship of mutual benefit. Since support by the Japanese Government is reduced, Thailand and Japan are advancing the construction of a new relationship as equal partners from the relationship of donor country and recipient country. I hope that Japanese enterprises will further improve their problems, and that the relationship between the two countries will progress to a better direction in the future. 12

13 Books and materials for reference JETRO Bangkok Center,1995, Business Guide Thailand Toshiaki Arai, 2003, ASEAN and Japan Nicchu-Syuppan Ministry of the Environment Environment Society Consideration Enhancement Research Work in Japanese ODA and Private Sector s Overseas Operation in FY2005 PDF Ministry of the Environment Environment Measures for the Overseas Activities of Japanese Enterprises (Thailand) PDF Ministry of Economy, Trade and Industry 2010 White Paper on International Economy and Trade PDF NHK Special broadcasted on August 22, 2010 Burning Asia, First, Thailand JETRO Website, distributed on October 11, 2010 Thailand, Utilizing FTA for Automobile Export (motion picture) Cited literature 1 Toshiaki Arai, 2003, ASEAN and Japan Nicchu-Syuppan, pp Ministry of Foreign Affairs, Thailand National Report (Research commissioned by the Ministry of Foreign Affairs), International Development Center of Japan, updated in March 2003 ( 00.html viewed on December 2, 2010) 3 Ministry of Economy, Trade and Industry 2010 White Paper on International Economy and Trade PDF ( viewed on January 23, 2011) 4 Website of the Thai Embassy in Japan, Relationship between Japan and Thailand ( viewed on January 4, 2011) 5 JETRO Website, Thailand, Utilizing FTA for Automobile Export (motion picture), updated in October, 2010 ( viewed on January 23, 2010) 6 Ministry of the Environment Environment Society Consideration Enhancement Research Work in Japanese ODA and Private Sector s Overseas Operation in FY2005 PDF ( viewed on December 4, 2010) 7 Ministry of the Environment Environment Society Consideration Enhancement Research Work in Japanese ODA and Private Sector s Overseas Operation in FY2005 PDF ( viewed on December 4, 2010) 8 9 ibid ibid 13

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