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23 Nov 2011

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Indonesia-Thailand: SEA Games & Auto Trade Competitors (Business Brief No.3211)

The 26th SEA Games, held in Jakarta and Palembang, Indonesia, November 11-22, 2011, ended with Indonesia winning the most golds. In the trade race, however, Thailand and Indonesia continue to contend as the top regional automotive manufacturing hub. The automotive industries of both countries are part of global networks, especially for Japanese brands. Presently, Thailand and Indonesia are trade partners relying on one another, rather than competitors. Given differences in production infrastructure between both countries, the growing Indonesian automotive industry would help support demand for Thai parts and accessories there. Meanwhile, even though they export to many of the same destinations, their products differ somewhat.

Looking forward, a close watch will be needed. The Indonesian government is ambitiously pushing their automotive production to the forefront within ASEAN. Bright prospects seem to lie ahead for them, thanks to several positive factors. However, there are still some hurdles to overcome. They include a shortfall of skilled workers, insufficient development in automotive component production facilities that are key to success, as well as an unfavorable domestic logistic system to support trade within the country and outward shipments. If these obstacles are overcome, more foreign investment, especially new ventures will be likely drawn to Indonesia. Then, Thailand's top position in ASEAN automotive production could be shaken.

Going forward, emphasis should be placed on maintaining investor confidence, especially after the catastrophic flooding here has dealt a direct blow to our automotive industry, which in turn has affected global supply chains. Supply disruptions are evident in the ASEAN region which is heavily reliant upon components from Thailand. Meanwhile, rising operating costs in Thailand due to wage hike pledge may also induce investors to relocate their operations elsewhere. Indonesia may be attractive for their sheer size – three times larger than Thailand – as well as having a lower daily wage (USD8 in Indonesia, versus USD10 in Thailand).

Our government should help sustain investor confidence as well as our competitiveness, supporting industry via worker training, thus increasing the available skilled workforce. Political stability is also crucial; clarity will be needed on assistance to industries amid natural disasters, as well as prevention. Such efforts would lead to a more favorable atmosphere for existing and new investors. For business, focus should be on maintaining our strengths over ASEAN peers, including an advantage in the availability of skilled workers and facilities with advanced technology.

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