Electrical Appliance Industry, Year of the Dragon Threatened by Flooding and Wage Hikes (Current Issue No. 2278 Full Ed.)

The 2012 electrical appliance industry will be likely affected by negative factors domestically and internationally, e.g., a global economic deceleration as a result of the Eurozone debt crisis with no concrete solution implemented. It is thus possible that wider impacts of such regional economic problems may be seen, hurting other economies. This would certainly dampen consumer confidence and incomes. As a result, the demand for new electrical appliances may fall.

Domestic factors that could dampen the electrical appliance industry this year include a minimum wage hike to THB300 in seven provinces and minimum wage increases of 39.5 percent higher than 2011 in remaining 70 provinces (scheduled to start on April 1, 2012). Such hikes may increase production costs, thus reducing our competitiveness in the global arena. Although electrical appliances are not labor-intensive products, the market will likely experience intensified cut-price competition. Then, manufacturers will have to focus more efficiently control costs, particularly amid trade liberalization and the upcoming ASEAN Economic Community (AEC) in 2015, which will allow investors to relocate their production plants or business operations anywhere within the AEC more flexibly for better profitability. Therefore, foreign investors sensitive to rising costs may decide to move factories to neighboring AEC members.

Moreover, the government's water management plan should be closely monitored, particularly with regard to factories within inundated areas that are now undergoing recovery work. If flooding returns again this year, the threat of investors moving production to other countries will increase.

Regarding the export outlook for electrical appliances and parts this year, production during 1H12 may contract YoY, especially air-conditioners, household refrigerators and compressors due to the flooding during 4Q11 that severely affected many appliance factories. The situation is expected to improve in 2H12 due to recovery efforts to swiftly resume production. KResearch expects that the export value of electrical appliances in 2012 may reach USD 23.750-24.750 billion, growing 6.5-11.0 percent over the 8.5-percent growth in 2011.

Given the domestic electrical appliance situation in 2012, market turnover may reach only THB83.250-84.150 billion, growing 4.5-5.5 percent, against the 2011 growth of 2.5 percent. The growth of electronic appliances during 1Q12 may be boosted by demand for new items to replace damaged ones as a result of the recent flooding.