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18 Jun 2021

Econ Digest

COVID-19 pandemic reverses global supply chain: foreign investment flows to Thailand is expected to increase by USD1.1-1.4 billion


         The global outbreak of COVID-19 and the intensifying trade and technology wars between the US and China have prompted multinational companies in various industries to recognize the vulnerability of the global supply chain and to diversify the concentration risk in China. The global trend in the aftermath of the COVID-19 pandemic will trigger the reshoring trend, a trend of high-tech owners moving production bases back to countries of origin to produce innovative products, and a diversification trend to establish production bases and new supply chains for mainstream manufacturing to diversify risks in case of emergency.   

         Thailand should benefit from the diversification trend as it is one of the choices for establishing new production bases, and multinational companies will consider the following factors: (1) the market size of the country of investment; (2) access to third country market, and in the case of export-oriented production, the country’s trade agreements with the world’s major markets are an advantage in attracting investment; and (3) production costs, including labor costs. When comparing the above 3 factors, Thailand cannot compete with other ASEAN competitors. However, Thailand still has advantages in terms of tax incentives for investing in high-tech industries, complete infrastructure, and integrated supply chains in the automotive, electrical and electronics industries, so some foreign investors will continue to choose Thailand as their production base in ASEAN.

         KRsearch expects that, with the shift from a China-centric production chain to a regional production chain that spreads across the world, foreign investment flows to Thailand will increase by approximately USD1.1-1.4 billion during 2021-2023, up by 0.7-0.8% over 2018-2020, primarily in the industries that already have integrated supply chains in Thailand. Over the long-term, Thailand will continue to face challenges in maintaining foreign investment, and opportunities to attract FDI in high-tech industries tend to diminish. A sustainable solution for Thailand, therefore, is to have its own advanced technologies, to develop its innovation capability and upgrade its human resources.

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