BANGKOK -- South Korean businesses are increasingly entering promising Southeast Asian markets, but the number of Korean companies operating in Thailand is still far lower than that in Vietnam, for instance, where more than 3,000 Korean companies operate.
There are currently around 400 Korean companies operating in Thailand, which is Korea’s 18th-largest trade partner in the world and the third-largest market for Korean companies in Southeast Asia, after Vietnam and Indonesia.
“Korean companies do not have much knowledge of Thailand. Many of them still view the nation as a tourist attraction instead of an investment destination. The (industrial) boom has not yet formed (for Korean companies) here,” said Youn Jang-og, manager of the Bangkok office at the Korea Trade-Investment Promotion Agency.
Workers at South Star, the first vendor of Samsung Electronics in Thailand, make pipelines in a plant. (South Star)
As a result, business infrastructure for Korean companies is less available there, which prompts them to seek safer places like Vietnam, where there are many legal and financial organizations for Korean companies.
“But the lack of Korean firms could be an opportunity. In particular, the cosmetics and food markets are fast-growing here, and Thai people are positive about Korean products because of the Korean Wave,” she said.
The electronics and steel industries have been traditional sectors for Korean companies here. Of about 400 companies, more than half are related to electronics and steel.
Samsung Electronics, LG Electronics and their partners produce air conditioners, refrigerators and washing machines. Posco runs steel plants. In 2016, it added plants that produce high-value steel products, including galvanized sheet iron.
In recent years, more Korean internet, cosmetics and home-shopping firms are making inroads into the market thanks to the popularity of Korean culture, which has grown since the Korean drama “Autumn in My Heart” became a hit in Thailand in 2001, KOTRA said.
The number of monthly active users of Naver’s Line in Thailand has grown to 44 million. In addition, Korean houseware sells well on home shopping channels. Korean firms that have entered Thailand include home-shopping firms CJ O Shopping, GS Home Shopping and Hyundai Home Shopping, as well as cosmetics firms Sulwhasoo, Laneige, The Face Shop and Skin Food.
Less labor-intensive, more high-tech
South Star is a Korean company doing business in Thailand as the first vendor to Samsung Electronics.
It makes steel pipes for air conditioners and refrigerators, key parts that generate cold wind within the appliances. Half of sales come from Samsung Electronics. The rest comes from foreign electronics companies, including Mitsubishi Electric, Haier, Panasonic, Toshiba and Electrolux.
“Thailand has better parts infrastructure than Vietnam. We can source most parts here,” said Ahn Hak-in, managing director of South Star. He used to work for the Thailand unit of Samsung Electronics when the tech giant first jumped into the nation.
“Thailand is quite stable in terms of policies for foreign companies. They do not change rules repeatedly. Thai people are generous to foreigners, and Thai workers are good with their hands,” he said.
Thailand has been a good place for manufacturing with its generous tax breaks and skilled but affordable labor force.
However, the country’s policies and its labor force are changing.
The Thai government is changing the rules to benefit only those foreign companies with new, eco-friendly or advanced technologies. General manufacturing firms will no longer enjoy tax incentives, he said.
This has prompted foreign companies, including South Star, to develop new technologies instead of relying on cheap labor.
“We have been paying corporate tax from three years ago. So we are now planning to develop new and high technologies for further tax incentives,” he said. Currently, corporate income tax is 20 percent in Thailand.
Two years ago, South Star developed new pipeline technologies and got corporate tax benefits for the plants for three years.
Also, labor-intensive work will no longer be attractive for foreign companies. The Thai government increased the minimum wage by 7 percent in April last year, having previously raised it in 2017.
“Labor costs are rising and Thai workers now shun difficult, dirty and dangerous work. If Korean companies seek this market only to deploy cheap labor, it will no longer work,” he said.
By Shin Ji-hye
Korea Herald correspondent