Post Pandemic Deglobalisation : Thailand is not necessarily a loser

Thai Business News

Post Pandemic Deglobalisation : Thailand is not necessarily a loser
Thai Business Box

Post Pandemic Deglobalisation : Thailand is not necessarily a loser

Written By -Thai Business Box. 04-10-2020.

The post pandemic world economy is likely to see an acceleration in deglobalization as globally, political leaders and companies resort to protectionist policies.

Many manufacturers in advanced economies are expected to relocate their factories back to their home countries and employ increased automation and robots to overcome the obstacle of limited workforce.

It does not bode well for emerging economies like ours who benefitted from a more  globalized world and are in danger of coming out as losers in an extremely deglobalized one.

However, it’s not all doom and gloom, as there seems to be a growing consensus that rather than moving towards complete deglobalisation, the world is instead moving towards partial deglobalization.

As the China-centred global production hub model is no longer appealing or working for many companies, they are opting to have their production in multiple geographies to cater to the markets in that region. It is a more efficient and cost effective move for most companies than relocating total production to their home country and then shipping to other markets across the world.

Partial Deglobalisation will be the next logical step for production firms to survive in a deglobalized world.

What could this potentially mean for Thailand?

A shift to partial instead of complete deglobalisation actually puts Thailand back on track to be one of the winners.In a pre-pandemic flashback, Thailand benefitted from the disruptions in supply chains caused by the trade war. Starting in 2018, US and China slapped higher tariffs on each other’s goods leading to companies looking for manufacturing facilities elsewhere to circumvent those tariffs.

According to Standard Chartered Private Bank, the Thai Baht appreciated by 6% in 2019 indicating that Thailand was a leading beneficiary in the trade war.

The trade battle increased the importance of Thailand as a manufacturing base with a surge in foreign investments in the first quarter of 2019, FDI was reported at 84.1 billion baht up 253% from the same period in 2018, evidence that Thailand benefitted as businesses seek new locations in the region to avoid an escalating US-China trade war.

In a post Covid world, companies shifting their supply chain will not only be looking to avoid tariffs but are also

looking for a resilient supply chain to service the markets in the region of its manufacturing and production  country.

Can Thailand step in to be the choice for companies to set up manufacturing and production units to service the local and Asean markets on one side and all the way to the Indian market on the other side?

What would it require to tilt companies’ decisions in Thailand’s favour?

In a post pandemic world, companies are increasingly focussed on making sure their supply chains are resilient and face zero to minimal disruptions as opposed to majorly focusing on cost factors, such as labor costs and avoiding tariffs.

A resilient supply chain calls for  great logistics infrastructure .

A main key factor that favours Thailand and is definitely  a deal maker is the fact that Thailand, located in mainland Southeast Asia with Myanmar, Laos, Cambodia and Malaysia as its neighbours, is the main  Asean transport point and also a keys logistics hub. Although Thailand’s main mode is the use of marine transport for its international trade, Thailand also has the most extensive road transportation network in all of Southeast Asia with a total of 13 highways spanning 390,026 kilometres. Furthermore, Thailand’s road links not only connect to its neighbouring countries, but also further to other countries like China, India and Bangladesh.

Along with having a world class infrastructure, Thailand is a part of Asean which comprises of Brunei,Cambodia, Indonesia, Laos, Malaysia, Myanmar, Phillipines, Singapore, Thailand and Vietnam, and enjoys free trade among its members and additionally, has Free Trade Agreements with China, India, Australia and New Zealand. Production companies relocating to Thailand will be able to service all the markets in those countries.

In a partial globalisation scenario, Thailand can still come out a winner if  companies can be convinced that moving their production to Thailand will ensure a supply chain that can service the markets in this region efficiently and without disruptions.