Role flip sees Thailand buy, invest in US
In the new era of international commerce and diplomacy, role reversals are coming up everywhere. From the 1950s up the turn of the millennium, it used to be that Thailand’s various governments would visit their counterparts in the United States with caps in hand requesting this and that from them — from development aid and equipment donation to investment funds. This is no longer the case. Now Thailand is an emerging investor in the wider world and a net donor to boot. Prime Minister Prayut Chan-o-cha’s visit to the White House earlier this week is a case in point.
Apart from focusing on North Korea and other geopolitical issues, the visit was about bread and butter. US President Donald Trump has been griping his own list of 16 countries that have held trade surpluses vis-à-vis the US. Thailand ranks 11th among them, with US$19 billion (634 billion baht) in 2016. Thus, Gen Prayut’s visit, amid outrage among human right activists that another authoritarian leader and even a coup leader is welcomed in the Oval Office, is as much about accommodating Mr Trump’s “America First” economic policy, as it is on regional geopolitics.
Unsurprisingly, Gen Prayut came back from the trip with a slew of new purchase deals that are likely to narrow the trade gap between the two countries. The shopping list includes not only more advanced military hardware, something to be expected under the junta government, but also a large load of coal and potential commercial aircraft in the near future. In addition, a joint committee is to be established to increase bilateral business opportunities, with priority on issues such as market access for American pork products and Thai investment opportunities in the US.
It is this side of the deal — Thai overseas direct investment in the US – that could spell long-term benefits for Thailand and strengthen the country’s global competitiveness. The role reversal of Thailand in foreign direct investment (FDI) arena has never been so stark. Having long been a popular destination for inward FDI since the 1980s, Thailand has now assumed another significant role as an outward foreign investor in the past two decades.
Since the 2000s, Thai outward FDI has risen like never before. In 2016, Thailand deviated from the general decline of FDI outflows from Southeast Asia and emerged as a strong investor with outflows surging to a record high of US$13 billion, according to the United Nations Conference on Trade and Development. In less than 20 years, Thai outward FDI stock has grown more than 30-fold — to be exact, nearly 32 times — from a mere US$3 billion in 2000 to US$95 billion in 2016.
Although the majority of Thai outward FDI is concentrated in developing Asia, with Asean accounting for the largest amount of investment flows, what should be noted is the growing share of Thai outward FDI stock destined for developed economies. For example, the combined share of outward FDI stock to the US and the European Union (EU) grew from around 9% to 15% of total Thai outward FDI stock from 2006 to 2016. The share for investment stock in Asean was reduced from 40% to 30% during the same period.
This trend reinforces the growing importance of Thai investment in more advanced economies, particularly the US, which is the single largest host country of Thai investment in the developed world, with 5.5% of total Thai outward investment stock in 2016. In value, Thai investment stock in the US grew 10 times from a mere US$0.5 billion in 2006 to US$5.2 billion 10 years later, while inward FDI stock from US to Thailand did not even double, expanding from around US$9 billion to just US$15 billion during the same period. This rapid growth of investment outflows from Thailand confirms the increasingly bilateral nature of economic relationships between the two countries.
Like their international expansions elsewhere, Thai firms that invest in the US do so for different reasons. Firms in natural resource industries, for example, Banpu, may be looking for opportunities to invest in shale gas to reinforce their base in renewable energy. Other leading Thai firms, like Indorama Ventures, Thai Union Group or Charoen Pokphand Foods, may consider manufacturing investments in the US to be able to supply the North American markets better and faster from within the region, compared to from export bases back at home. On top of setting up sales and distribution channels to enhance their market access, these firms can also increase their overall efficiency from leveraging comparative advantages of countries in which they have set up production units.
Take the agribusiness and food industries, for example. Thai seafood exports have faced challenges from major markets in the US and Europe for slavery and human right abuses in the fishing industry, whereas our poultry exports have equally been under close scrutiny for safety and traceability issues. Having manufacturing bases outside of Thailand can serve as an efficient strategy for firms to leverage location advantages from alternative sites within their global footprints that perform better than Thailand in those international criteria.
In addition, Thai firms may enhance their competitiveness from acquiring or investing in US-based firms with more sophisticated and advanced technology. Although this particular type of technology-seeking overseas investment is still rather limited among Thai firms, it will become much more significant as Thailand and its firms seek to enhance their competitiveness in the knowledge-intensive 4.0 era.
Given these varieties and nuances, there guidelines Thai firms and policy makers might take into consideration for the sake of future Thai economic competitiveness. For Thai firms, investment opportunities in the US or other advanced economies could be perceived as a springboard to attain higher value-creating assets such as technology and more diverse managerial talents. Being able to integrate the different know-how from operating abroad and in more sophisticated markets would be instrumental to the transformation of leading Thai firms, from domestic champions to budding regional and global players.
For policy makers, it is crucial to understand that the diversity of outward FDI patterns among Thai firms reflects the differences in strategy and resources of each individual firm. Policy directions toward outward FDI should therefore be driven by a comprehensive and overall understanding of what Thai firms are doing abroad, and not be limited by snapshot policies that only look to promote selected industries or specific geographical locations.
It appears Gen Prayut had a good visit to the White House visit and President Trump got a good chance to reduce the US trade deficit. But for Thailand to get something out of it also requires longer-term policies that take into consideration the overall links between inward investment, domestic industrial development policy and growing Thai outward investment. After all, this trip should not be just one to please Mr Trump economically in exchange for US approval of the current political situation at home.