Our Exclusive Interview with Claudia Bieri

of Amata Corp.  on

CHOOSING AN INDUSTRIAL ESTATE IN ASIA

To get an inside perspective on how manufacturers can better shop for factory sites in Asia, Runckel Associates spoke to Claudia Bieri, corporate marketing executive at Amata Corp., a respected Thailand-based executive in THE LEADING industrial estate developer in Thailand and Vietnam.  Because both those countries have become favorite investment destinations in recent years, Bieri meets a large share of the companies shopping for factory sites in Asia today.  Most of her tips are applicable throughout the region.

Business-in-asia.com: Thailand has ranked high in recent surveys on foreign direct investment potential - third in Asia in the top world survey.  Why are manufacturing investors focusing on Thailand?

Bieri: The survey you mention is by the world's key agency on international investment,  UNCTAD, part of the United Nations, and yes, for a couple of years now it has ranked Thailand only behind China and India.  I think that reflects a lot of the tangible factors that the surveyed experts consider important - real costs, human resources, infrastructure, location, logistics, supply chains, governance.  Thailand is very strong on those factors, better than China and India in most cases.    The advantage those big countries have is their large domestic markets, so they continue to get lots of investment.

But what I see again and again in meeting with people making investment decisions is that their personal perceptions make a big difference.  They ask themselves about intangible factors in each country they visit.  What kind of quality of life would our expatriate employees and their families have here?  How comfortable, how welcome do we feel in this country?  Do we feel a sense of trust and acceptance with the people we meet?  Can we cope well enough with the differences in language and culture here?   On all of these factors Thailand is very strong.

You can't put a number on any of those things, but to me, they are serious considerations.  You are going to be more successful if you are happy in a place.  If you're under stress because of your environment, it automatically reflects in your job performance.  In Thailand, people tend to be positive, optimistic, easy going. They're team players who get along well with others.  They adjust to situations well, and are flexible at finding solutions.  Investors notice.

Business-in-asia.com: Any other factors investors rank high when comparing countries in Asia?

Bieri: It's wise to look beyond the headline numbers when you compare factors like costs.  For example, labor costs in China vary a lot beyond national averages when you look at specific locations.  In Shanghai and the southern coastal provinces where companies prefer to invest, costs tend to be high.  Worker shortages are causing fast increases in wages and salaries, or simply making it difficult to operate.  It's good to talk to other companies in a place to get a realistic picture.

Intellectual property rights protection is key for many companies, especially if they're  considering China.  Foreign firms there often have trouble with business partners taking intellectual property and going into competition.  This is another reason investors are picking Thailand, where this kind of theft is rare.

Political and economic risks differ widely from country to country in Asia, unlike in Europe.  Here again, some investors feel unsure about China because the future seems hard to predict there.  They consider China a primary market, but they feel more comfortable servicing the market from a nearby location that is less risky.  This is especially true for medium-size and small companies that are investing in Asia for the first time.  Places like Thailand, Malaysia and Singapore are usually considered easier to do business.

Business-in-asia.com: After you've identified the right country to invest, what about comparing specific locations  within it?

Bieri: The criteria here vary a lot from company to company, but in general the two most important factors are cost - of land, labor and utilities - and proximity to suppliers, clients and logistics.  Proximity is ultimately an operating cost factor.  Nowadays firms have daily logistics.  They don't want to invest in inventory and warehouse facilities, and they want to be close to partners and ports.  Money spent on fuel and logistics is an operating cost, and companies are very sensitive on that point.  In many industrial estates you find examples of companies doing business with the factory next door - they build next to a client or supplier.

In most countries in Asia, government targets specific areas for development of manufacturing industry.  In some cases, the government chooses the area mostly because it is remote and underdeveloped and needs jobs.   In other cases, the government takes the investors' point of view and targets an area that already has advantages on which to build - infrastructure, strategic location and so on.

That's what happened in Thailand, for example.  In the mid-1980s, the government realized it could enhance competitiveness and quality of life by focusing industrial development in the three coastal provinces directly south of Bangkok. They chose this location because it is close to both Bangkok and excellent port facilities.  For the past two decades both industry and government have invested continuously in this area, the Eastern Seaboard Development Region (ESB).  The result today is an efficient clustering of export industry and top-grade infrastructure -  high speed roads, rails, deep sea ports, airports, and many industrial estates, including both of Amata's estates.  Suvarnabhumi International Airport is about to open, and the ESB's main sea port at Laem Chabang is being doubled in capacity.  In the past, the Thai government did not have a strong reputation for this kind of planning. But the ESB project has proven otherwise - the World Bank recently called it one of Asia’s most successful large-scale plans for industrial development. It's one reason Thailand's export performance has been so strong in recent years. So, investors need to keep in mind that in Thailand and other countries, there are often big strategic and infrastructure advantages in specific areas.

Business-in-asia.com: What do first-time investors in Asia want  to keep in mind?

Bieri: The key thing is to keep your mind open, and don't expect everything to be the same as at home. You'll be more successful if you adjust your thinking, your corporate culture, your way of doing things to the partner culture. For example, European investors are usually surprised at the high cost of land in Asia.  In Thailand, land can be three to six times the price in European countries..  Why?  First, historically, land has been considered a primary investment here and elsewhere in Asia. Fast economic growth increases demand for industrial land. Zoning practices are different than in the West.  These are just things you'll have to accept.  On the other hand, operating costs are lower than in the West, and regional markets are growing faster.   So the opportunity for success is here.  And in Thailand, if you decide to settle in an industrial estate, you can own land outright instead of leasing, so it becomes an asset. And at the end of the day, the land cost is a relatively small part of your investment - we find that it's about 7% to 9% of total cost for investors in Thailand - so it pays to get a good location.

Business-in-asia.com: Land costs more in an industrial estate.  What is the benefit of being in an estate?

Bieri: First, a good factory estate has enhanced infrastructure and services that are specially designed to support manufacturing, like dedicated electricity, water supplies, wastewater treatment, roads and so on.  This is important in Asia because often these features are not well developed outside factory estates. Also, the locations tend to be close to transport infrastructure like high-speed roads, an airport, sea port and rail links. 

Because it is dedicated industrial land, you don't have conflicts with residential communities regarding traffic or noise from night time operations.  Instead, you have a community of businesses who eventually do business together - so  a clustering of industries develops.  They collaborate on things like networking and even sports.  By the way, Amata hosts Thailand's largest corporate leagues for football (soccer) and other games, which are popular with workers at all our clients.

Our estates also have extra features, like Free Zones that offer streamlined customs.  We have conveniences like on-site shopping, banking, dining, a country club.  We provide a one-stop, after-sales service for administrative tasks like investment applications, immigration and work permits, which we handle on behalf of clients without charge.

One competitiveness and cost benefit is the speed of setting up in an industrial estate.  You can build your factory and be up and running within five or six months of signing a contract, as many of our clients do, because the utilities and services are ready to go.  Or, as an alternative to buying land and building your own factory, you can rent a turnkey factory from us and start production within a few weeks.

Business-in-asia.com: Do foreign companies have the option of locating outside estates?

Bieri: In Thailand, yes they do, but there are extra incentives set by law to encourage them to locate in an estate. If your company has obtained promotional privileges from the Board of Investment, which is for greenfield projects, you can own land inside or outside an estate and own 100% of the project, including the land.  But locating within an estate allows even companies without BOI approval to enjoy 100% ownership and land ownership  You are exempt from the ordinary legal requirement to get a Thai partner owning 51% of the operation. Instead, you can own it all yourself, without any local joint venture partner. 

Of course, you can find cheaper raw land outside an estate, but it becomes a do-it-yourself project.  You have to apply for permission to use it for manufacturing.  You pay land transfer and ownership taxes, pay to connect to utilities.  If there is no central sewage plant in the area, you'll have to build a waste water treatment system.  If you are a heavy user of logistics, you may have to invest in building up the service road from a one-layer asphalt surface to something more sturdy.  All this might become more expensive than the purpose-built land sold in estates. 

You may not be able to set up as quickly outside an estate because local authorities probably won't make guarantees on how fast they can provide utilities and services.  For all these reasons, even local companies consider the extra cost of land in industrial estates to be well spent - about a fifth of my company's clients are Thai companies.

Business-in-asia.com: Are there significant differences between one industrial estate company and another? 

Bieri: Land costs can vary somewhat, but more significant is the range and quality of infrastructure and services, where you find big differences.  In Thailand, the law on industrial estates sets certain minimum standards regarding the utilities and infrastructure that the company has to provide.  But some estates don't do enough ongoing maintenance and upkeep.   If the landscaping, roads and signage are not kept in good repair, it can affect your operations, or tarnish your image when customers come to call.  A good estate takes care of all this and exceeds minimum standards, such as by building roads in reinforced concrete instead of just asphalt. 

Service after the sale is key.  In Thailand, investors are able to own 100% of their operations.  That's a benefit, but it means a foreign company is on its own, without a close local partner. Sometimes they may get into situations where they are not in compliance with laws or regulations, such as immigration or labor laws.  When that happens, we go in to try to smooth things out, free of charge.  That can be expensive to do yourself, such as by hiring a lawyer.  We, the developer, see ourselves as the local partner for our foreign clientele and are happy to help as much as possible - it's part of our customer-centred philosophy.

Business-in-asia.com: Can you cite any examples of how an industrial estate company might help a client in trouble?

Bieri: Here's one of many: we have a foreign client in the food processing business who was doing quite well for many years.  Then they suddenly increased their capacity and found that the wastewater treatment system could not cope with the effluent.  Neighboring factories complained about the smell.  So did some villagers living not far away, who threatened to protest.  Government officials came in and gave the factory a strict deadline, threatening to shut them down.  Things were getting tense, so the client asked us to help.  We went in and asked officials to negotiate with us instead of the client.  And we talked with the local community.  This took pressure off the client so they could concentrate on the task of improving their systems. We introduced some experts to help them analyze the problem. Eventually they fixed it, and everything was ok. 

Sometimes even very large, powerful, resourceful companies get into trouble they can't handle.  A factory estate firm should be willing to help.  If the industrial estate company is well established, well-respected, with good relationships and connections, all of those things will benefit their clients.  Connections count so much in Asia.

Availability of the industrial estate executives is important.  Is the head of the estate there on site, or in a sales office in the city?  That affects the level of service. 

Amata's senior executives who oversee operations actually live at the estate.  If there would be a power problem, for example, it would affect us as well as our clients.  We're there  seven days a week to take care of it. 

Business-in-asia.com: Where can investors go for good sources of information?

Bieri: Nowadays there's an abundance of good data from national and local investment authorities as well as industrial estate companies, most of it on the internet.  Also, knowledgeable advisory companies like Runckel & Associates and particularly your website www.business-in-asia.com are excellent sources.  Embassy's commercial officers too can help.  When you visit a place, make time to talk to other companies that have invested there.  You can find contacts through foreign chambers of commerce or your own business networks or get introductions from industrial estate companies.  Foreign investors see themselves as belonging to a business community with shared interests, so they are usually eager to share information, advice and contacts.  Meeting people this way is one of the enjoyable parts of expanding overseas.  And try to meet local businesspeople too, to get different points of view.