The 'detroit of Asia'?: an exploratory study of automotive industry foreign direct investment in Thailand: firm strategies, location decisions and regional influences

Abstract

The automotive industry in Thailand is one of the strongest pillars of the economy and a leading recipient of foreign direct investment (FDI). Firms with different countries of origin, sizes and industry background invest in Thailand for various reasons. Given this basis, Thailand is aspiring to solidify its status as the 'Detroit of Asia'. The focus of this thesis is to explore the motivations and drivers of foreign automotive industry firms that have invested in Thailand. Whereas most research on Thailand considers a wide spectrum of industries, this study focuses on one particular industry - automotive assembly - and considers factors such as regional influences, corporate strategies and governmental policies of the host country. The research approach involves interviews with senior executives of 11 automotive firms based in Thailand. This data is then developed into 10 case studies, and cross-analysis is done, within a framework of established international business theories. The analysis suggests that Thailand is attractive for automotive FDI primarily because of its comparatively large domestic market, low labour costs, large base of suppliers, acceptable infrastructure, strategic geographical location in the region, and stable government with a pro-FDI attitude giving favourable incentives. Host country policies played an important role with respect to decisions to locate in Thailand, particularly in terms of incentives, policy stability, lack of a national car programme to support and the development of industrial estates. For these reasons, Thailand has edged out other Southeast Asian (ASEAN) countries as an automotive production base. The gradual impact of the ASEAN Free Trade Area (AFTA) has enhanced the attractiveness of Southeast Asia, including Thailand, and many car companies have made rapid progress toward implementing complementary production networks in the region. Another major driver to locate operations in Thailand is influenced by FDI decisions to invest abroad in order to expand their global market share as part of long term growth strategies. Another interesting finding is that automotive companies from different nationalities tended to take different approaches, with respect to time of entry, operational size in Thailand and market entry strategy. The results of the analysis suggest several policy recommendations for the Thai government, in order to attract more automotive FDI and become an automotive hub in Asia. Specifically, the government needs to concentrate on strengthening human capital; developing research and development (R&D) capabilities in the country; fostering technological learning in local firms; facilitating greater technology transfer; improving the automotive infrastructure; and developing fair, consistent and transparent policies.