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Thailand struggles to retain status as a leading FDI destination
Thailand, once a leading destination for Japanese foreign direct investment (FDI) in Southeast Asia, is now facing growing competition from emerging markets like Vietnam.
Thailand, once a top destination for Japanese foreign direct investment (FDI) in Southeast Asia, faces increasing challenges as competitors like Vietnam gain prominence. Factors such as Vietnam’s lower labor costs, improving infrastructure, and favorable trade agreements have drawn significant attention from Japanese investors. As the region evolves, Thailand’s ability to adapt and innovate will play a crucial role in securing its position as a key hub for Japanese FDI.
Key takeaways
- Japan, Thailand’s largest investor, is shifting focus to Vietnam, whose investment from Japan surged by 54% between 2021 and 2023, compared to Thailand’s modest 13% growth.
- Vietnam attracts Japanese investors with robust economic growth, a youthful and skilled workforce, and low labor costs, particularly in high-growth industries like AI and semiconductors.
- To regain its appeal, Thailand needs to upskill its workforce, attract foreign talent, and align education with market demands, ensuring relevance in a tech-driven global economy.
Over the past decade, Japan has been Thailand’s largest investor, accounting for 36% of the country’s total foreign investment and 22% of Japan’s total FDI in the region. However, shifting global trends and regional competition are threatening this long-standing relationship.
The geopolitical landscape, particularly tensions between the U.S. and China, has spurred Japanese companies to diversify their investments under the “China Plus One” strategy.
From 2021 to 2023, Japan’s net investments in Southeast Asia surged by 33%, while investments in China dropped by 39%. Despite this, Thailand has struggled to capitalize on the shift.
Japanese investments in Vietnam rose by 54% during this period, primarily in high-growth sectors like AI and semiconductors, compared to just a 13% increase in Thailand.
Vietnam’s growing appeal stems from several factors. Its economy is expanding at 5-6% annually, fueled by strong consumption, investment, and exports.
The country’s youthful workforce of 56 million people with an average age of 34 years, offers both productivity and a growing domestic market.
Competitive labor costs, averaging just 8,800 baht per month, combined with high education performance, make Vietnam a compelling option for investors.
In contrast, Thailand’s competitiveness is waning. Rising wages, an ageing population, and a mismatch between workforce skills and industry needs have made the country less attractive.
Japanese investors, once heavily reliant on Thailand’s low labor costs and political stability, now cite these issues as barriers to investment.
To address these challenges, experts highlight the need for Thailand to prioritize workforce development and attract high-value industries.
Upskilling programs, developed in partnership with the private sector, can better align education with market demands. Additionally, easing restrictions on skilled foreign workers, such as allowing licensing exams in other languages and raising limits on foreign employees can help bridge skill gaps in emerging industries.
Despite its strong supply chain infrastructure, Thailand risks losing relevance as global FDI shifts toward innovative and technology-driven sectors.
Swift action to modernize its workforce and adapt to these trends will be critical for the country to reclaim its status as a preferred investment hub and ensure long-term economic growth.
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