Southeast Asia’s Economic Survival Depends on Exports
The declining fortunes of Thailand and its Southeast Asian neighbors have virtually destroyed the local market for the giant stuffed animals produced at Ekvadee Sangrose’s small family-owned toy factory. But the slowdown has given her time to plot her next move.
“Maybe I could improve my quality and sell to the United States,” she says hopefully.
Across this region of struggling former economic “tigers,” entrepreneurs like Ekvadee are counting on the appetite of foreign consumers, particularly Americans, to save them from bankruptcy.
While the July 2 plunge of the baht and the subsequent currency and stock market crashes in Southeast Asia have crippled local economies, it has given their companies a potentially huge competitive boost by making their goods cheaper abroad.
Despite Washington’s warnings to Asian nations against that very strategy, exports are seen here as a lifeline in a slump that analysts predict could last as long as five years.
“We’re exporting wherever we can,” said William Heinecke, chief executive officer of the Bangkok-based Minor Group, who has already found overseas markets for the ice cream and cheese he makes for his local Pizza Hut, Swensons and Dairy Queen franchises. “Everyone’s going to be trying to export their way out of this.”
The first hard evidence of this behavior surfaced Thursday when Washington reported that the U.S. trade deficit soared in September, due largely to a surge in exports from Asia and a sharp decline in shipments to that region--a direct result of the dramatic currency devaluations.
The gap with Asia’s newly industrialized countries--including Hong Kong, South Korea, Singapore and Taiwan--more than doubled from August to September, to $2.02 billion, the highest for any month in more than five years. Because the Asian turmoil was just starting to make itself felt in September, experts said the worst lies ahead.
The seriousness of this export threat to other nations is hotly disputed. Many believe it adds up to a potentially explosive situation, sparking fears that the world economy is headed into a period of severe competitive price-cutting and trade discord.
Economist David Hale of Zurich Kemper Investments in Chicago predicts the Asian economic crisis will expand the U.S. trade merchandise deficit to an annual rate of as much as $300 billion by early 1999, up from $191 billion in 1996. He says a “massive global devaluation” is in the offing.
Figures from Thailand weren’t disclosed with Thursday’s trade data, but the Thai export surge has already begun: Savvy business people began shifting their focus as soon as the early signs of a regional slowdown became apparent. Total exports from Thailand leaped by 54% in September, measured in baht, over the previous year--a volume rise of about 14% over year-earlier levels.
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At a time when much of Bangkok is a graveyard of half-finished skyscrapers, the Bang Pakong Industrial Park on the outskirts of town is humming with activity. Most of the 150 tenants, which include Toyota, Hitachi Elevator and Tatung, the Taiwanese electronics firm, are multinational exporters--and 60% of them have expansion programs underway.
Exports from the giant but troubled economies of Japan and South Korea are also on the rise, bolstered by their weakened currencies.
For the United States, a flood of low-cost imports from Southeast Asia would not only give consumers an early Christmas present but, in the longer term, help keep inflation under control. U.S. companies heavily dependent on imported components from that region, such as computer makers, will also benefit.
But this also means new, cheaper competition for U.S. manufacturers, particularly in areas such as apparel and textiles, electronics and agriculture--and further impetus to ship American jobs overseas. Those that have already done so are in great shape.
“Nike distributors should be grinning from ear to ear,” said Andrew Freris, managing director of Asia research at Bank of America’s Hong Kong office, referring to Nike’s large Asian production.
Meanwhile, job-providing U.S. exports to Southeast Asia have already begun to slow because the cost of U.S. goods here has effectively doubled, and beleaguered governments are raising tariff rates on imported goods while urging people to buy local.
In Kuala Lumpur last week, Malaysian Prime Minister Mahathir Mohamad said his plan to revive his country’s economy includes boosting exports and cutting back on expensive foreign goods.
“I am confident the people will discipline themselves, not be selfish and accept [this] campaign to make it a success,” he said at the launch of the country’s newest vehicle, a truck called the Hikom Perkasa that Malaysia hopes to sell in Asia, Africa and South America.
In Thailand, the government implores its citizens: “Eat Thai, Use Thai, Buy Thai, Travel Thai.”
Thus California farmers are already facing reduced demand for their goods in Southeast Asia. The U.S. government expects a $575-million drop in U.S. agriculture exports to Thailand, the Philippines, Indonesia and Malaysia, all among California’s top 15 export markets.
And rice growers will face tougher competition abroad: Thai rice producers are predicting a 10% increase in exports of the popular jasmine rice, partly because of the currency devaluation.
“The latest [U.S.] trade figures were awful, but the economy is doing well, so people don’t seem to notice,” said David Riedel, an analyst at Salomon Bros.’ Bangkok office. “If that should change, it could get ugly.”
Still, a huge export increase will take time.
Inexperienced Thai companies will have trouble finding foreign buyers and bringing their products up to international standards. The export aspirations of many firms have also been stymied by a severe cash crunch created when the government shut down 58 heavily indebted finance companies and jittery foreign and local investors fled the country.
Even exporters with orders in hand are having trouble getting cash to buy their raw materials and pay their workers, according to Thai government officials and business leaders. The Thai government has borrowed $2 billion to set up an export financing fund and asked some of its largest companies, such as Siam Cement Plc and Charoen Pokphand Group, to help small companies find foreign buyers through their overseas networks.
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But Thai firms are turning to foreign markets with a religious zeal. The Saha Group, a giant consumer products company, hopes to expand its overseas sales by up to 60% and is organizing a large trade fair next April to bring in buyers from more than 100 countries. The company also plans to develop factory outlet stores near the border to sell to neighboring countries and pursue barter-trade opportunities with poorer countries.
Thai Plastic and Chemicals, the country’s largest polyvinyl chloride producer, is focusing on China, with plans to increase its sales there from less than 36,000 tons a year to 100,000 tons in the near future, according to local news reports. That would more than double its present exports, which go primarily to Vietnam, Malaysia and Bangladesh.
In Thailand’s all-important auto industry, survival literally means finding other markets. Plunging local sales have temporarily closed more than half of the country’s 13 auto assembly factories, yet exports of automobiles, motorcycles and parts in the first nine months of this year soared 143% over the same period the previous year.
Timothy Dunne of Automotive Resources, a Bangkok consulting firm, said even with the plant closures and work slowdowns, Thailand is expected to export 40,000 units this year, its highest level ever. Most of those will come from Mitsubishi, Toyota and Honda plants.
In spite of the bleak picture, General Motors and Ford are moving forward with new plants scheduled to come on line beginning next year. Ford has increased the export target for its Thai facility from 50% to 80% of production.
These Thai-produced cars aren’t the right style or quality for the U.S. market but are heading to places where U.S. auto makers are trying to expand their sales, such as the Middle East.
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Meanwhile, U.S. garment and textile producers will feel this Southeast Asian export push in their own backyard, since the Clinton administration has agreed to allow more Thai imports of a few popular garment and textile categories. The Thai Garment Manufacturers Assn. predicts garment and textile exports will rise this year by 25% to 30% because of the cheaper currency.
On a recent Sunday, Sekisui Chemical Co., the Japanese chemical giant, celebrated the grand opening of its newest foam products factory--a facility planned when Thailand’s national bird was still the building crane.
Sekisui executive Masaoki Hoshina admitted it is not an auspicious time to be opening a factory, but he said the company is forging ahead and hopes to sell more than 50% of its output overseas.
Sekisui could significantly lower its prices by finding a local replacement for the imported polyethylene resin that is the main ingredient in the foam, according to Hoshina.
“Exports should become much easier,” he said.
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Trade Deficit
The U.S. trade deficit soared to and 8-month high of $11.07 billion.
U.S. Balance Sheet
(in billions)
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Sept. ’97 Sept. ’96 China -$5.52 -$4.73 Japan -$5.13 -$3.85 Hong Kong $.103 $.227 Korea $.408 $.300
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Source: Bureau of Census; Researched by JENNIFER OLDHAM / Los Angeles Times
