BANGKOK, THAILAND (Sept. 6, 1 p.m. ET) — Buoyed by the economic growth in China and India, Southeast Asia's plastics industries say they've emerged from the 2009 global recession in generally good shape, with solid growth.
But there are major challenges looming, including inflation, a slowing world economy and rapidly rising wages that threaten to price some of the former Asian tigers out of the ranks of low-wage countries.
Some plastics firms in Thailand, for example, are facing up to 45 percent wage increases, both from government plans to boost minimum salaries and from market factors like rising incomes in rural areas, said Krianglit Sukcharoensin, president of the Thai Plastics Industries Association, in an interview at the Tiprex plastics fair, held in Bangkok from Aug. 31 to Sept. 3.
Not everyone will see wage spikes like that. In Bangkok, where salaries are higher than elsewhere in the country, wage pressure is less but still present. Executives say rising wages are accompanied by labor shortages.
“We are facing the crisis of the increase of labor rates,” said Kit Tae, general manager of injection molding company Thai First Brush Co. in Samutprakarn, Thailand.
In an interview at the Tiprex, also called the Thai International Plastics and Rubber Exhibition, Tae said his 600-employee company needs another 200 workers to meet demand for its toothbrushes and other household items, including from Japan, its major export market.
“We have a very serious labor shortage,” said Tae, whose firm has 70 injection molding machines. “We have to have better technology.”
As a result, industry groups in Malaysia and Thailand, which has Southeast Asia's largest plastics sector, are investing in education and upgrading efforts.
Thailand's government last year approved a five-year, 720 million baht ($24 million) plan to create the Plastics Institute of Thailand, dedicated to workforce and industrial upgrading and technology development.
And the Malaysia Plastics Manufacturers Association received a 3 million ringgit ($1 million) government grant in January to set up its own training program.
The rising costs are working to the advantage of many foreign suppliers in the country, as local firms look for more technology, according to interviews at Tiprex.
“In the past, Thailand could consider that we were a labor-intensive country, but not anymore,” said Prawit Yodprechavigit, managing director of injection molding machinery maker Krauss-Maffei (Thailand) Co Ltd. in Bangkok “Being a low labor cost country is not our advantage anymore.”
Energy costs are also becoming more important, which prompted Krauss-Maffei to show its AX series of all-electric presses at the show, Yodprechavigit said.
Officials from Italian auxiliary equipment maker Moretto SpA said plastics processing executives visiting its booth were concerned about losing competitiveness from rising wages, and are talking technology upgrades.
“They are worried and they are going in the direction of automation,” said Jan Wauschkun, the Bangkok-based agent for Moretto and managing director of Terramar Engineering & Machinery (Thailand) Co. Ltd. “For us, it is only good.”