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 wage increases of up to 45 percent, both from government plans to boost minimum salaries and from market factors such as rising incomes in rural areas, said Krianglit Sukcharoensin, president of the Thai Plastic Industries Association, in an interview at the Tiprex plastics fair, held Aug. 31 to Sept. 3 in Bangkok.
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.
Kit Tae, general manager of injection molder Thai First Brush Co., said his company is plagued by both.
In an interview at Tiprex, also called the Thai International Plastics & 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 in Samutprakarn, Thailand, has 70 injection molding machines. “We have to have better technology.”
As a result, industry groups in Malaysia and in 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 Malaysian 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 also are 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.”
Labor is one part of an uncertain situation for the region's plastics processors, executives say.
“Labor shortages, capacity constraints, along with rising commodity prices and food prices, are threatening to push inflation beyond acceptable levels,” said Ronald Lim, president of the ASEAN Federation of Plastics Industries, and president of the Singapore Plastics Industry Association.
“Fortunately for us, economic growth in Asia remains firm though cautious,” Lim said in remarks prepared for an Aug. 29 AFPI meeting in Bangkok. “Developing Asia showed strong resilience through the 2009 global recession, underpinned by recovery and rapid expansion of the region's two emerging economic giants — China and India.”
Sukcharoensin, head of the Thai plastics industry group, said the economic troubles in Europe and the United States are reducing the importance of those markets for Thai exports, and making trade with other ASEAN countries, China and Japan, as more important for economic growth.
According to statistics presented at an industry forum Aug. 29 in Bangkok, the region's plastics industries have maintained steady growth; although, executives with several foreign suppliers at Tiprex said Southeast Asia is not seeing the kind of breakneck expansion and investment of China.
Unlike in China or India, there's very little locally owned or foreign machinery production in Southeast Asia.
Indonesia's polymer demand is growing 7 percent a year, in line with economic growth; and in Malaysia, plastics industry turnover in 2010 rose 8 percent and exports increased 14 percent.
Thai resin production rose 16 percent last year, while gross domestic product rose 7.9 percent. Economic growth there is expected to slow to 4 percent this, however. In Vietnam, the plastics industry is growing 15-20 percent a year, although inflation is running at about 13 percent.
One focus for the industry is preparing for Southeast Asia's free trade zone, known as the ASEAN Economic Community, which is slated to start in full in 2015.
Industry leaders see it as a way to build an integrated economic bloc of 600 million people and be more globally competitive as a region. At the same, sectors in different countries are scrambling to prepare.
Thailand and Malaysia, two of the more advanced plastics sectors regionally, worry about losing out to lower-cost, fast-developing industries in Vietnam and Indonesia.
Meanwhile, Myanmar — by far the poorest of the area's plastics industries, with wages less than 10 percent of those in Malaysia — appealed to its colleagues at the forum for support to deal with the “major changes” coming with the ASEAN Economic Community.
“With limitations of lack of financial and technological support we are not able to achieve [a] major breakthrough,” the Myanmar Plastic Industry Association said in a news release.
“We hope that our ASEAN counterparts will render whatever assistance is possible for us to overcome the new challenges.”
The ASEAN Economic Community will require companies to be nimble, said TPIA's Sukcharoensin.
“It will be a huge export opportunity, but we will have a lot more imports,” he said. “We need to keep our costs under control. We need to upgrade our technology or we will be defeated by the other countries.”