3PL Market in Thailand's Electronics Sector

3PL Market in Thailand’s Electronics Sector
Source: Aarthi Nandakumar

The economic growth of Thailand in the past two decades has been largely driven by
manufacturing sectors such as automotive, electronics and their exports. Thailand is all set
to emerge as the electronics manufacturing hub of Asia, thereby driving the growth of other nj
support industries such as logistics, which is closely linked with the sector.

The fact that Thailand surpassed Singapore to become world’s largest exporter of hard disk
drives with 42.0 percent market share globally, simply exemplifies the immense growth
potential and opportunities that the sector uncovers. The Foreign Direct Investment (FDI) in
this sector is expected to increase threefold in the coming years and this warrants a cost
effective logistics system in place to support the growth adequately. This is because one of
the important factors that attract foreign investors to Thailand is its strategic location and
links to the other parts of Southeast Asia. Hence the transportation and logistics sector are
expected to be the prime focus in the development of the electronics industry in Thailand.
The electronics sector would gain in the long term and also witness robust growth if it adopts
the use of 3PL services.

Lucrative Growth Prospects for 3PL Service Providers

The electronics industry in Thailand opens up immense growth opportunities for 3PL
service providers. Thailand’s external trade remains robust with the export growth mainly
coming from the manufacturing sector with products such as electrical appliances,
electronics, computers, and accessories. The high involvement of the manufacturing industry
in the global market has propelled the growth of 3PL market in the country. The intense
time-based competition especially in the electronics and electrical appliances industry has a
great impact on the Thailand 3PL market, providing an opportunity for the service providers
to prove their expertise in areas such as just in time delivery and inventory management.
These techniques allow the electronics companies to cut costs and time.

The shift from a commodity based economy to a manufacturing driven economy has
brought about some structural changes in the country and thereby to the logistics market in
the country as well. More foreign companies are looking at making Thailand as a base for
their exports in Asia Pacific. The electronics industry specifically requires high investments
and technical expertise to move the business forward. Thailand has proved to be a cheaper
alternative as compared to other countries in the Asian region. There is a need for
professional service providers offering services such as freight forwarding (due to high
exports), transportation (domestic and export) and proper storage and distribution as more
foreign companies look towards expanding their business in Thailand.

There are also a lot of imports in the electronics industry especially for the higher
technology components. Most manufacturers in Thailand do not have the sufficient expertise
to produce such components. Hence companies based in Thailand usually get their supply
from Singapore or Taiwan, which means cost effective transportation and freight forwarding
services is required. 3PL service providers could capture a significant portion of the market
by offering customized services as per the needs of the client, putting all of these services
under one roof. Government initiatives, as can be seen in the new Suvarnabhumi airport
could also help the 3PL service providers in their offerings to the electronics manufacturing
clients.

Chart 1: Key Import and Export Markets of Thailand’s Electronics Sector

Source: Frost & Sullivan

The multinational manufacturers provide ample opportunity for the 3PL service providers to grow by establishing long term relationship with them. This would help the
electronics manufacturer to gain more control over their supply chain and achieve a global
network by operating from a single location. Since the demand for electronics products are
high across the globe, the companies with their production base in Thailand could control
their markets in all regions with the right kind of logistics support from an integrated logistics
service provider. The main characteristics of an electronics industry are short product life
cycles, high level of customization of products, and more product variety. In Thailand, where
the logistics industry is booming, the electronic manufacturers could take the help of service
providers to achieve these multiple goals at an optimum time and cost.

Chart 2: Government Initiatives for Logistics Cost Reduction

Source: NESDB; Analysis: Frost & Sullivan

The 3PL service providers thus have a host of options for growth as far as the
electronics industry in Thailand is concerned. For the various reasons and nature of
electronics business discussed above, third-party logistics would be the ideal choice to turn
the electronics industry profitable and efficient. Since the 3PL service providers also have the
ability to manage information, use information effectively, it helps the electronics
manufacturers in maintaining global connectivity to a large extent. However, it is also the
responsibility of service providers to provide solutions to suit the clients’ specific needs and
also expand their infrastructure and asset capabilities which would complement the clients’
core business of electronics manufacturing. Synergizing such a relationship in Thailand
electronics industry would certainly give it a competitive edge over other industries and its
counterparts in other countries.

For more information on the article/research reports, please contact Alice Chia –
Corporate Communications – Asia Pacific at Email: alice.chia@frost.com

Aarthi Nandakumar

Research Analyst, Transportation & Logistics

Frost & Sullivan Asia Pacific

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