One of the great success stories of Thailand manufacturing in recent years has been the Thailand automotive industry, which churned our some 2.45 million cars and 2.5 million motorbikes in 2012, making Thailand the 10th largest automobile manufacturer and eighth largest exporter (by volume) globally.
While Japanese automotive giants such as Toyota, Isuzu, Honda, Mitsubishi, and Nissan produced more than 80 per cent of the motor vehicles manufactured in Thailand in 2012, premium-brands such as Mercedes-Benz and BMW are also enjoying increased demand.
That Thailand has a strong affinity for the iconic tri-star German marque should come as no surprise. German/Austrian-owned company B.Grimm & Co., one of Thailand’s first incorporated businesses, has been importing Mercedes-Benz trucks into Thailand since the early 1900s.
The first Mercedes-Benz automobile to enter Thailand was a 28hp model with a 4-cylinder 32 horsepower engine, being delivered to one of the county’s most admired kings, King Chulalongkorn (Rama V) on December 19,1904.
The King was so impressed by the German automobile that he quickly followed up with an order for a second, a red 1905 4-cylinder Mercedes 28 hp which had a top speed of 73km/h (45.36mph) which he named “Kaeo Chakkaphat”, equating to the vehicle being like the seven majestic gems of an emperor.
With life returning to normal following the end of the Second World War a Thai couple, Lek and Praphai Wiriyaphant, established Thonburi Phanich Company which imported, amongst other things, Mercedes-Benz trucks for military and general cargo use.
The fuel efficiency and lower operating cost of the diesel engined German-built trucks over the traditional petrol engined trucks being imported from other manufacturers soon garnered a strong reputation in the kingdom.
The company quickly applied for and were granted the first Mercedes-Benz dealership license in Thailand and started importing the company’s premium automobiles commencing with the Mercedes-Benz 170 V, a 4-cylinder petrol engine vehicle with a top speed of 108km/h (67mph).
CKD makes Merceds-Benz cheaper
Veerachai Chaochankit, deputy managing director, Thonburi Automotive Assembly, Veerachai Chaochankit, deputy managing director of Thonburi Automotive Assembly Plant (TAAP), said the Wiriyaphant’s were so impressed by the quality of the Mercedes-Benz vehicles they had been importing, that when the Thailand government began offering concessions and incentives for locally manufactured vehicles they quickly pursued the opportunity with Mercedes-Benz.
“There are very high taxes and import duties on CB (completely built) vehicles imported into Thailand and to stimulate the local automobile industry the government began offering steep incentives for local manufacture of CKD (completely knocked down) vehicles about 30 years ago.
“The company founders reasoned that by assembling units locally the number of Mercedes-Benz sold in Thailand would increase due to the lower tax component. When they approached Daimler-Benz (as the company was known then) in Germany their proposal was accepted and the company went from being a distributor to being both the manufacturer and distributor of Mercedes-Benz in Thailand”, he said.
From automotive industry trailblazer to major employer
From trailblazers of Thailand’s automotive manufacturing industry, which now employees about 50,000 people at 14 automobile assembly factories and about 600,000 more in more than 2,400 first and second tier suppliers nationwide, last year churned out more than 6,000 upscale Mercedes-Benz C-Class, E-Class, S-Class, M-Class, and A-Class automobiles.
Meanwhile, rival German marque, BMW, produced 6,114 vehicles, of which 5,613 were its premium BMW cars (the balance being 501 BMW Mini Cooper’s and 290 BMW Motorad motorbikes).
With business booming and Mercedes-Benz happy with the quality of cars being produced the company invested in a new factory in 1994, only to fall victim of the 1997 Asian financial crisis (Tom Yam Kung crisis) that wrote billions of dollars off balance sheets and dramatically increasing the cost of borrowed capital.
Mr Chaochankit said it was a very tough time for the company as it had invested heavily in the new factory. “In talks with Mercedes-Benz it was agreed that in exchange for handing back the exclusive Thailand distributorship Mercedes-Benz’s parent company, Daimler AG, would provide financial support for the manufacturing facilities”.
Most Mercedes-Benz on Thai road locally assembled
Today about 70 per cent of the Mercedes-Benz vehicles sold in Thailand by the country’s 30 dealerships are manufactured at the Thai owned, managed, and staffed Samut Prakan factory, 23 kilometres (about 14.5 miles) from central Bangkok, with the balance imported as finished (CB) vehicles.
Mr Chaochankit said that the manufacturing agreement reached with Mercedes-Benz during the Asian financial crisis saw the company retain ownership of the factory and land, in addition to most of the equipment used in the manufacturing process.
“We purchase some specialized pieces of equipment from Mercedes-Benz and charge the cost back on either a flat annual rate, or based on the number of vehicles that we build”, he added.
With Mercedes-Benz taking back the master distributorship agreement, the 1997 deal sees TAAP being paid for each vehicle they build that Mercedes-Benz accepts as meeting its quality guidelines.
The company and its workforce are therefore under considerable pressure to meet the German company’s quality requirements, and a handful of Mercedes-Benz Germany technicians and engineers are on-hand to monitor key stages of the manufacturing process.
The increasing levels of sophisticated components being installed in motor vehicles, as well as used in the manufacturing process and for in-dealership diagnostic and servicing has seen the scarcity of skilled workers become an increasingly hot top amongst manufacturers.
It was a key concern raised by the Automotive Industry Working Group of the European-ASEAN Business Centre (EABC) in its 2013 European Business Position Paper released earlier this month.
Skilled worker shortage slowing growth
With Thailand aiming to produce three million vehicles a year within the next five years, it is reasonable to question where the skilled workers to produce these cars will come from.
In the 2013 edition of the Thai Automotive Industry Directory, Thavorn Chalassathien, vice president of the Thai Auto Parts Manufacturers Association (TAPMA) and deputy secretary general of The Federation of Thai Industries (FTI) said, “the number of skilled workers available to feed the rapidly expanding Thailand automotive industry is an ongoing concern and developing highly skilled and knowledgeable workers is crucial.
“We have to upgrade lower-level staff with technical skills and knowledge and then bring in or develop advanced technologies, not the other way round — bringing in the technologies first.
“More than 55 per cent of the labour force in the Thailand automotive industry consists of workers who completed Mattayom 6 (year 12) or less, about 35 per cent have vocational or higher vocational education skills while those with tertiary qualifications make up about 10 per cent.
“This is the wrong mix. About 15 per cent of the Thailand automotive industry should be tertiary qualified engineers and such, and at least 55 per cent should be skilled technicians. Lower-educated laborers should make up the rest, with the lowest-skilled workers being replaced by automation systems and re-trained to high skill levels.
“In 2012 when the country’s auto-makers churned out a record 2.4 million vehicles, the industry employed about 650,000 workers, with a labour productivity rate of about 3.69 vehicles per employee.
“The industry is aiming for an 8 per cent rise in productivity every year. But if productivity can be raised by 10 per cent per annum, then the labour-productivity rate will rise to about four vehicles per worker per annum.
‘With this improved productivity rate, the industry may require fewer than 200,000 more employees over the next five years to reach its target of producing three million vehicles per year”, he added.
8.57 Mercedes-Benz’s per worker an industry leader
With about 700 employees producing the 6,000 Mercedes-Benz’s built in Thailand last year, TAAP is well above the industry average at 8.57 vehicles per employee. However, this figure does not include the workforce needed to manufacture assemblies such as tail lights, dashboards, seats and wiring looms, some of which are produced in Thailand from imported components.
Nonetheless, with a target of 8,000 Thailand-built Mercedes-Benz’s for 2013, productivity is increasing. As is the company’s investment in state of the art production systems.
During the recent Songkran holidays TAAP installed a state-of-the-art paint facility enabling it to bring the complete process from start to finish in-house, thereby guarantee the high quality standards that Mercedes-Benz demands.
With no plans to increase the size of its workforce, TAAP 2013 target will see productivity increase by 33.37 per cent to 11.43 vehicles per employee, a figure well above that which Mr Chalassathien is hoping to see across the entire Thailand automotive industry.
Though not affected yet by any skilled worker shortage, Mr Chaochankit said this was largely due to the nature of TAAP.
A family business
“We’re a family business and our staff see the business as being part of their family. We have a very low staff turn-over of less than 5 per cent a year and many of our workers have spent their entire career after leaving school working for TAAP.
“It’s also not unusual for the younger generation of a household to follow their parents in coming to work here and there are many instances where more than one member of the same household — mothers, fathers, brothers, sisters — are working at TAAP, but not in the same areas of the factory.
“Our output is very small compared to the number of vehicles the Japanese manufacturers are producing and as they continue to increase production the shortage of skilled workers in Thailand is gong to be a bigger problem for them than it is for us. We concentrate on high-quality output as opposed to large quantities”, he said.
Mr Chaochankit said employee loyalty is a key to TAAPs success in retaining its skilled staff, stating “salaries are not high. When compared to other automobile companies we are at the low-end of the salary and benefits range but many of our workers have been here for more than 20 years.
“All of our staff have skills other Thailand automotive manufacturers need and their experience building Mercedes-Benz proves that they are capable of quality work, but many of them are old, 40, 45, or 50, and a lot of factories only want to employ young people.
“We also have a fairly relaxed working environment and our staff feel and happy working here. At other Thailand automotive industry manufacturers discipline is stricter and three are a lot more rules and regulations that the workers need to follow”, Mr Chaochankit said.
Low salaries hinder recruitment
Although Thailand’s skilled labour shortage has not seen poaching and headhunting become a problem as yet, Mr Chaochankit said the company’s low salaries and benefits are a drawback when it came to recruiting young graduates.
“Young people are looking for high-paying jobs rather than family work environments and our salary and benefits structure means that despite the premium Mercedes-Benz brand we are not perceived as attractive to graduates and students from the more prestige colleges and schools.
“We need to improve efficiency, discipline, productivity, salaries and benefits and we have plans to do this so that we can meet the challenges ahead, but the challenge is to do so while also keeping the family atmosphere alive.
“This is going to be a challenge that many family-owned and family focused companies in Thailand are going to have to meet in the next five years and one that Thai workers are going to have to choose — the traditional Thai-style culture, management and work environment that they are used to or the high-pressure, regulated lifestyle of Singapore or Japan with high salaries and benefits”, Mr Chaochankit added.
“Manufacturers from some countries are very strict on their workers and push their staff for increased productivity and performance. A lifetime spent working in factories and on process or assembly lines is a lifetime of hard work. Many Thai people prefer the ways of the past, but at the same time want the latest consumer goods. It’s a conundrum for Thai people – how to get the things they want without spending their life working hard”, he added.
Thailand education system failing
While increasing the amount of automation used is one answer it is one that requires better educated and skilled workers. The problem is that the education system isn’t producing the skilled workers that industry needs.
While political protagonists in Thailand might like to point the finger of blame at each other, Mr Chaochankit said problems with the quality of skilled workers being produced by the Thailand education system date back about 15 years and isn’t getting any better, adding that the lack of a constant supply of well qualified workers was the reason why so many private workplace training academies have been established in Thailand.
“When we receive new staff straight from the colleges and institutes we find that their skills knowledge is very low and we have to spend a lot of time training them in just basic processes.
This is why it is important for TAAP to implement changes to ensure that we offer the right salary and benefits packages to retain the skilled workers we have already, as we need them to pass their skills and knowledge on to the younger workers.”
Mr Chaochankit said successive past Thailand governments must shoulder the responsibility for Thailand’s skilled worker shortage of today.
“In the past young people would go to school, then to technical colleges and then into the workforce with a much smaller number going to university. That changed about 15 years ago when someone decided Thailand needed more bachelor’s degree holders.
“Now the young people go to primary and secondary school and split. Many go to university and a smaller number into vocational training. But even many of those who complete vocational training then go on to complete a bachelor’s degree and some a master’s degree or higher because the government policy encourages it.
No minimum wage for technical diploma graduates
“There’s even a minimum wage for bachelor degree graduates, but nothing similar for those who graduate with a technical diploma. It’s not surprising that the manufacturing industry in Thailand is struggling to find the skilled workers it needs. Without skilled workers there can’t be improved automation because there won’t be the people with the skills to operate the machines.
“Manufacturing industries don’t need large numbers of people with a bachelor’s degree or a master’s degree.
“For companies that are not doing R&D maybe 15 per cent of the staff should have higher education skills, but 65 or 70 per cent should have good technical skills”, Mr Chaochankit said, adding that increasing technical knowledge is needed by his workers for each new Mercedes-Benz model due to higher levels of technology being incorporated into the vehicles as well as in the production, assembly, and diagnostic processes.
Although the Thailand government has focused a lot of attention on a dual education system for vocational students where 40 per cent of the time is spent receiving on the job training and the balance formal in-class education, Mr Chaochankit said the results are not what Thailand Industry expected.
“We expect that the students we provide training to will come and work for us once they gain their diploma, but it doesn’t work that way. The government policy of encouraging more and more education see’s them continue studying instead of joining the workforce.”
Dual education system not working
With the exception of a dual education programme initiated by the FTI at the Map Ta Phut Industrial Estate in Rayong on Thailand’s east coast, Mr Chaochankit said “the dual education system isn’t working.
The difference with the FTI programme is that upon completion of their studies students become a full-time employee of the company they undertook their practical training with “at a very good salary”.
A similar such programme, the German-Thai Dual Excellence Education Initiative (GTDEE), has recently commenced operation involving German companies in Thailand, with the German-Thai Chamber of Commerce (GTCC) taking a leading role in bringing together the various stakeholders involved.
Mr Chaochankit said that if the government wants to see Thailand industry grow and wants to see increased automation and higher productivity it needs to limit the number of students going to university.
“Education receives the highest amount from the national budget but where is it being spent? To much is being spent on higher education and not enough in vocational training.
This means industry ends up doing the job of the education department – training unqualified people on how to do what they are supposed to be qualified to do already”, Mr Chaochankit said.
According to Mr Chaochankit, the government-set minimum wage for university graduates is largely to blame for the skewed status of qualifications held by Thai workers.
Advocating that market forces should apply as they did prior to the push for people to attain higher levels of education and that the minimum wage for university graduates should be scrapped, Mr Chaochankit said “there are to many poorly qualified people in Thailand with a bachelor’s degree.
“While the minimum wage for a bachelor’s degree holder is Bt15,000 (about US$478) businesses need to pay maybe Bt17,000 or Bt18,000 ($540 or $572) to get someone who can actually do the work required in a bachelor’s degree position. When we need a clerk we end up paying a higher salary than we need to because everyone who applies has a bachelor’s degree.
Industry will to pay more for good people
“Industry is ready and able to pay Bt14,000 or Bt15,000 ($445 or $477) per month to qualified vocational graduates, but if the government sets a minimum wage for skilled workers, the way things work now, they will have to also raise the minimum wage for bachelor’s holders to an even higher level to those in the higher education sector happy.
“In our factory now about 65 per cent of the staff are engineers with a bachelor’s degree, but what we really need is 65 or 70 per cent vocationally qualified technicians”, Mr Chaochankit added.
In addition to wage disparity another problem contributing to the shortage of skilled workers in Thailand, Mr Chaochankit said, is the dangerous reputation vocational schools have.
Students from Bangkok vocational colleges and institutes have a well deserved reputation for violent behavior.
Past clashes between gangs of stick, machete, knife and even gun wielding students “defending the honor of their school” with rivals from another periodically erupting without warning on Bangkok streets and in the past seeing students and bystanders killed and injured.
While Thai authorities have cracked down heavily on violent clashes still occasionally spill into the public arena and are such a concern that CP All / 7-Eleven Thailand produced a community service announcement video advertisement for Thailand’s National Teachers Day in Thailand earlier this year highlighting the issue.
“In past years if you were a father of a son in Thailand you didn’t want your boy or girl going to vocational college because it was very dangerous. This image still lingers and until the inter-school rivalry stops it is going to continue to dissuade parents from sending their sons and daughters to vocational institutes and colleges – universities are safer”.
Outdated skills taught
Mr Chaochankit said another issue was that the skill levels of teachers in vocational colleges needs to be upgraded. “Students at vocational colleges and institutes are learning old methods and outdated practices because the teachers don’t have the knowledge, experience and qualifications needed and used by industry.
While acknowledging that change is in the wind for TAAP, Mr Chaochankit said Thailand industry can not shoulder the burden on it’s own.
“We’re producing a high-end, quality product that meets the standards of one of Europe’s best known brands. The German engineers are very, very fussy. But we’re employing bachelor’s degree holders to do the work of vocational diploma holders which is about 50 per cent more than what we would if we had the proper qualified people doing those jobs.
“We’re still a family-owned business like many others in the Thailand Industrial sector and if companies such as ours are going to continue to expand and produce high quality products we need the government and education sector to do their jobs too.
“Compared with neighbouring countries our salaries are high, but if we had the right skilled people employed where they should be we could be more competitive and offer better salary and benefits to our our existing staff without having to increase our wages bill”, Mr Chaochankit said.
Photos John Le Fevre
- Asian financial crisis: is Thailand on the road to recovery?
- Inside the factory building Thailand’s Mercedes-Benz’s photo special
An earlier version of this story was published in The Establishment Post, September 2013 as Thai Family Pioneered Thailand Automotive Industry with Mercedes-Benz
He has spent extensive periods of time working in Africa and throughout Southeast Asia, with stints in the Middle East, the USA, and England.
He has covered major world events including Operation Desert Shield/ Storm, the 1991 pillage in Zaire, the 1994 Rwanda genocide, the 1999 East Timor independence unrest, the 2004 Asian tsunami, and the 2009, 2010, and 2014 Bangkok political protests.
In 1995 he was a Walkley Award finalist, the highest awards in Australian journalism, for his coverage of the 1995 Zaire (now Democratic Republic of Congo) Ebola outbreak.
Most recently he was the Thailand editor/ managing editor of AEC News Today . Prior to that he was the deputy editor and Thailand and Greater Mekong Sub-region editor for The Establishment Post, predecessor of Asean Today.
In the mid-80s and early 90s he owned JLF Promotions, the largest above and below the line marketing and PR firm servicing the high-technology industry in Australia. It was sold in 1995.
Opinions and views expressed on this site are those of the author’s only. Read more at About me
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