Category Archives: China

Manufacturing in Thailand – the “Detroit of the East”

Emily Halgrimson, Today’s Machining World’s Managing Editor, was invited to join 11 other journalists from the U.S. and Canada (six in the automotive sector and six in the food industry sector) by the government of Thailand’s Board of Investment (BOI) on a four-day media tour to promote Thailand’s industry around Bangkok and the Southeastern seaboard.

Saturday, January 14th 10 a.m. – Left Chicago’s O’Hare International for Thailand on American Airlines. It’s not comforting to fly a bankrupt airline’s 757 over the Pacific. The distance is a drawback to North Americans doing business in Southeast Asia – 15 hours to Shanghai and another six to Thailand is a haul. I was pleased to find PBS’s excellent series, Downton Abbey, on the inflight entertainment, but slept most of the way thanks to Benadryl.

Sunday 10:30 p.m. – Arrived at the airport in Bangkok, and while waiting for the other journalists to arrive, ate some of my favorite Thai food of the trip – deep-fried pork with a red coconut curry sauce and Tom Yum soup. Made a vow to eat only Thai food for the duration  –  was not a problem. Transferred to our five-star hotel, Novotel, and were welcomed with plates of Thai deserts, wine and palm-to-palm bows by all.

Some of the journalists after a tour of Western Digital’s hard drive production facility

Monday 8 a.m. – Totally jet-lagged. We visited Western Digital’s (WD) plant in a recently flooded industrial estate near Bangkok and were met by John Coyne, President and CEO. Forty-five percent of the world’s hard drives are produced in Thailand, and WD, worth $10 billion, is the largest company. Their plant was under 1.9 meters of water only weeks before our visit. Divers come in for the most valuable equipment and moved it to a kind distributor’s facility 100 km away so they could decontaminate and repair it while the floodwaters lingered. WD employs 38,000 Thais, most who make under $10/day. I’m not sure what I was expecting, but the modern clean plant was a total surprise. It contrasted heavily with outside the industrial parks, where the country’s poverty is more obvious. Western Digital’s projections for 2011 were $176 million; because of the flood they reached $119 million. No word yet on the cost of the cleanup.

The journalists preparing to enter the Board of Investment’s (BOI) Fair

Monday 11 a.m. – Headed across town to the Thailand Board of Investment’s (BOI) Fair. This was interesting. When Westerners hear the word “fair” we think animals and Ferris wheels. In Thailand, a fair is a showcase of the country’s industry direct to the consumer. The fair happens only once every 10 years and was a huge deal. The King of Thailand – whose authority and respect are reminiscent of Kim Jong-ll – is a “green nut,” and the green theme is seen country-wide. The “Royal Pavilion” showcased a “green themed” 3-D film, complete with a tree growing up from the middle of the room, and the finale – a real rain shower (watch your camera). Huge exhibits in the outdoor park included Toyota, the most popular carmaker in Thailand; Chevy, which had its own 3-D show about the evolution of the American-born automobile; and CP, a huge frozen food conglomerate born in Thailand who’s big in Costco. The show also had a beer garden (hint-hint IMTS organizers) and a joyous sort of “look what we have in Thailand” feel to it. The people of Thailand are proud of what they’ve done in attracting these international companies over the last 20-30 years, but seem cognizant of environmental mistakes the U.S. and China have made during their development, and are making an effort to not repeat them.

Tony Blair speaking at the CEO Forum Bangkok

Tuesday 8:30 a.m. – Attended the BOI CEO Forum. Guest speaker: Tony Blair. A very inspiring and encouraging speech. Interestingly, he noted strongly that America would not be where it is without its open immigration policies. Mr. Blair encouraged Thailand to create this immigration-friendly atmosphere now, and noted that Thailand has “enormous potential” – its people, geography, and relative stability. He emphasized that Thailand’s job was to let the world know that it’s “open for business.”



Tuesday 3:30 p.m. – Left Bangkok for Pattaya, a tourist city next to the Eastern Seaboard Industrial Estate (ESIE) and checked into our spa hotel on the beach – filled with Russian vacationers. Two Thais told me that the Russians are disliked, they are stereotyped as being cheap.

Dinner on the beach in Pattaya

Development in the industrial estate was shocking, in a good way. The government invested millions in infrastructure to attract international companies interested in supplying the Eastern Hemisphere. Roads, electricity and water supply are new, modern and reliable. Ate a fresh seafood dinner at a beach restaurant while the sun disappeared over the ocean and the beer and conversation flowed. Beautiful.

Wednesday 9 a.m. – Visited American Axle & Manufacturing’s  (AAM) Rayong Manufacturing Facility in the Eastern Seaboard Industrial Estate. AAM opened its Thailand operation in 2008. 2010 sales were $2.3 billion. They produce mostly axle systems, but also drivelines, drivetrain and chassis, and other metal-formed products for automotive. The plant is 124,000 square feet and is located in one of Thailand’s many “free zones,” (tax-free). They currently exclusively supply GM’s Thailand operation, but plan on doubling the size of their plant, as they will be supplying Volvo soon. The Auto Alliance Thailand (AAT) manufacturing facility, a joint venture with Mazda, which wouldn’t welcome us for a tour, produces the Ford Fiesta and lightweight trucks for that particular half of the world. I was told that Thailand can’t compete with China’s steel prices, so asked what Thailand’s advantage is over China and India. I was told that it’s Thailand’s supplier base. When GM orders a part, AAM must deliver within 70 minutes.

Journalists after a tour at the Thai Summit Group

Wednesday 11 a.m. – I was very interested to tour our first Thai-owned company, the Thai Summit Group, which started in 1977 and makes auto parts for major auto companies. The stamping and injection molding facility makes mainly front and rear bumpers for Mazda and Ford. The plant was impressive and had six 3,000-ton presses and can produce 800,000 bumpers and 6,000 chassis per year. Annual sales are about $10 million. There was a large difference in the atmosphere of the plants from the Western owned companies and this completely Thai run company. They have a basketball court just outside of the main office and President, Mr. Shigeo Sakaki, commented that the workforce there is young and has lots of energy, so they need to have activities for them. It was much more relaxed than Western Digital and American Axle. Young people roamed the grounds like on a college campus. It was nice. They’re obviously making money, but it felt like it would be a nice place to work.

A night out in Pattaya

Wednesday 2:30 p.m. – Visited Celestica Thailand, Celestica’s largest location in terms of revenue. They employ 5,630 people and are five minutes from the large port on the Eastern Seaboard and one hour from the airport. They mainly make networking equipment, high-end storage and servers and teleconference equipment (Web cams, phones, digital photo albums, etc.). They see their future in optical device assemblies for the Internet. The Senior Vice President, Mr. Duangtaweesub, was impressive. Thai born, he had studied 30 years ago in Washington State. He started the company, which was bought by Celestica a few years later. He has been running Celestica’s Asia operation ever since.

Thursday 9 a.m. – We were scheduled to visit Magna Automotive and Asia Precision Co. Ltd. in the Amata Industrial Estate, but Magna canceled because they couldn’t get permission from the U.S. office to let us in. Asia Precision was fascinating. It employs about 800 workers (mostly women, Mr. Karoonkornsakul, the CEO noted, because they’re patient, are very good with detail, and there’s little heavy lifting needed) and has over 400 CNC machines, almost all Japanese. They make parts for automotive and camera and their 2011 sales were $30 million, with $40 million expected in 2012. Most of their business comes from the East, but they are a key supplier for Emerson in the U.S., who has asked them to consider building a plant in Mexico, which they are researching now. They are also considering expanding into Indonesia, which the CEO commented would be “the next Thailand,” with production projections of 2 million autos in 2012.

Asia Precision hires mostly women because they are “patient, detail oriented, and the parts are light”

When the automotive crisis hit in 2008/9 they began making rollers for printers. In response to their foreign clients’ needs, they are trying to expand into medical and aerospace, and are facing many of the same hurdles American companies face: the need for skilled employees and regulatory know-how.

Thailand’s Buddhist culture was obvious at Asia Precision. They have weekly company-wide meetings followed by meditation and a singing of their national anthem, and are heavily involved in giving back to their community through projects. They also had the first recycling center we saw, the proceeds of which are donated to the poor. Most of the employees, who are typically age 20-25, are recruited from villages in the north, and once a year they return home for the holidays. They are also very into exercise and health, recently holding a company marathon to raise money for flood victims. The atmosphere of the company was relaxing and the CEO mentioned they have very little employee conflict. It was refreshing to see a company that makes money but has quality of life at the forefront.

A training room at the Thai-German Institute

Thursday 3 p.m. – Visited the Thai-German Institute, a government training program for industry. This was interesting – I kept wondering why the U.S. isn’t doing something similar, it seemed so obvious. This organization started in 1992 with German funds with the goal of providing high-tech workers to industry. It is now run by Thailand’s Minister of Industry and trains 2000-3000 young people per year, mostly in mold and die technology, but also in automation and machining. It provides workers to the industrial estates in the south, who pay a fee for each worker they hire. Recruiters from training programs like these go to the north in search of competent, bright, high school graduates whom they lure to the south with the promise of decent salaries, subsidized lodgings, and per diems for the duration of training. Then they find them jobs. It appears to be a very win-win system that’s working for Thailand.

Question: Would you consider moving your business or finding suppliers overseas to save money?

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Why is my business so good if the economy is so bad?

CBS news announced in January that Austin, Texas, leads the U.S. in job growth and CNN has it in its list of the 10 fastest growing cities

I attended the Precision Machined Products Association’s annual meeting in Austin over the weekend. The question I heard often was, “Why is my business so good if the economy is so bad?” Unfortunately the speakers hardly addressed this topic, so I will try to explain it.

1) Structural changes in the world economy now favor American manufacturing. A lot of businesses have gone away in the last 10 years. They’ve closed, moved to China, downsized, gone bust, or merged—and not much has started up in the last decade and a half. Manufacturing was downsizing in the ’90s but it was masked because of the Internet and telecom boom.

2) Automotive is coming back, but we mistakenly think of automotive as just GM, Ford and Chrysler—American vendors are doing a lot of work with Toyota, Honda, and Mercedes, too. High yen and Euro values relative to the past make America a low cost producer.

3) Relentless productivity advances in manufacturing makes for better margins. The press mistakes “restructuring” and cutting people as indicative of bad business. It may be the reason for continued good business. Head count and profits no longer rise together and even the Wall Street Journal misses it.

4) Contrary to popular opinion we are starting to get better young people to join manufacturing. Old people always think the younger generation is shiftless and inept, but I think that the notion that you cannot recruit capable new people is obsolete in this labor climate. Nonexistent desk jobs no longer look appealing next to $80,000 machinist jobs with benefits.

5) China is struggling to compete—wages are rising 15-20 percent per year, the workforce turns over constantly, there is a shortage of skills, and high-energy costs. The realization of what it really costs to make things in China with the travel, logistics, and quality issues has made outsourcing to China less attractive for American firms.

6) Innovation. If you look at big companies like Apple, Cummins and you see that America still has game. Add the brilliance of our farmers and the revolution in oil and gas production with horizontal drilling and you see a core economy that is thriving and world class, but one does not necessarily hire unemployed 56-year-old bankers.

All of this does not mean that Europe is not a mess and that retired Chicago teachers are going to get the pensions that were promised them for the next 50 years. The world economy is in the throes of a nasty restructuring not that different than what American manufacturing has gone through for the last 15 years. I like our odds. I wouldn’t bet on the French though.

Question: Do you feel optimistic about 2012?

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Is China the Next Enron

By Lloyd Graff

James Chanos

James Chanos

Jim Chanos is famous for identifying the Enron scam, shorting the company’s stock and making a fortune. He runs a hedge fund named Kynikos Associates, which means cynic in Greek. He specializes in spotting emperors without clothes and is currently betting big that the Empire of China is a naked power.

He compares China to Miami and Dubai of recent memory. The common thread is runaway condominium and office construction, huge real estate inflation and a shortage of able buyers. He says that today, all over China, high-rise buildings are rising, fueled by aggressive bank lending to developers. They are building 1,100 square foot shell apartments without floors, and selling them—or attempting to sell them, for around $150,000. The problem is that even though half are going empty, they are still building. With middle class dual earner couples earning an average of $3,500 a year, buying a $150,000 apartment would be the equivalent of an American couple making $40,000 a year buying an $800,000 home. We saw how that worked out in 2007.

Chanos sees the phenomenal growth numbers in China being fueled primarily by real estate speculation and construction. In his view it is unsustainable. State and local governments are being funded by real estate development, so they have an interest in seeing it accelerate. They will suffer mightily when the bubble bursts.

Chanos feels the problem in China is that the central planners set a growth goal, say nine percent, and then tell the underlings to make sure it happens. The easiest way to do it, other than fudge the numbers (which they may do), is to let the builders build with easy money.

What happens if Chanos is right and the giant cranes go away like they did in Dubai and Miami? He feels that the raw materials companies who are supplying the steel, copper and cement will suffer immediately. Copper at $3.60 a pound could plummet, as well as iron ore and scrap prices. Crane companies will get killed. He feels that the Chinese currency, which everybody including the Obama administration is hoping will rise when it is no longer pegged—will fall. Incidentally, Gary Schilling, the noted bearish economist who predicted the American stock market collapse (not the rebound, however) also feels the Yuan will fall in value when it is allowed to float.

Jim Chanos is a very smart guy. He sees the Chinese bubble bursting later this year or in 2011. The Chinese have enormous reserves in dollars to soften the blow and may tighten credit dramatically soon to try to avert a property crash. China bashers may be happy to see the country suffer and revel in lower raw material prices, but with an interconnected world, be careful what you hope for.

Question: Do you hope China collapses?

Lux Hills community in China

Lux Hills community in China

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Need more info on Delphi's Sale to China

By Lloyd Graff

Just saw on the Internet that Delphi is selling its brakes and suspension businesses to two Chinese companies and the Chinese government. Sale is set to close in fourth quarter. Does anybody know exactly which plants will be affected. Any of you bloggers doing work for this part of Delphi?

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Will China keep investing here?

By September 2008, China had owned 585 billion U.S. dollars in U.S. government bonds, becoming the largest creditor of the world’s largest economy, according to the latest statistics from China’s Ministry of Finance. It bought new US national debts every month during 2008’s first three quarters. (

For years, China has had a surplus of money, which its national bank gleans from its high export to import trade imbalance. It takes the dollars it makes from U.S. consumers and then needs a reliable place to invest them, and it has historically invested heavily in U.S. treasuries along with private U.S. assets.

But now many of China’s investments in the U.S. have gone awry, as they were screwed by Freddie Mac and Fanny Mae, and reckless derivative trading. Naturally, like most people in the world, they have lost some trust in the once supposedly rock solid U.S. economy.

I believe that Americans will keep buying Chinese goods for a long time – although maybe slightly less because people here are struggling. Nevertheless, at least 90 percent of the goods Americans take for granted in their daily lives are made in China. Read the book, A Year Without Made in China, (reviewed by Today’s Machining World) and this concept is clear.

China’s government should have plenty of money to invest overseas for years to come. The question is … has the U.S. economy gotten so bad that they will put a lot of it elsewhere. Personally I don’t think so.

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GM Attempts to Bridge Two Car Cultures

As GM’s car sales steadily decline in the U.S., its Buick brand has become one of the most coveted China. Buick recently debuted its new Invicta show car, the expected replacement for the LaCrosse model, whose purpose is to appeal to both U.S. and Chinese consumers, bridging the gap between the two markets. It features luxurious interior features valued by Chinese drivers, such as gadgets, computers and backseat roominess, but also addresses the preferences of American drivers for bold, exterior styling. It was designed in seven months, just in time for the Beijing Auto Show. Buick cars sharing many of the features on the show car are supposed to be in production next year.  

Source: The Wall Steet Journal

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Free Trade Flip-Flopping

In the following video video’s  political analyst John Fout points out free trade issues which he believes both presidential candidates have flip-flopped on. He says that in the democratic primary Obama knocked NAFTA saying the country needed to “renegotiate” the agreement. After beating Hillary who had taken such a strong anti-NAFTA stance, now Obama says he supports “fair” free trade.

Fout then rips McCain for touting free trade to win the Republican vote, yet afterward giving a speech in April proposing the creation of a “League of Democracies” alienating China and Russia. Fout also claims that McCain said he wants kick Russia out of the G8.

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Containers Bring Manufacturing Home

World trade is like a chameleon, constantly changing colors to survive and flourish. This is why I tend to disregard the Lou Dobbsians who are constantly searching for bad guys rather than opportunities.

With the developing world growing so fast now and the added strain of material flowing to China to heal the wounds of the horrible earthquake, the container system is simply overused. The China trade is sopping up all slack in capacity, which means rates are triple those of six years ago if you can even find a container to send goods from the U.S. to Europe.

The cost of shipping a standard, 40-foot container from Asia to the East Coast has already tripled since 2000 and will double again as oil prices head toward $200 a barrel, says Jeff Rubin, chief economist at CIBC World Markets in Toronto. He estimates transportation costs are now the equivalent of a 9% tariff on goods coming into U.S. ports, compared with the equivalent of only 3% when oil was selling for $20 a barrel in 2000. (Wall Street Journal)

With labor costs and the value of the yuan rising too, China is losing its competitive edge in manufacturing versus the U.S. Even furniture, which gravitated almost entirely to China, is coming back to America.

The container shortage is an annoyance at the moment. Its deeper significance is in the context of world trade. If the protectionists do not mess things up after the election, the seeds are being sown for a significant resurgence in American manufacturing for many years to come.

Source: Wall Street Journal

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'Made in China' Is Cheap No More

A recent story by Frank Langfitton on NPR’s “All Things Considered” reported that rising costs and shifts in Chinese government policy are actually forcing hundreds of smaller Chinese factories to close. According to the story, profit margins are disappearing as a result of the rising Chinese currency value, which has forced manufacturers to move their operations to lower cost countries such as Vietnam.

The story reports that China’s government wants to encourage higher-tech manufacturing, so it is taking away the incentives it used to give to cheap goods manufacturers such as no taxes and cheap rent. China wants to follow the same path as its fellow Asian countries such as Japan and Taiwan, whose products eventually progressed from low-tech to high-tech. This movement to more sophisticated types of production has created the same obstacle for Chinese companies that challenges U.S. companies – finding skilled labor.

Familiar patterns aren’t they.

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Heparin — The Latest Outsourcing Debacle

Recently there have been four deaths and 350 significant allergic reactions from a contaminated supply of Heparin sold by the Baxter brand. Baxter outsources a key ingredient for Heparin in China which has been identified as the cause of the health disaster.

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