1. Sectoral Competitiveness and Industrial Restructuring: PLASTICS (as related to the petrochemical industry) SECTOR Final Presentation by The Petroleum Institute of Thailand for The Board of Investment & The World Bank 17 August 2001 The Petroleum Institute of Thailand 18th Fl., PTT Bldg. 555 Vibhavadi-Rangsit Road, Chatuchak Bangkok 10900 Tel: (662) 537-3592-8 Fax: (662) 537-3591 E-mail: ptit@ksc15.th.com Website: www.ptit.org

2. Presentation Agenda  Study Objective  Study Content  The Three Link Industries: Was the Development Systematic and Holistic? Role of Plastics Conversion Industry in the Country’s Economic Growth  Structure and Restructuring: Structure: Location, Growth, Process, Employment, Registered Capital Restructuring Impacts to Date  Competitiveness: A Holistic View  What can be Done: The Main Actors  The Ultimate Action Plan: Do or Die

3. Study Objective  To develop strategies and action plans for enhancing the competitiveness of the Plastics (as related to the petrochemical) Industry

4. Content Executive Summary i Preface to the Study ii Part 1 The Development of Three Closely-Linked Industries: Was the Development Systematic and Holistic? Chapter 1 The Three Link Industries: Looking Back I 1.1 How It all Began?: Nature of Development I-3 1.2 Role of Plastics Conversion Industry in the Country’s Economic Growth I-41 Chapter 2 Structure and Restructuring: The Development Trend II 2.1 Structure: Location, Growth, Process, Employment, Registered Capital II-3 2.2 Restructuring Impact to Date: Operational Features, Employment, External Trade II-36 2.3 Financial Performance: Overview, Sales, Profitability, Asset and Capital Base II-46 Performance Ratios, Impact of Financial Crisis

5. Content (cont’d) Chapter 3 Competitiveness: A Holistic View III 3.1 Competitiveness: Direct and Support Elements III-3 3.2 Direct Elements: Market, Production Cost, Productivity Performance III-15 Supply Chain Management 3.3 Support Elements: Finance, Infrastructure, Trade Information, Policy/ Regulation III-152 Environmental Pressure 3.4 Where is Thai Plastics Conversion Industry in the World? III-238 Part 2 Identify the Problematic Culprits Chapter 4 Problems and Needs of the Three Link Industries IV 4.1 Problems of the Missing Link IV-3 4.2 Individual Link Industry Problems IV-8 4.3 Common Problems of the Three Link Industries IV-26 4.4 Supply Chain Management IV-37

6. Content (cont’d) Part 3 Strategic Decision Making Chapter 5 SWOT Analysis V Part 4 What can be Done Chapter 6 The Main Actors VI 6.1 Role of Government VI-4 6.2 Role of Associations VI-17 6.3 Role of Academic Institutions VI-20 6.4 Role of Individual Industry Players VI-23 Chapter 7 The Ultimate Action Plan: Do or Die VII 7.1 Virtual Plastics Institute (VPI) VII-3 7.2 The Plastics Clusters VII-13 7.3 The Ministry of Industry and Trade (MIT) VII-15 7.4 Plastics Industry Policy Office (PIPO) VII-19

7. Content (cont’d) Part 5 The Important Database Import Statistics im-1 Export Statistics ex-1 Major Polymers Demand/ Supply Balance bl-1 Petrochemical Groups: Related Companies and Their Capacities gr-1 Appendix Appendix I Methodology AI-1 Appendix II Plastics Related Organizations AII-1 Appendix III Bibliography AIII-1 Appendix IV Organizations Contacted/ Interviewed AIV-1 Appendix V Abbreviations AV-1

8. The Three Link Industries:  Was the Development Systematic and Holistic?  Role of Plastics Conversion Industry in the Country’s Economic Growth

9. Value Chain & Industry Drivers

10. Development of Plastics and Related Industries 1 MIDI - Metal-Working and Machinery Industries Development Institute 2 BSID - Bureau of Supporting Industries Development 3 TPC - Thai Plastic and Chemical Co., Ltd. 4 TPI - Thai Petrochemical Industry Co., Ltd.

11. Role of Plastics Industry in the Country’s Economic Growth  A major sector contributing to the economy - Plastics conversion industry is a significant part of the Thai economy accounting for: Turnover exceeding US$4.1 billion in 1999, or 5% of the total Thai manufacturing. Plastics conversion industry is, therefore, a significant supporting sector of the Thai economy. 8 percent of manufacturing employment -- plastics products manufacturing, has been one of the fastest employment generating industries over the past decade. Major source of new fixed capital expenditure by private manufacturing enterprises, totalling almost US$0.4 billion in 1999, compared to US$0.65 billion in 1996. The value-added portion of plastics conversion conservatively contributed around US$1.3 billion to the Thai economy in 1999.

12. Role of Plastics Industry in the Country’s Economic Growth (cont’d) A major export influence, adding US$2.4 billion to international reserves in 1999, after reaching a record US$3.5 billion in 1995. The net balance after allowing for direct imports of polymer products less direct exports of plastic products had been declining with a rapid rise in imports of plastic products, with imports at US$2.0 billion as a compelling indication of the potential for import replacement in this industry sector. Plastics conversion is very much an integral part of the industrial and consumer microeconomic framework of Thailand, with considerable influence over the competitiveness and performance of downstream sectors.

13. Processing Link - Output Value Chain 1999 (1996) Petrochemical Manufacturing (including plastic compounds) Machinery Supplier* Mould, Die, Tooling Supplier* Plastics Converter Industrial Market Assembly Consumer Market Product Industrial Component Use US$ 160m (406) US$ 2,797m (3,715) US$ 224m (243) US$ 4,105m (5,546) * Specifically for plastics conversion Value Added US$1,308m (1,831)

14. Economic Multiplier Impacts on the Total Thai Economy

15. Socio-Economic Contribution of the Thai Plastics Industry

16. Structure and Restructuring:  Structure: Location, Growth, Process, Employment, Registered capital  Restructuring Impacts to Date

17. Structure of the Three Links Industry

18. Physical Distribution of Plastics Conversion Sites  Concentrated in Bangkok and peripheral areas -- 82% of total converters are in Bangkok and peripheral areas, taking advantage of the proximity to the downstream industrial purchasers and consumers. Source: Department of Industrial Works (DIW), as of 1st quarter, 2000

19. Source: Board of Investment (BOI) Note: Including allocation of joint-venture investment Investment in Plastics Conversion Industry  Foreign investment in Thailand rose dramatically since 1996. In particular, in Asia’s Economic Crisis year (1997), a large number of foreign investors took advantage of low acquisition and investment cost in Thailand.  Foreign capital investment in 1997 shot up to 3,162 million baht compared with 951 million Baht in 1994.

20. Growth of Plastics Conversion Industry Note: This graph only shows those plastics converters that are still registered with DIW as of July 2000. However, it may include companies that have been dissolved but did not report their dissolution to DIW. Source: Department of Industrial Works (DIW)

21. Major Plastics Conversion Processes  Injection moulding and film & sheet extrusion are the two major conversion processes employed in Thailand. They account for 40% and 24% of total plastics conversion, respectively. Source: Department of Industrial Works (DIW), as of 1st quarter 2000 * Other processes include compression moulding, rotomoulding, etc.

22. Registered Capital in Plastics Conversion Industry  Medium-scale plastics converters, if classified by their size of registered capital investment, account for 25% of Thailand’s total plastics converters; if classified by their size of employment, the figure is only 12%.  This indicates that Plastics Conversion Industry requires a higher level of capital investment but a lower number of labour than some other SME industries. Source: Department of Industrial Works (DIW), as of 1st quarter 2000

23. Physical Distribution of Toolmaking Sites Source: Department of Industrial Works (DIW), as of 1st quarter 2000 * Tooling for metals and plastics work  Concentrated in Bangkok and peripheral areas -- 80% of total toolmakers are located in Bangkok and peripheral “inner” areas.

24. Tooling Industry Growth Note: This graph only shows those toolmakers that are still registered with DIW as of 1st quarter 2000. However, it may include companies that have been dissolved but did not report their dissolution to DIW. Source: Department of Industrial Works (DIW)

25.  Very lean survivors  Minimal increase in labour cost  Growth in owner-operated business on a smaller scale  Generally slow restructuring actions  Renewed emphasis on export markets  Focus on import replacement opportunities through foreign investment, therefore increased foreign ownership  Restructuring of workforce: shifting from houseware industry to electrical moulding and assembly facilities Restructuring Impacts to Date

26. Plastics Processing Sales Comparison US$ Billion – Various Nations – 1999 Source: Derived from national government statistics agencies, industry associations and polymer use. * as of 1998 ** as of 1998/99 financial year

27. Plastics Conversion Industry by Ownership Share of Enterprises by Sector – Thailand – 1996/97 (not elsewhere classified) Source : National Statistics Office

28. Competitiveness: A Holistic View

29. Competitiveness: Direct and Support Elements

30. Moulds & Dies Import and Export  A huge imbalance between import and export of moulds & dies prevailed during 1990-1999. In 1995, while moulds & dies import value was enormous at US$ 222 million, export value only recorded a mere US$ 45 million -- 4.5 times less than import. This disparity is due to the lack of development in the Thai tooling industry.  Besides, a portion of moulds & dies exported during 1990-1999 was of a second-hand condition.

31. Import vs Domestic Supply of Moulds & Dies in Thailand  The Thai tooling industry relies heavily on imports. Domestic supply of moulds and dies accounts for less than 20% of total supply.  In 1996, 90% of total tooling supply in Thailand were imported -- though the circumstance improved a little with 82% import in 1999.

32. Thailand’s Import Value of Plastics Products

33. Reasons for Plastics Product Import

34. Import Replacement & Export Opportunity by Sector

35. Plastics Product Import of ASEAN Countries 1997 Total Plastics Product Import Value = US$ 4,591 Million US $ Million  Thailand is the biggest importer in the region, accounting for 41% of total import value. This means that Thailand has the highest opportunity for Plastics production being the largest market in the region. Thus, investment in Thailand is viable.

36. Material/Product Specification Physical Supply Chain Management Feedstock Petrochemical Manufacturers Traders’/Agents’ Godown Petrochemical Manufacturers’ Godown Converters Ethylene Compounders Traders Mouldmakers Designers Customers Link C Link A Link B OEM Customers = Proprietary plastics component production OEM = Contracted plastics component production

37. Supply Chain Management

38. Thai Plastics Industry SWOT Analysis: Direct Elements

39. Thai Plastics Industry SWOT Analysis: Direct Elements (cont’d)

40. Thai Plastics Industry SWOT Analysis: Support Elements

41. Thai Plastics Industry SWOT Analysis: Support Elements (cont’d)

43. Future Prospects  Thailand is well placed to benefit from global trends in plastics conversion technologies, product demand and international trade patterns. Installed and projected investment by Original Equipment Manufacturers is focused on limited number of regional base production locations, with Thailand being increasingly the site for ASEAN in electrical, electronics, automotive and houseware items. Domestic demand will emerge as a major driving force in lifting domestic consumption of Plastics within Thailand to higher levels. This will particularly assist the construction and packaging industries to regain much of their pre-1997 strength. New polymer blends and compounds will be required to supply suitable raw materials to the industry. There is a risk that these will be imported unless local production capacity can be further expanded as has been occurring during the past 2 years. Labour productivity will need to improve in line with rising Thai affluence, in order to maintain the overall competitiveness of local plastics conversion and associated assembly activities. More coordinated development and training in labour and toolmaking will be required to provide competitive processing capabilities apart from machinery investment.

44. What can be Done: The Main Actors

45. The Ultimate Action Plan: Do or Die

46.  Virtual Plastics Institute (VPI)  The Plastics Clusters  The Ministry of Industry and Trade (MIT)  Plastics Industry Policy Office (PIPO)

47. Concept of Virtual Plastics Institute (VPI) Virtual Plastics Institute Source of Fund - Innovative Fund - The World Bank - JICA - GTZ Pilot Project IV English Capability - The Department of General Education Continuing Education Level - Chulalongkorn English Center - Thammasat English Center - Mahidol English Center - Kasetsart English Center Vocational College Level - Vocational School High School Level - ERIC - Bi-lingual School - Others Product Design - School of Architecture and Design - Silpakorn University - Center of Technology and Industry Design Tool & Machine Design/ Making - Thai-German Institute - King Mongkut’s University of Technology - Kasetsart University - The Department of Vocational Education Pilot Project III Technical Capability To create a critical mass of skilled workmen within 5 years - Bureau of Supporting Industrial Development (BSID) - Thai-German Institute Pilot Project I Training of the Trainers Program To produce a critical core of trainers in the next few years Pilot Project II Commercial Database/ Information Technology - Bureau of Supporting Industrial Development (BSID) - Thai Plastics Industries Association (TPIA)

48. The Plastics Clusters  Three recommended areas for the Plastics Clusters are: Eastern Area : Chonburi-Rayong-Chacherngsao Province, to be a cluster for automobile industry Southern Area : Samutsakorn-Rama II-Petchakasem-Ekachai, to be a cluster for plastic bags and films. The majority of the manufacturers in this area are Thai-owned and controlled. Northern Area : Ayutthaya-Pathumtani, to be a cluster for electronic industry.

49. The Ministry of Industry and Trade (MIT) An integration of two existing ministries, or at least the aggregation of relevant units in those ministries. Two core units are essential in the new ministry:  Industry Development Division to spearhead and to strengthen competitiveness of the Thai economy to study and identify key sectors and clusters in Thailand to assess impacts of policy initiated by MIT and other governmental agencies  Trade Division to protect Thailand’s trading interests by enhancing access to global markets for goods, services and investment to oversee Thailand’s participation in international and regional fora

50. Plastics Industry Policy Office (PIPO)  Roles of the “Plastics Industry Policy Office (PIPO)” are to set up and monitor government policy to enhance a well-structured development of the whole value chain of the petrochemicals-plastics industry.  By and large, the first priority of PIPO now is to set up a policy to strengthen the support industry, which has been long left unattended.