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ation coefficient is used to show how Japanese FDI and domestic production are correlated.

Figure 5: relationship between domestic production and Japanese FDI

(Source: Thai Automotive Industry Association, TAIA and Board of Investment, BOI)

The result tells us that domestic production is positively highly correlated with flow of Japanese FDI with correlation coefficient equal to 0.89 (calculation of correlation coefficient is shown in appendix section).

Thus we can conclude that flow of FDI especially Japanese FDI to automotive sector can stimulate number of vehicles produced domestically. This result is same as what (caves 1974) has concluded. He concluded that FDI has 2 main effects on productivity. First effect is the technological transfer by oversea assemblers and second effects is the increase in competitive pressures that will increase productivity. However, we are not yet able to show how increase in competitive pressure can increase the production.

Automotive industry is one of the strongest industries in Thailand with strong domestic market that support the industry. Thai automotive industry has grown steadily since the beginning of the production in 1961 but with some slowdown in growth rate during 1997 Asia financial crisis and 2008 financial crisis in USA. Both crisis are serious and have damaged global economy but Thai automotive industry can still handle these crisis.

Foreign assemblers are the key role in this industry. I believe that Thai automotive industry cannot grow this fast or recover this fast from major financial crisis without supporting from foreign assemblers; FDI from major automotive producers and change in production strategy by Nissan. With the strength of domestic market that Thai automotive industry has, I believe that there still rooms for growing and become one of the major automobile producers and exporter in the world.

Chapter 6: International Markets

In modern era, it’s impossible to avoid trading with other countries especially trading of products that Thailand is good at producing that is automobile. In this chapter we will be analyzing international markets which include ASEAN markets and Japanese market analysis of ASEAN market will be divided into 2 groups which are ASEAN-5 and CLMV. ASEAN-5 consists of Malaysia, Singapore, Indonesia, Brunei and Philippines while CLMV is joined by Cambodia, Lao, Myanmar and Viet Nam.

To begin with ASEAN has been one of the most important regions for Thai automotive industry. The total value of trading between ASEAN markets in 2010 is greater than 88,000 millions of baht. The reason to split ASEAN market into 2 groups is that CLMV has joined ASEAN late. In order to join ASEAN for CLMV, they are required to sign ASEAN Free Trade Agreement (AFTA). This agreement will eliminate tariffs and Non-Tariff Barriers (NTB) within ASEAN members. To achieve this goal, The Common Effective Preferential Tariff (CEPT) scheme is necessary for each ASEAN members. What this does to each ASEAN member is that each ASEAN members are required to apply tariff rate between 0 to 5%. Since CLMV has joined ASEAN late, some of the tariff rate is not between 0 to 5% yet. Thus it’s expensive for them to import automobiles from Thailand and comparison of vehicles export to ASEAN is not possible to do because ASEAN-5’s tariff rate is exempted from ASEAN member.