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As China's labour force becomes increasingly expensive, runs the theory, companies will look to the Greater Mekong region — Cambodia, Laos, Myanmar and Vietnam — for cheaper manufacturing options, and open-armed governments keen to bend over backwards to attract employers. But some Australian companies are already there — and interestingly, cost was not the only attraction.

ARB Corporation, Australasia's largest manufacturer and distributor of four-wheel drive accessories for a range of vehicles, set up its second manufacturing plant in Rayong, Thailand, in 2005, to complement its Kilsyth plant in Victoria. And while manufacturing in Thailand is "very beneficial" in cost terms, says ARB director John Forsyth — as is closeness to manufacturers — the source of skilled labour was the real lure of Thailand.
John Forsyth

"It was 2005, the mining boom was underway and we were losing people to that. We could not retain skilled people, especially welders," he says. "Thailand has been involved in vehicle manufacturing for a long time, they've had a similarly long involvement with offshore oil and gas platforms, and they know their welding. There was a ready-made skilled base in Thailand."

With about 80 per cent of the 4WDs imported to Australia — and virtually all of the pick-up trucks — closeness to customers is also important. "It's an obvious advantage that the vehicles we deal with here are mainly made in Thailand," says Forsyth. "We can get to the vehicles quickly and find out what we need to do in product terms to fit them."

Emma Townsend, General Manager of Fibre KingIt was a similar story for Australian packaging equipment maker FibreKing. "Being a Queensland-based company and with the mining sector booming, attracting and retaining staff became increasingly difficult," says Emma Townsend, FibreKing general manager of commercial and strategy. "We first investigated the potential for manufacturing offshore in 2011 – Fibre King is a 90 year old Australian company, and the decision was not made lightly."

Currency issues were also at play, says Townsend. "At the time, the Australian dollar was at an all time high and we did not have the currency advantage we previously had for our export market (FibreKing exports up to 80 per cent of its production.)

"Government support with regards to manufacturing in Australia was also in decline at the time — we felt it was important to look toward a more sustainable manufacturing model for the business," she says. The company's subsidiary Oryx Automation established its plant at Rayong in Thailand in 2012.

Iconic Australian catamaran maker Seawind also felt unsupported when it moved all production to its boatyard in Vietnam, after buying the facility's owner, US trimaran maker Corsair, in 2010. "We were under a lot of pressure to take action if we were to continue our business. 2009-2012 was hard for Australian boat builders, many builders were unable to outlive the financial crisis and ended closing up shop," says Seawind/Corsair Marine sales manager Shane Grover. "Without drastic action we could have been one of them."

Grover says most of the company's competition is built in France, where the government "supports its manufacturing industry." "These companies operate in favourable conditions which our Australian operation was struggling to compete with. Added to this low tariffs on imports meant European boats were being imported into Australia for much less than what could be produced locally."

Vietnam has been highly supportive of its manufacturing industry. "There's tremendous political support for bringing in foreign investment, facilitating foreign investment, training and developing the Vietnamese population to be a very productive workforce," says Dennis Hussey, head of the Greater Mekong Region at ANZ. "The Vietnamese government invests heavily in infrastructure and facilities for trading in and out of Vietnam."
"From a skills point of view, we get people up to speed just as quickly as we could in Australia"

ARB's Forsyth says the move has been win-win: ARB gets a lower cost of production and is closer to customers and closer to its European and American export markets, and its workforce gets premium wages, conditions and benefits in the Thai context. But there can be drawbacks.
"The cultural considerations are very important, there is a different work ethic, and we took a long time to get used to it. You've got to do your homework on those things. It's just a different way of working, and you have to take that into account. But from a skills point of view, we get people up to speed just as quickly as we could in Australia," he says.

Seawind's Grover says premium employment conditions are essential to his business. "We need to maintain and grow a workforce of highly skilled, loyal boat builders, because we're making high-quality Australian-designed yachts for the global market. So we look after our workforce. But while promoting local workers into management roles can work well, he says a "strong ratio of foreign management" is important in maintaining international standards.

"That's what separates successful companies from the weak. The most successful companies I know (in Vietnam) are foreign-owned and instil foreign standards and practices. You can do it cheap or you can do it right — for long-term success, you've got to do it right. We'd advise any company setting up in the region to employ skilled foreign managers to help initiate the set-up and retain enough foreign influence within the company to ensure high standards in quality, safety and standards are met," says Grover.

Having Fibre King Australia staff set up the Thai plant and remain in key positions has been important to alleviate any client concerns, says Townsend. "Many of our clients are big-name multi-nationals who are known to require the highest of standards. Customers can see that we have retained control of our processes and supply chain," she says.

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Thai worker in Fibre King's Thailand manufacturing facility

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