History (1999): Special Report on Thai HDD Industry

Throughout the world, there are magnetic poles that attract production of HDDs and their components: in China, Hungary, Germany, Ireland, Japan, Mexico, the Philippines, USA.

The largest of all, however, following Seagate Technology’s successful 1982 initiative to set up shop there, is in Southeast Asia, or more precisely, Singapore, followed soon after by Malaysia and Thailand.

Once again, it was Seagate that was first among HDD companies to build a fab in Thailand, in the capital, Bangkok, back in 1983, with some 50 people for the production of HSAs and HGAs.

Many others followed its example.

From components to final assembly
If Micropolis and Maxtor abandoned their HDA plants, in 1996 and 1997, respectively, followed by Seagate in 1998, which delocalized to Singapore and China, 2 of the largest factories for assembly are maintained in Thailand: one by Fujitsu, for 2.5-inch and desktop PC drives, the other by IBM, exclusively for 2.5-inch units for which Big Blue is the uncontested world leader. Both of the companies, along with Seagate, also produce HSAs.

Nearly all HGAs for HDDs sold by Seagate throughout the world are assembled in 2 Thai factories, in Teparuk and Korat. Fujitsu and Read-Rite are similarly involved in HGAs. Add to the list Read-Rite, this time for sliders, KR Precision and Magnecomp for suspensions, Nidec, Minibea (with a 25,000-person plant!) and Seagate for motors, Asahi Komag and Hoya for disks, Innovex/Boron for thin-film lead wires, and so on (no doubt we’re forgetting some).

40% of Seagate’s worldwide workforce
What it all boils down to is a huge industry. A study by the University of California at San Diego (1) counted a total of 25 firms in the Thai HDD drive industry raking in a total of $6 to $7 billion in 1997, roughly half of Singapore’s output.

In fact, Seagate’s manufacturing surface and warehouse in Thailand, covering 1,532,265 square feet, is larger than its Singapore operation. Furthermore, the world industry leader is the largest electronic exporter in the country, according to a Seagate representative, with business totaling 80 billion Thai baths (2) or $2.16 billion (2) compared to 56 billion baths or $1.5 I billion the preceding year. In 5 different factories throughout the country, the company employed 46,640 people in 1997. Even if this figure has since dropped to 34,962, it still represents 40% of Seagate’s workforce worldwide.

The Big Three: 10% of all Thai exports
The official Thai Commercial Service estimates HDD exports by Fujitsu, IBM (2 factories including one for its subcontractor Saha Union) and Seagate combined represented $3.8 billion in 1997 and $5 billion in 1998, an increase of nearly 31%, which translates to roughly 10% of the country’s total exports. Together, the Big Three employ nearly 50,000 people. Along with the other companies focused on components, we’re not far from a hundred thousand women, their hands gloved, working for the foreign storage industry.

And nothing suggests that this number will decrease. To date, Seagate’s total investment in Thailand is $395 million, including buildings, land and equipment. IBM and especially Fujitsu continue to invest heavily in Thailand, where the Japanese firm already produces nearly 60% of its WW output of HDDs. Fujitsu has already placed 12 billion baths ($324 million) soon to be followed by another 17 billion baths ($630 million), expanding from 5,500 to 18,000 employees, which should result in an increase from one million drives per month today to three million in 2002.

Why Thailand?

Of course, the big question is why Thailand is so attractive, not only to tourists, but also to the major players in the storage industry, virtually all either American or Japanese, given there is practically no local industry to speak of?

The immediate answer seems too simple: the low cost of labor. While this is true, it’s not the only factor. The minimum salary in Thailand, for the areas furthest from Bangkok (known as Zone 3), is 120 baths ($3.24) per day, 140 baths closer to the capital, and 162 baths in the city proper, roughly half the lowest hourly wage in the Western hemisphere. It’s also lower than Malaysian salaries, and far below those paid today in Singapore, but still higher than those in the Philippines and especially China.

Storage companies are slightly more generous, paying close to 20% more than the legal minimum in order to attract a higher quality workforce, although the recent Asian economic crisis, which led to the devaluation of the bath, has somewhat undermined this effort.

Management is better compensated, and almost exclusively Thai. At Seagate, for instance, there are only 17 non-Thai employees out of the total 34,962 hires. 15 Japanese and one solitary, yet imposing, American are marooned in Prachinburi by IBM.

An army of young women
In Thailand, the majority of young girls have a limited choice between prostitution, massage or factory work (largely for HDDs). At Seagate, 99.7% of the line operators are women, with an average age of 23 [as in Malaysia, we were surprised to discover clean rooms populated with what appeared to be girls in their early teens, given the minimum age of 18 for holding a job. We were most frequently told that women in Southeast Asia don’t look their age].

Labor force is easy to find – with buses that make the rounds of the countryside 3x daily to pick up women ready to start their day, and drop off those finishing up, since all the factories operate around the clock with 3×8-hour shifts. The women are meticulous, diligent workers who seldom grumble. To this day, we’ve only heard of a single strike since 1982, back in ’91 at Seagate’s Teparuk facility.

Incentives
The low cost of accessible labor is one factor in Thailand’s appeal, but it doesn’t explain everything, since it represents a minor part of production costs, even in an ultra-competitive industry where every penny counts. The country neighbors Singapore and is not far from Malaysia, which makes transfer between different company facilities much easier, even as the number of sources for components within Thailand grows daily.

Apart from Bangkok’s appalling traffic jams (worse even than in Paris, Cairo or Mexico City!], transportation is simple, and of relatively good quality. Politically, the country is stable.

Finally, and certainly not the least of considerations, Thailand offers an array of particularly favorable incentives to manufacturers that wish to invest (see below).

Zone 3
Thailand is divided into several zones, based on how far removed you are from Bangkok. Zone 3, the farthest, with the lowest salaries, offers the following fiscal advantages in abundance to companies that set up shop there:
– 8-year corporate income tax holiday
– followed by a 50% income tax reduction for an additional 5-year period
– exemption from import duty for machinery
– 5-year exemption from import duty on raw or essential materials
– double deduction from taxable income of water, electricity and transport costs for 10 years
– deduction from net profits of 25% of the project’s infrastructure installation or construction costs.

(1) We found a wealth of information, while preparing our visit to Thailand and writing this report, in an impressive and recent study, Thailand’s HDD Drive Industry, published by The Information Storage Industry Center of the University of California, San Diego, CA, and written by Richard F. Doner (Department of Political Science. Emory University with Peter Brimble, The Brooker Group (Bangkok). Other equally excellent studies in the same series cover the HDD industry in the Philippines, Northern Malaysia, as well as a report entitled Dispersed Concentration: Industry Location and Globalization in HDD Drives.
(2) based on the current exchange rate of 1 Thai bath = $0.027

This article is an abstract of news published on issue 133 on February 1999 from the former paper version of Computer Data Storage Newsletter.