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Rapidly Changing Laos New cars and even traffic jams in Vientiane | Hirotaka Yamakawa Guest Researcher Jiji Research Institute News Department JIJI Press [Date of Issue: 30/June/2014 No.0232-0932]

Date of Issue: 30/June/2014

Rapidly Changing Laos
New cars and even traffic jams in Vientiane

Hirotaka Yamakawa
Guest Researcher
Jiji Research Institute
JIJI Press

Companies are looking at Laos as part of their "Thailand+1" strategies. I found an unexpectedly large number of new cars and ATMs in the capital Vientiane, with modernization rapidly encroaching. Laos has such abundant power that it can even sell to its neighbors. With Thailand so close by, however, many workers are crossing the border, and Japanese firms are struggling to secure staff.

I recently visited Laos for the first time. My prior image was of a country lagging behind its neighbors in terms of development, but that turned out to be completely wrong. Used cars comprise the vast majority in Myanmar and Cambodia, but Laos has many new cars, and in the capital city of Vientiane, which has a population of around 800,000, there were even traffic jams. I also saw a lot of ATMs and gas stands in the city. Laos was changing at a tremendous pace.

New car sales in Laos have been up around 30,000 vehicles per annum for the last several years. A population of around 6.5 million makes Laos the third smallest country in the Association of Southeast Asian Nations (ASEAN) after Brunei and Singapore. As new car sales last year in neighboring Vietnam, which has a population of 90 million were just over 110,000, in terms of population ratio, Laos is outdoing Vietnam on the new cars sales front.

Traffic jam in Vientiane

Traffic jam in Vientiane

Impressive new Toyota and Benz dealerships

I was surprised to see not only the German Benz and Toyota's Lexus on Vientiane's streets but also the super-luxury Porsche. In the center of town, there were even impressive new Toyota and Benz dealerships. According to one Japanese company employee stationed in Laos, the country is currently experiencing an economic bubble, and real estate agents benefiting from that bubble are buying luxury vehicles.

Per capita GDP last year was US$1,500 for the whole country but double that-around US$3,000-in Vientiane. Apparently, it's when cars top that US$3,000 mark that they start selling, suggesting a bright new era of car sales for Vientiane.

Toyota dealership in Vientiane

Toyota dealership in Vientiane

Used car imports banned

There are almost no used cars on the roads in Laos. According to an auto industry representative, the many traffic accidents caused by used cars prompted the government to ban used car imports as of June 2012. Another reason for cutting off imports is apparently that some of the older vehicles have poor fuel efficiency and their exhaust gas damages the environment. There are huge numbers of used cars in both Myanmar and Cambodia, but Laos is clearly different. Vientiane also does not have the motorbike hordes seen in Hanoi and Phnom Penh in Vietnam. It is much more orderly than both cities.

Numerous ATMs

ATMs are everywhere in Vientiane, and far more numerous than in Yangon, Myanmar's largest city, and the Cambodian capital of Phnom Penh. I was also surprised to find that ATMs had penetrated as far as local cities. There were also more gas stands than I expected. Because the number of not only cars but also motorbikes is increasing, gas stands too seem to be mushrooming.

In Vientiane I also spotted a substantial medical facility, and a Chinese firm was in the midst of building a World Trade Center comprising a large-scale shopping center, offices and other facilities. Modernization has found its way to Laos!

Selling power to Thailand and Vietnam

A growing number of Japanese firms have been moving into Laos in recent years. Merits include: (1) cheap wages (one-third of wage levels in Thailand); (2) abundant electricity; (3) location along the East-West Economic Corridor which runs from Vietnam to Myanmar; (4) the similarity of the Thai and Lao languages, which means that Thai personnel can train Lao personnel; (5) good public order and a stable political situation; and (6) few disasters.

I made a five-hour car journey from the southern city of Pakse to Savannakhet, a major city in central Laos. Transmission lines ran along the road for almost the entire distance. I had heard that, unlike Myanmar and Cambodia, there are almost no blackouts in Laos, and that the country in fact sells power to countries like Thailand and Vietnam. Judging by what I saw, I could well believe it. Lower power costs than in neighboring countries are another attraction.

A further merit is the absence of strikes. I was told by one Japanese stationed locally that where Japanese, Taiwanese and other foreign companies operating factories in Cambodia had recently been grappling with a growing number of strikes, there has been no sign of similar action in Laos.

Accelerated moves to disperse plants out from Thailand

As a result of the above, Japanese firms with plants in Thailand, where an unemployment rate of less than one percent is making it difficult to secure workers, are dispersing their operations out to Laos as part of a growing "Thailand+1" drive. Moves to set up in Laos have been particularly marked among those Japanese firms with factories in Thailand since the floods in Thailand in fall 2011. The likelihood of political confusion continuing for some time in the wake of the recent coup d'?tat in Thailand may accelerate this trend still further.

Not only textile manufacturers but also car parts, electronic parts, camera and wig manufacturers, as well as freight companies, travel agents and many other types of Japanese companies have been setting up in Laos in recent years. Having suffered flood damage in Thailand, camera major Nikon has moved part of its digital single-lens reflex camera manufacturing from Thailand to Laos, where production began last fall. The new plant employs around 500 workers, with no permanently-stationed Japanese staff. The factory manager and general manager are both Thai. The similarity between the Thai and Lao languages means that Thai staff can direct and teach local staff.

Nikon’s Laos plant started up last fall

Nikon’s Laos plant started up last fall

More than 100 Japanese firms

Toyota Boshoku Corporation, an auto component manufacturer which is part of the Toyota Group, has also established operations in Laos, launching production of car seat covers there as of April. There are now more than 100 Japanese firms operating in Laos. Mitsubishi Materials Corporation also announced this year that it would be setting up in Laos, and the major wig manufacturer Aderans, which has commissioned production in Laos for the last 12 years, has announced that it will now establish a wholly-owned local subsidiary as well as its own factory, which will begin production in September this year.

There are currently no direct flights between Japan and Laos, but last December, the leaders of both countries agreed to launch formal negotiation of an air transport agreement with a view to direct flights. Bilateral consultations are now underway at the administrative level. The Japan External Trade Organization (JETRO) opened an office in Vientiane this April. Given these developments, the influx of Japanese firms seems likely to accelerate in the coming years.

Going to Thailand for triple wages

Laos does have one demerit. Not only is the population a scant 6.5 million, but many Lao (around 500,000) work in Thailand to take advantage of wage levels three times as high as those offered at home, making it difficult for firms in Laos to secure labor. Japanese firms have consequently elected to pay their workers around 15,000 yen per month, around 5,000 yen higher than in Myanmar and Cambodia. The minimum wage in Laos is 626,000 kip (around US$82), so the wages offered by most Japanese firms are above this.

Why is it difficult to find workers at the minimum wage? Laos adjoins Thailand. For example, if you travel from the central Lao city of Savannakhet across the Second Thai-Lao Friendship Bridge, which was built with Japanese assistance, you're in Thailand. Because wages in Thailand are around three times higher than in Laos, many Lao go from Savannakhet across to Thailand to work. Apparently, there are more than 500,000 Lao migrant workers in Thailand.

Payrolls of more than 1,000 staff difficult

As a result, Japanese firms with operations in Laos are finding it difficult to get workers. According to a senior manager at one Japanese manufacturing firm there, securing personnel is management's biggest headache. Many Lao go off to Thailand to work, he says, and if you don't pay them more than they would earn in Thailand, they don't come back. According to the president of another Japanese firm, while he uses a temp agency and advertises for workers on the radio, he still isn't finding enough staff.

The president of one component manufacturer observed that his firm conducts recruitment drives in local villages. After meeting with village chiefs to get their permission for these drives, the company has local leaders gather villagers to attend company information sessions. In many cases, the parents of young villagers join their children at these sessions. Companies are therefore using a range of methods to find workers, but because they can't get enough staff even then, they have no choice but to raise wages. According to one Japanese manager, the country's small population makes it almost impossible to gather a workforce of more than 1,000. Laos has numerous merits, but Japanese companies looking at establishing operations there should also be aware of this demerit.

(original article : Japanese)
(For the Japanese version of this article)

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