Up to 80% of Japanese firms operating in Thailand are affected by the daily minimum wage hike, with labour-intensive industries looking to relocate to neighbouring countries.
A survey by the Japanese Chamber of Commerce (JCC) in Bangkok found about 30% of respondents have felt the impact of the increase in the daily minimum wage to 300 baht since the start of January.
Conducted in November and December last year, the survey was handed out to 1,419 JCC members, of which 381 companies responded including 71 firms hit by the 2011 floods.
To address the higher wages, nearly half the respondents said they intend to replace labour with machinery, while 26% opted to freeze employment and increase of prices. About a quarter chose to reduce headcounts, with the remainder saying there are no effective measures.
In the non-manufacturing sector, 58% of the firms said they will increase prices to address the minimum wage hike.
Setsuo Iuchi, head of the JCC survey, said most of the affected companies are located outside Bangkok, as wages in Bangkok and surrounding provinces had already increased last April.
"We have also discussed the labour shortage, especially that of skilled labour, with the government. The Education and Labour ministries are allocating a budget to develop human resources, and we expect some results from it," said Mr Iuchi, who is also president of the Japanese External Trade Organisation in Bangkok.
He said Japanese companies plan to boost investment in Southeast Asian countries, as labour costs in China have surged. But Thailand is also facing rising labour costs, so Japanese companies are looking to develop businesses in neighbouring countries such as Indonesia, Myanmar and Vietnam.
"Usually, labour-intensive industries want to invest in countries with low wages. However, Thailand has good basic infrastructure, which is why some choose to remain here," said Mr Iuchi.
The survey noted 56% of firms expect business sentiment will improve in the first half of this year, while 31% said there will be no change. Only 13% anticipate a deterioration.
"The improved sentiment is due to the increased purchasing power of Thais, good infrastructure and a good business environment," said Mr Iuchi.