Thailand Looks to Develop its Third Wave of Industry

Chris Bassett on August 7th, 2015 with

Thailand Economic Activity

In a very frank and forthright speech made at the end of June, deputy prime minister MR Pridiyathorn Devakula stated Thailand had lost its competitiveness in many industries and this was clearly reflected in the negative export-growth figures since 2013. “We need to change,” said the deputy prime minister, who went on to add that the government “is making good progress in its plan to shift the Kingdom into the ‘third wave’ of its economic development.” [1]

Pridiyathorn was speaking at a seminar titled ‘Thailand: A Regional Trading and Modern Industry Hub’ and stated the country needed to become a “trading nation with competitive modern industries.”

He noted the Board of Investment (BoI) had restructured its policies and investment packages to promote and attract modern and high-value added industries, from aerospace to biotechnology, and nano-technology to medical devices.

The deputy prime minister said Thailand needed to move up the economic scale fromautomotive to aerospace industries, from electrical appliances to the ‘Internet of Things’, from natural and synthetic rubber to technical and functional rubber products and from food processing to medical foods.

Citing BoI figures for the first five months of this year, Pridiyathorn said it had approved 1,094 projects valued at 145 billion baht. More importantly, 216 of these projects are in modern industries, which was more than double the BoI expectation of attracting just 100 of these types of projects.

Among the projects which fit into the modern industry category are those involvingspecialty materials and eco-friendly products; digital-economy projects; electronics projects, especially geared around control and measurement as well as parts;

human-resource development and regional training centres; science, technology and innovation projects; medical products; and automotive projects, such as engine parts. [2]

The figures show that outside investors are still confident in the Thailand business model and recognize the government understands the pressing need to move towards a greater emphasis on value-added modern industries.

The BoI announced it had received 14 applications for international trading centres and four applications to establish international headquarters in the first five months of this year, and these projects were worth 177 million and 149 million baht respectively.

The clearly stated aim of the present government is to turn Thailand into what it calls the ‘international trading hub of Asia.’

That’s an ambitious target, especially given the competition Thailand faces from the likes of Vietnam and Singapore as well as India and Hong Kong, among others. Nonetheless, Thailand’s geographic advantage, especially with regard to its near neighbours, cannot be underestimated.

Plunging exports concern for the short-term

While MR Pridiyathorn was trying to be upbeat about the future direction of the Thai economic model, the current situation showed things are still very much in a state of flux.

The Bank of Thailand revealed its figures for May showed a rise of 1.3 percent from April for its consumption index, but a 0.5 percent slip in private investment. More importantly, domestic demand and exports, Thailand’s two main growth drivers, are still behind expectations.

Exports have fallen in both 2013 and 2014, and this year that trend has continued. Exports account for more than 60 percent of the economy and the slip in May, the fifth month in a row, indicates that 2015 will almost certainly show a third consecutive year of contraction.

Domestically, the automobile industry is doing it tough with car sales down by 18.3 percent in May year-on-year, and automobile production has fallen 8.8 percent according to the Federation of Thai Industries.

Production of television sets has basically collapsed, down a whopping 86 percent and hard drive output also crashed by almost 20 percent in May from a year earlier.

Where are the workers?

Part of the problems outlined above come because Thailand is desperately short of skilled workers, according to Piyabutr Cholvijarn, the president of the Kenan Institute Asia, an NGO which focuses on sustainable development.

The three main sectors where there is a skilled worker shortage are in the automobile, energy and electronic parts sectors. “This chronic problem will gradually hurt national competitiveness,” said Piyabutr. [3]

A recent World Bank survey found that Thailand’s skilled labour shortage was the worst in Asean with some 39 percent of employers saying they faced a shortage of skilled workers. By comparison, Malaysia was the next worst, but employers decrying a skilled shortage numbered just 20.2 percent, while in Indonesia only 4.5 percent of employers were complaining they couldn’t find skilled employees.

According to the Kenan Institute, Thailand has a market demand for around 180,000 vocational graduates annually, but only 20,000 are being produced.

Part of the problem is the public perception surrounding vocational schools and technical colleges. Many people believe vocational students simply finish up working in low-level factory roles for poor remuneration and with little hope of advancement.

The government has recognized this alarming trend and, along with the private sector, has begun offering 18-month placements to help train vocational students. These placements are undertaken while the students are still studying and help to give them a better idea of what they are likely to be doing once they graduate.

In 2014 some 8,086 companies participated in the project, with 86,000 vocational students involved. The government is aiming at ramping this figure up to 13,000 companies and 130,000 students in 2016. [4]

Vocational training is broken up into three levels. A certificate of vocational training is taken during the upper secondary school period, around ages 16 to 18, as an alternative to regular high school. This is followed by the technical diploma and finally by the higher diploma.

In 2010, the Vocational Education Commission established science-based technology colleges in five provinces.

By 2017 the government hopes to have a 50:50 ratio of high school students to technical students, up from the present 67:33 ratio.

For Thailand to retain and indeed further its competitiveness not just within Southeast Asia but beyond, it is imperative the government plans for vocational training prove successful over the long haul and for the success of the third wave of its industry.

[1] http://www.nationmultimedia.com/business/> Shifting Thailand into the ‘third wave’, accessed 3/8/15

[2] ibid.

[3] Spectrum, 26 July 2015, page 4

[4] ibid, page 5

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