Can Thailand manufacture innovative industries?

 —  Article by Serene Lim
worker in high tech factory
Image credit: Shutterstock

Thailand has long marked its territory as one of Southeast Asia’s premier manufacturing hubs but with new competitors and rapid changes within the global manufacturing industry, it’s looking for more.

Tomorrow’s focus will be on aerospace and robotics as well as the automotive and electronics industries at the heart of its manufacturing base today.

As such, the Southeast Asian nation is hoping to transform both the fundamentals and the image of its manufacturing industry if a new government economic initiative, Thailand 4.0, takes off. Launched last year, the model aims to lift Thailand out of the middle income trap – in which country’s growth slows down after its reached middle income level – by shifting towards higher-value based models using new technologies and digital innovations.

“It is a rightful move towards electronics, robotics, research and development – industries require more specialized skills and are higher up the value chain,” says Andrew Gulbrandson, Head of Research and Consulting for JLL Thailand. “Thailand’s labour costs have gone up, and it faces significant competition from Vietnam and Indonesia.”

Vietnam, for example, may focus on low-end manufacturing such as textiles and electronics but it has attracted the likes of global players such as Samsung. Indonesia, meanwhile, has big plans to integrate itself within the global supply chain.

Looking east for development

As part of Thailand 4.0, the government approved the establishment of the Eastern Economic Corridor (EEC) last year. It covers three provinces – Chon Buri, Rayong and Chachoengsao – and expands the Eastern Seaboard, which is known for being manufacturing and trade hub in the country. The EEC would build capacity in 10 industries that Thailand has high potential in, including robotics, smart electronics and biofuels.

Yet there are significant challenges. “A big obstacle is the mismatch between Thailand’s innovation ambitions and its qualified workers. The country has traditionally struggled to find skilled labour – university graduates do not want to do production work and there are not enough technically qualified workers who can. It’s a serious issue,” explains Gulbrandson.

Thailand’s manufacturing firms are also sluggish when it comes to pursuing innovation and upgrading themselves.

Gulbrandson points out that that while the EEC is a positive step, concrete plans for developing it remain unclear, which affects its ability to attract foreign investment. “It’s an open question how exactly the government wants to implement its development, under what shape the EEC would take,” he observes. Japanese investors even recently asked Thai government officials for greater clarity and assurance about the EEC as “crucial” for future investment plans.

Thailand is addressing some of these concerns, starting with massive infrastructure efforts such as the upgrading of U-Tapao International Airport and a high-speed rail to improve links between the region and Bangkok, and encourage foreign companies to set up bases in the EEC.

Leading the way in Southeast Asia

While Thailand still has a long way to go to achieve its manufacturing ambitions, Gulbrandson says the country’s place with the Southeast Asian manufacturing industry remains resilient thanks to relative political and economic stability for the last 12 years compared to countries such as Vietnam and the Philippines.

“Thailand continues to fare well for now as it is slightly further ahead of the curve vis-à-vis other manufacturing countries in Southeast Asia, but it needs to keep its competitive advantage,” adds Gulbrandson. “How quickly it can move up the value chain remains to be seen.”

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