Though the worst may have passed, Thailand is still losing its competitive edge to other countries in Asean (such as Indonesia, Malaysia and Vietnam), as well as the twin Asian powers of China and India. For instance, AT Kearney's 2010 Global Cities Index ranked Bangkok 36th, dropping from 22nd in 2008.
For business activities, Thailand's ranking in AT Kearney's 2011 Global Services Location Index dropped to seventh from fourth due mainly to increasing labour costs and uncompetitive human capital. Global manufacturers are telling us they are reducing or reconsidering their factory footprints in Thailand.
We believe Thailand still has a lot of untapped potential as both a manufacturing hub in the global footprint and an outsourcing destination for high-cost countries. With the advent in 2015 of the Asean Economic Community and Myanmar opening its doors, there will be many growth opportunities for Thailand _ if the country can step up its game.
Based on our global experience, there are four areas on which corporations base their global network design _ ease of doing business, human capital, infrastructure and country risk.
FEase of doing business: Our latest study on foreign direct investment (FDI) shows legal and regulatory factors are at the top of investors' minds, especially for labour and environmental regulations. Investors are looking for transparent and predictable legal and regulatory rules that are conducive for businesses. Industries in Thailand have always benefited from the regulatory predictability in its operating environment in contrast to some of its neighbours.
Additionally, the recent reduction of corporate income tax to 23% from 30% has helped to increase the country's attractiveness. An even more attractive corporate tax scheme and robust trade treaties will help to support Thailand as an exporting hub for the region. Finally, marketing efforts such as the recent government investor roadshow to Japan should be done more often to publicise Thailand's attractive investor policies.
FHuman capital: Corporations are looking for knowledgeable, productive and reliable workforces with reasonable cost. Thailand historically has been known for its affordable labour cost and highly trained workforce. However, according to pay and productivity rankings by the World Economic Forum in 2011, Thailand was ranked 29th globally _ lower than Singapore (1st), Vietnam (4th), Malaysia (6th) and Indonesia (20th).
Our own analyses show Thailand's labour rates for manufacturing are 20-45% higher than in Indonesia and Vietnam. With the increase in the daily minimum wage from 215 baht per day to 300 baht, Thailand's labour force competitiveness may drop further. There will be a strong need to invest in further vocational and English language skills training for the workforce to raise its productivity and justify Thailand's higher cost structure relative to its neighbours.
FInfrastructure: Adequate freight infrastructure and low logistics costs are the enablers of true growth potential. Thailand was once considered a major Asean logistics hub. As technology advances and other countries start investing more in their own infrastructure, Thailand is moving down the ranks. World Bank research done in 2011 showed that Thailand's cost of importing and exporting is increasing with an average cost per container of US$625 to export and $795 to import. That makes Thailand 20% more expensive than Vietnam and 40-50% more costly than Singapore or Malaysia.
With the AEC, the flow of goods moving between China, Vietnam, Myanmar, Cambodia, Thailand, Malaysia and Singapore will rise significantly. Thailand should be prepared to invest more in its ports, railways and roads as well as overhaul its import and export business processes so that the overall costs can be made more competitive.
FCountry risk: Political stability is the key criterion for companies' long-term strategic investment. Thailand's political uncertainties in recent years have been a concern. Fortunately, despite political backlash, investors' confidence in the country's long-term growth remains intact as proven by a steady stream of FDI from 2010-11 _ estimated to be 180 billion baht, up by 17% from 2009.
Nonetheless, with the recent terrorist threats and city bombs, it is doubtful the confidence level will remain high. In addition, the flood crisis has been a rude shock for many companies with plants in Thailand and a huge public relations disaster overall.
Some manufacturers will not be rebuilding their destroyed plants, while some others have been told by their customers that they will not get any more business if they still have plants in Thailand. Adequate investment to prevent against natural disasters must be made. Additionally, a robust crisis management system is a must _ the country must be prepared and equipped to deal with such an event.
Thailand is facing significant challenges to its status as a manufacturing hub as well as its potential to be an outsourcing destination. We believe the challenges can be overcome. This will require a robust roadmap as well as decision-making action by all parties.
For business activities, Thailand's ranking in AT Kearney's 2011 Global Services Location Index dropped to seventh from fourth due mainly to increasing labour costs and uncompetitive human capital. Global manufacturers are telling us they are reducing or reconsidering their factory footprints in Thailand.
We believe Thailand still has a lot of untapped potential as both a manufacturing hub in the global footprint and an outsourcing destination for high-cost countries. With the advent in 2015 of the Asean Economic Community and Myanmar opening its doors, there will be many growth opportunities for Thailand _ if the country can step up its game.
Based on our global experience, there are four areas on which corporations base their global network design _ ease of doing business, human capital, infrastructure and country risk.
FEase of doing business: Our latest study on foreign direct investment (FDI) shows legal and regulatory factors are at the top of investors' minds, especially for labour and environmental regulations. Investors are looking for transparent and predictable legal and regulatory rules that are conducive for businesses. Industries in Thailand have always benefited from the regulatory predictability in its operating environment in contrast to some of its neighbours.
Additionally, the recent reduction of corporate income tax to 23% from 30% has helped to increase the country's attractiveness. An even more attractive corporate tax scheme and robust trade treaties will help to support Thailand as an exporting hub for the region. Finally, marketing efforts such as the recent government investor roadshow to Japan should be done more often to publicise Thailand's attractive investor policies.
FHuman capital: Corporations are looking for knowledgeable, productive and reliable workforces with reasonable cost. Thailand historically has been known for its affordable labour cost and highly trained workforce. However, according to pay and productivity rankings by the World Economic Forum in 2011, Thailand was ranked 29th globally _ lower than Singapore (1st), Vietnam (4th), Malaysia (6th) and Indonesia (20th).
Our own analyses show Thailand's labour rates for manufacturing are 20-45% higher than in Indonesia and Vietnam. With the increase in the daily minimum wage from 215 baht per day to 300 baht, Thailand's labour force competitiveness may drop further. There will be a strong need to invest in further vocational and English language skills training for the workforce to raise its productivity and justify Thailand's higher cost structure relative to its neighbours.
FInfrastructure: Adequate freight infrastructure and low logistics costs are the enablers of true growth potential. Thailand was once considered a major Asean logistics hub. As technology advances and other countries start investing more in their own infrastructure, Thailand is moving down the ranks. World Bank research done in 2011 showed that Thailand's cost of importing and exporting is increasing with an average cost per container of US$625 to export and $795 to import. That makes Thailand 20% more expensive than Vietnam and 40-50% more costly than Singapore or Malaysia.
With the AEC, the flow of goods moving between China, Vietnam, Myanmar, Cambodia, Thailand, Malaysia and Singapore will rise significantly. Thailand should be prepared to invest more in its ports, railways and roads as well as overhaul its import and export business processes so that the overall costs can be made more competitive.
FCountry risk: Political stability is the key criterion for companies' long-term strategic investment. Thailand's political uncertainties in recent years have been a concern. Fortunately, despite political backlash, investors' confidence in the country's long-term growth remains intact as proven by a steady stream of FDI from 2010-11 _ estimated to be 180 billion baht, up by 17% from 2009.
Nonetheless, with the recent terrorist threats and city bombs, it is doubtful the confidence level will remain high. In addition, the flood crisis has been a rude shock for many companies with plants in Thailand and a huge public relations disaster overall.
Some manufacturers will not be rebuilding their destroyed plants, while some others have been told by their customers that they will not get any more business if they still have plants in Thailand. Adequate investment to prevent against natural disasters must be made. Additionally, a robust crisis management system is a must _ the country must be prepared and equipped to deal with such an event.
Thailand is facing significant challenges to its status as a manufacturing hub as well as its potential to be an outsourcing destination. We believe the challenges can be overcome. This will require a robust roadmap as well as decision-making action by all parties.
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