How to reap the benefits of AEC domestically
LAST MONTH, I wrote about some facts. No matter how hard the government tries to push Thai businesses out to Asean economies, most of them will remain entirely domestic. The question that comes next is whether these smaller entrepreneurs will benefit from
Why should we do this? Two objectives come to mind. One is to build a stronger economic fortress against ensuing competition from Asean multinational companies. But the other, and more important objective in my opinion, is to build stronger businesses and a stronger economy, provide better job opportunities and holistically upgrade the economy altogether. The advent of the AEC provides a perfect catalyst that nudges us forward. To achieve these, I term our strategy fancily the “Four-pillar strategy”.
First, it is widely claimed that Thailand lacks innovators and so innovation. This will need to change. A few statistics put things in perspective.
Among the leading East Asian economies, we put a meagre 0.2 per cent of our gross domestic product towards research and development (R&D), while Singapore and China spend around 2 per cent.
Technological giants like South Korea and Japan are on the verge of spending almost 4 per cent of GDP on R&D. Another fact to support this is that of all the patents filed at the local patent office, only 10-15 per cent belong to residents of Thailand, while the rest is by multinationals in the automobile and electronics industries. That figure falls far short of South Korea and Japan again, which have local residents filing up to 80 per cent of all patents.
So innovate we must. That’s our first pillar. But how? To spare some space, I will divide innovation into three broad categories – hard, process and soft. Hard innovation refers to scientific discovery and the use of scientific know-how to improve upon products and services. While this is typically our understanding of what innovation means, it is the most difficult and often requires a bigger wallet and more time to carry out.
This brings me to the second group, process innovation. If your process can be innovatively more efficient than competitors, whether it’s production, sales channels, finance or service, then you are in for quite a competitive advantage. Lower cost, lower price and more of an edge.
The third group, while the name is a bit demeaning than the others, is by no means “soft”. This is branding and engagement. A brand means more than just logo, packaging and catch phrases. It should cover the whole experience customers will get. In other words, your brand is your promise and commitment to customers.
Our second pillar talks about efficiency. Thai businesses really need to improve efficiency. We have been in a forgiving economic environment for a long time since the 1997 Asian crisis. Labour remained cheap and abundant. The baht was weak, so whatever we produced at a domestic cost could be sold in the international market at a cheap and competitive price. These two characteristics are no longer with us today. So we must improve our long-overdue efficiency. And to do that, process innovation can help.
The third pillar focuses on upgrading our economy to the “green zone”, that is, the eco-economy. Why go eco-friendly? Because it is the trend of the world, and not just among consumers, but also in economic and regulatory regards. By moving our agricultural and manufactured products as well as services towards the green zones and higher quality, we can safeguard domestic production from external cheap entries with higher regulatory requirements of imports and production. We can also gain more access to the higher value markets, which now have more of a tendency to grow more and more into an environmental protectionist strategy in trade.
At this point, you may wonder what does this all have to do with Asean. In fact, a lot. The Asean Economic Community provides a perfect opportunity for us to achieve many of these tasks via regional sourcing, hence the fourth pillar, connectivity.
But to reach the pinnacle of this strategy with the four pillars, “connectivity” needs to be defined broader than just transportation and logistics. But it will also need to be more focused on the objectives of why be connected at all in the first place.
A task to which I will devote next month’s column to achieving. So please stay tuned.
Views expressed in this article are those of the authors and not of TMB Bank or its executives.
Benjarong Suwankiri is the head of TMB Analytics, the economic analysis unit of TMB Bank. He can be reached at [email protected].
