Time to reassess priorities for Thai industry?

The flood crisis may give us an opportunity to reflect on the direction that Thailand should move forward on, as business people have suggested that two issues that will affect Thai industry in the future are the government’s wage policies and its policies to cope with flooding in the future.

With a series of reports on the possible relocation of many industries, Thai industry chiefs may have to consider which sectors best suit the nation. In short, Thailand should start to identify what industries or business sectors manage well in our geography, which is closely linked to water and agriculture – or turn these characteristics into the business advantage. 

Otherwise, infrastructure that will make the country more immune to natural disasters in the long term should be promoted.  For instance, business related to geology research and development or agricultural science should be promoted to suit the tropical climate of Thailand.

It has been reported that many industries are considering relocating from Thailand.  Gritsada Suptuaychone, secretary of the Electrical, Electronics and Allied Industries club under the Federation of Thai Industries, said it was possible for some factories, particularly those that are labour-intensive and can relocate their operations easily, to move out of Thailand. The two main factors that would lead them to relocate are high wages and uncertainty over government measures to prevent future floods.

Maxon Systems (Thailand), a South Korean electronic-components manufacturer, is an example of a firm that has already moved its operations to Cambodia, where it can pay a daily wage of about Bt80. Maxon Systems had about 2,000 workers at its plant in Rojana Industrial Park.

We cannot blame these factory operators because businessmen will often go where profits are highest. In fact, their decision to relocate from Thailand because of the government’s proposed wage hike tells us that Thailand needs to urgently improve its labour quality to move away from labour intensive industry. Our labour should not desperately rely on the government or the industry to decide on the minimum wage. But they should be equipped with the capacity to boost their bargaining power and enable them to demand higher wages without having to depend on the minimum wage policy.

Otherwise, labour will continue to rely on populist wage policies, which can be unpredictable and unsustainable.

The flood has also shown that some industries may find it riskier than before to continue doing business in Thailand because of the threat of such natural disasters. 

France’s state-owned Caisse Centrale de Reassurance SA (CCR) has instructed its partners in Australia, New Zealand and Thailand to stop taking new business next year to scale back its exposure to natural disasters. CCR, one of the world’s top 25 reinsurance companies, said in a letter that the decision to stop taking new business in Australia, New Zealand and Thailand was due to the “high frequency of severe natural catastrophe losses that occurred in Asia over the past 12 months”.

Recent warning signs from industries have suggested that the old pattern of industrialisation in Thailand may no longer work. 

Thailand should try to identify the industries or businesses that will flourish in our tropical geography and it may need to be environmentally friendly fields. A diversification of industrial sectors and locations should also be considered. Although the number of casualties from the current flood is comparable to our neighbours, Thailand suffered the worst in terms of GDP loss because the water swamped industrial areas and several industrial parks. The economy is expected to take a major hit, with the growth forecast for 2011 recently revised down to 1.5 per cent, from 3.5-4.0 per cent.

However, what we have heard so far from the government is it will try to attract investment by offering a promotional campaign such as industrial privileges, which would not make Thailand much more competitive than others. Other countries can offer similar privileges with even lower labour costs.

Of course, this offer may be necessary to remedy the economic sector in the short term.  But let’s hope that in the longer term, the government and decision makers will take time to reflect in order to lay down a strategy for Thailand in the longer term to unshackle the country from the minimum wage issue and threat of natural disasters – notably floods – that can happen any time.