Use the minimum wage rise to rethink strategy

The rise in the minimum wage should be perceived as a blessing in disguise if it can urge Thai workers to upgrade their production levels and industries to move away from cheap labour.

During a recent seminar, Japanese investors admitted that the Thai wage hike would certainly affect Japanese companies, which are the biggest investors in this country. If some factories cannot bear the sudden rise in wage costs, they may have to go to other countries with cheaper labour such as Cambodia, Laos or Myanmar.

The wage rise should help improve the living standard of blue-collar workers. But industries will almost certainly feel the pinch. The 40-per-cent jolt in labour costs will be too drastic for some businesses to cope with, especially small and medium-sized enterprises. The big corporations, which say they are ready for the steep wage increase, are already mostly running on machinery. Therefore, they will not have to pay too much extra as a result of the wage increase.

Industries predict that the number of migrant workers will increase because these workers do not have much bargaining power compared to Thai workers, who generally earn more than the minimum wage level. In short, low-skilled workers will face the greater possibility of unemployment if they are unable to upgrade their skills to make them more attractive to potential employers.

At the same time, industries will have to adjust if they are to survive too. The downside of the wage rise is that a number of small and medium-sized enterprises will find it too difficult to cope with the sudden rise in labour costs and they will go out of business quickly. The service sector is also likely to be affected. But those in the manufacturing sector should find ways to survive by upgrading production and product quality to a higher level where skilled labour is required and the minimum wage is not so much of a factor.

The wage rise should encourage a restructuring in industries by prompting manufacturers to adopt a new attitude to running their businesses. Otherwise, they may share the fate of the ailing Japanese electronics industry. 

The Japanese electronics industry has failed to compete with South Korea because it has generally maintained the same business structure. South Korean brands such as Samsung, meanwhile, have managed to snatch market share from Japanese brands by focusing on building an image of hi-tech, innovative products to compete with American brands such as Apple. The company has successfully built up its name even though it may not be technologically superior to Japanese brands.

Thai industries thus have to think outside the box and perceive the wage rise as a need for them to redefine their business strategy and reposition their products. 

Business winners these days are those who can keep up with the fast-changing needs of customers. The same old way of doing business becomes obsolete fast.

Unfortunately, Thai decision-makers, especially Deputy Prime Minister Kittiratt Na-Ranong, still think that the best way to boost exports is to weaken the level of the baht. But by focusing on the cheaper cost of production alone, Thai industries will not be able to sustain their competitiveness in the face of greater competition from rising neighbouring countries such as Vietnam and Cambodia.

Instead, the focus should be on how to add value to Thai products. The story of the late Red Bull founder Chaleo Yoovidhya should inspire aspiring entrepreneurs because he showed that the combination of the right formula and innovative marketing can make an ordinary Thai product become a phenomenal international success.

It is thus time for business leaders to rethink their strategies instead of hanging on desperately to the same model of business that depends on cheap labour. Now that the minimum wage increase has been applied, there is no choice but to accept it while at the same time embracing new ideas.