A new business order looms with Asean integration

Failure to seize the opportunity will wreck the competitiveness of our products. Slashed tariffs under the Asean Economic Community (AEC) will cost Thailand Bt7 billion to Bt8 billion a year in lost revenue, according to the Customs Department. But it is worth proceeding with regional integration because it should provide a great opportunity for Thailand and the region to prosper in a more sustainable manner via a larger economy of scale.

From 2015, Thai products will face direct competition from neighbouring countries. This should be a powerful catalyst for local producers to find a niche for their products. Otherwise, they will be likely to compete with similar goods up against cheaper products from our neighbours.

Unfortunately, a majority of the Thai workforce is low-skilled labour. And sectors that rely on a low-skilled intensive workforce will find it more difficult to continue unless they re-position their place in the market to highlight the quality that is exceptional from others. Some non-competitive sectors may have to go, especially ones that the government supports with resources to prolong its longevity. Those resources should be spent promoting areas with potential, such as software and design.

Thai industries don’t have to look far to learn lessons from the failure to change corporate culture to respond to the fast changing world. Japan’s electronic industries, once perceived as the world’s best, have in recently lost miserably to competitors such as Samsung from 

South Korea, which managed to transform its brand image into world-class status via an aggressive marketing strategy.

According to an article by Richard Katz in The Wall Street Journal, one of the factors that “killed” Japan’s electronic industries was bad product design. Japanese electronic industries follow a traditional production structure. But leading products these days must have state-of-the-art technology with a user-friendly design, such as Apple’s iPad. Japanese firms, according to Katz, were still competing against Apple, Intel and Microsoft.

Moreover, it won’t be useful to try to shelter sectors that are not competitive. Japan’s corporate culture makes it too rigid for companies to let go of some products that are no longer competitive, such as video cassette recorders. Thailand, it should be noted, has a tendency to imitate this mistake. Our governments tend to continue subsidising less competitive sectors even though they might better use resources promoting the potential of a sector or industries with a better future. This is a reason why Japanese electronic companies have not been able to produce any market leading electronic product for years. Nonetheless, Japanese companies can still be resilient, thanks to the Japanese’ hard-working spirit and quality education.

The development of Thai electronic industries has been largely attributed to the presence of Japanese investment in Thailand. Over recent decades, Thailand has managed to develop the industries by following the “flying geese” pattern, in which Japanese producers relocated production facilities for parts to different countries to benefit from the cheaper labour. Nonetheless, the new world business environment has shown that traditional way of doing business may not be enough for companies to maintain competitiveness, unless they are quick to adjust by cutting out the non-competitive parts.

The AEC is a blessing for Thailand; as an open regional market will force Thai producers to “think outside the box” to maintain their competitive edge. But the slump in Japan’s electronic industry should serve as a lesson here that the sun can also set if we fail to maintain a competitive edge.