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Thailand Ranked Lower in Competitive Nations:
Decline Due to Political Uncertainty



Each year, one of the most notable research projects on world countries competitiveness is the annual Global Competitiveness Report by the World Economic Forum (WEF).  The report ranks Thailand as the 38th most competitive nation this year, a decline from 36th place a year ago due to recent political uncertainty in Thailand.  According to the report, "Thailand, at 38th position, has fallen 2 places this year and 10 ranks since 2006."

The “Global Competitiveness Report 2010-2011”, released by the World Economic Forum (WEF), has rankings that are based on the Global Competitiveness Index (GCI), developed for the World Economic Forum (WEF) by Professor Salai Martin, and introduced in 2004. The GCI is based on 12 pillars of competitiveness: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, market efficiency, labor market efficiency, financial development, technological readiness, market size, business sophistication, and innovation. The rankings are calculated from both publicly available data and the Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum together with its network of partner institutes (leading research institutes and business organizations) in the countries covered by the study. This year, over 13,500 business leaders were polled in 139 economies. The report also lists the main strengths and weaknesses of countries, making it possible to identify key priorities for policy reform.

Thailand's Results from the Global Competitiveness Report 2010
by the World Economic Forum (WEF)
(Source: The Global Competitiveness Report 2010)

Thailand's positive outcomes according to the report:

- Thailand continues to benefit from its relatively large domestic and export markets (ranked 23rd)
- Excellent transport infrastructure (23rd)
- The efficiency of its labor market (24th)
- A relatively well functioning goods market (41st)
- The country’s business environment is relatively sophisticated (30th); with developed clusters (34th) and companies operating across the value chain.

According to the Thailand Board of Investment (BOI)'s Investment Review publication on the results of this competitiveness report, Thailand ranks strongly in many categories.  It is listed 12th globally for strength of investor protection.  For value of exports of goods and services, Thailand is recognized as the 17th. Further, it comes in 20th for exports as a percentage of the gross domestic product (GDP). Thailand is positioned in the top one-third of countries for: quality of roads (36th place), intensity of competition among local industries (37), attracting and retaining talented people to avoid a brain drain (38), minimal business impact of rules on foreign direct investment (39), quality of electricity supply (42), university-industry collaboration in R&D (42) and quality of port infrastructure (43).  The review said Thailand was ranked 34th for both labor-employer relations and prevalence of well-developed business clusters.

Business sophistication: Local supplier quantity
Based on how numerous are local suppliers in the country (2009–10)


Business sophistication: Local supplier quality
Assessment of the quality of local suppliers in the country (2009–10)


Thailand's challenges according to the report:

- "The assessment of public institutions continues to deteriorate (70th) after a drop of 30 places over the past four years, likely related to recent problems of social unrest and political instability in the country".
- The country needs "..urgently to improve its institutional framework"
- "The country needs to step up its efforts to improve its health and educational systems"
- The country needs to "encourage wider adoption of new technologies for productivity enhancements. Such efforts will then buttress the country’s innovation potential, which will become increasingly important as it moves toward the most advanced stage of economic development."

According to the BOI's Investment Review publication on the results of this competitiveness report, lower ratings  for Thailand (actually mid level ratings according to the survey) are for: efficientcy of legal framework (48), judicial independence (54), capacity for innovation (56), fewest procedures required to start a business (57), female participation in the labor force (57), quality of management or business schools (58), quality of scientific research institutions (59), prevalence of foreign ownership of companies (60), production process sophistication (60), staff training (62), transparency of government policymaking (63), availability of the latest technologies (64) and quality of educational system (66).  Areas where the report indicated that Thailand should seek improvement include: policy stability, inflation, and its regulations on taxes, labor and foreign currency, reported the BOI's publication.

Apart from the rankings, respondents to the WEF survey were also asked to select the five most problematic for doing business in the country, on a list of 15 factors. Below are the results.

The most problematic factors for doing business in Thailand:
  • Government instability/coups 
  • Policy instability
  • Inefficient government bureaucracy
  • Corruption
  • Inadequately educated workforce
  • Access to financing
  • Inadequate supply of infrastructure
  • Tax rates
  • Poor work ethic in national labor force
  • Tax regulations
  • Restrictive labor regulations.
  • Foreign currency regulations
  • Inflation
  • Crime and theft
  • Poor public health
Favoritism in decisions of government officials
Based on "the extent to which government officials in the country show favoritism to well-connected firms and individuals when deciding upon policies and contracts (2009–10)" (note a lower rating indicates little to no favoritism, a higher score notes that favoritism is more pronounced):



Quality of the educational system
Based on how well the educational system in the country meets the needs of a competitive economy (2009-2010)

                  

Local availability of specialized research and training services
based on to what extent are high-quality, specialized training services available in the country (2009–10)



Time required to start a business
(2009–10)


Government and economists acknowledgement on the country's competitiveness

At the end of 2010, Prime Minister Abhisit Vejjajiva said that he would focus on strengthening the domestic economy, while an economist called for an overhaul of public investment management to reduce waste and improve competitiveness, reported the Nation Newspaper.

PM Abhisit said his government intended to improve social welfare, increase minimum wages and change environmental rules to ensure factories can expand in industrial estates. He also reiterated that he would dissolve Parliament before the administration’s term ends at the end of the next year. Further, the Prime Minister told reporters at a seminar on the Thai economy held by the Thammasat University Economics Association that the government supports a flexible foreign exchange regime which will help the private sector adjust to the strengthening baht and encourage firms to import machinery. He also commented on the attempts by the 10-nation ASEAN grouping to remove import taxes and trade barriers as part of a move to a single market by 2015 as creating an opportunity for market expansion, reported the Bangkok Post.

Economists suggested that the government should reform the tax system to ease fiscal constraints and narrow the wealth gap in order to survive amid heavier pressure in the sluggish world economy, reported the paper.  Sakon Varanyuwatana, an economics lecturer at Thammasat University, said the government should make an effort to collect more tax revenue based on the capacity of taxpayers.  The Finance Ministry earlier announced a tax reform plan for early 2011.

The Bangkok Post reported that Patamawadee Suzuki, the dean of Thammasat’s economics faculty, said the country’s public investment budget has decreased to 22% of the economy’s size from 38% before 1997. Asean countries’ average public investment is 28% of gross domestic product. Thailand's economy also suffers a shortage of unskilled labor, while the quality of skilled labor falls short of market demand, she said. Farmers are heavily burdened with debt, while new technological breakthroughs to increase yields are not likely to be forthcoming.


Our View:

Thailand's unrest will likely continue in 2011 but we also should note that to this point in time this unrest has not really affected industrial parks where most companies locate.  Infrastructure has continued to improve in Thailand and is some of the best in Southeast Asia.  Thailand is one of the only countries in Asia where foreign companies can actually own outright and not have to lease their factory sites.   Condominiums can also be owned by foreigners and many foreign business people now own their own housing in Thailand.  As noted above, Thailand also has well qualified companies that constitute a good supply chain.  Thai salaries are rising but not at the same rate as in the Eastern Seaboard area of China.  Many Chinese companies are choosing to move some of their operations to Thailand, finding the costs not excessive when compared to rapidly rising Chinese costs.  For the above reasons, we feel Thailand remains worth a look. 

In our view, the positive factors still outweigh the negative although we believe each project should be fully researched and vetted. Thailand is not competitive at this point in many labor intensive industries but remains a good site for projects that require a mature supply chain and have moderate to higher value added during manufacture. 
 


About the Author:  

Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)

Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations.




 
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