Monday, August 6, 2007

Thailand, a Rocky Road Ahead?


Forgetting all of the political instability for the moment, soon an elected government will be in power and all of the turmoil would have been forgotten, well, that is until Khun Thaksin returns home.


Like in many countries (under developed, developing and developed countries all alike), economic growth is one of the most important foundation/policy for the government. This short piece is purely to share my views on Thailand’s future as I see it.


Recently I had visited two of the fastest growing countries in Asia; Vietnam and China (Shanghai), and it had brought home a real fright. There have been so very many articles on both of these countries, most of them exploring their current growth and their future potential.


In the past Thailand has been known for low labour costs, and in the past this has really been our main competitive edge (another important industry is the tourist industry and agricultural goods, not really relevant for this discussion). That is why many of the global brands have set up their factory over here (E.g. Nike).


Minimum wage / Exchange Rate


Thailand’s minimum wage is 5,730 Bahts/month (191 Bahts/day).


Vietnam’s minimum wage varies, for foreign investment joint ventures 870 – 710 thousand Dong (450,000 VND for the state sector; adjusted for inflation and other economic changes) (


China’s minimum wage is between 20.70 Yuan – 25.80 Yuan per day (


The figures were left as local currency, this is important because another important factor is the exchange rate. For example during Thailand economic crises back in July 1997, the exchange rate went from 25 Bahts/US$ to over 50 Bahts/US$, in effect, for a while everything in Thailand was on sales at 50%.


Applying the current exchange rate;


Thailand’s minimum wage is US$ 168.53 per month


Vietnam’s is US$ 54.05 - 44.11 per month


China’s is US$ 82 – 102 per month


(, these are approximated values, the key is not the figure itself but its comparative value (of course I could have used International Dollars).


The above US$ rate is further exaggerated through the under value Chinese Yuan and the stronger Thai Bahts. (


Of course, minimum wage and exchange rate isn’t the only factor one studies for overseas investment, country’s physical infrastructures (roads, ports, logistic and etc.), financial infrastructures, cost of set up (mostly for property & construction), political stability and regime, fiscal conservatism, open foreign investment policies, trade zone, quality of personals, source of raw materials and so on are also very important).


However, from an operational point of view, surely ‘salary’ must be up there on the top of the list.


Factories Closures Blamed on Strong Bahts


The current major news in Thailand is the closure of several factories (mostly Textile & Garment factories (, the accepted reasoning for the shift of production away from Thailand is the stronger Thai Bahts (Jan 06 = 41 Bahts/US$, Aug 07 = 33 Bahts/US$).


I have a question, even if the Thai Baht becomes weak again (perhaps to the 41 Bahts/US$ level), will the company chooses to come back to Thailand? Even if we returned to the Jan 06 exchange rate, our labour cost is still higher than both China and Vietnam.


There is of course a moral question on the minimum wage, people need to earn enough to live comfortably in their respective environment. This isn’t a discussion on the right or wrong of minimum wage, personally, I do agree with the minimum wage. But there is no doubt that Thailand needs to change to gain back the competitive edge, now that Thailand does not have the advantage of low labour cost factor anymore.


In terms of GDP, ranking from highest; Manufacturing (2006, 1.6 million million Bahts), Wholesales and Retail Trade (2006, 0.5 million million Baths), Transport Storage and Communications (2006, 0.45 million million Bahts), and Agricultural goods (2006, 0.359 million million Bahts), also to take into consideration, Thailand growth does come from its ability to export (60% of GDP).



It is widely accepted, Thailand’s manufacturing ability is the real growth engine for the country for the past few years, so with China and Vietnam in the picture it looks like Thailand engine has been cut down from a roaring 4.5 Litres inline 6 cylinders to a perhaps 2 stroke 250 cc. The worst thing is, there is no real substitution.


Possible Solutions?


Some of the experts are saying Thailand need to reposition the labour market, from being a labour intensive provider, Thailand should become a ‘skilled labour’ provider, the ‘skilled’ would become the added value for the labour force (can this also mean the ‘Service’ industry?).


To my understanding, skilled or non skilled, surely will depend on the training that the workforce have been given, or are the experts talking about the ‘ability to learn’? If that is the case then we shall need to go back to the ‘education’ factor.


Whether accepted or not, ‘education’ is a good indicator to judge a labour force, so I can only assume the experts are saying Thailand should increase the number of secondary graduates. Again, I am assuming the people with university/polytechnic education would strife for a better job than working on manufacturing segment.


Of course, there are many more tricks of the trade to entice overseas investment, whether it is, BOI special investment zone, special taxation law, market penetrations to the surrounding countries (in this case the AFTA).


One Last Question


If you are interested, can you please share your insights, may be your country have gone through the same issues in the past. Somehow I feel the road is definitely very rocky ahead…