Experts Say Thailand Can No Longer Rely On Cheap Labour

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EXCLUSIVE INTERVIEW

Experts say Thailand can no longer rely on cheap labour

By Achara Deboonme

The Nation

Innovation and technology will drive growth

Much has to be done if Thailand wants to enhance competitiveness through research and development, leading public and private organisations say.

In an interview with The Nation last week, Somchai Jitsuchon, research director of the Thailand Development Research Institute, suggested the government adopt the Singaporean model, where related agencies are brought |under one roof to brainstorm |on development plans and execution.

For example, to achieve its |goal to become Asia's innova-|tion capital, Singapore has the Biomedical Sciences Executive Committee to take charge of in-novation in this field, with guidance from experts like the Agency for Science, Technology and Research. This strategy is coordinated and driven by the chief of the Health Ministry, who sits on the committee.

The National Medical Research Council is tasked with the administration and implementation of grant calls to help realise the goal of making Singapore a centre for translational and clinical research. Earlier this year, the committee announced the government's investment of 3.7 billion Singaporean dollars (Bt85.75 billion) in biomedical sciences research for 2011-2015. In Singapore, the National Research Foundation is directly under the PM's Office.

"First, the government must change its mindset. We need to drive development with technology. If we realise that we can no longer rely on cheap labour, funds must be allocated to promote innovation," he said.

In 2007, Thailand's national research and development spending accounted for 0.21 per cent of GDP, which is terribly low compared with 3 per cent in Korea and Japan, 2.6 per cent in Taiwan and 1.5 per cent in China. IMD's average, covering R&D spending in 57 countries, is 1 per cent.

According to the World Bank, |in 2002, Thailand was ranked |61st in R&D spending. This put it on par with many poor countries like Mongolia. China's spending was equally low in that year, but |its ratio has increased. This translates into a huge amount, since China has seen its economy expand aggressively over the years.

Companies with the Thailand Management Association recently urged the government to increase R&D spending to 1 per cent of GDP in three years and 2 per cent in six years.

As a start, the government must revise policies to promote R&D investment, he said. The Board of Investment could take a key role, but to make it effective, it needs a mechanism to assess if promoted companies carry out R&D activities as promised.

The government may need to take the lead in this investment, since it is normal for developing countries to entice private participation. Publicly funded basic research then could be gathered for public use. Then, companies in search of more value-added products could launch their own initiatives for in-depth research.

"A single agency is needed, probably with private participation. This will lead to inclusive growth, as labour should also enjoy training and higher pay. It's time to get on with this as even China is moving out of the labour-intensive field with higher R&D spending," he said.

Business circles have expressed concern that without R&D, Thailand would see its competitiveness steadily wane. They noted that the country's slowing growth rate in the past years is a result of low R&D spending.

Single body model

Kan Trakulhoon, president |and CEO of Siam Cement Group, supports the single body model, since many agencies under many ministries are involved in R&D, including the Finance Ministry, which should take the lead in streamlining related taxes. While Somchai said the ministry should offer a bigger corporate income |tax deduction, Kan said the problem lies more in the speed of tax rebates.

At present, companies can deduct up to twice their R&D spending from taxable income.

Kan urged more cooperation between the public and private |sectors. While the government can do more in infrastructure like |labs and personnel, companies could pay fees to use the services. He does not expect the government to combine all R&D budgets allocated to various agencies into a single sum, but expects the streamlining of their focus for effective results.

On this issue, Arkhom Termpittayapaisith, secretary-general of the National Economic and Social Development Board, said in an interview that it might be difficult to centralise all research units. He saw a higher probability in building up a network.

"If we have a clear policy on what path Thailand is moving on, budgets will be channelled in line with our strategy," he said.

In the 10th National Development Plan, research is geared to support five key directions - develop knowledge, strengthen the community, ensure economic restructuring, promote biodiversity development, and foster public sector good governance. The NESDB is on course to sound out public opinion on the 11th plan, which would be implemented from 2011-2015.

Somchai proposed a greater focus on biotechnology given the abundance of raw materials in Thailand.

Kan said R&D should be prioritised to promote industries that contribute huge growth to the economy. As Thailand is an automobile manufacturing hub, there should be incentives to promote R&D centres to strengthen the sector, for example. Aside from food, R&D should also be designed to benefit the electronics and petrochemical industries for higher value-added products.

"Importantly, in the first five years, the focus should be placed |on applied R&D, for fast economic impact and proof that R&D is beneficial. If it remains as before, when most research is put on the shelf, no one will see the benefits to the country. While 70-80 per cent of R&D should be focused on application-related ones, the rest can support long-term strategy," Kan said.

Government research personnel should be increased tenfold, while the patent approval process should be shortened with more staff and better IT infrastructure, Kan said, while acknowledging that this could consume billions of the baht in state funds each year.

Somchai said that with a single body to oversee R&D promotion, it should be easy to monitor commercialisation and intellectual property. The door could also open wider for foreign experts and foreign companies' labs, which would be better than have local talent drawn to overseas labs.

"Thailand is in the middle |country income trap - easy to go down, but difficult to climb up. |We can't break free from this because of low R&D investment |in the past. Eventually, higher income will encourage companies to invest more on R&D and their human capital. This could be a way to help ease social discrepancies," he said.

-- The Nation 2010-11-01

[chantorn]

So prices of personal services will also go up soon?

[givenall]

So prices of personal services will also go up soon?

Not if demond goes down

[Jingthing]

The trouble is that Thailand doesn't have enough high skilled labor to justify high labor costs for the majority. For cheap labor type tasks like factory work, the jobs will simply go elsewhere if the costs are no longer competitive.

[SantiSuk]

So prices of personal services will also go up soon?

Not if demond goes down

Not a chance in hel_l of that. Just look at Chinese demographics. Demand by 2015 will be astronomic.

[mommysboy]

The trouble is that Thailand doesn't have enough high skilled labor to justify high labor costs for the majority. For cheap labor type tasks like factory work, the jobs will simply go elsewhere if the costs are no longer competitive.

That's a polite way of putting it.

Some would say cheap labour is Thailand's only advantage.

If it can not really on this it has nothing!

[zaphodbeeblebrox]

You have printed a completely misleading headline about the reduction of the supply of cheap labor in Thailand. This article has nothing to do with the supply of cheap labor. The only mention of the cost of labor is contained in this quote:

"First, the government must change its mindset. We need to drive development with technology. If we realise that we can no longer rely on cheap labour, funds must be allocated to promote innovation," he said.

That sentence structure is called a conditional. It does not mean that there will be a reduction in the supply of cheap labor in Thailand. It is saying that if one were to occur, this one economist (not "experts" as fabricated in the headline) believes that more money should be allocated to R&D.

Bottom line is there are still millions of Thais willing to do skilled labor jobs for under US$700 per month, and unskilled Thais willing to work for as little as US$7 per day.