Thailand Moving Up The Salary Ladder

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Thailand moving up the salary ladder

BANGKOK: -- Keeping up with the Joneses has taken on a new meaning in this era of globalisation. It is no longer about meeting the competition within the home market, but across countries. This turn of events is what Thailand has had to increasingly grapple with over the last five years _ its neighbours, especially China and India, have reared their heads in an ever-more competitive Asia-Pacific region, and each destination is wooing with a promise of inexpensive, skilled labour to service the world. Despite the increasing challenges in the region, Thailand has stood its ground as one of the lowest-cost countries. And notwithstanding the tsunami disaster last year, its economy continues to move forward. Accordingly, projections for 2006 estimate an appreciable rise in salaries in the 6% to 6.5% range. This increase is higher than the moderate increases its neighbour Malaysia has in store for itself (5.4% to 6%), and greater than what China's front-door, Hong Kong, expects (3% to 4%). It is also superior to the modest gains Singapore is allowing itself (3% to 4.5%) in the face of competition. Clearly, Thailand is set to move up faster than those more expensive than itself.

But it pales in contrast to low-cost destination India, which expects strong salary increments in the range of 13% to 15%. It is also a trifle lower than the 8%-to-8.5% increases that China expects.

The real issue, of course, is the absolute cost of Thailand talent relative to other markets. Seven years ago, a company could employ two accountants in India for the price of one in Singapore. According to Hewitt's Total Compensation Measurement 2004, high salary inflation in India has driven this ratio down to 1.2:1. Assuming that this trend continues, Thailand will be lower-cost than India within five years.

What is fuelling Thailand's competitors _ India and China _ is a massive surge in the demand for their workforces. The increase in compensation payouts reflects the meteoric rise in the number of multinationals setting up shop, and the consequent race to attract talent. Their rise as the outsourcing hubs for production and technology is reflected in the pace of their GDP growth as well _ which is among the highest in the world and not just within the Asia-Pacific region. In comparison, moving Thailand up the pay-scale are its well-performing industries, as well as some regulatory changes.

The government of Thailand looks set to revise public sector salaries, which will affect compensation structures, and also draw in talent from the private sector. It is also expected to increase the minimum wage level by more than 10%, though this should have a large impact on the manufacturing sector mainly, where cost-competitiveness is a key concern.

Adding to the influence of these government measures on salary levels is the robust performance of certain sectors including financial services, health care and oil and gas.

In addition, prospects for the Thai economy remain strong for the current period as well as upcoming years. Leading financial institutions project growth between 5.5% and 6.5%, a pace that can be sustained going forward on the back of infrastructure investments worth 1.7 trillion baht outlined by the government. The current political stability also adds to the country's promise.

That said, the political and economic climate of the country has had its fair share of stress. On the domestic front, the challenges swept in by the tsunami last year were immense and are still ongoing. Rehabilitation of livelihoods, environment, and the tourism industry is still underway, as can be expected from a catastrophe of its magnitude. More recently, terrorist threats in the southern region may cast their shadow on growth.

Global events also carry some potential hazards. Uncertainties thrown in by fluctuating oil prices are something to watch out for.

Overall, the signs continue to point toward an uptrend in salary increases, though the competitive environment and the unpredictable economic climate makes any projection a tough call. But for now, employees have reason to enjoy.

--Julia Smith 2005-09-26

Julia Smith is the leader for the Compensation and Benefits Consulting Practice for Hewitt South East Asia. She can be reached at [email protected]