1 Thailand: Investment Climate, Firm Competitiveness, and Growth World Bank’s Presentation of Preliminary…

1

Thailand: Investment Climate, Firm Competitiveness, and

GrowthWorld Bank’s Presentation of Preliminary

Findings Workshop

Intercontinental Hotel, Bangkok, June 10, 2005

2

The Report Team• Albert Zeufack, EASPR (Task Team Leader), Barry Bosworth

(The Brookings Institutions, Consultant), Amadou Dem (EASPR), Ana Margarida Fernandes (DECRG), Tenzin Norbhu (CITPO), Magdi Amin (EASFP), Kaspar Richter (EASPR), Charles Udomsaph (EASPR), Khuankaew Varakornkarn (EASHD), Paul Welsh (Consultant for the NEED project). The report team receives overall guidance from Kazi Matin, Lead Economist for Thailand.

• Peer Reviewers are: Aart Kraay (DECRG), William Maloney (LACVP), and Shahid Yusuf (DECRG).

• The report is based on data from the Productivity and Investment Climate Survey (PICS), a large survey of 1500 establishments in Manufacturing and 100 in ICT, and around 14,000 workers, conducted under the supervision of the Foundation for Thailand Productivity Institute (FTPI) with the help of the World Bank. Additional sources of information were used to complement the PICS.

3

Objectives of the Study• The productivity and Investment Climate Study (PICS) is a

mechanism for:– Assisting business-government dialogue by providing hard data as

basis for discussions; – Receiving feedback from firms on obstacles they face in doing

business; – Measuring the impact of reforms, and refocusing the agenda on most

relevant and pressing concerns. • The PICS supplies the government with:

– A tool to monitor industry performance, facts and figures instead of complaints,

– Benchmark indicators for comparisons with competitor countries, – Feedback on existing industry support schemes, providing clear

priorities for action. • The PICS supplies firms with a checklist of competitive

practices.

4

Structure of the Report

• Chapter 1: Growth, Productivity and Investment Climate

• Chapter 2: Regional Investment Climate and Firm Performance

• Chapter 3: Supplying Skills for Competitiveness• Chapter 4: Strenghtening Firms’ Technological

Capabilities• Chapter 5: Improving ICT Use and Performance

5

Structure of the Presentation

• I. Growth and the Investment Climate• II. How is Thailand’s Investment

Climate?• III. Do Investment Climate Constraints

Affect Thailand’s Competitiveness?• IV. Some Policy Implications

6

Key Messages• The Thai Investment Climate is good by international standards. It’s definitely

better than most neighboring countries (except Malaysia) and better than India and Brazil.

• However, Thai firms have identified Regulatory burden, Skills Shortages and Infrastructure as the three most binding constraints to their activity.

• These constraints appear to have a significant negative impact on Thailand Competitiveness.– Most Productive Firms (Large, Exporting, Foreign Invested, High-Tech) are the most

affected by regulatory burden, the most important investment climate constraint.– Regions witnessing the most important rate of firms creation (Eastern Seaboard and

Center) have a poorer investment climate than Bangkok. A better investment climate in these regions would boost Thailand competitiveness.

– Skills shortages are costing in average 15% of sales to Thai firms. There is a high premium to tertiary education graduates and less so for Secondary education graduates. Firms seems to be coping for poor quality secondary education by providing significant levels of training to workers. English and ICT skills lack the most.

– Technological capabilities of firms in Thailand are relatively weak, except [fortunately] for the three industries that have been contributing the highest percentage of exports since the crisis (Auto-Parts, Electronics, and Machinery and Equipment).

– ICT use and performance remains weak, constrained by ICT skills shortages.

7

I. Growth and the Investment Climate

8

• Growth in factors (capital and labor) was the main source of Thailand’s economic growth in past decades. TFP’s contribution was negligible.

• But, sustaining growth in the future may require shifting to a productivity-driven growth strategy.

• Improving the business climate is key to reducing risks and costs, and to increasing productivity, hence the competitiveness of the Thai economy.

A Low contribution of TFP to Thailand Long-Run Growth

9

Sources of Output Growth, Total Economy

1

2

3

4

5

1977 1982 1987 1992 1997 2002Year

Inde

x

Total

Employment

Capital

TFP

Labor Quality

10

Sources of Output Growth, Manufacturing

1

2

3

4

5

6

7

8

1977 1982 1987 1992 1997 2002Year

Inde

x

Total

Employment

Capital

TFP

Labor quality

11

The need to shift to a productivity-driven growth

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Private Equipment Investment/GDP Private Gross Fixed Capital Formation/GDP

Figure 1: Private Equipment and Total Investment to GDP Ratio in Thailand 1980-2003.

01234567

FDI/GDP in Thailand

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Thailand's Share in FDI into East Asia and Pacific

Panel A Panel B Figure 2: Panel A. FDI to GDP Ratio in Thailand 1980-2003.

Panel B. Thailand’s Share in Total FDI into East Asia and Pacific 1980-2003.

12

II. How is Thailand Investment Climate?

GOOD!In Average, Better Than in Most Neighboring

Countries in East Asia, Except Malaysia;Better than in India, and Brazil.

13

Major Business Climate Concerns for Thai Firms

(Results from Open-Ended Question)

0 10 20 30 40 50 60 70

Dissatisfaction withEconomic Situation

Infrastructure andSupport Services

Skilled Labor Shortage

Regulatory Burden

Percent of Firms Identifying Issues as One of Three Top Obstacles

14

A. Bureaucratic Burden 1. Time (number of days) to clear customs for imports

0 5 10 15

Estonia

Malaysia

Slovenia

Turkey

Thailand

Indonesia

Russia

India

China

Philippines

Brazil

Source: World Bank PICS surveys.

15

Bureaucratic Burden 2. Labor regulations in Thailand are more restrictive than in key comparator countries such as

China, Malaysia

Brazil

Chile

India

Indonesia

KoreaMalaysia

Philippines

SingaporeU.S.

ChinaThailand

0

20

40

60

80

100

120

140

160

180

200

220

0 10 20 30 40 50 60 70 80 90 100

Index of Overall Restrictiveness of Labor Market Regulations

Day

s to

Sta

rt a

Bus

ines

s

25th Percentile Start Business = 26 Days

25th Percentile Index of Labor Market

Regulations = 26.2

Source: World Bank Doing Business Indicators 2004.

16

Bureaucratic Burden The issue is less with the time it takes to obtain

authorizations, but more with the unpredictability…(coefficient of variation)

Number of Days to Obtain Different Licenses/Permits/Approvals/ Certificates

Avg. St. Dev. Coeff. Variat. Median N. Obs.Ministry of Commerce 10 20 1.9 2 964Department of Industrial Works 17 22 1.3 7 926Immigration Department 10 14 1.4 3 80Land Office 13 22 1.7 3 131Local Government 10 15 1.6 2 419Approval for Construction 36 40 1.1 30 242Import Permit 13 18 1.4 7 164Operating License 39 58 1.5 30 188

Number of Days to Process Application for Different Export Incentives

Avg. St. Dev. Coeff. Variat. Median N. Obs.E-commerce Export Promotion 33 145 4.4 7 56Promotion of Thailand Brands 41 61 1.5 30 62Exports Promotion to new market (2003-2005) 18 19 1.0 10 39Distribution Networking 32 48 1.5 23 12Arrange sale promotion with Department store 17 13 0.7 7 11Export one stop service 15 13 0.9 11 14Prime Minister’s Export Award 2003 (PM Award) 21 20 1.0 14 13Deduction on Cost of Developing Websites 28 16 0.6 30 10Tax Incentives for Offshore Trading Via Websites 30 31 1.0 23 8

17

Time (number of days) to clear customs for exports

0 2 4 6 8 10

Thailand

Estonia

Turkey

Slovenia

Malaysia

Indonesia

India

China

Philippines

Brazil

Russia


Thailand performs well on some aspects of regulation

18

B. Thai Firms Identify Skills Shortages as a Severe Constraint to their operations…

… Irrespective of Firm SizePercent of Firms Identifying Skills and Education of Available

Workers as a "Severe" or "Very Severe" Obstacle

0.0

10.0

20.0

30.0

40.0

50.0

Small Medium Large

19

Percent of Firms Identifying Skills and Education of Available Workers as a "Severe" or "Very Severe" Obstacle

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Food

Pro

cessi

ng

Textil

es

Garm

ents

Auto-

parts

Electr

on./A

pplia

nces

Rubbe

r/Plas

tics

Woo

d/Fu

rnitu

reM

achi

n./Equ

ipm

.

Skills Shortages as a Severe Constraint…… More So in Garments

20

Skills Shortages as a Severe Constraint in all Regions…… More So in the East Region and in Bangkok

Percent of Firms Identifying Skills and Education of Available Workers as a "Severe" or "Very Severe" Obstacle

0.0

10.0

20.0

30.0

40.0

50.0

NorthRegion

CentralRegion

BangkhokRegion

East Region

NortheastRegion

SouthRegion

21

C. Infrastructure: A Severe Business Climate Constraint for Thai Firms


Frequency of Power Outages (Number of Times Last Year)

0 5 10 15 20

Slovenia

Turkey

Estonia

Indonesia

Brazil

China

Russia

Philippines

Malaysia

Thailand

Note: India with 210 days is not shown due to space constraints.

Number of Days to Obtain an Electricity Connection

0 20 40 60 80

Turkey

Estonia

Slovenia

Russia

Philippines

Malaysia

Indonesia

China

Brazil

Thailand

India

22

Number of Days to Obtain a Water Connection

0 5 10 15 20 25

Malaysia

Indonesia

Brazil

Thailand

23

Frequency of Insufficient Water Supply Last Year

0 2 4 6 8 10 12

Brazil

Indonesia

Thailand

Malaysia

Philipines

24

Percentage of Water Coming from Own Sources

0 10 20 30 40 50 60 70

Malaysia

Brazil

Philipines

Thailand

Indonesia

25

Frequency of Phone Interruptions Last Year

0 1 2 3 4 5 6 7

Indonesia

Philipines

Brazil

Malaysia

Thailand

26

Frequency of Transport Disruptions Last Year

0 0.5 1 1.5 2 2.5 3

Brazil

Philipines

Thailand

Indonesia

Malaysia

27

However, Power Outages have lower incidence than in benchmark countries

Percent of Production Lost Due to Power Outages

0 2 4 6 8 10

Malaysia

Thailand

China

Brazil

Indonesia

Philippines

India

Shipment Losses due to Breakage/Theft/Spoilage (% of Sales)

0 0.5 1 1.5 2 2.5

Malaysia

Thailand

Brazil

China

Indonesia

28

III. Do Investment Climate Constraints Affect Thailand

Competitiveness?

Yes, Significantly!

Through 4 channels:1. Disproportionate impact of investment climate

constraints on more productive firms2. Poorer Investment Climate in expanding Regions 3. Skills Shortages4. Low Technological Capability of Firms and low

ICT usage

29

Determinants of Firm Performance Main Messages

• Larger firms are significantly more productive than small firms

• Exporters & foreign-owned firms are significantly more productive

• Firms using more computer-controlled machinery are more productive

• Firm performance (labor productivity and TFP) is lower in Northeast and South regions than in Bangkok

30

Performance and Firm Characteristics

Notes: OLS estimation. *** and ** represent significance at 1 and 5 percent confidence levels. The regressions include industry fixed effects and region fixed effects.

Regressors Total Factor Productivity

Sales Growth

Labor Productivity

Firm Age 0.003** -0.003*** 0.010***(0.002) (0.001) (0.003)

Current Employment 0.087*** -0.015 -0.019(0.015) (0.009) (0.025)

Exporter Dummy (more than 10%) 0.084*** -0.013 0.273***(0.028) (0.022) (0.060)

Foreign Ownership Dummy 0.133*** -0.029 0.438***(0.032) (0.026) (0.064)

Capital Vintage (% Mach.Under 5 Years) 0.037 0.081** 0.115(0.047) (0.038) (0.094)

% Computer-Controlled Machinery 0.144*** -0.027 0.285***(0.048) (0.035) (0.097)

R&D Spending Dummy 0.010 0.008 0.049(0.031) (0.022) (0.057)

N. Observations 1033 1033 1033

31

International comparisonsLabor Productivity - Food Processing

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Labor Productivity - Textiles

0

2000

4000

6000

8000

10000

12000

14000

16000

32

International comparisonsLabor Productivity - Garments

0

2000

4000

6000

8000

10000Labor Productivity - Electronics/Electrical Appliances

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

22000

24000

33

0

10

20

30

40

50

60

70

Small Medium Large

Perc

ent F

irm

s Ide

ntify

ing

Issu

es a

s Maj

or T

hree

Con

cern

s

Skilled Labor Shortage Dissatisfaction Economic SituationRegulatory burden Infrastructure and support services

1. Disproportionate impact of investment climate constraints on more productive firmsMedium and large firms are more likely to consider regulatory burden a

severe constraint to operations

Percent of Firms Identifying Issues as one of Top 3 Constraints

34

0

10

20

30

40

50

60

70

Noncomputerized Machinery Computerized Machinery

Perc

ent F

irm

s Ide

ntify

ing

Issu

es a

s Maj

or T

hree

Con

cern

s

Skilled Labor Shortage Dissatisfaction Economic SituationRegulatory burden Infrastructure and support services

Firms using more computer-controlled machinery are more likely to consider regulatory burden a major

obstacle to doing business

Percent of Firms Identifying Issues as one of Top 3 Constraints

35

2. Poorer Investment Climate in expanding Regions Regional Breakdown of Manufacturing GDP

• The role of Bangkok and Vicinity as Thailand’s factory hub has declinedover the last 25 years

• East and Central have expanded• Little change in North, Northeast, and South

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Bangkok Vicinity Central East West North Northeast South

36

Spatial distribution of manufacturing employment, 1997 - 2002

• Size of circles presents number of workers in manufacturing sector• Increasing clustering of manufacturing employment in BKK, VIC, EAST, CENTRAL

37

• Bangkok Companies report less problems with:– Telecommunications, electricity, infrastructure, and business support

supply– Credit access and insurance

• Bangkok Companies report more problems with:– Corruption– Skilled labour shortages– Competition from imports– Utility prices

• In addition, “low-tech” Bangkok Companies report more problems with: – Marco-stability– Anti-competitive practices– Regulations for start-up.

Location Choice Bangkok/Vicinity versus Rest of the County

Investment Climate

38

Total Factor Productivity – Regional Comparison II

Fra

ctio

n

H ig h -T e c h T F P D is tr ib u tio n s A c tu r a l T F P

N o rth

0

.1

.2

.3

C e n tra l -2 p ro v B a n g ko k+ 2 c e n t ra l p ro v .

E a s t

.2 .4 .5 .6 .7 .8 .9 11 .11 .21 .31 .41 .51 .60

.1

.2

.3

N o rth e a s t

.2 .4 .5 .6 .7 .8 .9 11 .11 .21 .31 .41 .51 .6

S o u th

.2 .4 .5 .6 .7 .8 .9 11 .11 .21 .31 .41 .51 .6

• For Automotive, Electronic Appliances, Rubber and Plastics and Machinery and Equipment: Bangkok and Vicinity have higher productivity than other regions

• Plus: These industries have higher productivity than the low-tech industries

39

Simulated TFP Outside of Bangkok/Vicinity Using

Returns of Bangkok and Vicinity

• If companies outside of Bangkok/Vicinity had the same returns on company and product characteristics as in BKK/VIC, their productivity would be higher than in BKK/VIC in high-tech industries

Fra

cti

on

H ig h - T e c h S im u la te d T F P u s in g B a n g k o k r e tu r n sS im u la t e d T F P

N o r th

0.1.2.3

C e n tra l -2 p ro v B a n g ko k+ 2 c e n t ra l p ro v .

E a s t

. 2 .4 .5 .6 .7 .8 .9 1 1 .11 .21 .31 .41 .51 .60

.1

.2

.3

N o r th e a s t

.2 .4 .5 .6 .7 .8 .9 11 .11 .21 .31 .41 . 51 .6

S o u th

.2 .4 .5 .6 .7 .8 .9 11 .11 . 21 . 31 . 41 .51 .6

40

3. Skills Shortages Impose a Significant Cost to Thailand Competitiveness

Estimates of Benefits from Relaxing Skills ShortagesIndustry

Benefit from reducing skill shortages as % sales

Food Processing 8.2Textiles 14.1Clothing 10.7Auto-parts 4.6Electronics and Electrical Appliances 3.6Rubber and Plastics 27.7Wood Products and Furniture 44.8Machinery and Equipment 7.8

• If firms increased their skill intensity to optimal skill mix in industry benefits would be large, on average 15% of sales • Larger benefits from relaxing skills shortages occur in industries where vacancies for professionals take longer to fill (i.e., where skill shortages are more binding)

41

Food ProcessingTextiles

Clothing

Auto-parts

Electronics/Elec. Appliances

Rubber/Plastics

Wood Products/Furnit.

Machinery/Equipment

4

5

5

6

6

7

7

8

8

9

0 5 10 15 20 25 30 35 40 45 50

% Sales Gain from Reduction in Skill Shortages

Num

ber

of D

ays T

aken

to F

ill L

ates

t V

acan

cy fo

r a

Prof

essio

nal

`

• Benefits from relaxing skills shortages are larger in industries where time needed to fill vacancy for professional is longer

42

Shortages Translate into very High Returns to Shortages Translate into very High Returns to Schooling, especially to Tertiary EducationSchooling, especially to Tertiary Education

(Relative to comparison group with 9 or less completed years of formal education.)

0

20

40

60

80

100

120

10 11 12 13 14 15 16 over 16Completed Years of Formal Education

Perc

enta

ge In

crea

se in

Hou

rly

Wag

es

ThailandMalaysia

43

…And the gap between wage premiums for Tertiary and secondary Education Graduates has been high for the

past 15 Years

Real Monthly Wages by Education of Monthly Wage Earners 1991 – 2004 (LFS)

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

F91 A91 F92 A92 F93 A93 F94 A94 F95 A95 F96 A96 F97 A97 F98 A98 F99 A99 F00 A00 F01 A01 F02 A02 F03 A03 F04 A04

None Less than Primary Primary Lower Secondary

Upper Secondary Vocational University Overall

44

An issue with quality…Thai Secondary Education Students score lower than

average in International Tests TIMSS Score

1995 1999

Country Math Science Math Science Hong Kong 568.89 509.73 582.06 529.55 Indonesia 403.07 435.47

Japan 581.07 554.47 578.6 549.65

South Korea 580.72 545.78 587.15 548.64

Malaysia 519.26 492.43 Philippines 344.91 345.23 Singapore 608.59 580.35 604.39 567.89

Taiwan 585.12 569.08 Thailand 516.22 510.04 467.38 482.31

Source: Trend in Mathematic and Science Study (TIMSS)

PISA Score 2003 math science reading

Japan 553 548 598

Korea 552 538 534

Hong Kong 558 539 510

Indonesia 361 395 382

Macao-China 528 525 498

Thailand 424 429 420

OECD Average 496 500 494 Source: Program for International Student Assessment (PISA), Organization of Economic Cooperation and

Development (OECD)

45

English Language and ICT Skills are the skills the English Language and ICT Skills are the skills the worker lack the most in Thailand, with significant worker lack the most in Thailand, with significant

impact on wages impact on wages Thailand Malaysia Thailand Malaysia

Management 0.765** 0.555** Off-the-job training/certification (0.010) 0.044**

(0.018) (0.022) (0.021) (0.014)Professionals 0.412** 0.450** Basic (Computer Skills) 0.094** 0.102**

(0.015) (0.026) (0.011) (0.015)Skilled production workers 0.194** 0.224** Moderate (Computer Skills) 0.173** 0.203**

(0.009) (0.015) (0.013) (0.018)Nonproduction workers 0.178** 0.226** Complex (Computer Skills) 0.256** 0.166**

(0.011) (0.018) (0.023) (0.030)Production technologies 0.024 0.040* Lack English proficiency in doing job -0.026** -0.003

(0.015) (0.018) (0.008) (0.012)Marketing 0.120** (0.028) Studied abroad 0.321** 0.080**

(0.030) (0.040) (0.037) (0.025)Information technology 0.000 0.059* People skills 0.070** 0.056**

(0.023) (0.026) (0.009) (0.013)Management/quality technologies 0.045** 0.076** Distance from job 0.287** 0.193**

(0.014) (0.018) (0.028) (0.045)Intellectual property (0.010) 0.032 Unmarried female -0.093** -0.138**

(0.040) (0.086) (0.011) (0.017)Safety procedures -0.046** 0.010 Married male 0.061** 0.138**

(0.014) (0.021) (0.011) (0.016)Language skills 0.062 (0.023) Married female -0.102** -0.130**

(0.033) (0.034) (0.011) (0.017)Other (On-the-job Training) 0.082** 0.020 Tenure 0.022** 0.022**

(0.020) (0.044) (0.002) (0.002)On-the-job training received from

previous employer 0.048** 0.077**Tenure Squared

-0.0002* -0.0002**

(0.010) (0.016) 0.00006 0.00007

[Dependent Variable: individual log hourly wage]

46

3. Thailand’s Past Technological Performance has been Modest

Source: Global Competitiveness Report, 2004-2005

Technological readiness index Innovation index

China 54 26Indonesia 64 33Philippines 63 76Malaysia 28 25Singapore 7 11Thailand 46 42Brazil 42 32Bulgaria 62 84Peru 75 94Romania 53 53Tunisia 47 34

47

And “High Tech Exports” is Not Necessarily Equal to Competitiveness!!

Vietnam

Thailand

Sri Lanka

Philippines

Pakistan

Mexico

Malaysia

Indonesia

IndiaColombia

China

Chile

Brazil

BangladeshArgentina0

15

30

45

60

75

0.00 20.00 40.00 60.00 80.00 100.00

Manufactures exports (% of merchandise exports)

Hig

h-te

chno

logy

exp

orts

(% o

f man

ufac

ture

d ex

ports

)

48

Technological Capabilities IndexINVESTMENT PRODUCTION LINKAGES WITHIN

ECONOMY

Expect to make a substantial increase in investment in order to increase capacity or improve quality? What percentage of your next investment will be IT related? Training of workforce to implement technology transferred from parent establishment? If a supplier to a MNC and learned new technology from that MNC, was it explicitly via MNC licensing, training, quality certification programs? Run formal in-house training programs for employees? Send employees to formal training programs run by other organizations?

Upgraded machinery & equipment? Upgraded an existing product line? Paid royalties? Has your firm received any ISO (e.g. 9000, 9002, or 14,000) certification? Adaptation or R&D of technology transferred from parent establishment to suit local conditions? Subcontract R&D project to other companies or organizations? Entered new markets due to process or product improvements in cost or quality? Introduced new technology that has substantially changed the way the main product is produced? Filed any patent/ utility models or copyright protected materials? Developed a new product line? Planning to introduce new designs or products in the next 2 years? Employ staff exclusively for design/doing innovation/R&D? Have you received any government incentives to conduct technological innovation and R&D? What percentage of your production machines is computer controlled?

If a supplier to a MNC, did you learn any new technology from that MNC? Use e-mail in interactions with clients and suppliers? Use website in interactions with clients and suppliers? Technology innovation developed in collaboration with other firms? Technology innovation developed in collaboration with universities? Technology innovation developed in collaboration with research institutions? Technology innovation developed in collaboration with multilateral agencies or other institutions?

49

TCI by Size

0

0.5

1

1.5

2

2.5

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

Technological Capabilities Index

Den

sity

LargeSME

50

TCI by Region

0

0.5

1

1.5

2

2.5

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9


Den

sity

North Central BangkokEast Northeast South

East

Central

South Bangkok

Northeast

North

51

TCI by Industry

0

0.5

1

1.5

2

2.5

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9


Den

sity

Food Processing Textiles ClothingAuto Parts Electronics & Electrical Appliances Rubber & PlasticsWood & Wood Furniture Machinery & Equipment

Clothing

Textiles

Food Processing

Auto Parts

Electronics & Electrical Appliances

Wood & Wood FurnitureRubber &

Plastics

Machinery & Equipment

52

Production TCI by Industry

0

0.5

1

1.5

2

2.5

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9


Den

sity


Clothing

Textiles

Food Processing

Auto Parts

Electronics & Electrical Appliances

Wood & Wood Furniture

Rubber & Plastics

Machinery & Equipment

53

Linkages TCI by Industry

0

0.5

1

1.5

2

2.5

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9


Den

sity


54

4. ICT Use and Performance: PICS Results

Email/Website Use by Firm Size, Ownership, Export Orientation

Small Foreigner exporter

Small Domestic Exporter

Small Foreign Non-Exporter

Small Domestic Non-Exporter

Medium Foreigner Exporter

Medium Domestic Exporter

Medium Foreign Non-Exporter

Medium Domestic Non-Exporter

Large Foreigner Exporter

Large Foreign Non-ExporterLarge Domestic Non-

Exporter

0

10

20

30

40

50

60

0 20 40 60 80 100Email Use

Web

site

Use

Large Domestic Exporter

Source: Investment Climate Survey (2004), World Bank

55

ICT use among manufacturing firms – PICS results

Regional variations exist in ICT use

• Over 50% of firms in Bangkok, Eastern, North and Central regions use email while less than 30% of firms in Northeast and South use email

• 61% of firms in Bangkok has made sales online, while this is true only for 14% of the firms in the other regions

• Access to the Internet, email and website use is only the first step, other steps are necessary for firms to conduct significant portions of their business online

56


Inadequate IT skills impact firm performance

• 45% of manufacturing firms rated the IT skills of their skilled production workers as “very poor.”

• Thai firms perceive, lack of knowledge, availability of trained IT personnel and experienced consultants to be major constraints in adopting ICTs

• Small firms especially perceive these to be severe constraints

57


Constraints to introducing or expanding IT use considered “important” or “very important”

Constraints Small Medium Large

High cost of IT equipment and maintenance 20% 18% 18%

Lack of knowledge and trained IT personnel 42% 35% 33%

Low returns to investments in IT 15% 12% 11%

Lack of experienced consultants to provide or design IT-based solution systems 39% 37% 32%

IT-based systems do not improve productivity 20% 13% 13%


58

ICT use among manufacturing firms – PICS resultsThai firms When comparing firm perception of IT affordaility with the average perception of 50 other developing countries, Thai firms are

much more concerned or hindered by costly IT services.

Firm Perception that IT Services are NOT affordable

0102030405060708090

Small Medium Large

% o

f Firm

s

Thailand 50 Countries


59

IV. Some Policy Implications

60

Some Policy Implications• Firms point to labor regulations, import

regulations, and the unpredictability of entry regulations as areas needing government’s close attention.

• Small firms are less productive than large, train less workers... What are the implications for SME policies?

• Improving infrastructure and institutional deficits in the regions outside of BKK/VIC is essential for the sustaining expansion and entry of exported- oriented companies and Thailand competitiveness and growth.

61

Some Policy Implications• English and ICT skills are key to innovation and

competitiveness. There is a need to reinforce these skills at the secondary education level.

• There is a need to look beyond high-tech export’s ratio and strengthen all dimensions of technological capabilities of firms to spark productivity-enhancing technological progress, especially increasing linkages.

• Lack of knowledge and trained IT personnel is the most important constraint to introducing and expanding IT use. Skills, not Machines may be the culprit.

Documents

1 Thailand: Investment Climate, Firm Competitiveness, and Growth World Bank’s Presentation of Preliminary…