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23 Sep 2019

Industry

As neighboring countries enter global supply chains, Thai industry must safeguard its competitive edge (Current Issue No.3032)

            Thailand may lose its comparative advantage and soon be surpassed by emerging countries such as Vietnam mainly because Thailand is no longer competitive in terms of labor cost. This is particularly evident in the electronics and textile and apparel industries. Although Thai industry still has a competitive edge in automobiles, petroleum and chemicals, and food and beverages, Thailand is expected to face tougher challenges due to fierce competition with emerging markets.

             For example, Vietnam has emerged as a strong contender, even though Thailand and Vietnam remain at different levels of economic and industrial development. Vietnam's industry is in an early stage of development, while Thai industries have built up for a longer period of time, almost reaching the saturation point. Hence, Vietnam's industry is now growing at a faster pace. Vietnam's manufacturing and export sectors are driven mainly by cheap labor cost, an area in which Thailand can no longer compete. However, Thailand's competitive edge presently lies in its readiness in terms of technology and basic infrastructure. In addition, Thailand has better capability in producing sophisticated products than Vietnam now does. At the same time, Vietnam has been unable to effectively increase the added value in its production supply chain, which is not as strong as Thailand's.

              KResearch asserts that Thailand should raise its strategic game by improving production capacity in new industries with higher added value to stay competitive in the world market and keep Vietnam in its rear-view mirror. Thailand should also address issues related to high labor cost by promoting highly-skilled labor and basic infrastructure, while ramping up the Eastern Economic Corridor (EEC) project to promote target industries. If Thailand fails to scale up its industries, it may find itself stuck in the “middle-income trap" and soon overtaken by Vietnam and other emerging countries. If that were to happen, Thailand's manufacturing and exporting sector would run out of gas, only deepening the angst of being trapped as an economic laggard.