Thai­land 4.0: Sys­tems Up­grade

What is the ‘ Dig­i­tal Econ­omy’?

Thai-American Business (T-AB) Magazine - - Content - Writ­ten by: Paulius Kunci­nas

Thai­land is work­ing to boost growth and avoid the mid­dle in­come trap by shift­ing the econ­omy more to­wards high- tech en­deav­ors. It has de­vised a plan that is both com­pre­hen­sive and am­bi­tious, in­volv­ing the sup­port of a wide range of par­tic­i­pants and aimed at ac­com­plish­ing noth­ing less that the de­vel­op­ment of an en­tirely new eco­nomic base.

If suc­cess­ful, Thai­land 4.0, as it has been dubbed, will trans­form the coun­try, re­store fast growth not seen for more than a decade and of­fer sig­nif­i­cant op­por­tu­ni­ties for investment and re­search. Un­der the pro­gram, Thai­land could go from an im­por­tant participant in the international value chain to a global in­no­va­tion leader.

THE EVO­LU­TION OF THAI­LAND’S ECON­OMY

The coun­try’s econ­omy has de­vel­oped through a num­ber of dis­tinct eras. Thai­land 1.0, as it has be­come known, in­volved pri­mar­ily com­mod­ity ex­ports. It was a sim­ple but suc­cess­ful strat­egy that took advantage of the coun­try’s nat­u­ral strengths and in­volved very lit­tle value added. That was fol­lowed by a pe­riod of light in­dus­try, or Thai­land 2.0, and then Thai­land 3.0, a time of heavy in­dus­trial de­vel­op­ment. The evo­lu­tion of the econ­omy brought many ben­e­fits to the coun­try. Growth was for the most part strong and steady and jobs were plen­ti­ful. Wealth in­creased and most peo­ple in so­ci­ety shared in the pros­per­ity.

But around the turn of the mil­len­nium, the old for­mula be­came in­creas­ingly less ef­fec­tive. Glob­ally, the more- is- bet­ter strat­egy started to hit nat­u­ral lim­its as in­dus­tries be­came crowded and even seem­ingly ad­vanced prod­ucts be­gan to sell more like com­modi­ties. The hid­den costs of rapid in­dus­tri­al­iza­tion also started to be­come more ap­par­ent. Sig­nif­i­cantly, it was found that the struc­tures that worked well dur­ing Thai­land 3.0 started to hold the coun­try back. Large, bu­reau­cratic or­ga­ni­za­tions and equally

• ser­vices de­liv­ered on­line e. g. ac­count­ing, HR, other busi­ness pro­cesses

cum­ber­some min­istries were very poor at driv­ing change. They could push forward, but they were not so adept at turn­ing.

The in­her­ent weak­ness of Thai­land 3.0 started to show up in the num­bers. Dur­ing the coun­try’s golden decades, it achieved rapid growth. That was fol­lowed by a lost decade, when a com­bi­na­tion of bad luck - nat­u­ral dis­as­ters and international crises - and the lack of in­no­va­tion led to slower growth: in the 3- 4% range. The coun­try was com­mit­ting ever more re­sources to achiev­ing ever di­min­ish­ing gains. More broadly, the math suggests that if noth­ing is done, in­come growth in Thai­land will stag­nate and the coun­try will never reach high- in­come sta­tus. It will also po­ten­tially face two other so- called traps: the in­equal­ity trap and the im­bal­ance trap.

THE PROM­ISE AND PIT­FALLS OF THAI­LAND 4.0

Thai­land 4.0, also called Dig­i­tal Thai­land, is de­signed to ad­dress these weak­nesses in the econ­omy and re­turn Thai­land to rapid growth and fast- ris­ing in­comes. It will take

Dig­i­tal Econ­omy is the means of en­abling par­tic­i­pa­tion by all, in so­cial and eco­nomic en­ter­prise. It also in­cludes the role played by govern­ments in de­vel­op­ing in­fra­struc­ture and ser­vices.

the coun­try’s econ­omy from one that is in­dus­try- driven to one that is tech­nol­o­gy­driven. La­bor will be up­graded and be­come more skilled. In­fra­struc­ture will be de­vel­oped to en­cour­age ef­fi­ciency and cre­ativ­ity. Com­pa­nies will be­come more fo­cused on the pur­suit of the value- added, while farms will start to em­ploy more ad­vanced tech­niques. Thai­land un­der the pro­gram will be­come a place of smart ci­ties, smart in­dus­tries and smart peo­ple.

The peo­ple com­po­nent is es­pe­cially im­por­tant. While tech­nol­ogy is at the heart of 4.0, it has been rec­og­nized that a well- ed­u­cated and happy pop­u­la­tion is an ab­so­lute ne­ces­sity if Thai­land hopes to be­come a more cre­ative and in­no­va­tive so­ci­ety. In­di­vid­u­als must not only be given skills but also the right in­cen­tives to de­velop new ideas.

Coun­tries around the world have em­barked on projects sim­i­lar to Thai­land 4.0. China has Made in China 2025, the UK has De­sign in In­no­va­tion Strat­egy and In­dia has Made in In­dia. Thai­land 4.0 is as much a recog­ni­tion of what needs to be

done in the coun­try as it is a recog­ni­tion of global re­al­i­ties. To com­pete ef­fec­tively, Thai­land must change.

The con­cept of Thai­land 4.0 has been the sub­ject of some crit­i­cism. Lo­cal news­pa­per have sug­gested that the pol­icy is just another fad, like glob­al­iza­tion, that is likely to be pass­ing and in­ef­fec­tive, a buzz­word that sounds good but is dis­con­nected from the re­al­ity on the ground.

They note that the coun­try has a good deal of un­fin­ished busi­ness to at­tend to be­fore it gets down to the job of un­der­tak­ing the Fourth In­dus­trial Revo­lu­tion. The coun­try ranks poorly in terms of ed­u­ca­tional achieve­ment while its ba­sic in­fra­struc­ture - such as the coun­try’s gate­way air­port - is still weak. Oth­ers note that some of the planned ef­forts might be coun­ter­pro­duc­tive and ex­pen­sive. The push for robotics, for ex­am­ple, makes lit­tle sense in a re­gion that has sig­nif­i­cant sources of cheap la­bor.

EL­E­MENTS OF IM­PLE­MEN­TA­TION

De­spite some of the doubts, Thai­land 4.0 is un­der­pinned by real, ef­fec­tive pol­icy and sig­nif­i­cant re­sources. The Board of Investment ( BOI) is es­pe­cially ac­tive is push­ing for next gen­er­a­tion investments. It is ag­gres­sively pro­mot­ing ven­tures that are knowl­edge- based and in­volve re­search and de­vel­op­ment ( R& D). In­cluded in the list of fa­vored investments are those in­volv­ing mi­cro- elec­tron­ics de­sign, em­bed­ded soft­ware, em­bed­ded sys­tems, soft­ware for big data, cy­ber­se­cu­rity, en­gi­neer­ing de­sign, train­ing cen­ters, telecom­mu­ni­ca­tions de­vices, se­cu­rity con­trol equip­ment, fac­tory au­to­ma­tion, the In­ter­net of Things ( IOT), Fin­tech, Agritech, Meditech and dig­i­tal con­tent. Dig­i­tal con­tent in­cludes an­i­ma­tion, ap­pli­ca­tions, on­line games and elearn­ing. The BOI is also es­pe­cially pos­i­tive on biotech­nol­ogy, nan­otech­nol­ogy and ad­vanced ma­te­ri­als tech­nol­ogy.

Up to 13 years of in­come tax ex­emp­tion is pos­si­ble, im­port du­ties are ex­empt for ma­te­ri­als used in R& D, while ad­di­tional merit- based in­cen­tives are pos­si­ble for investments made in hu­man re­sources de­vel­op­ment and in R& D.

In terms of the im­ple­men­ta­tion of Thai­land 4.0, the coun­try will in part work off its ex­ist­ing base. The strengths in the automotive sec­tor and the elec­tronic sec­tor will be uti­lized to de­velop fac­tory au­to­ma­tion. The crit­i­cal mass in tourism will be par­layed into a deep and ro­bust med­i­cal sec­tor. The ex­ist­ing ca­pac­ity in agri­cul­ture and biotech­nol­ogy will lead to devel­op­ments in bioen­ergy.

Thai­land is also des­ig­nat­ing su­per­clus­ters, re­gions where com­pa­nies work­ing in a cer­tain spe­cific sub­sec­tor op­er­ate in close prox­im­ity and col­lab­o­rate with aca­demic in­sti­tu­tions or cen­ters of ex­cel­lence for the de­vel­op­ment of tech­nol­ogy. Fu­turedriven in­dus­tries in su­per­clus­ters can get up to 15 year tax ex­emp­tions. Qual­i­fied in­dus­tries will also get sup­port from the Baht 10 bil­lion Com­pet­i­tive­ness Fund.

Thai­land has iden­ti­fied an automotive and parts clus­ter, an elec­tri­cal ap­pli­ance, elec­tronic and telecom­mu­ni­ca­tions clus­ter, a dig­i­tal clus­ter, an eco- friendly chem­i­cals and plas­tics clus­ter, a food in­no­va­tion hub ( the Food In­nop­o­lis), an aero­space and avi­a­tion clus­ter, a robotics clus­ter and a med­i­cal hub. The elec­tron­ics su­per clus­ter is in seven prov­inces: Ayut­thaya, Pathum Thani, Chon­buri, Ray­ong, Cha­cho­engsao, Prach­in­buri and Nakhon Ratchasima, while the dig­i­tal su­per­clus­ter is in Chi­ang Mai and Phuket. Clus­ter de­vel­op­ment has been on­go­ing since 2015.

Dig­i­tal parks for SMES will be cre­ated. Busi­nesses in these parks will ben­e­fit from sig­nif­i­cant and co­or­di­nated gov­ern­ment and pri­vate sup­port. The Na­tional Sci­ence and Tech­nol­ogy De­vel­op­ment Agency ( NSTDA), the Bureau of Sup­port­ing In­dus­tries De­vel­op­ment ( BSID), CAT, the ICT Min­istry and the BOI will work to help par­tic­i­pants suc­ceed by pro­vid­ing fi­nan­cial or in- kind as­sis­tance. Par­tic­i­pat­ing SMES will re­ceive prod­uct de­sign, de­vel­op­ment and en­gi­neer­ing ser­vices, in­for­ma­tion and busi­ness match­ing ser­vices and dig­i­tal in­fra­struc­ture. The parks will also be in­te­grated with the fi­nan­cial markets so that par­tic­i­pants may achieve seam­less in­ter­ac­tion with banks, VCS and in­cu­ba­tors.

The gov­ern­ment’s vi­sion is not at all lim­ited, and it is open to investments that go far beyond the coun­try’s core strengths and his­tor­i­cal ac­tiv­i­ties. It will be en­cour­ag­ing not only the de­vel­op­ment of cloud ser­vices, data cen­ters and soft­ware parks, for ex­am­ple, but also movie towns and mo­tion pic­ture pro­duc­tion and sup­port ser­vices. At Cannes in early 2016, it was an­nounced that film­mak­ers pro­duc­ing in Thai­land will re­ceive 15% cash re­bates on all lo­cal spend­ing. The re­bates can go as high as 20% if Thai ac­tors are used for lead parts and if Thai­land tourism is pro­moted in the film.

To en­sure the smooth in­tro­duc­tion of Thai­land 4.0 and the de­vel­op­ment of Thai­land’s tech­nol­ogy more gen­er­ally, a re­struc­tur­ing of some bu­reau­cra­cies was un­der­taken last year. In late 2016, the coun­try es­tab­lished the Min­istry of Dig­i­tal Econ­omy and So­ci­ety and formed two new en­ti­ties: the Na­tional Dig­i­tal Econ­omy Com­mit­tee and the Dig­i­tal Econ­omy Pro­mo­tion Agency. The new min­istry will in­cor­po­rate the re­spon­si­bil­i­ties of the Na­tional Sta­tis­tics Of­fice, the Me­te­o­ro­log­i­cal Depart­ment, the Elec­tronic Trans­ac­tions De­vel­op­ment Agency and the Soft­ware In­dus­try Pro­mo­tion Agency. The Min­istry of In­for­ma­tion and Com­mu­ni­ca­tion Tech­nol­ogy ( MICT) was dis­solved.

Thai­land 4.0 will of­fer con­sid­er­able op­por­tu­nity to com­pa­nies and in­di­vid­u­als in­volved in a wide range of sec­tors. From broad­band to biotech­nol­ogy, the pro­gram will re­quire sig­nif­i­cant investment, ex­per­tise and hu­man re­sources. Much of this will come from over­seas, and international play­ers will be vi­tally im­por­tant.

By def­i­ni­tion, Thai­land 4.0 will also need par­tic­i­pa­tion in ar­eas as of yet un­known. In­no­va­tion and cre­ativ­ity be­ing at the core of the ini­tia­tive, the pur­suit of cut­ting edge tech­nolo­gies and out- of- the­o­r­di­nary ideas are a nec­es­sary part of the project. While the build­ing of the right in­fra­struc­ture and the de­vel­op­ment of a set of key ca­pa­bil­i­ties is im­por­tant, so too is at­tract­ing those who will take the coun­try in new di­rec­tions. The real test is whether Thai­land 4.0 cre­ates the sort en­vi­ron­ment that makes this pos­si­ble.

Paulius Kunci­nas is Man­ag­ing Editor at Ox­ford Busi­ness Group. He can be con­tacted at pkunci­nas@ ox­ford­busi­ness­group. com.

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