Thailand 4.0: Systems Upgrade
What is the ‘ Digital Economy’?
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.