priority

Upgrade productivity, breathe life into the Thai economy

ตีพิมพ์2014-01-22

Saowaruj Rattanakhamfu

Thailand’s path to economic development in recent years has been marked by rapid expalnsion of the manufacturing sector and an increase in exports.

The country’s export-led industrialisation has come about thanks primarily to its stable agriculture. Other contributors are international manufacturing networks and export diversification.

However, the road ahead is forecast to be rough. Thailand will have to face depleting resources, low-value additions,and declining competitiveness, unless it can increase productivity and value creation.

Upgrading productivity is the key to avoiding the usual bumps, bottlenecks,and the dreaded dead-end of the middleincome trap faced by newly industrialised economies.

Upgrading initiatives have taken place in a myriad of manufacturing companies in Thailand.

Process upgrading is the simplest and quickest. For example, Sabina PLC and SCG Paper PLC have opted for this approach to reduce waste, costs of production, and greenhouse gases, while increasing productivity.

Sabina, Thailand’s lingerie manufacturer, has adopted several forms of lean manufacturing and versatility training. The results are less working space, shorter lead time, and 40% less labour in the production process while productivity and outputs have sharply increased.

Had it been implemented throughout the entire industry, full-scale lean manufacturing could have saved 14 billion baht, or 3.8% of labour wages in 2011.

A manufacturer committed to environmental concerns, SCG Paper installed a biomass dryer in a project by its subsidiary Phoenix Pulp & Paper PLC.

This 50-million-baht investment has saved four million litres of fuel oil,amounting to 43 million baht with a payback period as short as one year.

Hand-in-hand with process upgrading are product and functional upgrading,or designing, research and development,product distribution, branding and marketing.

Research and development (R&D)plays a crucial role in manufacturing businesses but has never received enough attention.

Studies show just how little R&D is put into manufacturing. Only 5% of Original Equipment Manufacturers (OEM) have taken steps in R&D, while the percentages of Original Brand Manufacturers (OBM) and Original Design Manufacturers (ODM) are 22% and 16% respectively.

Good karma pays off for those who undertake R&D. Some manage to develop new products and services. Some succeed in boosting gross output. Others can transform processes and diversify into other lines of business.

For example, SCG Building Materials Co Ltd stresses R&D in all stages of the value chain to ensure new technology and products, resulting in 20% higher profit than average products.

Saijo Denki (Thailand) Co Ltd is a leading manufacturer and exporter of air conditioners. It has transformed its firm from OEM to OBM, earning 24% more profit than when supplying equipment to other companies.

Silicon Craft Technology Co Ltd is a radio-frequency identification (RFID) chip provider among international technology manufacturers.

Its latest innovation as a result of R&D is a new RFID chip for animals.

Other products even carry a higher capacity than Texas Instruments-made counterparts.

Apart from R&D practice, the manufacturing sector is in dire need of support from the government and academia in the form of research funding, R&D personnel training, research system development, and tax incentives to encourage research in different areas.

Other measures are creating demand for technological products, and identifying industrial standards.

It is evident that productivity upgrading benefits businesses and the industry as a whole.

Unfortunately, the private sector’s efforts here and there are not enough to drive industry upgrades and growth.

Collaboration between the government and the private sector is the key, with the government taking the lead in putting theories and concepts into practice.

It is time for the government to declare this as the “decade of productivity improvement” to strengthen the environment and determine the direction for stakeholders to follow.

Everyone has their part to play, and everyone’s part is needed. The government and workers are advised to get together and set up policies that accommodate wage increase and productivity improvement.

The private sector has a huge network where partners can exchange knowledge and views on productivity improvement.Thailand has travelled far from an agricultural-based economy yet there is still a long way ahead to achieve full-grown industrialisation.

On the one hand, productivity upgrading and technological innovations are important tools that can ease and expedite our journey.

On the other hand, however, they are merely tools waiting for policy leaders and innovators to make use of.

The questions are whether or not the users see the power of these tools and how they will exercise them to seize manufacturing opportunities in the global market and energise the economy.

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Saowaruj Rattanakhamfu, PhD, is Research Fellow at Thailand Development Research Institute. Policy analyses from TDRI appear in the Bangkok Post on alternate Wednesdays.

First published: Bangkok Post, January 22, 2014