Thailand’s competitiveness:
Meeting the challenges of globalization and
environmental sustainability
Dr. Christian H. M. Ketels
Institute for Strategy
gy and Competitiveness
p
Harvard Business School
Asia Competitiveness Institute
Lee Kuan Yew School of Public Policy
The Role of Competitiveness
Quality of Life (Prosperity)
Economic Outcomes (Productivity)
Competitiveness
Competitiveness is not everything that matters,
but without competitiveness everything that matters is much harder to achieve
2
Traditional Views on Achieving Competitiveness
• Conceptual research has increasingly focused on endogenous
growth-models
• Empirical literature has looked at “deep” drivers of prosperity
differences; recent work at unsustainable “growth spurts”
• The general principles (Washington consensus, etc.) derived from this
work provide often insufficient guidance to policy makers
• Emerging consensus for policy advice to become more context-, i.e.
country-specific
• But without a clear framework, the move from general recipes to
country-specific approaches opens the door for old-style intervention
• The competitiveness framework offers a systematic structure to make
evidence-based policy choices in a concrete situation
3
© Christian Ketels, 2009
The Competitiveness Framework
Mi
Microeconomic
i Competitiveness
C
titi
Sophistication
of Company
Operations and
Strategy
State of Cluster
Development
Quality of the
National
Business
Environment
Macroeconomic Competitiveness
Social
Infrastructure
and Political
Instit tions
Institutions
Quality of
Macroeconomic
Policy
y
Endowments
Natural
Resources
Geographic
Location
4
Size
Macroeconomic Competitiveness
Social
Infrastructure
and Political
Institutions
Quality of
Macroeconomic
Policy
Political institutions
• Set the context for policy
decisions on all dimensions of
competitiveness
Monetary policy
• Ensure the effectiveness of price
signals for economic choices
Fiscal policy
• Keep spending within government’s
intertemporal budget constraint
• Reduce cyclical fluctuations of the
economy
Rule of law
• Provide fundamental conditions
for the functioning of markets
Basic human capacity
• Provide fundamental capacity
for economic activities beyond
the subsistence level
Financial system management
• Avoid the build
build-up
up of unsustainable
internal and external imbalances
• Institutions critical in the long
long-term
term but hard to change in the short-term
short term
• Macroeconomic policies more amendable to reform but often unsustainable if
not matched by policy changes in other areas
5
© Christian Ketels, 2009
Microeconomic Competitiveness
Sophistication
of Company
Operations and
Strategy
State of Cluster
Development
Quality of the
National
Business
Environment
• Reach the highest level
of productivity and
innovation possible
given the overall
environment
• Increase the level of
productivity and
innovation companies
can reach for a given
business environment
• Create the conditions
that allow companies to
reach a high level of
productivity and
innovation
• Many individual factors and significant systemic interactions among
prioritizing
g and sequencing
q
g of actions is a crucial task
them; p
• Many parts of the economy and society play an important role,
including several parts of government, companies, universities, and
platforms for collaboration; coordination and allocation of
responsibilities
ibiliti is
i kkey
6
© Christian Ketels, 2009
Microeconomic Foundations of Development
Typical Company Weaknesses in Emerging Economies
Corporate Direction
• Opportunistic pursuit
of new businesses,
seizing profitable
opportunities in
whatever area they
arise
• Strategy driven by
government and other
g
relationships
• Conglomerate
business groups
compete
t in
i highly
hi hl
disparate businesses
Strategic Positioning
• Focus on the local
market
• Wide product lines
serving all local industry
segments
Activities
• Labor intensive parts
of the value chain are
emphasized
• Price is the primary
basis of competition
• Low investment in
machinery, equipment,
brands, R&D, and
training
• Low input costs are
primary competitive
advantage
• Foreign partners
provide many inputs,
know how, and financing
• Emulate foreign best
practices
• Imitate products and
g and
services of foreign
other domestic
competitors
7
Productivity and the Business Environment
Context for
Firm
Strategy
and Rivalry
z
Factor
(Input)
Conditions
z
Presence of high quality,
specialized inputs available
to firms
–Human
Human resources
–Capital resources
–Physical infrastructure
–Administrative infrastructure
–Information infrastructure
–Scientific and technological
infrastructure
–Natural resources
z
z
z
z
A local context and rules that
encourage
g investment and
sustained upgrading
–e.g., Intellectual property
Demand
protection
Conditions
Meritocratic incentive systems
across all major institutions
Open and vigorous competition
z Sophisticated and demanding local
among locally based rivals
customer(s)
z Local customer needs that anticipate
those elsewhere
Related and
z Unusual local demand in specialized
Supporting
segments that can be served
Industries
nationally and globally
Access to capable, locally based suppliers
and firms in related fields
Presence of clusters instead of isolated
industries
• Successful economic development is a process of successive economic upgrading, in which
the business environment in a nation evolves to support and encourage increasingly
sophisticated ways of competing
Source: Michael Porter
8
National Export Portfolio
Thailand, 1997 to 2007
3.5%
Change
g In Thailand’s Overall
World Export Share: +0.044%
Fishing & Fish Products
(-2.2%, 6.5%)
Information Technology
Thailand’s world export ma
arket share, 2007
7
3.0%
Plastics
Motor Driven Products
2.5%
Construction Materials
2.0%
Entertainment and Reproduction Equipment
Jewelry, Precious Metals and Collectibles
Sport
Agriculture
Lighting and Electrical Equipment
Building Fixtures and Equipment
Analytical Instruments
1.5%
F t
Footwear
(-1.53%)
( 1 53%)
Apparel
Textiles
Leather
1.0%
Thailand’s Average World
Export Share: 1.08%
0.5%
Business
Services
0.0%
-1.5%
Furniture
-1.0%
Power Generation
Communications
Equipment
Transportation and Logistics
Metal, Mining and Manufacturing
Medical Devices
Oil &
TobaccoGas
Biopharmaceuticals
Communication Services
Financial Services
-0.5%
0.0%
Publishing
and Printing
Automotive
Processed Foods
Aerospace Vehicles
Chemical
Products
Construction Services
Production Technology
Prefabricated Enclosures and Structures
Forest Products
Heavy Machinery
Marine Equipment
0.5%
Change in Thailand’s world export market share, 1997 to 2007
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business
School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics
Database and the IMF BOP statistics.
9
1.0%
1.5%
Exports of
US$4.3 Billion =
The Thai Automotive Cluster: The Geographic Dimension
Pathumthani
• Thai Suzuki Motor
• and 39 suppliers
Chachoengsao
• Toyota Motor Thailand
• Isuzu Motors (Thailand)
Ayudhaya
y
y
• Honda Automobile (Thailand)
Samutprakarn
•
•
•
•
Toyota Motor Thailand
Isuzu Motors (Thailand)
Siam Nissan Automobile
Siam V.M.C.
V M C Automobile
• Thai Auto Work
• International Vehicles
• Thai Yamaha Motor
• Thai Swedish Assembly
• Hino Motors (Thailand)
• Thonburi Automotive
Assembly
Chonburi
Bangkok
• Bangchan General Assembly
• Y.M.C. Assembly
• Thai Honda Manufacturing
• and 232 suppliers
• 55 suppliers
Samutsakorn
• Thai Rung Union Car
Rayong
• Auto Alliance (Thailand)
• General Motors
(Thailand)
• BMW Manufacturing
(Thailand)
• Kawasaki Motors
Enterprise (Thailand)
• MMC Sittipol
• and 41 suppliers
Samutprakarn
• 158 suppliers
Source: Vanichseni: Development of Automotive Industry Master Plan (2002)
10
© Christian Ketels, 2009
The Thai Automotive Cluster: The Activity Dimension
A
Assemblers
bl
Steel
Plastics
Motorcycles
Passenger
Cars
Distribution
Pickup
Trucks
Finance
Rubber&Tires
Testing
Electronics
Glass
Leather &
Fabric
Components and Module Makers
(1st tier)
Engines, Drivetrains, Steering, Suspension, Brake, Wheel, Tire,
Bodyworks, Interiors, Electronics and Electrical Systems
Specialized
Consultants
Services
Parts (2nd & 3rd tiers)
Machinery
Stamping, Plastics, Rubber, Machining, Casting, Forging,
Function, Electrical, Trimming
Globally Competitive
Regionally Competitive
Tools
Nationally Significant
Nationally Insignificant
Mold&Die
G
Government
t
Jig&Fixture
Source: Sasin-team analysis, 2003 study
Education and
T h i l
Technical
Institutions
11
A
Associations
i ti
Clusters and Competitiveness
Static
(Leverage)
Dynamic
(Upgrade)
ENHANCE
Other Dimensions of
Competitiveness
Clusters
ENABLE
• Co-location of companies
and other institutions
affecting the potential for
local value creation within a
given economic field through
spillovers and linkages
• Economic fundamentals
that set the productivity
level companies can reach
within a given geographic
location
12
© Christian Ketels, 2009
Clusters Enhancing Competitiveness:
Leveraging Existing Assets
Productivity
Local Externalities
•
•
•
•
•
Common labor markets
Specialized suppliers
Specialized
p
infrastructure
Knowledge Spillovers
Competitive pressure
New
Business
Formation
Innovation
13
© Christian Ketels, 2009
Enabling the
Emergence of Clusters
Location
POLICY
Existing Clusters
Business Environment
Natural Resources
Entrepreneurs
C t t ffor competition
Context
titi
across regions
i
14
© Christian Ketels, 2009
Clusters Enhancing Competitiveness:
Upgrading Capabilities
BETTER (Competitiveness)
FINISH
MORE (Agglomeration)
15
15
© Christian Ketels, 2009
Target Public Policy at Clusters
Business Attraction
Education and Workforce Training
Science and Technology
Infrastructure
(e.g., centers, university
departments, technology
transfer)
Export Promotion
Clusters
Market Information
and Disclosure
Setting standards
Specialized Physical
Environmental Stewardship
Infrastructure
Natural Resource Protection
• Clusters provide a framework for organizing the implementation of public
policy and public investments towards economic development
16
What are Cluster Initiatives?
Cluster initiatives are collaborative activities by a group of companies, public sector
entities, and other related institutions with the objective to improve the competitiveness of a
group of interlinked economic activities in a specific geographic region
• Upgrading of
company operations
ti
and strategies across
a group of
p
companies
• Upgrading of clusterspecific
ifi business
b i
environment
conditions
• Strengthening of
networks to enhance
spill-overs
ill
and
d other
th
economic benefits of
clusters
17
© Christian Ketels, 2009
Clusters and Structural Change
• Cluster policy is most effective if it focuses on existing clusters
BUT
• For many economies the challenge is to broaden or change the
portfolio of clusters they are in
Direction of structural change
Management of structural change
• Natural
atu a st
structural
uctu a change
c a ge occu
occurs
s
through growth in fields related to
activities already present
• Depending
epe d g o
on ttheir
e maturity,
atu ty,
clusters differ in their likelihood of
success and policy needs
• Encourage diversification into
related clusters
• Manage clusters as a portfolio
o Existing clusters
o Emerging clusters
o New clusters
18
© Christian Ketels, 2009
What is Different about Cluster-Based Policy?
Broader Set of
Industries
Public-Private
Collaboration
Regional
Perspective
Productivity
Focus
Demanddriven
Approach
pp
Enhancing
Own Strength
19
© Christian Ketels, 2009
Policy Levels Influencing Competitiveness
World Economy
WTO
Broad Economic Areas
South-East Asia
G
Groups
off
Neighboring Nations
Greater
G
t Mekong
M k
Region
• The business environment at a given
location is the cumulative outcome of
policy at all levels of geography
• Microeconomic competitiveness
raises the importance of lower
levels of geography
Nations
Thailand
States, Provinces
Thai provinces
Metropolitan and Rural Areas
Bangkok
• The allocation of responsibilities
across levels of geography is a
crucial policy challenge
20
© Christian Ketels, 2009
The Process of Economic Development
Shifting
g Roles and Responsibilities
p
Old Model
New Model
• G
Governmentt drives
di
economic
i
development through policy
decisions and incentives
• E
Economic
i d
development
l
t iis a
collaborative process involving
government at multiple levels,
companies teaching and
companies,
research institutions, and private
sector organizations
• Competitiveness
p
is the result of both top-down
p
and bottom-up
p
processes in which many individuals, companies, and institutions
take relevant decisions
21
© Christian Ketels, 2009
Observations so Far
• Many things matter for prosperity, but there are systematic
differences between groups of factors
– Macroeconomic strengths create opportunities
– Microeconomic strengths translate opportunities into results
• The increasing importance of microeconomic factors requires a
qualitatively different policy approach
–
–
–
–
–
From identifying right policy targets to sequencing the right policy areas
From narrow interventions to integrated
g
p
policies
From “horizontal” policies to a mix of general and cluster-specific policies
From national policies to leveraging all geographic levels of government
From public-sector driven policy to public-private dialogue
• Economies need to make progress on all dimensions, but trying to
move on all fronts simultaneously often leads to failure
– C
Crucial role off country analysis to arrive at a context-specific
f action
strategy without compromising on standard economic logic
22
© Christian Ketels, 2009
From Analysis to Action
Prioritization
Analysis
National
Economic
Strategy
Strengths
-
+
Threats
Roll-Out
Roll
Out
Integrated set
of activities
Internal
Weaknesses
Integration
Opportunities
&
National
Competitiveness
Action Agenda
Targeted
Campaigns:
e g Cluster,
e.g.
Cluster
FDI, or SEZ
Economywide rollout
Institution with
cross-cutting
authority
External
National
N
ti
l
Competitiveness
Council
23
© Christian Ketels, 2009
Defining a National Economic Strategy
National Economic Strategy
•
What can be the unique competitive position of the
country/region given its location
location, legacy
legacy, endowments
endowments, and
potential strengths?
– What is its unique value as a business location?
– What role can it play with neighbors?
– In
I what
h t range off clusters
l t
does
d
the
th nation
ti excel?
l?
Developing Unique Strengths
Achieving and Maintaining Parity
with Peers
• What are the key potential strengths that
the country/region must preserve or build?
• What weaknesses must be neutralized to
achieve parity with peer countries?
• A national economic strategy
gy p
provides strategic
g orientation on the type
yp of business environment that the
country/region aims to provide; it is not a plan that sets production or investment targets
• A national economic strategy is only effective, if it reflects a consensus view; it fails, if its implementation
is based on government action and incentives/sanctions alone
24
Launching a Targeted Campaign
Objectives, Institutions, and Mandates
Singapore
• Attract foreign
investment to create
j b
jobs
• EDB as statutory body
with wide-ranging
mandate (finance,
skills,
kill iinfrastructure,
f t t
rules and regulations
Ireland
Finland
• Turn Ireland into the
EU base for US
companies
• Combination of
specialized agencies
• Turn Finland into a
knowledge-driven
economy
• Science and
Technology Policy
Council chaired by
y
the Prime Minister to
coordinate activities
across the government
• IDA focused on
attracting investors
• Enterprise Ireland
focused on upgrading
domestic companies
• Forfas
F f providing
idi policy
li
support on enhancing
the business
environment
25
•
•
•
•
•
Economyy
Education
Science
Regions
a ce
Finance
© Christian Ketels, 2009
Roll-Out of Competitiveness Upgrading
Activities and Institutions
Costa Rica
Latvia
• Opportunity to attract investment
from Intel
• Presidential working group with wide
policy
p
y mandate
• Significant foreign investment inflows
after independence and EU
accession
g investors concerned about
• Foreign
weakness of local institutions driving
competitiveness upgrading
• No special deals for Intel; all
improvements made available to
other companies as well
• Improvement of electricity supply
quality in the Central Valley
• Open Sky
Sky-policy
policy to increase air
transport connectivity
• Radically increased efficiency of
customs procedures
• Foreign Investors Council (FICIL)
driving general upgrading agenda
• Annual High-Level meeting with the
entire Latvian cabinet and one-onone with key ministers
• Working groups on specific issues
(taxes, workforce skills, customs)
26
© Christian Ketels, 2009
From Insight to Action
What to do
How to get it done
• Consensus
• Institutional structure
• Leadership
p
• External environment
27
© Christian Ketels, 2009
Where to Start: The Crucial Role of Analysis
Equality
Productivity
y
Quality of Life
Environmental
conditions
O t
Outcomes
g
Purchasing
Power
Labor utilization
Entrepreneurship
p
p
I
Innovation
i
Intermediate Indicators
FDI flows
Knowledge
Economy
Investment
Exports/Imports
Competitiveness
Corruption
Governance
Global
Competitiveness
Report
Doing Business
28
Logistical Performance
Index
© Christian Ketels, 2009
Prosperity Performance
PPP-adjusted GDP per
Capita 2008 ($USD)
Capita,
$30,000
Selected Lower and Middle Income Countries
Japan ($34,590)
$
Greece ($30,650)
UAE
$
Taiwan ($36,400)
Slovenia
Israel
New Zealand
$25 000
$25,000
Bahrain
Czech
R
Republic
bli
South Korea
Cyprus
Oman
Saudi Arabia
Portugal
Asian countries
Other countries
Slovakia
Estonia
$20,000
Hungary
Libya
$15,000
Chile
y
Malaysia
Turkey
Mexico
$10,000
Brazil
Thailand
Belize
Papua New
Guinea
G
i
((-3.15%)
3 15%)
Ecuador
Latvia
Russia
Argentina
Venezuela
V
l
Uruguay
Bulgaria
Belarus
Romania
Kazakhstan
South Africa
Dominican Republic
Colombia
Tunisia
Bosnia
Ukraine
Albania
Peru
Guyana
Egypt
Jordan
Paraguay
Sri Lanka
El Salvador
Bolivia
Indonesia
Honduras Philippines
Nicaragua
India
Vietnam
Pakistan
Laos
Bangladesh
Guatemala
$5,000
Algeria
Panama
Iran
Costa Rica
Lebanon
Li h
Lithuania
i
Trinidad & Tobago
Poland
Croatia
China
Georgia
Cambodia
$0
0%
,
2%
4%
6%
8%
10%
Growth of Real GDP per Capita (PPP-adjusted),
CAGR, 2004 to 2008
29
Source: EIU (2009) authors calculations
12%
14%
Comparative Economic Performance
Real GDP Growth Rates Over Time
Compounded annual
growth rate
(CAGR) of real GDP
12%
10%
Vietnam
China
Thailand
India
Malaysia
Indonesia
Brazil
Philippines
8%
6%
4%
2%
0%
1980-1989
Source: EIU (2009), authors calculations
1990-1999
2000-2004
30
2005-08
Income Inequality
Gini Index
Selected Countries
60
50
40
30
20
10
0
Note: Most recent Gini index data available for each country (1997 – 2007)
Source: World Bank, World Development Indicators, 2009
31
Environmental Quality
EPI Score,
100 = best value
100
Objectives
Policy Categories
80
60
40
Thailand
Asia Pacific
4th Income Group
20
0
Source: Yale Environmental Performance Index 2008
32
Decomposing Prosperity
Prosperity
Domestic
g
Purchasing
Power
Per Capita
p Income
• Consumption taxes
• Efficiency of local
industries
• Level of local market
competition
Labor
Utilization
Labor
Productivity
• Skills
• Capital stock
• Total factor productivity
– Efficiency
– Technology
33
• Working hours
• Unemployment
• Participation rate
– Population age profile
© Christian Ketels, 2009
Comparative Labor Productivity
Selected Countries
Real GDP per employee (PPP
adjusted US$), 2008
$90,000
USA
Ireland
$80,000
Hong Kong
Asian countries
Other countries
France
UK
$70,000
Italy
$60,000
Germany
Japan
Spain
Singapore
Kuwait
Greece
Taiwan
Australia
Saudi Arabia
Oman
Israel
Slovenia
$50,000
United Arab Emirates
Cyprus
New Zealand
$40,000
Korea
Slovakia
Hungary
Czech Republic
Croatia
Poland
Lithuania
T k
Turkey
Mexico
Chile
$30,000
Iran
Peru
$20,000
$
,
Brazil
Algeria
Syria
$10,000
Yemen
Cote d’Ivoire
$0
-2%
0%
South Africa
Kenya
Kazakhstan
Egypt
Thailand Ukraine
T i i
Tunisia
Pakistan
Senegal
Russia
Romania
Jordan
Morocco
Cameroon
Latvia
Malaysia
Argentina
Philippines
Nigeria
Ghana
2%
Indonesia
Bangladesh
Sri Lanka (8.1%)
China (10.1%)
India
Cambodia
Vietnam
Mozambique
4%
Growth of real GDP per employee (PPP-adjusted), 2004 to 2008
Source: authors calculation Groningen Growth and Development Centre (2009),34EIU (2009)
6%
8%
Understanding Productivity Growth
Economy
Sector
Skill Upgrading,
Capital Deepening,
and TFP
Structural
Change
Firm
Entry, Exit, and
Internal
Restructuring
35
© Christian Ketels, 2009
Total Factor Productivity Growth
Selected Countries
High
Low
Source: EIU (2009)
Last 15 years
Last 6 years
Last 3 years
China
China
China
India
Hong Kong
Hong Kong
Singapore
Turkey
India
Thailand
India
Philippines
Vietnam
Philippines
Turkey
South Korea
Thailand
Malaysia
Malaysia
Malaysia
Indonesia
Turkey
Indonesia
Vietnam
Philippines
Singapore
Thailand
Hong Kong
Vietnam
South Korea
Indonesia
South Korea
Brazil
Brazil
South Africa
Singapore
Mexico
Brazil
Mexico
36
© Christian Ketels, 2009
Labor Force Utilization
Labor Force Participation
p
Rate, 2008
65%
Participation Rates, Selected Countries
China
Kuwait
Asian countries
Other countries
60%
Singapore
I l d
Iceland
United Arab Emirates
50%
Brazil
45%
40%
Thailand
Papua New Guinea
55%
Colombia
Philippines
Sri Lanka (-3.59%)
Vietnam
Norway
Canada
Australia
Sweden
Russia
Germany
Denmark
Latvia
New Zealand
Japan Hong Kong
Ireland
Estonia
Finland
USA
UK
Cyprus
Spain
South Korea
Slovakia
Taiwan
Netherlands
Lithuania
Ukraine
Indonesia
Slovenia
France
India
Greece
Macedonia
Poland
Chile
Austria
Bangladesh
It
Italy
l
H
Hungary
Mexico
Argentina
Malaysia
Israel
Croatia
Moldova
Cote d’Ivoire
35%
Turkey
Albania
Bulgaria
g
Nigeria
Iran
South Africa
Tunisia
Egypt
Pakistan
30%
-2%
Source: Economist Intelligence Unit (2009)
Syria
Saudi Arabia
Jordan
25%
-3%
Libya
Yemen
-1%
0%
1%
2%
Change in Labor Force Participation Rate, 2004 to 2008
37
3%
4%
5%
Indicators and Enablers of Competitiveness
Productivity
Domestic
investment
Trade
FDI
Domestic
innovation
Entrepreneurship
Competitive
p
Environment
38
© Christian Ketels, 2009
Trade Openness
Selected Countries
Exports/Imports
(% of GDP), 2008
+44%
+83%
-7%
100%
80%
60%
%
+41% +34%
Change in trade as % of
GDP since 2003
+21%
0%
Exports
+36%
36%
Imports
40%
-23% +17% +17%
-8%
-1%
1%
+8%
+19% +1%
+11%
20%
0%
Source: EIU (2008), authors’ analysis
39
-1%
-9%
Thailand’s Export Share Trends
World Export Market
Share (current USD)
Processed Goods
2.0%
Semi-processed Goods
1.8%
Unprocessed Goods
Services
1.6%
TOTAL
1.4%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0 0%
0.0%
1997
1998
Source: UNComTrade, WTO (2009)
1999
2000
2001
2002
40
2003
2004
2005
2006
2007
Inbound Foreign Investment Performance
Stocks and Flows, Selected Countries
Inward FDI Stocks as % of
GDP, Average 2003 - 2007
80%
Netherlands
70%
Estonia
Singapore
(160.1%, 64.7%)
Asian countries
Other countries
Hungary
Chile
Cyprus
Vietnam
60%
Switzerland
New Zealand
Sweden
Slovakia
C
Czech
hR
Republic
bli
50%
Denmark
Australia
10%
0%
-5%
Thailand
Spain
South Africa
Syria
Norway
Slovenia
30%
20%
Cambodia
UK
Portugal
40%
Philippines
Latvia
Canada
Egypt
Poland
Finland Lithuania
France
Colombia
Mexico
Laos
Austria
Brazil
Russia
y
Germany
Turkey
US
Greece
Ital
South Korea
A China
y
Indonesia Sri Lanka
India
Japan Iran
0%
5%
10%
Iceland (46.7%)
Israel
Romania
UAE
Malaysia
Saudi Arabia
Oman
Pakistan
15%
20%
25%
30%
FDI Inflows as % of Gross Fixed Capital Formation, Average 2003 - 2007
Source: UNCTAD, World Investment Report (2009)
41
35%
40%
Domestic Fixed Investment Rates
Selected Countries
Gross Fixed Investment
as % of GDP, 2008
36%
China (40.8%)
32%
India
Nicaragua
Asian countries
Other countries
Vietnam (44.6%)
Romania (11.1%)
Bulgaria (12.6%)
Qatar
Croatia
Ghana
Jordan
Belarus
Latvia
Estonia
28%
Iran
Spain
Czech Rep.
Albania
Portugal
g
Greece
20%
Hungary
Hong Kong
Lebanon
Nigeria
Taiwan
Malaysia
Tunisia
UAE
Canada
Denmark
Iceland
Japan
Austria
New Zealand
Ireland Syria
Kazakhstan
Bahrain
Slovakia
Ukraine
Sri Lanka
Thailand Algeria
Oman
24%
Singapore
Australia
Slovenia
Korea
Turkey
Italy Netherlands
Malta
Germany
Israel
Indonesia
Yemen (8.7%)
Lithuania
Chile
Colombia
Argentina
Cambodia
France Russia
Poland
Cyprus
K
Kenya
South Africa
Norway
Finland
Pakistan
Egypt
Saudi Arabia
Brazil
Kuwait
Papua New Guinea
Mexico
UK
16%
Philippines
USA
12%
-4%
-2%
0%
2%
4%
Change in Gross Fixed Investment (as % of GDP), 2004 to 2008
Note: Includes inbound FDI
Source: EIU, 2009
42
6%
8%
Innovative Capacity
Innovation Output of Selected Countries
Average U.S. patents per 1
million
illi population,
l ti
2003-2007
2003 2007
9
Slovenia
8
7
6
Hungary
5
4
Malaysia
Czech Republic
3
2
1
South Africa
Brazil
Mexico
Argentina
Indonesia
Thailand
0
Colombia
-30%
-20%
Croatia
Estonia
Romania
Greece
Belarus
Chile
Poland
Russia
India Egypt
Portugal
China
Saudi
Arabia
Phili i
Philippines
-10%
0%
10%
20%
CAGR of US-registered patents, 2003 – 2007
Source: USPTO (2008), EIU (2008)
43
30%
50 patents =
40%
Thailand’s Competitiveness Profile 2009
Micro (44)
Business
Environment Quality
(48)
GCI (55)
Company
Sophistication
(45)
Macro (61)
Social Infrastructure and Pol.
Institutions (68)
Demand Conditions (55)
Political Institutions (68)
Context for Strategy and
Rivalry (43)
R l off L
Rule
Law (68)
Related and Supporting
Industries (40)
Human Development (70)
Macroeconomic
Policy (52)
Worse than 65
Factor Input Conditions
(40)
60 - 65
50 - 60
Admin (53)
Comm. (51)
Innov. (49)
Capital (35)
45 - 50
Logistic. (33)
44
Better than 45
Governance Indicators
Selected Countries
Best country
i th
in
the world
ld
Voice and Accountability
Political Stability
Government Effectiveness
Regulatory Quality
Rule of Law
Control of Corruption
Index of
Governance
Quality,
2008
Worst
country in
the world
Note: Sorted left to right by decreasing average value across all indicators. The horizontal line corresponds to the median country’s average value across all
indicators.
45
Source: World Bank (2009)
Factor
(Input)
Conditions
Factor (Input) Conditions
Thailand’s Relative Position 2009
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Financial Market Infrastructure
Advanced Communications Infrastructure
Soundness of banks
18
Personal computers per 100 population
56
Financing through local equity market
19
Internet users per 100 population
52
Ease of access to loans
22
Regulation of securities exchanges
27
Innovation and Skills
Financial market sophistication
28
Utility patents per million population
55
Domestic credit to private sector
29
Quality of scientific research institutions
50
Venture capital availability
32
Quality of math and science education
45
Physical Infrastructure
Administrative Infrastructure
Quality of air transport infrastructure
20
Reliability of the Police
Q lit off roads
Quality
d
24
D
Decentralization
t li ti off economic
i policymaking
li
ki
52
Quality of port infrastructure
29
(Low) Time required to start a business
52
Quality of electricity supply
30
(Low) Burden of customs procedures
45
Change up/down of more
than 5/10 ranks since 2002
Note: Rank versus 74 countries; overall, Thailand ranks 54th in 2008 PPP adjusted GDP per capita and 40th in Global Competitiveness
Source: Institute for Strategy and Competitiveness, Harvard University (2009) 46
56
Ease of Doing Business
Thailand, 2009
Ranking, 2009
(of 183 countries)
Favorable
Unfavorable
120
100
80
60
40
20
0
Source: World Bank Report, Doing Business (2009/10)
47
Workforce Skills and Labor Market Needs
Time Required to Fill Job
Vacancy in Production
Educational Attainment,
Math, 8th Grade
Taiwan
Brazil
Korea
Singapore
Hong Kong
Thailand
Japan
Hungary
Korea
Russia
US
Slovenia
India
Australia
Unskilled
Skilled
Sweden
Malaysia
Russia
Israel
Thailand
T k
Turkey
Turkey
Indonesia
Egypt
Indonesia
Colombia
250
350
450
550
Average Score
Source: TIMSS (2007), World Bank (2007)
650
0
48
2
4
6
Number of Weeks
8
10
Context for Firm
Strategy
and Rivalry
Context for Strategy and Rivalry
Thailand's Relative Position 2009
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Openness
Openness
Strength of investor protection
11
(Low) Tariff rate
63
Business impact of rules on FDI
23
Restrictions on capital flows
56
Prevalence of foreign ownership
43
Incentives and flexibility
(Low) Rigidity of employment
16
Competition
Cooperation in labor-employer relations
21
Efficacy of corporate boards
56
(Low) Impact of taxation on incentives to
work and invest
24
Intellectual property protection
53
Regulatory quality
50
Extent of market dominance by business
groups
42
Competition
Intensity of local competition
27
Quality of competition in the ISP sector
32
Effectiveness of antitrust policy
36
Prevalence of trade barriers
38
Low market disruption from
f
state-owned
enterprises
39
Distortive effect of taxes and subsidies on 40
competition
Change up/down of more
than 5/10 ranks since 2002
Note: Rank versus 74 countries; overall, Thailand ranks 54th in 2008 PPP adjusted GDP per capita and 40th in Global Competitiveness
Source: Institute for Strategy and Competitiveness, Harvard University (2009) 49
Openness to Trade
Rank (157
countries)
160
Selected Countries, 2008
140
120
100
80
60
40
20
0
Source: Index of Economic Freedom (2008), Heritage Foundation
50
Related and
Supporting
Industries
Related and Supporting Industries
Thailand’s Relative Position 2009
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Extent of cluster policy
21
Local supplier quantity
22
Extent of collaboration in clusters
27
State of cluster development
30
Local availability of process machinery
36
pp
q
quality
y
Local supplier
37
Local availability of specialized research
and training services
52
Availability of latest technologies
43
Change up/down of more
than 5/10 ranks since 2008
Note: Rank versus 74 countries; overall, Thailand ranks 54th in 2008 PPP adjusted GDP per capita and 40th in Global Competitiveness
Source: Institute for Strategy and Competitiveness, Harvard University (2009) 51
Share of World Exports by Cluster
Thailand, 2007
World Market Share
1.0% -1.5%
1.5% - 2.5%
> 2.5
Fishing &
Fishing
Products
Processed
Food
Hospitality
& Tourism
Agricultural
Products
Transportation
& Logistics
Business
Services
Financial
Services
Education &
Knowledge
Medical
Creation
Devices
Publishing
& Printing
Building
Fixtures,
Equipment &
Services
Forest
Products
Power
Generation
Communications
Equipment
Tobacco
Motor
Driven
Products
Heavy
Machinery
Production
Technology
Automotive
Oil &
Gas
Apparel
Construction
Materials
Heavy
y
Construction
Services
Lightning &
Electrical
Analytical
Instruments Equipment
Biopharmaceuticals
Chemical
Products
Textiles
Prefabricated
Enclosures
Furniture
Aerospace
Vehicles &
Information Defense
Tech.
Distribution
Services
Jewelry &
Precious
Metals
Entertainment
Aerospace Mining & Metal
Engines Manufacturing
Plastics
Leather &
Related
Products
Footwear
52industries) in both directions.
Note: Clusters with overlapping borders have at least 20% overlap (by number of
Sporting
& Recreation
Goods
Marine
Equipment
Clusters and Cluster Efforts in Thailand
• Clear evidence of significant cluster presence in the Thai economy
• Areas of strengths are largely in unrelated areas
• Focus on five clusters based on 2003 government decision
– Analysis at the time focused on situation in these clusters, not on the
selection
• Limited progress on mobilizing an effective institutional architecture
to move from diagnosis to action
– Creation of structures like the Thailand Automotive Institute positive steps,
but limited to selected clusters
– Organization of government policies around clusters very limited
• Limited if any progress of creating mechanisms for translating clustercluster
specific competitiveness upgrading into economy-wide benefits
• Cluster efforts remain a significant opportunity for Thailand, but a stepchange in the policy approach is needed to achieve real impact
53
© Christian Ketels, 2009
Company Sophistication
Relative Position of Thai Companies, 2009
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Organizational Practices
Strategy and operations
Degree of customer orientation
18
Willingness to delegate authority
56
Value chain breadth
35
Reliance on professional management
46
Company spending on R&D
37
Extent of staff training
42
E t t off marketing
Extent
k ti
38
E t t off incentive
Extent
i
ti compensation
ti
41
Strategy and operations
Internationalization
Breadth of international markets
23
Production p
process sophistication
p
51
Prevalence of foreign technology
licensing
35
Nature of competitive advantage
46
Capacity for innovation
46
Control of international distribution
37
Firm-level technology absorption
41
E t t off regional
Extent
i
l sales
l
37
Extent of incentive compensation
41
Change up/down of more
than 5/10 ranks since 2008
Note: Rank versus 74 countries; overall, Thailand ranks 54th in 2008 PPP adjusted GDP per capita and 40th in Global Competitiveness
Source: Institute for Strategy and Competitiveness, Harvard University (2009)
54
Subnational Regions in Thailand
• Significant differences in
prosperity, structure, and
competitiveness
titi
• Duality of locally elected and
centrally appointed officials at
the local and regional level
North
73% of average
income
Central
102% of average
income
• Does the current structure
provide for an efficient
interplay across the different
levels of government?
– Allocation of responsibilities
– Allocation
All
ti off capabilities
biliti
Northeast
70% of average
income
Greater Bangkok
187% of average
income
South
106% of average
income
55
Source: 2007 Household Socio-economic Survey, National
Statistical Office of Thailand (accessed Nov. 2009)
Thailand’s
National Economic and Social Development Plan
• Sets out objectives and
principles
The 10th National Economic and
Social Development Plan (2007-2011)
• Provides the foundation for
government investments and
legislative action
The 9th National Economic and Social
Development Plan
• Does the Plan define
competitive strengths to be
achieved?
• Is the private sector
sufficiently involved in the
design and execution?
The 8th National Economic and Social
Development Plan
The 7th National Economic and Social
Development Plan
56
© Christian Ketels, 2009
Competitiveness Rankings Over Time
New GCI Methodology
Rank
(Stable
(Stab
e sa
sample
peo
of
countries)
15
Malaysia
a ays a
25
China
35
Thailand
45
I d
Indonesia
i
India
55
Vietnam
65
2001
2002
2003
2004
2005
2006
Source: Unpublished data from the Institute for Strategy and Competitiveness, 57
Harvard University (2009)
2007
2008
2009
Thailand’s Competitiveness Agenda
Priority Action Areas
• Strengthen the robustness and efficiency of public institutions
• Address the mismatch between existing and required workforce skills
• Tackle remaining weaknesses in business rules and regulations
• Remove remaining
g barriers to foreign
g competition
p
and strengthen
g
the legal framework to enable more effective domestic rivalry
• Activate clusters as an effective mechanism to deliver government
policies
• Clarify the roles and responsibilities across different levels of
government
• Mobilize public-private collaboration at the level of clusters, regions,
and the national economy
• Launch a discussion on the dimensions of national value proposition
for Thailand
58
© Christian Ketels, 2009
Thailand Approaching a Critical Junction
Creating competitive
advantages
Prosperity
Thailand
Argentina
S Korea
Exploiting comparative
advantages
Time
59
© Christian Ketels, 2009
Themes
• The concept of competitiveness
• Thailand’s Competitiveness: From Assessment to Action
• Competitiveness and the New Global Economy
• Competitiveness
C
ii
and
dE
Environmental
i
lS
Sustainability
i bili
60
Impact of the Global Economic Crisis
China
Sweden
Financial
SectorOriented
Singapore
Exportp
Driven
Mexico
Vietnam
Thailand
UK
US
Ireland
Russia
Iceland
Hungary
Estonia
Reall EstateR
E t t
Driven
Brazil
Venezuela
Ukraine
External
H
Hungary
FinanceUkraine
Dependent
Spain
Latvia
Argentina
T k
Turkey
61
© Christian Ketels, 2009
Prosperity and Competitiveness
Economic
Sustainability of
Current Prosperity
High
THAILAND
Philippines
Indonesia
Malaysia
Vietnam
L
Low
Source: Global Competitiveness Report 2009
62
© Christian Ketels, 2009
Competitiveness and the Crisis
Economic Sustainability of Current Prosperity
High
Moderate
Low
• High short term
impact given
high openness
• Short term
impact depends
on openness
• Short term
impact depends
on openness
• Quick recovery
possible
• Recovery likely
to be prolonged
• Recovery only
with reforms
• R
Remain
i on
course
• B
Balance
l
crisis
i i
management
with upgrading
• U
Use th
the crisis
i i
as a promoter
of change
63
© Christian Ketels, 2009
Thailand and the Global Economic Crisis
• When the global financial crisis translated into a dramatic slowdown of
global trade, Thailand was hard hit due to its export-orientation
– Thailand’s financial system was relatively resilient after the fundamental
changes in the wake of the Asian Financial crisis
• Recovery is now relatively swift because of the balance between
Thailand’s competitiveness and prosperity
• The challenge is to remain focused on upgrading Thailand’s
competitiveness while the improving economic situation reduces the
pressure to act
64
© Christian Ketels, 2009
A Changing Economic Environment After the Crisis
• Unsustainable trade imbalances in the global economy will adjust
over time
– There is some risk of increasing protectionism in key export markets
– Adjustment in response to changes in exchange rates and capital flows
seems more likely
• While Thailand’s trade has become more ASEAN/Asia-focused over
time, the ultimate market for many exports so far remains in the US or
Western Europe
global economy
y is g
growing,
g a process
• The relative share of Asia in the g
that has been accelerated by the global economic crisis
65
© Christian Ketels, 2009
The New Global Economy
Implications for Thailand
• Competitiveness will only increase in importance
• A robust economic strategy needs to take a balanced view of different
segments of the economy
– Export-oriented activities will remain important: support the market-driven
reorientation towards Asian markets
– Domestic consumption will gradually gain in importance, especially for
jobs: ensure the upgrading of activities serving the domestic market
• Regional collaboration will gain in importance
– Strengthening the potential of markets in neighboring countries
– Leverage the potential for cluster collaboration in regional cluster networks
• Th
The ability
bili to d
deall with
i h externall shocks
h k is
i b
becoming
i more crucial;
i l
avoiding shocks through less openness and specialization is not viable
– Skill level of the workforce
– Flexibility of the economy
– Social security mechanisms
66
© Christian Ketels, 2009
Themes
• The concept of competitiveness
• Thailand’s Competitiveness: From Assessment to Action
• Competitiveness and the New Global Economy
• Competitiveness
C
ii
and
d Environmental
E i
l Sustainability
S
i bili
67
Competitiveness and Ecological Sustainability
• Ecological sustainability is conceptually fully consistent with the
overall objective of competitiveness, i.e. creating an environment
where p
productivity
y supports
pp
a high
g standard of living
g
• The Porter hypothesis identified the synergistic relationship of the two
– Tough environmental regulations can lead companies to become more
productive
– Tough environmental regulations can trigger innovations that provide
companies with competitive advantages
BUT
• Short-term trade-offs can exist through the costs of ecological
activities, especially for activities exposed to global competition
• Competitiveness and ecological sustainability have many overlaps but
are two separate objectives
68
© Christian Ketels, 2009
Economic Policy towards Environmental Sustainability
Context for
Firm
Strategy
and Rivalry
z
Factor
F
t
(Input)
Conditions
z
Research grants with an
environmental focus
z
Targeted workforce skill
upgrading
z
Financing facilities for
relevant public and
private investments
z
Upgrading
g
g programs
g
for
companies, especially SMEs
Demand
Conditions
Environmental taxes,
subsidies, and process
standards
Related and
Supporting
Industries
z
Creation of specialized
research institutions
z
Cluster working groups on
environmental sustainability
z
Demanding domestic product
standards, including early
adoption of demanding
international standards
z
Environmental
E
i
t l ttaxes or
subsidies
• Achieving higher levels of environmental sustainability requires innovation
• Innovation will only occur, if complementary changes are made across different
dimensions the business environment
• The policy challenge is to set the pace and mix of these policies in ways that
balances environmental and economic
goals in the short-term
69
Ecological Sustainability of Clusters
• Th
The market
k t environment
i
t will
ill create
t iincreasing
i opportunities
t iti ffor
environmental products and services
o Relative prices for energy, natural resources, and pollution
o Government
G
policies (taxes,
(
subsidies, regulations))
o Consumer preferences
• The market for the products
of specific clusters is likely
to grew significantly, e.g.
renewable energy
technologies
g
• The demand for products,
services and processes that
services,
are environmentally sound is
going to increase across all
clusters
• Competition in these
markets is going to be
intense;; onlyy the most
productive clusters will
succeed
• Environmental issues will
affect competition on all
markets;; no cluster will be
successful unless it actively
addresses them
70
© Christian Ketels, 2009
The New Sustainable Economy
Implications for Thailand
• Competitiveness and sustainability have to be pursued in tandem
• Thailand’s
Thailand s environmental track
track-record
record is relatively solid
solid, but more a
reflection of its overall profile than of explicit policies in the past
– Issues in areas like air quality and the pollution in industrialized zones have
growing
g over time
been g
• The national strategy for environmental sustainability needs to
integrate policies across different business environment dimensions
– A narrow focus on branding Thailand will not be sufficient; the global
competition in this space is becoming relentless
• Cluster policy needs to be an important tool for achieving
environmental sustainability
– Pursue environmental issues within existing clusters
– Encourage the development of new clusters that target emerging
g
environmental markets and relate to areas of current Thai strengths
71
© Christian Ketels, 2009
Why Should Business Leaders Worry About
Clusters and National Competitiveness?
External
Internal
•
Competitive advantage
resides
id solely
l l inside
i id a
company or in its
industry
•
Competitive advantage (or
di d
disadvantage)
t
) resides
id
partly in the locations at
which a company’s
business units are based
•
Competitive success
depends primarily on
company choices
h i
•
Cluster participation is an
important contributor to
competitiveness
titi
Source: Michael Porter
72
Thailand: Looking Ahead
ISSUES
Thailand has all
opportunities to meet the
challenges of the future…
Domestic
• The Middle Income Trap
• Policy Implementation
… if Thais across all
segments of society and
economy collaborate.
• Political Volatility
Global
Competitiveness
Competitiveness has
is a
t national
to
b
be a national
ti
lnot
goal,
goal,
al
notpolitical
a political
oneone
• New
N
global
l b l economy
• Climate Change
73
© Christian Ketels, 2009