Digital Transformation

What's holding Thailand 4.0 back?

Ian Pascoe Ian Pascoe

Much has been made of the Thai government’s commitment to developing a modern industrial base. In large part, the praise from the business community has been deserved. Concerted efforts include a range of initiatives, from a detailed program of BOI incentives, to the fast-tracking of business permits across industries, to the ambitious upgrades in infrastructure and government support that are making the Eastern Economic Corridor a highly promising region for manufacturing.

Yet business leaders say they are still frustrated by some elements of the country's antiquated bureaucratic system. These sentiments were reflected in a recent survey which tracks changing attitudes toward the country’s economy. According to research from Grant Thornton’s International Business Report (IBR), businesses in Thailand are more concerned about regulations and red tape than they were previously, with 30% citing it as a constraint in Q1 2018 as opposed to 22% in the previous quarter.

The same report revealed that 30% of businesses in Thailand cite ICT infrastructure as a major constraint on their ability to grow, an increase of 10 percentage points from Q4 2017. These numbers may help explain why the same businesses’ plans to increase spending on R&D are down to net 16%, as compared to 24% in Q4 2017, and 28% in Q3. Investment in technology expectations have also been declining over the past 3 quarters, with 18% of businesses in Q1 2018 reporting plans to increase this investment, down from 20% in Q4 2017, and 26% in Q3 2017.

Taken in context, the numbers reported in the IBR survey show a sense of cautious optimism throughout Thailand’s business community, tempered by disappointment in the slow progress of some government programmes and departments. These are early days in the Thailand 4.0 economic project, and as such, business leaders across the region will be watching its development with keen interest.

There is indeed plenty to like about the way things are going. A BOI licence is a good incentive for businesses to move to Thailand, and the special privileges that the BOI enable are relatively straightforward to process and implement. In addition, the government’s December 2017 Public Private Partnership (PPP) Strategic Plan represented an encouraging move toward open competition for infrastructure projects, by making it easier for foreign companies to participate.

Moreover, scores of businesses, including several household names such as Alibaba, Airbus, Boeing, Bridgestone, Sony and Toyota, are indeed making significant investments in developing their presence in Thailand. By many metrics, the much-anticipated Thailand 4.0 project is well on its way to success.

However, it is precisely these successes, and the substantial overall promise of the enterprise, which make the slow progress elsewhere so surprising. If Thailand is going to fulfil its mission to become a regional centre for innovation, there is still much work that the government must do to prepare the country for the fast pace of modern business.

Some official departments continue to use antiquated standards and practices, remaining slow at processing essential data that businesses need in order to maintain smooth operations. Others insist on maintaining needlessly complex sets of rules and requirements, adding hoops for businesses to jump through rather than paving the way for more efficient systems to emerge. Many businesses would surely prefer to have their regional hub in Thailand rather than Singapore, due to the lower operational costs required. But Thailand’s administrative capability continues to lag behind Singapore’s, resulting in roadblocks that can sometimes be prohibitive.

For instance, financial advisory services in Thailand continue to suffer from a lack of consideration for modern realities. The country is liberalising its financial sector, yet in order to become a financial advisor you need a licence – and this can only be obtained by taking tests in the Thai language.

To be sure, there may be arguments for keeping protectionist policies in certain sectors of the economy, or offering preferential treatment for Thai citizens among certain classes of employees. But the inconsistent application of these types of rules sometimes appears to be more easily explained by administrative disorganisation than informed policy planning.

A country building a modern economic hub will require the type of large-scale financial advisory services that will need to accompany the region’s development. To exclude or deter such outside assistance, in the very areas where it is most desperately needed, sends an unfortunate signal to potential investors who need reassurance that Thailand’s modernisation project will be carried out using clear and sensible methods.

While the business community looks with hope at the prospect of a highly efficient economic playing field just around the corner, the mindset within some areas of government remains stuck in Thailand 3.0. This inability to adapt to the modern era has led to a lingering set of bureaucratic policy inefficiencies, making it unnecessarily difficult for Thailand to compete effectively on the global stage. Whether the country will make the necessary adjustments – as with earlier initiatives such as the BOI and the PPP – is simply a question of will.