ASIA FOCUS

Looking to 'Chindia'

Thai companies should learn how to crack into the key economic drivers in Asia

UMESH PANDEY

Thai companies looking to expand should start to look at the so-called "Chindia" as the key driver of future growth, says Piyabutr Cholvijarn, the deputy minister of industry.

"There is no doubt about the fact that Chindia [China and India] would be the next economic powerhouse of the world, and we have to tap this market," Mr Piyabutr said during a recent dinner talk hosted by the India-Thai Business Forum.

Mr Piyabutr, who was instrumental in helping push for higher trade volumes with India during his earlier tenure at the same position under the Thaksin Shinawatra administration, says that both China and India offer great potential for companies that venture into their markets.

Companies that cater to the booming middle class segment, especially in the finance, retailing, computer and electronics, pharmaceutical, biotechnology and tourism sectors, will be the ones that reap the highest benefit, he said.

Another area that could be a possible growth area would be the so-called "Stick" - Singapore, Thailand, India, China and South Korea - although this is some two decades away.

Both China and India are among the most under-tapped markets for Thai companies, as fears of intense competition in China and the unknown markets in India have kept most investors at bay.

India has a population of more than one billion, 40% of whom are in the robust middle class with high spending power. It is a market that only started to open up under then-finance minister Manmohan Singh, who is currently the prime minister.

In the last few years India has managed to attract some of the world's largest companies, which are investing billions of dollars in various projects, including knowledge-based industries.

But despite the influx of investments in IT, India is seeking more inflows in infrastructure, an area in which it admits it trails other countries in the region, including Thailand. A catalyst for investments between Thailand and India is trade, which has shown tremendous growth following the limited bilateral free trade agreement concluded last year. After the early-harvest of 82 products was implemented, more discussions are taking place to expand the product base and increase the two-way trade, although they have been stalled for some time.

Over the past five years, trade between the two countries has grown steadily. Between 2000 and 2004, it grew at around 15%, but in 2005 it expanded by more than 20% year-on-year to $2.8 billion, a sharp increase from less than $1 billion seen just a few years ago.

"From a mere $1 billion some four years ago to $4 billion, which looks achievable during this fiscal year, the two-way trade between the two countries has shown tremendous growth, but there is greater potential than this," said Latha Reddy, the newly appointed Indian ambassador to Thailand.

"We would like to see a quantum leap in the economic and bilateral relations between the two countries, especially during this year which marks the 60th anniversary of the diplomatic relations between the two countries," the ambassador said. He added that the embassy was there to assist in anyway possible to help achieve that goal.

Thai companies, Mr Piyabutr said, should also take advantage of the knowledge-based economies available in countries such as India to add value to their products.

"The way to move forward is to tap into the wisdom-based economy, such as information technology, and bio-products and services such as stem-cell [research] and others," he said.

Less competitive industries such as textiles, pulp and paper, rubber and so on should look to increase efficiency and production processes to keep themselves competitive, he added.

"Value addition is the way to go, especially in the present scenario where we see the appreciation of the Thai baht," Mr Piyabutr says.

His comments were seconded by Satit Chanjavanakul, secretary-general for the Board of Investment in Thailand, who said that the aim of the BoI was now shifting toward giving more incentives to companies that are not in the old economy that are labour-intensive.

"We want to promote things that are not labour-intensive," he said. "As we are losing out on the low-skilled labour, our focus is more on the higher value-added industries that are technology- and science-based."

The transformation is already taking place, as seen by exports which show that computer and electronic parts comprise the largest bulk of exports from Thailand - a far cry from when garments were the largest in 1993.

Automotive parts and components have risen to become the second-largest export category, up from the 17th position in 1993.

Thai companies, he said, needed to spend a higher proportion of revenues on research and development to be able to remain competitive.

Currently a mere 0.1% of Thai GDP is invested in R&D, against 1.9% in Singapore, 2.6% in the United States and 3.2% in Japan.

To make matters worse, the private sector accounts for only 33% of R&D funding in Thailand, while government pays for the rest. The private-sector proportion is 66% in Malaysia, 62% in Singapore and 78% in Japan.

Bangkok Post
Sunday January 28, 2007