1. Vietnam and Thailand Coping with Regional Integration and Chinese Challenge in Different Ways Kenichi Ohno (VDF & GRIPS) March 24, 2005

2. Background VDF and MOI have been cooperating in policy research since VDF started To study methodology, procedure, content and adjustment of industrial policy making under global integration VDF presented its views to H.E. Minister Hai and MOI high officials (Feb. 25, 2004) VDF-MOI joint mission to Thailand (Feb.28- Mar.4, 2005)

3. Todays Menu: How Thailand Does It Overview Top-down liberalization and general support National positioning Policy formulation with private involvement Automobile master plan SI and SME promotion Glass ceiling problem

4. Why Thailand? Similar population size (61 million) Income level of $2,291, a reasonable target for Vietnam 2020 (currently $481) High manufactured export ratio (76%) Excels in two key industrial products --Electronics exports --Automobiles and motorcycles

5. VDF Proposal (Feb. 2004): Vietnams Targets for 2020 1.Relative income join the middle group (China + ASEAN4) 2.Export structure Manufacturing is (75%) or more 3.Selected leading status Vietnam becomes No.1 or No.2 exporter in the world for a few high-tech items, based on industrial agglomeration and high quality 4.Supporting industries significant amounts of parts and inputs are domestically produced (but not 100%) 5.Supporting services domestic skilled labor provides a large part of design, production management, marketing, etc. replacing foreigners

7. Problems with Thailand Vietnam should avoid these Uncontrolled urbanization: Too much concentration in Bangkok Traffic congestion Urban-rural income gap does not narrow Even after 40 years of FDI-led industrial growth, Lack of high-skilled labor and slow technical absorption Weak local supporting industries (dominated by FDI parts producers)

8. Topic 1 Top-down Liberalization and General Support Thaksin Government (2001-05, 2005-09) Top-down decision making (unlike past) PM Order Ministries to work out details Run a country like a business enterprise --Results oriented --Quick action & response --Attractive slogans for marketing Thailand --Administrative reforms for efficiency

9. Key Policy Directions 1. Aggressive liberalization --Lead global & regional integration by free trade & FDI initiatives --No preference for nationality of enterprises operating in Thailand (foreign or local) 2. Increase domestic capability --Not just export promotion, but increase domestic value and employment --Nondiscriminatory SME & SI promotion (for local or foreign, large or small firms)

10. Topic 2 National Positioning --How to cope with Chinese challenge? --How to take advantage of globalization and regional integration? Thai answer is relatively clear (at general level) Target industries with high domestic value- added Find global market niche (avoid direct competition with China)

11. Targeted Industries Automobile and parts (Detroit of Asia) Agro-industry (Kitchen of the World) Fashion (Regional Fashion Hub) High VA services (healthcare, spa, tourism…) (Electronics and ITC) (Energy and renewable energy) Note: Ministry of Industry (MOI) and Board of Investment (BOI) have different lists. The last two are only in BOIs list. Tourism is a separate category in MOIs list.

12. Comparison of General Policy Orientation

13. Topic 3 Policy Formulation with Private Sector Involvement Prime Minister Policy direction to be concretized Order Relevant Ministry Experts Private Sector Industry-specific Institute Direct inputs Industry-specific Committees --Master plan --Implementation --Monitoring --Adjustment

14. Industry-specific Institutes Recently Thai Govt established 9 institutes (automotive, electronics, textile, steel…) Key functions: --Coordination among govt, private sector, experts --Supporting services (training, testing, etc) --Policy research Can they really play useful roles? Required to become financially independent after 5 years (possible? desirable?) Crowd out private consultancy & research?

15. Industry-specific Government Committees Attended by relevant policy makers and top managers of private firms Meet frequently (every 1-2 months) Policy design, action plans, implementation, adjustment, trouble-shooting If new issues arise, sub-committees are set up to solve them Information is shared and decisions are supported by all concerned

16. Master Plans for Individual Industries Thailand Automotive Institute Private Sector Policy Makers Market info, targets Policy concerns, measures Coordination & drafting Private Sector Thai MOI Government & Prime Minister Drafting processabout one year; PM approval is not required Submit Explain (Official author) Report Joint process

17. Master Plans (contd.) Private sector proposes numerical targets Thailand Automotive Institute (TAI) provides coordination and drafts M/P Budget, projects and technical assistance are specified in implementation Private sector, government and TAI continue to cooperate closely in implementation, monitoring and adjustment

18. Five-Year Plan The Ninth National Economic and Social Development Plan 2002-2006 Drafter--National Economic and Social Development Board (NESDB) Contains broad socio-economic concerns Good governance, human resources, social protection, environment, macroeconomy, competitiveness, science & technology Some say that Five-Year Plan is no longer needed under top-down Thaksin Government

19. Tentative Evaluation Private firms (local & foreign) seem happy with governments responsiveness Thai MOI and related bodies feel that policy making is now faster and more integrated However, some think actual implementation is more difficult than PR and frameworks

20. Design and Execution of Industrial Policies

21. Topic 4 Automobile Master Plan Recent Thai automobile boom --Output and exports rising strongly --From import substitution to export orientation --FDI makers upgrade Thailand to global supply base Reasons --Favorable reassessment of Thailand after strong recovery from Asian crisis --Decisive trade & FDI liberalization under WTO, AFTA, FTAs Remaining problems --Weak human resources (engineers, managers) --Weak technical capability of local SMEs

22. ASEAN Auto Market Size, 2003 --Thai auto industry has developed over 40 years --This year, Thai auto output is expected at 1.1 million Million vehicles per year

23. Automobile Production Million vehicles Sources: Vietnamese automobile master plan (Sep. 2004); Thailand Automotive Institute website; authors estimate. Asian Crisis

24. Auto Price Comparison, 2004 1500cc sedan in capital city Source: JETRO, The 14th Survey of Investment-Related Cost Comparison in Major Cities and Regions in Asia (March 2004). Note: The dotted grey area corresponds to JAMA simulation under the full implementation of SCT increase by 2007. With full implementation of Special Consumption Tax increase by 2007

25. Thai Auto Master Plan 2002-2006 Drafted, executed and adjusted jointly by private sector and government Drafting period: about one year Autos, trucks and motorcycles are covered No revision (constant adjustment makes it unnecessary) Next M/P to be drafted this year, with same methodology but new targets

26. Thai Master Plan Contents 1. Analysis of global situation 2. Analysis of domestic situation 3. Strengths & weaknesses of Thailand 4. Vision/goal Numerical targets 5. Strategies-- Business Intelligence Unit, HRD, market expansion by FTA, good governance, infrastructure, clusters, supply chain, standardization, technology, management 6. Detailed action plans

27. VDF Proposal (Feb. 2004): Suggested Master Plan Contents Japan designed industrial policies like this. Thai auto M/P has the same structure. What is the current global situation? What is the domestic situation? What is our position in the world economy? What are the key national goals? Action plan A Action plan B Action plan C Action plan D

28. Thai M/P Targets for 2006 Auto production: 1 million Export 40% of auto production Motorcycle production: 2 million Export 20% of motorcycle production Export high-quality parts, 200 billion baht 60% Localization (target, not forced) Note: expected results for 2005 already exceed these targets: Automobiles--production (1.1 mil), export (0.42 mil) Motorcycles--production (3 mil), export (0.8 mil) Parts export (220 bil baht)

29. Comparing Auto Master Plans

30. Topic 5 SI and SME Promotion After 40 years, Thai local industries are still weak Part Procurement of Thai Auto Industry Local firms 25% FDI firms in Thailand 45% Imports 30% Low-tech partsHigh-tech parts Raw Materials Used by Parts Industry ALL IMPORTED Information by Nomura Research Institute, July 2004

31. Measures for SMEs Training centers & courses Testing facilities (for autos, product quality…) Formation of clusters --SMEs working together to produce Train Factory system --Big FDI firms teach local SMEs Critiques say these are not enough; govt should do more to improve local capability

32. Topic 6 Glass Ceiling Problem Industry promotion under protection is no longer permitted today BUT…is complete openness consistent with leveling up of industries? No ASEAN country has internalized industrial management & technology, unlike Korea or Taiwan Is more aggressive policy necessary even under WTO and FTAs? In what way?

33. VDF Presentation (Feb. 2004): Breaking the Glass Ceiling STAGE ONE Simple manufacturing under foreign guidance STAGE TWO Have supporting industries, but still under foreign guidance STAGE THREE Technology & management mastered, can produce high quality goods STAGE FOUR Full capability in innovation and product design as global leader Vietnam Thailand, Malaysia Korea, Taiwan Japan, US, EU No ASEAN countries have broken through the invisible barrier between Stage Two & Three. Agglomeration Technical absorption Creativity

34. Possible Lessons Vietnam can learn from Thailand --National positioning & strategic marketing --Channels to work closely with the private sector --Making institutes & committees work better --Hints for master plan contents and procedure Vietnam can also learn from Thai weaknesses --Internalize technology ! --Improve human resources for industrialization ! These are long-term goals. There should be properly targeted efforts from the early stage of industrialization

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