Vietnam and ThailandCoping with Regional Integration and Chinese Challenge in Different Ways

Kenichi Ohno (VDF & GRIPS)

March 24, 2005

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)

Today’s 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

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

VDF Proposal (Feb. 2004):

Vietnam’s 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

Manufactured Exports(% of total exports)

0%

20%

40%

60%

80%

100%

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Japan

Taiwan

Korea

Singapore

China

Malaysia

Thailand

Philippines

Indonesia

Vietnam

Source: ADB, Key Indicators of Developing Asian and Pacific Countries , 2003/2001/1993; IMF, International Financial Statistics Yearbook 1990 . For Japan, Japan Statistical Yearbook 2003/2002/1999 , Statistics Bureau/Statistical Research and Training Institute, Ministry of Public Management, Home Affairs, Posts and Telecommunications, Japan.

Vietnam

Top Group

2nd Group

Latecomers

Thailand

Problems with ThailandVietnam should avoid these

Uncontrolled urbanization: Too much concentration in Bangkok Traffic congestion Urban-rural income gap does not narrowEven 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)

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

Key Policy Directions1. 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)

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)

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 BOI’s list. Tourism is a separate category in MOI’s list.

Comparison of General Policy Orientation

Thailand Vietnam

Decision making style

Top down from PM with ministries to work out details

Bottom up with final PM approval

Integration Aggressive Step by step

Localization policy

Abolished in 2000; no preference for firm nationality

Will abolish after entering WTO; desire to promote VN firms

National positioning

Domestic VA and market niche; several industries targeted

Not clear; several industries listed in Five-Year Plan

Topic 3

Policy Formulation with Private Sector Involvement

Prime MinisterPolicy directionto be concretized

Order

RelevantMinistry

ExpertsPrivateSector

Industry-specificInstitute

Directinputs

Industry-specificCommittees

--Master plan--Implementation--Monitoring--Adjustment

Industry-specific Institutes Recently Thai Gov’t established 9 institutes

(automotive, electronics, textile, steel…) Key functions:

--Coordination among gov’t, 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?

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

Master Plans for Individual Industries

ThailandAutomotive

Institute

PrivateSector

PolicyMakers

Market info,targets

Policy concerns, measures

Coordination & drafting

PrivateSector

Thai MOI

Government& PrimeMinister

Drafting process—about one year; PM approval is not required

Submit

Explain

(Official author)

Report

Joint process

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

Five-Year PlanThe 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

Tentative Evaluation

Private firms (local & foreign) seem happy with government’s 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

Design and Execution of Industrial Policies

Thailand Vietnam

Private-gov't cooperation

Active and ongoing with many channels

Channels are not well developed yet

Numerical targets

Proposed by private sector

Government decides targets

Industry-specific committees

Regularly meet to draft and implement policies

Do not exist

Industry-specific institutes

Established for nine industries; expected to play pivotal roles

Many exist under ministries but policy role remains weak

Five-year PlanProvides general vision but without budget implication

Key document for budget & project allocation

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

ASEAN Auto Market Size, 2003

--Thai auto industry has developed over 40 years

--This year, Thai auto output is expected at 1.1 million

0

0.2

0.4

0.6

0.8

1

Thai

land

Mal

aysi

a

Indo

nesi

a

Philip

pine

s

Viet

nam

0.043 mil

0.54 mil +0.21 mil export

Domestic

Export

Million vehicles per year

Automobile Production

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005Prel.

Thailand

Vietnam

Million vehicles

Sources: Vietnamese automobile master plan (Sep. 2004); Thailand Automotive Institute website; author’s estimate.

Asian Crisis

Auto Price Comparison, 20041500cc sedan in capital city

0

10000

20000

30000

40000

50000

Mya

nmar

Sin

gapo

re

Ban

glad

esh

Vie

tnam

Indo

nesi

a

Chi

na

Tai

wan

Mal

aysi

a

Phi

lippi

nes

Tha

iland

Kor

ea

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

Thai Auto Master Plan2002-2006

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

Thai Master Plan Contents

1. Analysis of global situation

2. Analysis of domestic situation

3. Strengths & weaknesses of Thailand

4. Vision/goal Numerical targets5. Strategies--Business Intelligence Unit, HRD, market

expansion by FTA, good governance, infrastructure, clusters, supply chain, standardization, technology, management

6. Detailed action plans

VDF Proposal (Feb. 2004):

Suggested Master Plan Contents

Japan designed industrial policies like this. Thai auto M/P has the same structure.

What is thecurrent global

situation?

What is thedomesticsituation?

What is ourposition in the

world economy?

What are thekey national

goals?

Action plan A

Action plan B

Action plan C

Action plan D

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)

Comparing Auto Master Plans

Thailand Vietnam

Volume About 300 pages63 pages

(PM approval 15 pages)

Period 2002-2006 (same as 5YP) 2010 with a view to 2020

Broad visionTo become a "Detroit of Asia"

Contribute to industrializa- tion & modernization, cope with integration, use high technology, etc

For entire industry only For each category of auto

Action detailsMatrices containing action plans, indicators, etc. for 180 pages

7 policy measures over 3 pages, to be concretized later

Designation of producers

No4 SOEs, 2 ministries, 3 regions named

Production, export and localizationNumerical targets

Topic 5

SI and SME Promotion

After 40 years, Thai local industries are still weak

Part Procurement of Thai Auto Industry

Local firms25%

FDI firms in Thailand45%

Imports30%

Low-tech parts High-tech parts

Raw Materials Used by Parts Industry

ALL IMPORTED

Information by Nomura Research Institute, July 2004

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; gov’t should do more to improve local capability

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?

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

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

THE END