ASEAN Economic Community

Date:

December 6, 2012

Author: mpn intertrade

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Is Thailand AEC Ready?

The ASEAN Economic Community or the AEC is just around the corner and for some countries, especially Thailand it is a huge deal. Now for those who don’t know what the AEC is, it is time to come out from under the rocks and face the inevitable change.

These days in Thailand, the news headlines are full of talks about the AEC and how it is going to affect just about everything from local and international business to even labor laws and policies. The main motive: to prepare the country to be able to compete and thrive against the other members of the community by the year 2015. The integration undeniably poses both opportunities and challenges for the country.

Also read: Why Thailand is crazy over AEC.

The current government has been persistent in their efforts to enhance Thailand’s reputation by outlining key strategies, but is Thailand even near ready for the AEC? Let’s take a close look at the status in different categories.

Automotive

This is probably one of the industries that stand to gain most from the launch of AEC. Expected benefits include the growth of market with higher quality raw materials at lower costs leading to lower prices. This is a great chance for new investments and for Thai companies to expand and improve on their capabilities.

Higher competitions will rise, however, but this can be a good thing if Thailand improves their standards and production, otherwise factories could easily be moved to neighboring countries.

Currently the Thai auto parts and car industry is booming and exports are on the rise and ranks number 5 in the global production of commercial vehicles. With statistics like these, the country should be well on its way of being the automotive hub for the AEC if challenges are met and opportunities are seized.

Some of the issues and challenges that will need to be faced are:

  • Rise in labor and raw material cost
  • Human resources and development
  • Lack of testing and R&D centers
  • Competition from countries like Indonesia and Myanmar that have attracted major auto parts investors
  • More “green” automotive projects
  • Safety issues –UN/ECE regulations

Agriculture & Farming

The agricultural sector has long been Thailand’s economic backbone and main source of GDP and export but it is still half of what Indonesia has to offer.

Farmland

Source: SCB EIC analysis based on data from Food and Agriculture Organization (FAO)

 

With the opening of the AEC, Thailand faces ample opportunities to grow with access to more labor (as more and more people would seek to enter Thailand for better living and higher wages) and it will also expand Thai agricultural shipments in the region. The more relaxed barrier systems will allow easier movement of goods, services, investment, capital and people. Thai-based companies will be able to move their manufacturing units to more suitable countries for expansion.

Access to more farmlands coupled with existing advanced technology and processes, Thailand stands out to be at an advantage with the formation of AEC.

Labor

Although Thailand already has improved its labor laws and policies in order to export to developed countries such as USA, UK and other western nations, Thailand will need to keep an eye out on once the AEC launches. As entry and exit will be freer, possibility of more relaxed labor laws and practices might take over. Thailand is also facing a shortage of skilled workers, and although the AEC could bring in unskilled labor from neighboring countries, skilled labor in Thailand could be attracted to other countries.

According to the National Economic and Social Development Board, other ASEAN members will have an advantage in terms of labor over Thailand with especially participating countries like Singapore with way more educated and skilled professionals. In order to compete, Thai would have to improve their skills and even English language.

Although research shows that Thailand leads other ASEAN countries in the fields such as medicine, Thai doctors and nurses are not getting paid as much as those in other ASEAN countries. As a result, Thailand will have to face a labor shortage due to fact that Thai doctors and nurses will want to work in countries where the can get a higher pay. Other professions that might be at risk in the country are engineers, architects, dentists, accountants and other business-related jobs.

Thailand will face a conundrum as it offers a competitive lifestyle but wages do not match those of countries like Malaysia and Singapore, so more skilled people would leave for better pay, leaving more unskilled workers back home. To stay competitive, Thailand will have to offer better wages to skilled workers and develop education and training for less skilled workers.

Tourism & Travel

The opportunities in the tourism and travel industry for Thailand are enormous but needs to be cautious in understanding these opportunities or lose out to companies in other countries. The main issues are:

Language: Thais working in the travel industry have to improve their language skills particularly English, or they will lose out to foreign workers.

Visas: as the AEC kicks off, more foreign investors will seek to enter through Thailand so more promotions and ease of acquiring visa should be incorporated into the strategy while keeping security in check. This would be very challenging for Thailand, however.

Attractions: although the country is already one of the best travel destinations in the region, more efforts must be made to build and promote tourist attractions to compete with countries like Singapore and Malaysia. They should also accelerate liberalization, which includes improving standards of quality in establishment and entrepreneurs, effective management to reduce costs, development of innovative tourism products in order to differentiate on price and customer satisfaction.

International Businesses & Foreign Investments

Thailand has great potential for being the regional trade hub for foreign investments. With the growth in countries like Myanmar and other developing ASEAN countries, more and more foreign investors are seeking opportunities there and Thailand could be very well be the gateway. However, Thailand needs to be more competitive with countries like Singapore by reducing its investment regulations, especially in the services industry.

Loosening up taxation policies would promote and improve growth of trade between EU and Thailand. In the recent economic downturn, this step would definitely make Thailand more versatile and therefore increase better relations with countries such as UK, US, Germany, Australia and other developed countries.

There are also concerns over ongoing political instability, social unrest, corruption and effects of the flood since last year, making foreign investments less as attractive as they could or should be.

Concluding thoughts, opinions, recommendation

The status of Thailand’s readiness has experts speaking from both side of the spectrum. Several experts and international ambassadors such as Lord Jonathan Marland and Asif Ahmad from UK have already raised concern that Thailand may not be ready for the AEC, however.

The University of Thai Chamber of Commerce (UTCC) also warns that Thailand should increase efforts to establish its brand prior to the AEC.

In a recent poll conduced by Bansomdej Poll of Bansomdejchaopraya Rajabaht University concluded that just over half of people (52.3%) thought Thailand is not yet ready for the establishment of the AEC in 2015. Moreover, only 16.7% of the respondents believed the country is ready for the trade and investment liberalization, while 31% were unsure.

Growth in Thailand has been very focused towards Bangkok and other metropolitan areas, as the rest of the country seems to flail behind in regards to language, education, skills, retail and trade.

If Thailand is to compete and survive in the ASEAN community, it will have to do so with great vigilance, change of policies and most importantly, improve on its educational and labor infrastructure.

Tell us what you think. Is Thailand ready? Will it gain more or be left behind?

4 Responses to “Is Thailand AEC Ready?”

  • Chadwick June 8, 2013 at 8:53 am Reply

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