Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

Chapter 4
The Emergence of Innovative Firms in Thailand*
Saowaruj Rattanakhamfu and Supasyn Itthiphatwong†
Abstract: The Thai government aims to transform Thailand to be a knowledge-based
economy under the concept of “Thailand 4.0” within two decades under the 20-year
National Strategy Plan. However, such plan will not be realized unless Thai firms become
more innovative. This study aims at measuring the degree of firm innovativeness inThailand and understanding their firm characteristics, based on the Orbis Intellectual
Property patent data. We found that majority-foreign owned firms on overage own more
patents granted per firm than majority-Thai owned firms. The shares of patents owned bymajority-foreign owned firms are also higher than those owned by majority-Thai owned
firms. In addition, firm sizes are associated with the number of patents owned. We suggestthat Thailand should increase its investment in public and private research anddevelopment (R&D), produce more R&D personnel, and more importantly, manage its
R&D system more efficiently in order to achieve greater efficiencies.
Key Words: Innovation, Patent, Firm, Thailand

1. Introduction
Thailand has long ago become a middle-income country. As a result, it is suspected thatthe country might be stuck in the so-called “middle-income trap.” The Thai government
aims to transform Thailand to be a high-income and knowledge-based economy under
the concept of “Thailand 4.0” within two decades under the 20-year National Strategy
Plan (2018-2037). To achieve that target, Thailand must have an average GDP growthrate of 5 per cent per year, far higher than the average growth rate achieved in recent*

The authors would like to thank Dr. Somkiat Tangkitvanich for his valuable comments andsuggestions and Mr. Warakorn Awutpanyakul for his excellent research assistance.
†

Thailand Development Research Institute52

Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

years. According to the Bank of Thailand, Thailand’s growth rate is projected to be just
2.5 per cent in 2019 and 2.8 per cent in 2020 (Figure 1). 1
Figure 1: Thailand’s GDP Growth Rate, 2006-2020*
8
7
6Target is 5%

5
4
3
2
1
0
-1
-2

Note: * Forecast
Source: Bank of Thailand

To grow faster, the Thai economy must be knowledge-based and innovative.
During the 1960s-1970s, Thailand’s development path shifted from “Thailand 1.0,” anagriculture-based economy to “Thailand 2.0,” a light industry-based economy that
produced simple products such as footwear, garments and textiles. With huge investment
in infrastructure and active promotion of foreign direct investment (FDI) since the 1980s,
the country has been transformed to “Thailand 3.0,” a heavy industry-based economy that
produced products such as petrochemicals, automotive products, and electronics.
However, to become a developed country, Thailand needs to change structurally towards“Thailand 4.0,” an innovation-based economy (Figure 2). Needless to say, such vision
cannot be realized unless the majority of Thai firms become more innovative.

1

BOT Press Release on Monetary Policy Report, December 2019,

accessed on

https://www.bot.or.th/English/MonetaryPolicy/MonetPolicyComittee/MPR/Monetary%20Polic
y%20Report/PressMPR_December2019_58di84.pdf

53

Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

Figure 2: Thailand’s Structural Change

Source: Board of Investment

2. Literature Review
The relationship between innovation, firm size and market structure has been studied fora long time, at least since 1942 by Joseph Schumpeter. In his book entitled “Capitalism,
Socialism and Democracy,” Schumpeter argued that the primary sources of innovation
are large firms in a highly concentrated market, such as oligopolistic industries. In
contrast, small firms are hampered from innovation due to their high cost structure andthe lack of market power.
“The fundamental impulse that sets and keeps the capitalist engine in motion comes fromthe new consumers’ goods, the new methods of production or transportation, the newmarkets, the new forms of industrial organization that capitalist enterprise creates.”“The opening up of new markets, foreign or domestic, and the organizational
development from the craft shop and factory…that incessantly revolutionizes the
economic structure from within, incessantly destroying the old one, incessantly creatinga new one. This process of Creative Destruction is the essential fact about capitalism…”“…the competition from the new commodity, the new technology, the new source of
supply, the new type of organization…competition which commands a decisive cost or54

Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

quality advantage and which strikes not at the margins of the profits and the outputs ofthe existing firms but at their foundations and their very lives.”
Innovation can be defined in many ways. Here we adopt the definition used in the
Oslo Manual (OECD/Eurostat, 2005), which defines innovation as “the implementationof a new or significantly improved product (good or service), or process, a new marketing
method, or a new organizational method in business practice, workplace organization or
external relations.”
The Oslo Manual also defines four types of innovation: product innovation,
process innovation, marketing innovation and organizational innovation. Productinnovation is defined as the introduction of goods or services that are new or significantly
improved with respected to their characteristics or intended uses. Process innovation isdefined as the implementation of a new or significantly improved production or delivery
method. Marketing innovation is defined as the implementation of a new marketing
method involving significant changes in product design or packaging, product placement,
and product promotion or pricing. Organizational innovation is defined as theimplementation of a new organizational method in the firm’s business practices,
workplace organization or external relations.
To measure innovation output, patents are commonly used as a proxy measure in
empirical studies, such as by Pavitt (1985), Greliches (1990), Archilugi and Planta (1996),
and Nagaoka, Motohashi and Goto (2010). This is because, in order to be protected by apatent, the related technology has to be new, useful, and not obvious to someone working
in the related field. 2
However, the use of patents as a proxy indicator for the innovativeness of firms
has some major drawbacks. Firstly, patents are more appropriate for product innovationand process innovation than for marketing innovation and organizational innovation.
Secondly, even for an applicable innovation, there are other types of intellectual
properties (IPs), such as copyright, design rights, plant varieties, and trade secrets thatmight be more appropriate for protection. Thirdly, patents are often filed by firms in the
manufacturing sectors. This is particularly true in the case of Thailand, as Thai patent law
does not recognize some subject-matters, such as plant varieties, modified organisms,
software and business models, as patentable inventions.

2

https://www.wipo.int/ip-outreach/en/ipday/2017/innovation_and_intellectual_property.html

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Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

Nevertheless, we believe that patent data can capture some innovative activities
of firms in Thailand owing to several reasons. Firstly, the manufacturing sector
constitutes a large portion of the Thai GDP, and is perceived to be more innovative than
the agricultural and service sectors. Secondly, patent data provides strong and clear
evidence of output innovation which needs to satisfy the criteria specified in the Patent
Law. As such, patent data is more objective than survey data, which depends on thesurvey’s respondents, making it difficult to verify the accuracy of the data.
This study aims at measuring the degree of firm innovativeness in Thailand andunderstanding their firm characteristics, based on the Orbis Intellectual Property (Orbis
IP) patent data. Previous empirical studies on the characteristics of innovative firms in
Thailand usually use R&D and innovation survey data. For instance, Charoenporn (2005)
examined the determinants of successful innovative firms in the Thai manufacturingsector by using Thailand’s R&D and Innovation Survey conducted in 2000. Based on thesample of 310 firms 3 in the manufacturing sector, he found that in terms of the contextual
variables (such as firm age, firm size, exports, and foreign ownership share), innovative
firms, defined as firms conducting R&D and/or innovation activities, are older than noninnovative firms. However, there is no evidence that innovative firms are larger, more
export-intensive, or foreign capital-dependent, compared to non-innovative firms.
Recently, Suvanvihok (2015) tested the relationship between a firm’s
characteristics and the level of innovation, using Thailand’s R&D and Innovation Survey
from the manufacturing sector conducted in 2009. 4 Based on the logistic regression
results, he found that locally-owned firms are more likely to conduct innovation activities,
compared to foreign firms. Firms with higher sales or that have more technologicalactivities also tend to implement more innovation activities.
As discussed above, the accuracy of their analyses depends on the reliability ofthe survey data which is difficult to verify.

3. Stylized Facts of Innovative Firms in Thailand

3

The sample size included 310 firms conducting R&D and/or innovation activities. Classified byinnovative activities, there are 164 innovative firms and 147 non-innovative firms. Classified by
the firm’s nationality, there are 164 domestically-owned firms and 146 foreign-owned firms.
4

There were 3,239 samples. Of the total sample size 707 firms conducted R&D or innovation

activities in 2008.

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Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

Despite Thailand’s aim to escape the middle-income trap by promoting Thailand 4.0, an
innovation-based economy, the number of innovative firms is still limited in Thailand.
By using the number of patents granted as the proxy indicator of firms’ innovative
activities, we found that the number of innovative firms increased from 50 in 2000 to 123
in 2010 and 358 in 2019, achieving the compound annual growth rate (CAGR) of 9.3 and12.6 per cent during 2000-2009 and 2010-2019 respectively (Figure 3).
Figure 3: Cumulative Number of Innovative Firms in Thailand(As of February 14, 2020)
400
350
300
250
200
150
100
50
1971
1975
1977
1980
1983
1985
1986
1987
1988
1989
1990
1991
1992
1993
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

0

Source: The Authors, calculated from the Orbis IP database

Among these innovative firms, the total number of patents granted was 2,854
patents in February 2020 (Figure 4). Over the past 30 years, the technologicaldevelopment in Thailand has improved, but at not a very fast pace. The number of patents
granted was 543 in 1990, and this increased to 717 and 1,368 in 2000 and 2010,
respectively. The CAGRs are 2.7, 6.6, and 7.6 per cent during the 1990-1999, 2000-2010
and 2011-2020 periods, respectively.

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Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

Figure 4: Cumulative Number of Patents Granted in Thailand(As of February 14, 2020)
3000
2500
2000
1500
1000
500
0

Source: The Authors, calculated from the Orbis IP database

Moreover, a large number of the patents granted are concentrated in a small
number of firms. Most innovative firms still own very few patents. Figure 5 shows thatthe patent distribution is positive-skewed. In particular, there are very few firms owninga high number of patents. The mean of the patents granted is 8, and the median is 2.
Figure 5: Distribution of Patents Granted to Innovative Firms in Thailand
180
160
Number of Firms

140
120
100
80
60
40
20
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
21
24
25
28
29
43
48
49
53
54
86
88
125
137
158
175
194
484

0
Number of Patents

Source: The Authors, calculated from the Orbis IP database58

Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

4. Characteristics of Innovative Firms in Thailand
4.1. Nationality of Innovative Firms
It is interesting that more than half of the innovative firms (54.5 per cent) are fully-Thai
owned, contributing 31.5 per cent of the total number of patents granted, while 12.6 percent of innovative firms are fully-foreign owned, accounting for 21.6 per cent of the total
number of patents granted during 1920-2020 (Table 1).
Considering the number of patents granted per firm, majority-foreign owned firms
own a number of patents per firm higher than majority-Thai owned firms. For instance,
fully-foreign firms own 14 patents per firm, whereas fully-Thai firms own approximately
5 patents per firm. Furthermore, the shares of the patents owned by majority-foreign
owned firms (53.8 per cent) are higher than those owned by majority-Thai owned firms(46.2 per cent).
Table 1: Innovative Firms Classified by Shared Ownership (1920-2020)(As of February 14, 2020)
Innovative firms
Thai-sharedownership(per cent)Number ofinnovative
firms

100

45
25
7
52
34
195

Total

358

0
25 >= x > 0
50 >= x > 25
75 >= x > 50
100 > x > 75

Patents granted

Share(per cent)Number ofpatents
grantedShare(per cent)Number ofpatents per
firm

12.6
7.0
2.0
14.5
9.5
54.5

616
707
213
96
323
899

21.6
24.8
7.5
3.4
11.3
31.5

13.7
28.3
30.4
1.8
9.5
4.6

2,854
100.0
100.0
8.0
Source: The Authors, calculated from the Orbis IP database, Orbis Asia-Pacific database and theDepartment of Business Development databaseIn the past, most innovative firms were foreign-owned firms. However, since theearly 2000s, Thai firms have started to invest more on R&D activities and owned more
patents granted. Figure 6 shows that the number of patents held by fully-Thai owned firms
surpassed those owned by fully-foreign owned firms in 2002. During 2010-2019, the
CAGR of the patents owned by fully-Thai owned firms is 11 per cent.
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Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

Figure 6: Number of Patents Granted Classified by Firm Nationality(As of February 14, 2020)
1000
800
600
400
200
0
1990199219941996199820002002200420062008201020122014201620182020
Fully-foreign ownership

25>= Thai ownership >0

50>= Thai ownership >25

75>= Thai ownership >50

100> Thai ownership >75

Fully -Thai ownership

Source: The Authors, calculated from the Orbis IP, Orbis Asia-Pacific and the Department of
Business Development databases

4.2. Size of Innovative Firms
Firm sizes are associated with the number of patents owned. Particularly, very large andlarge firms own 74 per cent of the total number of patents granted, while medium-sized
and small firms hold 26 per cent of the total number of patents granted during 1920-2020(Table 2). Consistently, on average, very large firms own 24.2 patents granted per firm,
but small firms own only 2.9 patents granted per firm.

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Kimura, Koichiro, ed. (2020) Innovation in East Asia (BRC Research Report), Bangkok: Bangkok
Research Center, JETRO Bangkok/IDE-JETRO.

Table 2: Innovative Firms Classified by Size (1920-2020)(As of February 14, 2020)
Firms
Share
Size
Total
(per cent)
127
35.5
Small
87
24.3
Medium sized
85
23.7
Large
59
16.5
Very large
Total
358
100.0

Patents granted
Share
Total
(per cent)
369
12.9
371
13.0
686
24.0
1,428
50.0
2,854
100.0

Number ofpatents granted
per firm
2.9
4.3
8.1
24.2
8.0

Note: Followed size classification by Orbis Asia Pacific, very large companies match at least oneof the following conditions: operating revenue >= 100 million EUR (130 million USD), total
assets >=200 million EUR (260 million USD), employees >=1,000, and listed. Large companies
match at least one of the following conditions: operating revenue >= 10 million EUR (13 million
USD), total assets >=20 million EUR (26 million USD), employees >=150, and not very large.
Medium-sized companies match at least one of the following conditions: operating revenue >= 1
million EUR (1.3 million USD), total assets >=2 million EUR (2.6 million USD), employees>=15, and not very large or large. Small companies are not included in any category above.
Source: The Authors, calculated from the Orbis IP and Orbis Asia-Pacific databases

Since the last decade, firms of any size have become more innovative (Figure 7).
Particularly, the number of small firms holding the patents granted has increased
significantly, accounting for a CAGR of 14.7 per cent during 2010-2019.

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Research Center, JETRO Bangkok/IDE-JETRO.

Figure 7: Number of Patents Granted Classified by Firm Size
(As of February 14, 2020)
140
120
100
80
60
40
20
1990
1991
1992
1993
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

0

Small

Medium-sized

Large

Very large

Source: The Authors, calculated from the Orbis IP and Orbis Asia-Pacific databases

5. Conclusion and Policy Implications
Based on the Orbis Intellectual Property patent data, we found that majority-foreign
owned firms on overage own more patents granted per firm than majority-Thai owned
firms. The shares of patents owned by majority-foreign owned firms are also higher thanthose owned by majority-Thai owned firms. In addition, firm sizes are associated with
the number of patents owned.
For Thailand to become a high-income knowledge-based economy, firms in
Thailand must invest significantly more in creating innovation through R&D. However,private firms will tend to underinvest in R&D activities as they would not be able tocapture all the benefits from their R&D outputs, even with a secure intellectual property
protection regime. As a result, public subsidy to support private R&D is needed. The
subsidy can be in the form of tax breaks to encourage private R&D investment, providing
complementary public R&D, and providing qualified R&D personnel.
The Thai government has granted tax incentives for many years in order toencourage private R&D investment. Previously, it allowed a 200 per cent tax deduction
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Research Center, JETRO Bangkok/IDE-JETRO.

for private R&D investment expenditure. The rate was adjusted to 300 per cent after the
corporate income tax rate was reduced from 30 per cent to 20 per cent in 2015, in orderto keep the government’s subsidy constant at 60 per cent. However, R&D tax incentives
appear to have a limited effect in promoting private R&D investment, especially amongsmall-and-medium sized enterprises (SMEs) that have little before-tax profit. As a result,
we will focus on the two potentially more effective policies.
5.1. Providing complementary public R&D
The government should invest more in R&D to complement private efforts. However,
simply increasing public R&D investment will not guarantee greater innovation
capability. Thailand must also invest wisely by allocating its limited public funds more
efficiently and using them to encourage private investment with the aim of creating amore demand-driven system. To achieve this, the country will need to take the following
actions.
•

Allocate most of the R&D budget through research-granting agencies thathave a good management record, rather than through agencies run by the line
ministries that do not have research management capabilities. The aim is toincrease the efficiency of public investment in R&D.

•

Direct granting agencies to allocate funding for applied R&D on the basis ofmatching funds invested by the private sector. For example, one baht of publicmoney can be matched with one baht funding by the private sector. The aim
is to make universities and research institutes more responsive to the needs ofthe private sector, and encourage the private sector to invest more in R&D
activities.

In addition, without an appropriate accountability mechanism, publicly funded researchwould not generate sufficient economic return. We suggest that the government holds
publicly funded research accountability by setting clear targets:•

Set clear targets for research-granting agencies commensurate with the size of
their funding. These agencies should be regularly evaluated by independent
assessors to measure their impact based on cost and benefit analyses. The
results should be reported to Cabinet, Parliament, and the public.
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•

Set clear targets for government research institutes that receive direct funding
from the government commensurate with the size of their funding. They
should also be evaluated similarly to the research-granting agencies
mentioned above.

We also suggest that the government creates a specialized government research institutewith the sole mission of conducting R&D for commercialization. The institute can bemodeled after the Industrial Technology Research Institute (ITRI) of Taiwan, A*Star ofSingapore, the Fraunhofer Society of Germany, or other institutions with a solid recordof achievement. To ensure that the institute responds to market demands, its board of
directors should be composed mainly of representatives from the private sector. In
addition, it should be financed by matching the funds received from the public and private
sectors in the manner mentioned above.
5.2. Providing qualified R&D personnel
A shortage of R&D human resources is a major bottleneck inhibiting the private sector
from undertaking more R&D and innovation activities. To solve this problem, we suggestthat the government improves its R&D human resources policies by:•

Reforming the current government scholarship system to be more demand
driven by allowing private companies to contribute to scholarships inexchange for the right to hire scholarship recipients after graduation;•

Allowing and encouraging R&D professionals in public universities andgovernment research institutes to work in the private sector by expanding thecurrent “Talent Mobility” program; and•Allowing foreign R&D personnel and highly skilled professionals to work in
Thailand by abolishing the foreign national employment quotas andexpediting the relevant immigration procedures.

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Research Center, JETRO Bangkok/IDE-JETRO.

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