Chapter 3 Thailand
1. Top-down decision making
The entire working of the Thai government changed significantly four years ago when
the Thaksin administration came into power and began to run the country in a new way.
Previously, most Thai governments were weak and uncoordinated. But Mr. Thaksin’s
government is strong and decisive. He determines the general direction and orders
ministries and related organizations to work out the details and implement actions. This
top-down decision making is quick and affects the entire scope of policy making
including industrial strategy formulation. The role of economic ministries now is toconcretize predetermined policy orientation rather than build policies from bottom up.
Since Mr. Thaksin was recently re-elected for the second term, this policy style is likely
to continue for four more years. Further administrative reform is expected to accelerate
the Thaksin policies1.
In Thailand, the National Economic and Social Development Board (NESDB) drafts the
five-year plan. The ninth five-year plan (2002-2006) is currently in place. 2 It sets anoverall guideline with an emphasis on good governance, human resources, social
protection, environment, macroeconomy, competitiveness, and science and technology.
However, the strategic role of this plan appears to be diminishing as a result of the prime
minister’s strong governing style. Some even speculate that NESDB and the five-yearplan will be abolished in the near future. But others note that they are still needed tobalance economic and social needs and give overall consistency to policy formulation.
Many officials positively evaluate Mr. Thaksin’s initiative. As in many other countries,
Thai ministries did not talk to each other and their policies were often contradictory andineffective in the past. At present, policies have become more integrated under Mr.
Thaksin’s visions. He wants to run a country as if it were a business enterprise. Some
officials boast that their decision making is now faster than private sector decision
making, and dialogue among concerned ministries, domestic and foreign firms andinternational partners has been activated. It is said that policy direction is now much moreclear and transparent.
However, critical opinions also exist. Some say that Mr. Thaksin is very good at public
relations and image-building but whether his visions can be actually implemented is anentirely different matter. Some argue that corruption is still rampant or even intensifying
under Mr. Thaksin’s government.
2. Liberalization and local capability
1This chapter reflects information at the time of our visit (Feb.-Mar. 2005). Although the political situation
changed in 2006, we retain our original analysis since the political change does not invalidate policy
lessons we draw from Thailand.
2
Government of Thailand, The Ninth National Economic and Social Development Plan (2002-2006),
compiled by the National Economic and Social Development Board, Office of the Prime Minister.

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Although the governing style of the current Thai government is centralized, it is very
different from developmental states frequently observed in the history of East Asia. The
governments of Park Chung Hee (Korea), Deng Xiao Ping (China), Lee Kuan Yew(Singapore), Chiang Kai Shek (Taiwan) and Dr. Mahatir (Malaysia) were moreinterventionist in the sense that they tried to enhance or supplement the market
mechanism by a powerful state hand, fiscal and financial measures, public investment,
protectionism, discriminatory preferences, and so on, with the ultimate aim of bolstering
indigenous industries.
But the Thaksin government is seriously committed to international integration3, various
FTA initiatives, and equal treatment for all enterprises including domestic and foreign,large and small. Local content requirement was abolished in 2000 when WTO
commitments were fully executed. Thailand has no law requiring technical transfer. We
heard more than once that the current government had no interest in the nationality ofcompanies operating in Thailand, whether they are Japanese, Korean, European,
American or Thai. This is in sharp contrast to most other developing countries, including
Vietnam, which earnestly desire to strengthen indigenous industries. The Thaigovernment is also uninterested in which products or companies will win competition. Its
principle is “let the market decide.”
However, it is not entirely true that the Thai government is uninterested in local
capability. On the contrary, the main pillars of current industrial strategy are humanresource development (HRD) and supporting industry promotion with a particularemphasis on small and medium enterprise (SME) promotion. While this sounds
somewhat at adds with the statement that Thailand has no interest in the nationality of its
industries, it is not really so. Firms operating in Thailand and Thai-owned firms should beclearly distinguished. The government wants to strengthen the former which can include
any nationalities. It hopes to support several targeted industries with high domestic value(see below), but support measures will remain broad, nondiscriminatory and available tofirms of any size or nationality.
This is a new style of policy formulation which may be suited to the open character ofThai people as well as the requirements of globalization. It also goes well with the policy
advice of international organizations like the World Bank, IMF and WTO. It is clear thatheavy-handed interventionism of Japan and Korea in the past is no longer permissible inthe current international environment. In this sense, Thailand’s industrial policy
combining top-down liberalization with general support measures may set a new standard
for other countries to follow.
But some ambiguity remains. If Thai firms grow strongly along with foreign firms, all iswell. But if local firms are eliminated and the industrial base continues to be dominatedby foreign firms due to the lack of competitiveness or ineffective policy, will Thailand
still be satisfied? The current government seems to be saying yes, if it is the result of3

Within-ASEAN tariffs (CEPT) for manufactured products are already very low. However, some nonASEAN tariffs and non-tariff barriers on services are still high.

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global competition. But is it really politically and socially acceptable? All depends on thequality of human resources, entrepreneurship and policy measures on the Thai side.
However, it is frequently pointed out by Japanese manufacturers that Thai workers andmanagers have fundamental weaknesses. Can it overcome this long-term problem andrealize its visions? Are today’s open policies enough? It remains unclear4.
3. Targeted industries and policy formulation
The current government of Thailand is fairly clear about how the country wants toposition itself in an increasingly competitive world. It hopes to promote industries thathave high domestic value-added (i.e., creating more jobs) and can find niches in theworld economy (i.e., not competing directly with China and others). The following list
more or less exhausts the targeted industries and their slogans:
Automobiles and automobile parts (“Detroit of Asia”)
Agro-industry (“Kitchen of the World”)
Fashion, such as jewelry, leather goods and Thai silk (“Hub of Tropical Fashion”)
High value-added services, such as healthcare, spa and long-stay tourism
Electronics and ITC
Energy and renewable energy (newly added)
While the criteria for industrial targeting (value-added and niche-seeking) are well
specified, the listing of targeted industries is left to each ministry and agency to decide.
As a result, the names of promoted industries and how they are grouped differ slightly
from one government body to another depending on their scope of authority. For instance,“electronics and ITC” and “energy and renewable energy” are in the list of BOI but not in
the list of MOI. Tourism is sometimes listed separately from high value-added services.
The policy style of Mr. Thaksin is to impose broad—and often ambiguous—visions
rather than micromanage the contents of policy measures. After visions are set, relevant
ministries and agencies are required to work out detailed targets and action plans. They
must design, implement, monitor, revise and trouble-shoot them as necessary. For
example, no one can clearly explain what the automotive slogan of becoming a “Detroitof Asia” means. But in the MOI’s master plan of the automobile industry 2002-2006,
several numerical policy objectives are stated (see below). Then, at the level of annual
4

Kenichi Ohno pointed out this “glass ceiling” problem in his VDF discussion paper, “Designing aComprehensive and Realistic Industrial Strategy” (June 2004, pp.17-18) noting that no ASEAN countries
have grown out of dependency on foreign technology and management, unlike Korea and Taiwan who canmanufacture products by themselves. This issue was also raised in Industrialization Strategy of Vietnam(edited by K. Ohno and N. Kawabata, Yuhikaku, 2003, in Japanese), as follows: “Since the late 1980s,
some countries have succeeded in significant industrial agglomeration including Thailand (automobile) and
Malaysia (electronics)… But ASEAN has not really internalized industrial capability even after decades of
FDI absorption… While manufacturing dominates economic activity, technology and management havenot been localized. Since value-added tends to grow less rapidly than wages in these countries,
industrialization cannot break through a certain level… To avoid this trap, a country must eventually
graduate from simple processing and master skills, talents and systemic innovation. Can this beaccomplished under free trade and eternal FDI-dependency?” (pp.65-66).

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plans, concrete projects and budgetary allocation are determined. As new situations andproblems arise, strategies are adjusted through ongoing consultation between thegovernment and the private sector.
To facilitate coordination among government, businesses, and industrial experts, theThaksin government created nine industry-specific non-profit institutes under MOI
including steel, food, automobile, electronics, textile, etc. These institutes are required toplay key roles in the design and implementation of Thai industrial strategies. After five
years of establishment (which is about now), they are required to become financiallyindependent from the government budget. However, whether that is really possible oreven desirable is an open issue; to make enough money while contributing to the society
and economy at large is a tough requirement. Other issues include whether these
institutes can really play the expected role and whether their subsidized activities will not
crowd out private research and consultancy. At any rate, it seems too early to evaluate
their overall performance. In Vietnam, the option of creating central institutes with
sufficient mandate and human and financial resources should be seriously considered.
Vietnam also has many institutes and associations for each industry and under eachministry, with a pre-specified scope of research to support policy makers. Unlike
Thailand, their main purpose does not include providing linkage between the private
sector and the government. Their activities often remain ineffective because information
and resources are scattered.
One of the most salient features of Thai industrial policy formulation is the depth of
involvement of the private sector. Policy design, implementation and adjustment are
conducted through a close and continuous cooperation between the government and thebusiness community with the private sector taking the lead. This is in sharp contrast toVietnam where information channels between government and businesses are severely
limited. In Thailand, the work on a master plan begins with the government listening to
the private sector. The content and targets of the master plan are proposed by the business
community. At every stage of implementation, revision and problem-solving, the private
sector has many opportunities to voice its opinions. For this reason, there is very little
dispute among various stakeholders once the master plan is agreed. In fact, Thai masterplans do not require any official approval (like the Prime Minister’s approval in Vietnam)
to become effective. The official author is MOI but the ideas are shared among all in theprocess of drafting.
Another important initiative by the Thai government is the establishment of industryspecific government committees for individual key industries. They now meet frequently(every 1.5 months, for instance) and are actively attended by relevant officials andgeneral directors of major producers. In these committees, current situations areevaluated, new issues are identified, and special subcommittees are set up to draft
required solutions. Since the master plan sets only broad objectives, and since eachcommittee continuously adjusts the implementation of the master plan, there is no need torevise the master plan itself. For example, the automotive master plan 2002-2006 has notbeen revised during implementation.

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Vietnam also has official meetings between the government and investors, but they tend
to be very formal and infrequent. In Vietnam, the private sector is not asked to draft amaster plan at all; they are only asked to comment on the policy which the government is
implementing or has decided to implement.
4. Automotive master plan 2002-2006
Let us examine the content of the current automotive master plan of Thailand which was
produced jointly by the government and the private business community5. The drafting
process took about one year. It has several characteristics that are different from theautomobile master plan of Vietnam6.
First of all, the Thai master plan is longer than Vietnam’s. In the original language, theThai version is over 300 pages, of which 60% is dedicated to tables for detailed
implementation. The Vietnamese version is 63 pages long. Its executive summary version
which was approved by the prime minister is 15 pages long.
The Thai master plan has the structure similar to what Ohno recommended in his MOI
seminar in February 2004 7 . It starts with the analysis of the global and regional
automobile industry and the assessment of current domestic capability of Thailand. Thenit sets several broad numerical objectives to be achieved by 2006. Finally, the master plancontains a thick section delineating action plans to achieve these objectives.
The objectives set by the automotive master plan for 2006 are as follows (actually, theseobjectives were already achieved in 2005, one year ahead of the schedule):
To produce one million cars per year (valued at more than 500 billion baht)
To export 40% of the cars produced
To produce two million motorcycles (valued at more than 100 billion baht)
To export 20% of the motorcycles produced
To export more than 200 billion baht of international quality parts
To achieve localization of 60%
Here, two points should be stressed in comparison with Vietnam’s automobile master
plan.
First, the Thai government only specifies total production and total exports as objectives
rather than the number of cars by each category (cars with 5 seats or less, cars with 6-9
seats, less-than-2-ton trucks, 2-7 ton trucks, etc). It does not also care who (local, joint
venture, or foreign firms) produce and export cars to achieve these objectives. There is no5

SOE privatization was completed in Thailand about a decade ago and all manufacturing firms are now
private. The only remaining issue in SOE reform is when and how to privatize the power company.
6
The Master Plan for Thai Automotive Industry 2002-2006, proposed to the Office of Industrial Economics,
Ministry of Industry by Thailand Automotive Institute, September 2002. On the Vietnamese side, therelevant document is the Master Plan for Developing Vietnam’s Automobile Industry, October 2004.
7
Kenichi Ohno, “Designing a Comprehensive and Realistic Industrial Strategy,” VDF Discussion Paper
No.1, June 2004. Reprinted in VDF’s Improving Industrial Policy Formulation, edited by Kenichi Ohno
and Nguyen Van Thuong, and published by the Publishing House of Political Theory, 2005.

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national car project or designation of individual producers. As far as objectives areconcerned, there is no more detail than given above. As mentioned before, Thailand lets
the market decide winning firms and products.
Second, by contrast, the Thai automotive master plan is very detailed in implementation.
While the Vietnamese master plan also states supporting measures, it is only 3 pages long
(Part II, chapter 4, pp.49-51). In the Thai master plan, a large number of tables areattached over 180 pages to specify strategies, action plans, output, key success indicatorsand responsible organizations.
The main differences between the Thai and Vietnamese automobile master plans are
summarized below.
Table 3-1. A Comparison of Thai and Vietnamese Automobile Master Plans

Drafters

PeriodApprovalSize

Thailand

Vietnam

Joint product between MOI andprivate firms, coordinated anddrafted by Thailand Automotive
Institute
2002-2006 (synchronized withthe five-year plan)
Not necessary
About 300 pages. English andThai executive summaries aredownloadable from website
About one year

Institute for Industry Policy
Research (MOI) with commentsfrom relevant MOI departments

Drafting time
To become a “Detroit of Asia”
Broad vision

Targets

Implementation
details
Designation of
producers or
regions
Mechanisms forrevision andupdating

Output, export and localization
targets for 2006 are given for theentire industry (both automobiles
and motorcycles)
Matrices containing strategies,
action plans, output, successindicators and responsibleorganizations over 180 pages
Not specified

Automotive Committee, Thailand
Automotive Institute, otherinformal channels

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From approval date to 2010 witha view to 2020
Prime Minister
63 pages; the executive
summary approved by the prime
minister is 15 pages
Drafting time is specified but
completion depends on theapproval process
Contribute to industrializationand modernization, cope withintegration, use international
technology, etc.
Output and investment goals are
given for each vehicle categoryfor 2010 and 2020; localization
goals for 2010.
Seven policy measures arepresented over 3 pages

Four SOEs and two ministries
are specified, preferred regions
are also mentioned
Drafting body is responsible

Automotive experts at Thammasat University confirmed that policy is now designed andimplemented collectively and continuously between the government and private firms.
Although private firms sometimes try to bargain with policy makers, severe confrontation
does not happen in Thailand. According to the Thammasat University researchers,
localization requirements used in the past were not effective in improving Thai capability
due to loopholes in regulation and juggling by producers which only led to inefficiency.
To bolster local capability, supporting local producers and inducing foreign firms to
productively increase local procurement are crucial, but the Thai government did not
succeed in creating these conditions. The Thai researchers noted that Vietnam’s current
automobile market (about 40,000 cars per year, as against over 1 million in Thailand) was
too small to require producers to procure parts locally. They felt that the Vietnamesetarget to raise the localization ratio from the current 20% to 60% by 2010 was “veryambitious.”
5. Electrical and electronics industry
The Electrical and Electronics Institute (EEI) was established in July 1998 in the wake of
the Asian financial crisis. While Thai electronics exports are large (one-third of totalexports), they remain unstable due to weak domestic foundations in technology andsupply chain. Some electronics firms exit from Thailand and go to China. EEI is expected
to assist the government and private companies to cope with this situation.
One of the major functions of EEI is the operation of a testing center for electrical andelectronics products, which was taken over from another organization. The main purposeof this center is to conduct mandatory tests of products and parts, both local and imported,
to protect Thai consumers. While EEI is expected to earn income from fees and charges
and become independent from fiscal subsidies by now, equipment for officially required
tests continues to be provided by the state. EEI received 100 million baht (about $2.5
million) from the government in the last five years, which EEI considered was small
relative to its required tasks. While product tests follow international standards, EEI tests
are not yet widely accepted abroad. EEI also faces tough competition from private(mostly foreign) laboratories which certify products for export.
In policy areas, EEI is executing part of the Industrial Restructuring Plan (IRP) of thegovernment, with an emphasis on SMEs, clustering and environmental protection. While
Thailand already has an industrial base in plastic and metal processing, supporting
industries with higher value remain very limited. A huge technology gap still exists
between local and foreign firms. The “technology foresight study” was produced by EEIwith a support from Japan (JODC). EEI has also learned scenario planning with
American assistance and “technology road-mapping” (TRM) from a Korean expert 8
under an APEC scheme. TRM first analyzes trends in market, technology and product. It
then identifies the products to be produced domestically and those to be outsourced fromabroad.

8

Dr. Byeong Won Park, senior researcher, Korea Institute of Science and Technology Evaluation and
Planning (KISTP).

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EEI is not sure why electronics was not included in the MOI’s targeted industries.
However, the BOI’s list of target industries does include electronics and ITC.
6. FDI policy
The Board of Investment (BOI) is the central agency for promoting FDI. For long it was
directly under the Government Office but the recent administrative reform moved it
under MOI. The policies and operations of BOI are not affected by this change, butcoordination with other ministries has become a little more complicated. It should also be
noted that, while FDI absorption was a top priority in the past, the current government
also emphasizes promotion of domestic capability and SMEs.
In the last five decades, laws and policies for FDI attraction have constantly been revised
to respond to changing development objectives and investor needs. Investment promotion
laws have usually been revised every five years at the time of a new five-year plan. BOI
hopes to revise the law within this fiscal year (by September 2005).
One of the differences between Thailand and Vietnam is that FDI incentives and approval
are centralized in Thailand. Unlike Vietnam where local authorities can approve small
FDI projects, all projects are reviewed and approved centrally at BOI. Incentives are also
determined by BOI and local governments are not allowed to offer special privileges.
However, FDI firms in rural areas are generally given more incentives by a zone system
in which zone 1 (Bangkok), zone 2 (near Bangkok) and zone 3 (all other areas) offer
increasingly generous incentive packages.
Another difference between Thai BOI and Vietnamese MPI is the strength of FDI
marketing. Information on economic data, Thailand’s main attractions and opportunities,
promotion policies, investment incentives, international cost comparison, BOI services,
approval procedure, and so on, are conveniently summarized in the brochure, website andslide presentation which are updated frequently. Investment application forms aredownloadable from the BOI website which features six languages (English, German,
French, Japanese, Chinese and Thai). The slide presentation to our mission was clear andeffective. BOI believes that its welcoming attitude is the greatest attraction for foreign
investors. Vietnam can learn much from BOI in the area of country and land marketing.
BOI follows the government policy of openness and nondiscrimination among all
businesses. Localization requirement has already been abolished. It thinks that measures
to require technology transfer are “tricky” since overregulation irritates investors andcauses them to leave the country.

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