# _Assembly-Based Manufacturing_

The previous sections highlighted the role of trade and manufacturing in Thailand’s growth performance over the last two and a half decades. These trends are in fact two sides of the same coin. In spite of investment slump and Asian crisis, the manufacturing sector is now approaching two-fifths of GDP, compared to one third of GDP before the Asian crisis and just under one-fifth of GDP in the early 1980s (Figure 6.C). The expansion is closely linked to the boom in exports, which increased in value from around one-fifth of GDP in the early 1980s to around 45 percent before the Asian Crisis and now contribute close to two-thirds of GDP (Figure 3.A). Manufacturing accounted for 87 percent of all exports in 2004, compared to 80 percent in 1993, 45 percent in 1986 and just over 30 percent in the early 1980s. Given the importance of this sector, it is worth inquiring which manufacturing industries are behind this rapid expansion. Figure 7.A shows a three-way breakdown of manufacturing exports, as classified by the Bank of Thailand (BOT). The share of high-tech products increased from 58 percent in 1993 to 78 percent in 2004, suggesting that much of Thailand’s recent growth has come with an orientation towards high-value products.

However, export classification of high-tech products are controversial and hard to interpret. The same high-tech products exported can be the outcome of a different process. It could involve product innovation and development, or sophisticated design and fabrication, or simply a relatively low-skilled based assembly process. The first process is most, and the last process least, productivity-enhancing. By most accounts, Thailand should be considered as an “assembler” rather than a “designer” or even an “innovator” (World Bank 2005a). According to the World Bank’s narrower definition of high-tech export products,<sup>3</sup> Thailand’s and Korea’s levels are on par lagging far behind those of Malaysia and the Philippines (Figure 7.B). Yet, Korea is clearly the most technologically advanced country among this group. The World Bank series also suggest a different trend than the BOT data: Thailand’s high tech export share more than doubled from 16 percent in 1988 to 34 percent in 1998, but subsequently declined to 30 percent in 2003. A similar trend is visible for the manufacturing sector overall rather than manufacturing exports only. Using BOT definitions, Figure 7.C groups the manufacturing sector into heavy industry, high-skill labor-intensive industries, traditional light industries, and food and related industries, and Figure 7.D shows the growth averages by period. The share of the first two industries was in 2003 at 58 percent still about 4 percent below the peak before the Asian crisis, even though the recovery since 1999 is driven by sectors such as motor vehicles, electronic and electrical apparatus and parts as well as chemical products (Figure 7.E). Comparison of manufacturing employment and enterprise numbers based on the 1996/7 and 2001/1 enterprise census data shows also a small decline in heavy and labor-intensive industries (Figure 7.F). These figures suggest that Thailand’s manufacturing is still as much focused today on raw material intensive and labor-intensive industries as it was before the Asian crisis, in spite of a sharp rise in exports over this period.

> 3 The World Bank classification defines high-technology exports as products with high R&D intensity, such as in aerospace, computers, pharmaceuticals, scientific instruments, and electrical machinery.

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