Most Thai firms to raise salaries at, or over, inflation rate
Many Thai companies have shrugged off global economic worries and offered inflation-beating pay increases over the past year.
According to the "International Business Report" by professional-services firm Grant Thornton, 19 per cent of Thai companies say they will increase salaries above the inflation rate, while 42 per cent plan to offer an increase that stays even with inflation.
"This may seem remarkable given the level of inflation," Tom Sorensen, the partner of Grant Thornton Thailand in charge of executive recruitment, said yesterday. "Look at these numbers that the Bank of Thailand has published for headline inflation - 3.8 per cent in 2011, 3.0 per cent in 2012, and it predicts 2.8 per cent in 2013 and 2.6 per cent in 2014. I know very few companies that get away with salary adjustments at or below these inflation numbers.
"Clearly, companies in Thailand appear not to be too worried about their global competitiveness in the same manner we see in China and other developing economies."
What has happened in Thailand has not been duplicated in other emerging markets. The survey shows that the number of businesses in emerging markets offering above-inflation pay rises to their employees has fallen away dramatically. The data are drawn from interviews with 3,450 chief executive officers, managing directors, chairmen or other senior executives from all sectors in November and December.
The report reveals that the proportion of BRIC (Brazil, Russia, India and China) companies expecting to give above-inflation pay rises fell to 11 per cent in the fourth quarter of last year, down from 21 per cent 12 months earlier. Similar falls have been observed in Latin America (from 32 per cent to 20 per cent) and the Asia-Pacific region (from 20 per cent to 12 per cent).
Over the same period, peers in the Group of Seven (from 10 per cent to 11 per cent) and the European Union (from 9 per cent to 12 per cent) have actually been offering more above-inflation pay rises.
"The rise of re-shoring, most notably in US manufacturing, is evidence of the slow erosion of what has been one of the key competitive advantages emerging economies held over mature economies," said Ed Nusbaum, CEO of Grant Thornton International. "With wages going up by 10-20 per cent a year over the past decade in places like China and India, but salaries in the US staying broadly level, the cost of outsourcing has risen fast.
"Businesses in emerging economies now seem to be rebalancing. Wages have rocketed in these economies over recent years, by margins that appear unsustainable. Further, uncertainty is weighing on growth rates as global trade slows. In order to maintain profitability, businesses in these emerging economies need to keep their costs down. A key way of doing this is by limiting salary increases."
The decreasing competitiveness of China as a low-cost wage base has been driven by average annual salary increases of close to 20 per cent over the past decade. If these rates were maintained, manufacturing wages would triple from 2011 levels by 2017.
However, the report suggests Chinese businesses are looking to counter this trend and maintain their competitive advantage - just 6 per cent are expecting to award above-inflation pay rises in 2013, down from 15 per cent this time 12 months ago. Over the same period, the proportion of businesses in China expecting an increase in profits has risen from 61 per cent to 90 per cent - a record high.
In Latin America, businesses are also showing signs of scaling back price rises. In the fourth quarter of 2011, 48 per cent of respondents expected their prices to rise over the next 12 months, falling to 44 per cent a year later. However, selling-price expectations in the BRIC economies have risen from 38 per cent to 40 per cent, and in the Asia-Pacific region from 31 per cent to 41 per cent over the same period.
"Scaling back price and wage rises will boost the competitiveness of an economy's exports," Nusbaum said. "However, if increases in workers' salaries do not keep pace with the prices they have to pay in the shops, domestic consumption will suffer.
"This presents a real challenge to economies such as Brazil and China that are trying to diversify away from export-dependent growth models towards more sustainable economic expansion driven by the domestic middle classes."