Ready or not?

opinion September 01, 2012 00:00

By Nophakhun Limsamarnphun

2,847 Viewed

Bank chief economist Dr Sutapa Amornvivat says the AEC will affect Thai companies to varying degrees, with larger firms and the service sector best placed to take full advantage


Dr Sutapa Amornvivat, chief economist and executive vice president of Siam Commercial Bank, says Thai companies will be affected by the 2015 advent of the Asean Economic Community (AEC) in different ways.
“The first group of companies are those that have the potential to expand their domestic markets. Second, there are those who can expand their foreign presence in Asean. The third group of companies is those that will be threatened by Asean’s single market and production base framework, and how they are going to defend their turf.
“In our recent study, we focused on services and other sectors, namely medical tourism and logistics, mainly because they have the ability to attract foreign customers in their respective markets, so they have a strong competitive advantage.
“In medical tourism, we have about 1.4 million visitors annually, making Thailand the biggest destination for medical tourism in the Asean countries, followed by Singapore, which has about 600,000 visitors.
“We are quite well known for quality services such as cosmetic and other surgeries, and dental services, but one of our problems is the growing shortage of qualified personnel.
“In logistics we’re strong in terms of the geographic location, as we can connect with other Asean neighbours north-south as well as east-west. In this context we can move cheaper resources from certain areas in the north, for example, to places where the economies are more developed or have higher purchasing power.
“This can be done through the network of logistics service providers in Thailand. In our study, there are both asset-light and asset-heavy companies that provide different kinds of services. The asset-heavy firms such as UPS or Federal Express have their own cargo planes and a variety of transportation modes.
“For asset-light firms, each of them may provide only one mode of transport or consultancy service to facilitate cross-border services, and if they can join together to form a national or regional network, they will benefit from the AEC – like Thai trucking companies working with counterparts in other Asean countries such as Malaysia, to provide a one-stop service.
“We also looked at another group of Thai companies in our recent study – those that have the ability to expand their presence in foreign markets. Contract farming is one of the areas that we can expand into other countries.
“The leading names include CP Group and Double A, as they do contract farming in Thailand and the CLMV countries, namely Cambodia, Laos, Myanmar and Vietnam.
“Location-wise and technology-wise, we can expand contract farming further, where labour and land costs are still cheap, so that we have more sources of farm and other raw materials.
“In terms of threats from the advent of the AEC, small and medium-sized enterprises (SMEs) will find it more difficult to go outside the country and compete due to the lack of economies of scale, but the big companies have already sharpened their skills and expanded into foreign markets.
“In the automotive and parts industries, we’re not seeing Japanese and other foreign investors moving out of Thailand, but they will instead expand their operations from Thailand into other countries.
“In the electronics sector, we think the trend is similar, as Thailand is part of the global supply chain for these industries,” she says.