4.6 a- Technology Upgrading in Thailand a Strategic Perspe

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TECHNOLOGY UPGRADING IN THAILAND: A STRATEGIC PERSPECTIVE*

by

Chatri Sripaipan

Recent Development of the Thai Economy and Its Policies

The Thai Economy and Its Structure

Thailand has experienced spectacular economic growth over the past fewyears. From 1987 to 1990, the growth rate of GDP averaged 11.2 percent in realterms, making Thailand one of the fastest growing economies in the world. Despitethe Gulf War, a military coup, and the economic slow-down in major industrializedcountries, the growth rate for 1991 is estimated at 8.0 percent. The NationalEconomic and Social Development Board (NESDB) expects the economy to grow at

an average rate of 8.2 percent throughout its Seventh Plan (1992-96).

However, a double-digit growth rate for a few years is not as significant asthe fact that the economy of Thailand has been expanding at an average rate of 7percent per annum throughout the past three decades. Such development hascaused two important structural changes in the productive sectors. The firstoccurred in 1979, when the output of the manufacturing sector exceeded that of theagricultural sector for the first time. The manufacturing sector had 22.1 percent of GDP, followed by the agricultural sector and the trade sector at 21.2 and 16.4percent, respectively. The second change was in 1988, when the agricultural sector was overtaken by the trade sector. The GDP percentages of the manufacturing,

trade, and agricultural sectors were 23.3, 17.1, and 16.9 respectively. This wasbecause the industrial sector had been expanding at a rapid average rate of 9.2percent during the period from 1970 to 1989, while the agricultural sector grew at anaverage rate of only 3.9 percent during the same period. Consequently, Thailand isbecoming industrialized despite the fact that the majority of the work force (over 60percent) is still in the agricultural sector.

Within the manufacturing sector, the shift of the production structure fromresource-intensive to labor-intensive industries has been significant. Between 1970and 1987, the marked decrease in the share of resource-intensive industries, from54.3 percent to 39.7 percent, was offset by an increase in labor-intensive industries,from 23.3 to 38.7 percent, while there has been little change in the shares of scale-intensive, differentiated, or science based industries. As for exports, their structure

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*REPRINTED FROM: Denis Fred Simon (ed.), The Emerging TechnologicalTrajectory of the Pacific Rim (Sharpe: Armonk, N.Y., 1995), Chapter 7, pp. 147-170.

over the same period has undergone a more profound change. There has been alarge fall in the share of resource-intensive industries, from 86.8 percent in 1970 to37.4 percent in 1987, while all four others made substantial increases. In particular,

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labor-intensive industries increased from 10.7 to 39.0 percent. Compared with theproduction structure, this shows that the shares of resource-intensive, labor intensive, and science-based industries are similar to those in production. However,the share of differentiated goods exports is more than twice as large. This suggeststhat Thailand is beginning to develop some comparative advantage in this area.nevertheless, differentiated goods exports were a mere 12.9 percent. The bulk of exports (over 75 percent) belonged to the resource-intensive and labor-intensiveindustries.

Table 1 illustrates the points made in the previous paragraph while showingmore recent trends. Although the majority of industries are still resource-intensive,labor-intensive industries, which have been rapidly developed over the past decade,took over the top two places as well as the seventh. The differentiatedgoods integrated circuits and the science-based industries computer andperipherals---are not doing too badly, but both belong largely to multinationalsubsidiaries, which shifted the more labor-intensive portions of their operation intoThailand primarily to seek a lower-cost manufacturing base.

__________________________________________________________________ __ Table 1

The Top Ten Export Items of Thailand (in million baht)1989 1990 1991Value Value Value

Item Rank Rank Rank

Garments 57,892.4 (1) 65,804.2 (1) 76,000 (1)Gems and jewelry 28,421.9 (3) 34,891.8 (3) 42,000 (2)Computers and peripherals 26,835.1 (4) 38,694.5 (2) 40,000 (3)

Rice 45,462.3 (2) 27,769.4 (4) 27,000 (4)Tapioca 25,052.3 (6) 24,465.2 (5) 27,000 (4)Integrated circuits 18,426.2 (8) 21,580.5 (8) 27,000 (4)Foot wear and pants 13,524.4 (10) 20,219.5 (10) 25,000 (7)Rubber 26,431.7 (5) 23,557.3 (6) 24,600 (8)Canned sea food 19,767.9 (7) 21,623.4 (7) 23,600 (9)Frozen shrimp 16,058.6 (9) 20,453.7 (9) 22,000 (10)

Source: Ministry of Commerce, Export target in 1991 (as of June 1991).

Recent Changes in Policies

The Thai government’s monetary policy of international liberalization wasinitiated toward the end of the Prem government (1980-88). This policy picked up

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its pace in the Chatchai government (August 1988-February 1991), and in spite of the military coup on February 23, 1991, it continues and has even acceleratedunder the interim government. Under the Anand administration, liberalization andlaissez-faire have become the fundamental philosophy propelling tax reform and thedismantling of government regulatory controls. Some developments are listedbelow.

Monetary Policy

After complying with Article 8 of the International Monetary Fund in May1990, the second phase, liberalization of foreign exchange, came into effect in April1991, as planned. The Bank of Thailand is considering the right timing to announcethe third phase of liberalization, in which foreign exchange controls will be abolishedentirely.

Tariff Policy

Thailand has made an offer GATT to reduce import duties on 1,700additional items. As of October 1990, the tariff rate for production machinery wasreduced from 20-40 percent to 5 percent. In July 1991, import duties on completelybuilt-up (CBU) cars and completely knocked-down (CKD) parts were sharplyreduced, resulting in reduced protection for the domestic car industry. At about thesame time, computer taxes were also sharply reduced to promote the usage of computers in businesses and industries. In this effort, less attention was paid to theinfant domestic computer industry, which would certainly be affected.

The Ministry of Finance has a plan to reduce the ceiling tariff rate from 60 to30 percent, to decrease the number of tariff rates to only six, and to correct tariff

anomalies between finished goods, intermediate products, and raw materials.

Tax Policy

Perhaps the development that has had the most far-reaching effect is thevalue added tax (VAT) which is currently in the process of being enacted into law.When implemented, it should bring in a broader tax base and eliminate the presentproblem of cascading business taxes, at each stage of transaction between differentcompanies, which has long been plaguing the development of subcontractingindustries. Other important tax and related changes that have been or are in theprocess of being implemented by the Ministry of Finance are a leasing tax,corporate merger tax, bad debt reserve, depreciation rules, gold bullion importing,corporate income tax, savings interest tax, and holding company dividend tax.

Energy Pricing Policy

The gasoline price has been floated. The electricity rate will follow suit soon.

Industry Policy

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The Ministry of Industry has lifted bans and restrictions on the establishmentand expansion of twenty-one types of industries, including rice milling, machineryadaptation for mining, ice making, matches, electric cable, asphalt, polyester policol,alum, large plastic bags, sulphuric acid, steel reinforced concrete, plastic mats,cotton spinning, the export of radiated minerals, textiles and garments, tapiocaproducts, bottles, ethyl alcohol, fishing nets, soda ash, and cement. The power tolicense factories has been delegated to provincial authorities. At the same time, theministry has stepped up its efforts to control industrial pollution. It has taken actionagainst 301 factories out of the 717 complaints it had received on environment.

Status of Science and Technology in Thailand

A Brief Historical Account

The importance of scientific research has been recognized since theannouncement of the Constitution of the Royal Thai Kingdom B.E 2492 (1949),which states in Article 65 that “The government should support research in the fieldsof liberal arts and sciences.” Later in 1956, the government passed the NationalResearch Council Act, with the view that the progress of the country had to bebased on scientific research to sustain long-term development. The establishmentof the National Research Council can be seen as the starting point to encourageresearch and development (R&D) to systematically increase the scientific andtechnological capability of the country. In 1963, the National Applied ScienceResearch Institute was established to take charge of implementing research inapplied sciences to promote and utilize natural resources to develop industry andthe country. In 1979, the Ministry of Science, Technology and Energy (MOSTE)

was established with the aim of playing the central role for setting national policyand for planning in science, technology, and energy. A number of organizationsconcerning science and technology were brought under its wing from the Ministry of Industry and the Office of the Prime Minister. They are the Department of ScienceServices, the National Research Council of Thailand, the Office of the NationalEnvironmental Board, the Office of Atomic Energy for Peace, the National EnergyAdministration, and the Thailand Institute of Scientific and Technological Research(TISTR) (previously called the National Applied Science Research Institute).However, a number of science and technology (S&T) activities remain with other ministries. Research in agriculture is mainly conducted in the Ministry of Agricultureand Cooperatives, which consumes over 40 percent of the government research

budget. The Ministries of Education and University Affairs are two large R&Dperformers which sent about another half of the country’s R&D budget.Furthermore, the Ministry of Industry is responsible for industrial standards and hasbeen providing technical assistance to small and medium-sized industries.

After the establishment of MOSTE, the next Five-Year National Economicand Social Development Plan, the Fifth Plan (1982-86), was the first five-year development plan in which science and technology issues were explicitly addressedin a separate chapter. The two issues addressed in the plan were: first, the use of science and technology to increase production efficiency was still rather limited; and

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second, modification or improvement of imported technology and technologicaldevelopment was slow. The proposed measures were:

1. To promote the survey of basic data essential to technologicaldevelopment.

2. To promote appropriate foreign technology transfer.

3. To increase the country’s scientific and technological research anddevelopment capability.

4. To mobilize manpower for scientific and technological development.

The achievement in that period was rather limited. More visible results werea number of signed agreements for science and technology cooperation with foreigncountries. The most significant of these was the Science and Technology for Development Project, with a total fund of US$49 million over a period of seven years

with assistance from the United States. Another achievement is the establishmentof the National Center for Genetic Engineering and Biotechnology (NCGEB) atMOSTE as a funding agency for a network of research laboratories in universitiesand TISTR in the same discipline.

The Sixth Plan (1987-91), also contained a chapter on the Science andTechnology Development Plan. It recognized the significance of developing S&Tcapability and identified two key issues: that cooperation between S&T units of allgovernment agencies and the private sector was the key to success, and thateffective linkage between developers and users of S&T was needed to have animpact on the problems and the needs of the private sector. The S&T Development

Plan has four main implementation plans:

1. S&T management system and infrastructure development;

2. increase in efficiency of S&T activities;

3. S&T manpower development; and

4. increase in efficiency of production.

Under this plan, the Office of Science and Technology Development Board(STDB) was established to operate the Science and Technology for DevelopmentProject. MOSTE also established two more national centers: the National Center for Metals and Materials Technology (NCMMT) and the National Electronics andComputer Technology Center(NECTEC). This makes a total of three nationalcenters at MOSTE, corresponding to the three areas of emphasis by STDB, namely:biotechnology, materials, and electronics. These three priority areas have beentargeted by MOSTE since the beginning of the Sixth Plan.

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One of the most important milestones in promoting science and technology isthe Law for Development of Science and Technology. This law establishes STDBas a juristic entity to administer a “Science and Technology Development Fund” tobe obtained from the government and other sources, including internationalagencies. The law also establishes the three national centers as specializedresearch institutes with the role of carrying out research and development, both in-house and under contract from industries.

Research and Development

R&D Expenditure

Both the Fifth and the Sixth National Economic and Social DevelopmentPlans set a target R&D budget of 0.5 percent of GNP, or roughly about 2 percent of the government budget. However, as shown in Table 2, the actual R&Dexpenditure between 1983 and 1987 averaged only 2,272 million baht a year, or 0.22 percent of GNP. The R&D expenditure figure of 1987 was the first to be

derived from actual surveys, whereas those of previous years were budgetallocations. In any case, it is very low. It is much lower than the R&D expendituresof developed countries, which range between 2.5 percent and 3 percent of GNP,and than those of newly industrialized countries, which range between 1.0 percentand 2.0 percent of GNP. Other distinct features from Table 3 are that R&Dexpenditures of state enterprises and private firms were both very low: only 277.24and 181.56 million baht or 10.41 and 6.81 percent respectively. To make mattersworse, the state enterprise category included TISTR, which is the only major research institute in the country, with an annual budget of about 200 million baht.Therefore, the R&D expenditures of all other state enterprises were actually verylow indeed.

__________________________________________________________________ _ Table 2R&D Expenditudes (in million baht)

1983 1984 1985 1986 1987

R&D expenditures 1,411 2,824 2,452 2,010 2,664.5CNP 903,353 961,961 996,802 1,072,242 1,211,431% of GNP 0.16 0.29 0.24 0.18 0.22

Source: NESDB, National Research Council of Thailand.

Table 3

National R&D Expenditure in 1987 (in million baht)

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R&D Funding

For individual researchers, there are a number of research funding sources.A university lecturer may start to apply for research grants from his or her ownuniversity on the order of tens of thousands of baht per project. For bigger projects,that lecturer should seek outside funding. The National Research Council of Thailand (NRCT) is a possible source, but the amount of each grant is very limitedand the coverage is very wide. In 1990, NRCT funded 120 projects with a budget of

21.75 million baht. The three national centers can accommodate research projectsof about one million baht, while STDB sets a limit of 6 million baht per project. Apartfrom domestic sources, there are a number of foreign funds. Table 4 shows thatforeign sources accounted for 14.55 percent of R&D funding or 387.60 million bahtn 1987.

Research funding in the three priority areas of biotechnology, materials andelectronics are shown in Tables 5, 6, and 7 respectively. It is quite clear that thearea of biotechnology, by virtue of the strength of researchers and the interest of foreign funding sources, has been able to attract a much larger level of supportcompared with the other two areas. The total research fund in the past five years

for biotechnology was 709 million baht, compared with 272 million baht and 187million baht, respectively, for materials and electronics.

R&D Outputs

Research and development outputs are usually in the form of researchreports and articles published in journals or presented at academic conferences.The research community of Thailand has been able publish about 300 articles ayear in international journals covered by the Science Citation Index (see Table 8).Of these, health science contributed about 130 articles a year, followed by biologicalscienceTable 4

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__________________________________________________________________ __ Table 5

Funding of Biotechnology Projects from Five Sources Total

Areas of STDB NCGEB ATT CDR PSTC (No. of

Biotechnology 1987-91 1984-90 1985-90 1985-90 1984-90 projects)

1. Agriculture 40 50 34 8 26 158

plant 18 22 16 4 18 78 animal 13 7 16 1 2 39 food 5 14 2 3 3 27 fertilizer 4 7 3 172. Public health 4 9 6 20 393. Environment 3 7 2 4 1 174. Energy 2 1 35. Others 12 2 1 15Total (No. of Projects) 47 80 38 19 48 232Budget (million baht) 198,634 10,892 200.59 37.53 163.61 709.28

Key:STDB = Science and Technology Development Board;NCGEB = National Center for Genetic Engineering and Biotechnology;ATT = Agricultural Technology Transfer Project, U.S.A.;CDR = U.S. - Israel Cooperative Research Development Program, U.S.A.;PSTC = Program in Science and Technology Cooperation, U.S.A.;Source: Proceedings of the 1991 Annual Conference on Thai Science and Technology in the

Year 2000, Office of the Science and Technology Development Board, September 1991.

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and physical science at about fifty articles each. The other three areas of naturalresources and environmental science, agriculture, and engineering and technologyproduced about twenty to forty articles each. Although the number of articlespublished internationally by field may roughly reflect the field’s scientific strength, itshould also be noted that about one-third of these articles were contributed byforeign scientists in joint research efforts. This could be interpreted as suggestivethat foreign interest and funding would also affect the number of published articlesin a particular field. Furthermore, the number of research articles published ininternational journals does not represent the research strength of the whole countrydue to the small number of researchers involved. A more comprehensiveevaluation should include other local journals and conferences.

In developed countries, the number of patents registered can be used as ameasure of technological capability in a particular field. However, in a developingcountry like Thailand with very few commercializable research results, this number is meaningless as an indicator. Since the enactment of the Patent Act in 1979,1,827 patents were issued up to June 1990. Out of these issued patents, 1,304

were of industrial designs, some of which were of rather simple nature. Up toAugust 1990, 526 patents on engineering and chemical inventions were issued: 456belonged to foreign nationals, 63 belonged to Thais, and 7 were not specified (seeTable 9). Therefore, it is clear that the Thai patent system is being used byforeigners more than by Thai nationals. An effort to track down the 63 inventorsresulted in 13 respondents, of which 4 had commercialized their inventions. Mostof the inventors worked on their own and relied on their own income for funding, andfew of the inventions required a large amount of money for investment.

It should be noted that some of the research funded by STDB and the threenational centers has so far been commercialized. We can certainly expect more tocome in the next five years. it should be very interesting to evaluate the impact(both direct and indirect) of these research projects on Thailand’s technologicalcapability.

R&D in the Private Sector

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Research in the private sector is much less than that of the public sector. Allthe companies in Thailand spent only 181.6 million baht (US$7 million) or 6.8percent of total R&D expenditure in 1987. A previous survey suggested that Thaicompanies only invest 0.1 percent of their sales on R&D which is well below theAsian NIEs.

This low level of expenditure explains the reported weakness of innovativecapacity in Thai companies. A major study revealed that Thai industries were quitegood in “operating” technology as well as “adapting” technology, but wereremarkably incapable of “innovating” and creating new technology.

[My 1990] study of the R&D of the private sector found that the majority of Thai companies concentrate on “operating” or utilizing existing technology. Thisdoes not mean that they run outdated or primitive operations. Actually, some haveacquired state-of-the-art technology and operate ultramodern plants. Some arequite large. Some are subsidiaries of world-class multinationals. They have not,

however, felt the need to undertake development work locally. A smaller group of companies have undertaken their own “adaptation” and development of existingtechnology, usually driven to do so by the nature of the local operating environmentor by market needs. For example, in adapting to the local operating environment, aforeign joint venture in aquaculture modified Taiwan hatcher equipment and aimedto produce least-cost feed formulations using locally available raw materials. Other companies were led to technology development by market needs. Two consumer goods multinationals have continuing programs to modify products such as soap,detergents, and foods to suit local customs and habits. Predictably, cases of R&Dto create new technology are extremely rare and are affordable only to a few largecompanies. Recent results from such companies’ research are, for example, the

production of special high-grade refractories and the formulation of shrimp feed,which has a better growth efficiency ratio than equivalent products manufactured inTaiwan and Indonesia.

Private companies are not conducting more R&D because of the constraintsof economic and policy factors and S&T infrastructure, including the followingfactors:

1. Due to high-growth economy, firms are rapidly scaling up productioncapacity to meet excess demand. Therefore, they do not feel thepressure for innovation or differentiation of products.

2. Government policies limit the number of companies entering individualsectors and therefore lessen the competitive pressure needed tostimulate R&D activity.

3. Import taxes on R&D equipment and precision instruments remain high,limiting the ability of small and medium-sized companies to acquire them.

4. Taxes on royalties and license fees for foreign technology further increaseits cost.

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5. There is a need for improved availability of technical consultancy servicesand information of S&T activities in the public sector.

6. There is a clear shortage of technical manpower to satisfy present levelsof demand for production engineers and technicians necessary for operating and absorbing the imported technology. Although there is noobvious shortage of manpower for technology development or generation,this is more due to underactivity in R&D on the part of Thai companiesthan to an oversupply of R&D personnel.

7. Existing companies finance technology acquisition using internalresources or raise loans from commercial banks as part of an overallbusiness development plan. Some financial assistance to small andmedium-sized companies does exist, but its impact has yet to be felt.

Assistance to the Private Sector

The Board of Investment (BOI) is providing incentives to R&D projects byexempting import taxes on machinery and corporate tax irrespective of the locationof the project. So far there are fifteen projects approved with a total investment of 996 million baht.

There are currently three sources of soft loans at low interest for privatesector R&D activities: MOSTE, STDB, and the Bank of Thailand (BOT). In addition,STDB also operates a grant fund that requires a matching allocation from thegranted company.

The performance of these funds is summarized in Table 10. It should benoted that MOSTE’s loan fund has the longest history three years and has beenthe most heavily utilized, with ten projects approved totaling 75.3 million baht.STDB’s activities have improved markedly since March 1990, from only two loanprojects to seven loan projects and four grant projects. The Bank of Thailand’s fundis least utilized since it is restricted to R&D projects promoted by BOI.

S&T Manpower

It was estimated that in 1990 there were 36,700 scientists, 49,934 engineers,and 33,847 agriculturists with a bachelor’s degree or higher level of education.Below the bachelor’s degree there were 1,494, 706,317, and 115,256 persons withscience, engineering and agriculture education respectively. This makes a total of 120,481 persons or 12.8 percent with a bachelor’s degree or higher qualification,and 823,067 persons or 87.2 percent with less than a bachelor’s degree. Thus, thetotal number of S&T personnel is 943,548 persons, which is 2.9 percent of thecountry’s labor force; Thailand has 15 scientists and engineers per 10,000population. This is very low compared with say, Korea, which has 122 scientistsand engineers per 10,000 population.

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In the past few years, because of the economic boom, Thailand has beenexperiencing a severe S&T manpower shortage due to excess demand. In 1990,1250 scientists and 2,531 engineers were graduated but the demand forecasts for scientists and engineers in 1992 estimated a need for 2,532 and 5,136 persons,

respectively. Despite the recent effort of the Ministry of University Affairs toaccelerate the production of engineers in fields of severe shortage that is,mechanical electrical, industrial and chemical engineers the shortage is expectedto persist throughout the Seventh Plan (1992-96). This shortage has alreadyresulted in an alarming rate of brain drain from the public sector to the private sector for a much higher salary. In the private sector, there are complaints about thedifficulty of recruitment, high salary demand, and high turnover rate.

R&D manpower in 1987 is shown in Table 11, which indicates that Thailandhas a total of 8,493 researchers and a full-time equivalent (FTE) of 5,539 persons.The university has the higher number of researchers, 4,898, but the FTE is lowered

considerably to 2,518, which is only slightly higher than FTE of government,2,416.75. State enterprises, private firms, and non-profit private organizations havefar fewer researchers: 527, 145, and 21, respectively. As for the number of researchers in each academic discipline, Table 12 shows that medical science hasthe highest number, 8,261. Ninety percent of them are physicians, who areclassified as having master’s degrees. Social science and humanities come secondat 2,229, and engineering is last at 1,176.

To make an international comparison, the number of research scientists andengineers (RSE) in Thailand totals 2,846 persons or 1 person per 10,000 workers.This is much lower than those of other countries; for example, there are 32 RSE per 10,000 workers in Taiwan, 44 in Sweden, and 79 in Japan.

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Scientific and Technological Services

Scientific and technological services are support services enabling thesmooth and efficient operation of S&T activities. They encompass metrology(industrial standards), calibration services, testing service, information service,technical consultancy service, and other supportive infrastructural services.

The Ministry of Commerce is empowered by the Weight and MeasurementsAct 1923 to maintain primary standards; i.e., the licensing and certifying authority for weighing machines and linear and volumetric measuring instruments. In 1985, thecabinet assigned the Department of Scientific Services to maintain mechanicalprimary standards and the Thailand Institute of Scientific and TechnologicalResearch (TISTR) to maintain electrical primary standards. The Thai IndustrialStandards Institute is responsible for the preparation and publication of Thaiindustrial documentation standards. Most of Thai calibration services are operatedby the public sector except the Technological Promotion Association (Thai-Japan),which is a private organization. Product testing services are carried out by aboutthirty authorized laboratories in the public sector. To take care of the ever-increasing work load, about seven testing laboratories in the private sector havebeen certified.

Apart from major libraries in universities, a number of organizations providespecialized information services. For example, the Scientific and TechnologicalInformation Division, Department of Science Services, offers patents and industrialstandards services; the Technology Information Center, Technological PromotionAssociation (Thai-Japan) provides practical technical information such as trade

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catalogues; and Technical Information Access Center (TIAC) of STDB supplies anon-line information search service from a number of foreign databases.

However, there are a lot of expressed needs for information not only fromforeign sources, but also about domestic science and technology activities. Another complaint from manufacturers who want to export is the lack of internationallycertified testing facilities to eliminate the need for testing products abroad.

Technology Strategy of Thailand: The Seventh Plan

The Seventh National Economic and Social Development Plan (1992-96) willhave a chapter on Science and Technology Development (NESDB, 1991). Itsessence is described briefly below.

There are three main achievements in the development of science andtechnology to date. First is the creation of awareness in the role of science and

technology among the populace. The top administrators in the government arebecoming more supportive in the promotion of science and technology. Second,there is more R&D in the public and private sectors. The government hasestablished STDB and the three national centers to fund R&D. For the privatesector, it provides low-interest soft loans and a grant for R&D through a number of agencies, and fiscal incentives for R&D projects promoted by BOI. Third, about1,200 scholarships for advanced degrees in science and technology in industrializedcountries are being granted for future researchers and university teachers.

The targets set by the Seventh Plan are:

1. To expand the use of technology in industry and agriculture to increaseproductivity at a rate of 2.6 and 1.8 percent per annum to support their expansion at a rate of 9.5 and 3.4 percent a year, respectively.

2. To increase the production of S&T manpower in the following categories:engineers from 9.8 to 14.9 persons per 10,000 population; scientists from7.2 to 10.2; agriculturists from 6.7 to 10.5 and technicians from 141.5 to221.5; and researchers (full-time equivalent research scientists andengineers) from 1.4 to 2.5.

3. To increase the R&D expenditure to 0.75 percent of GNP in 1996. It is tocomprise 0.5 percent of GNP from the government and another 0.25 fromthe private sector.

The strategies to achieve the above targets are:

1. Stimulate the private sector to utilize more technology by creating acompetitive atmosphere, by providing fiscal incentives, by disseminatingtechnologies to industries, by improving governmental regulations, and bysupporting the development of specific technologies for the targeted

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industries. It is interesting to note that this is the first time that a Five-Year Development Plan has targeted industries at sector levels. They aremetal working and machinery, electronics, textiles, food, plastic, gemsand jewelry, and iron and steel.

2. Promote the utilization of modern technologies and managementtechniques to increase productivity and reduce cost by stabilizing theprice of farm produce, promoting organizations of farmers, improvingextension services, and increasing the role of the private sector intechnology transfer. Specific measures are designed for each sector of agriculture, livestock, and fisheries.

3. Increase the efficiency of technology acquisition and transfer by buildingup bargaining power, by promoting the diffusion of imported technology,by upgrading the technological capability of state enterprises, and bymonitoring the technology transfer program of large projects.

4. Develop S&T manpower by accelerating the production of scientists,engineers, mathematicians, technicians, and skilled labor in areas of highdemand, building up the stock of university teachers and researchers,stressing the urgency for training, and improving the working environmentof academic staff.

5. Organize the R&D system to support industrial development byconcentrating R&D on the selection, adaptation, and improvement of imported technology, reorienting public R&D institutes to solve technicalproblems of industry, supporting research in education institutions toserve as S&T knowledge centers, and increasing the role of private sector

R&D through fiscal and financial incentives, domestic marketsdevelopment, and intellectual property protection, and developing R&D asa career for researchers.

6. Improve the S&T infrastructure by developing metrology, industrialstandards, and product-testing systems, organizing the S&T informationsystem, increasing the capability of engineering consultancy services, andcreating the atmosphere and awareness of science and technology.

Such a brief summary probably does not do justice to the Science andTechnology Development Plan. Some of its features are discussed in more detail inthe following section.

Sectoral Technology Strategies

Because the Science and Technology Development Plan has to satisfy anumber of committees with representatives from all concerned governmentdepartments as well as the private sector, it needs to cover all aspects of S&Tdevelopment. However, there has been a clear shift toward more private sector participation in practically all strategies. For R&D, the plan set a clear target of 0.25

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percent of GNP in the private sector by the year 1996. But only one of the sixstrategies mentions R&D. Most of them address the utilization, acquisition, transfer,and diffusion of technology as well as developing S&T manpower. Even then, R&Dwere to concentrate on selecting, adapting, and improving the importedtechnologies rather than on inventing new ones. Public sector R&D institutions areto be reoriented to solve industrial problems. These are signs that the plan takes amore pragmatic approach to the current S&T situation.

Another significant feature of the plan is that it has for the first time targetedindustries at sectoral levels. These industries are those crucial to the developmentof Thailand during the Seventh Plan or in a future time frame of only five years.Therefore, they tend to be those that already exist, rather than futuristic ones. Theselection process involves economic analysis, technology assessment, and expertgroup prioritization. The main criteria used for economic analysis include industrygrowth potential, the competitiveness of international markets, and a linkage effectto select ten industrial groups out of seventeen from the I-O classification.Technology assessment based on the four factors of dynamism, versatility, viability

and accessibility further narrows down the industrial groups to get a clearer picture.For instance, the electrical and electronic product group is limited to electronicproducts that have been growing dramatically. The “other industries” group isrestricted to the gems and jewelry industry which generates very high employmentand export earnings. Finally, six industries were selected using a group of expertsto consider technological and market suitability as well as social and environmentalimpact. A technique called Analytical Hierarchy Process, or AHP, was used to getprioritized ratings for the selection. It happened that the six targeted industries herealmost coincided with the six selected by another study group on strategicindustries. The exception is that they picked iron and steel instead of gems and

jewelry. Key technologies and technology strategies for all seven industries have

been worked out and are described in sequence below.

Electronics Industry

The key technologies identified include: computer-aided technologies;software engineering; circuit design; process technology; production management;and mechanical technology. Strategies for development include: promotion for investments in higher technology products manufacturing; promotion of neededsupporting industries; promotion of product design; and development of targetproducts such as personal computers, small PABX, mobile telephone, facsimile, andapplication-specific integrated circuits (ASIC).

Metal-Working and Machinery Industries

The key technologies include: computer-aided technologies; productionmanagement; and metal-working technologies such as casting, forging, machining,

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heat treatment, electroplating, and stamping. Development strategies include:promotion of investment in machine tools industry; promotion of metal-workingindustries; promotion of mold and die industry development; and development of automotive parts such as engines, transmissions, steering systems, and suspensionsystems.

Petrochemical and Plastics Industry

Emphasis in key technologies is aimed at the downstream plastic productsindustry. Key technologies identified include: compounding; molds for plasticproducts; and production management technologies. Development strategiesinclude: improving plastics properties from commodity plastics to intermediate andengineering plastics; and establishing a design center to provide products and moldand die design.

Textile Industry

The key technologies include: the efficient use of modern machinery;production management; and textile chemical technology. Development strategiesinclude: subcontracting of world-famous, brand-name garment manufacturing;promotion of investments for dyeing industry; and promotion for switching to modernmachinery.

Food Industry

The key technologies include: sterilization; production management;packaging; and waste management. Development strategies include: planting of fruits and vegetables to industry standard; the use of modern machinery and

incentives for waste utilization technologies.

Gems and Jewelry Industry

The key technologies include: a set of color standards for gems; computer-aided technologies; and precious metal metallurgy. Development strategiesinclude: establishing gem standards; R&D in precious metal alloying; and tariff ratereduction for R&D equipment.

Iron and Steel Industry

The key technologies include: ladle technology; steel alloying. Developmentstrategies include: increasing the efficiency of furnaces; acquiring alloy steel castingtechnology.

Nearly all of the six selected industries have targeted computer-aidedtechnologies and production management as important key technologies. They aretherefore referred to as generic technology. Although metal-working technology hasnot been explicitly identified as a key technology in some of the industries, it is

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nevertheless a common fact that all industries to a varying degree possessproduction machinery and make products involving metal parts as constituents.Consequently, metal-working technology is included as another generic technology.

In addition, there is another group of technologies that do not bear directly onmanufacturing processes or product quality, but only on production cost andenvironment. these are referred to as auxiliary technologies that do not bear directly on manufacturing processes or product quality, but only on production costand environment. These are referred to as auxiliary technologies and includeenergy conservation technology, which significantly affects the motor vehicle, metal-working and machining industries, the textiles industry, and the food industry, aswell as waste management technology, which is vital in the food and textileindustries.

Strategy for Technology Acquisition

The two most popular modes of technology acquisition are capital goods

imports and foreign investment. In 1990, they totaled 362,008 and 74,818 millionbaht respectively. Foreign investments bring in product management technologyand process technology but not design technology or product-specific technology.Machinery is sometimes imported with minimal instructions from suppliers onoperational procedure, resulting in inefficient operation and insufficient maintenanceof machines.

Compared with the above import figure, technology payments throughcontractual arrangements on royalties, trademark, technical fees, and managementfees totaling 5,334 [million] baht in 1989 were simply inadequate. They equaled amere expenditure of 1.1 percent and 0.73 percent of the capital goods imported in

1989 on technology purchase and technical assistance, respectively. This meansthat Thai manufacturers have not been using licensing or consultancy as mainmodes of technology acquisition.

Although it is certain that R&D activities will increase, judging from theperformance of public R&D institutions on technology commercialization and levelsof R&D activities in the private sector, it is unlikely that R&D will become the mainmode of technology acquisition for Thai industry in the next few years. Mergers andacquisitions of foreign companies for technology are unlikely to be prevalent,despite some cases of acquisition for access to market.

We therefore suggest here that subcontracting be used as a strategy for technology acquisition in the Seventh Plan. The high level of foreign investmentpresents a favored a condition for mutual benefits. This strategy fits in well withthose for the development of the electronics, metal-working, and plastic industriesdescribed above. We must not be content, however, with only producing parts andcomponents to order. After mastering product management and processtechnology, we should attempt to learn the product-specific technology and thedesign technology. This will enable us not only to attain high quality at low price andto build a more complex product that is close to the consumer, for higher valueadded. These are technological activities that lead from technology utilization and

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technology development ultimately to technology creation through R&D. A number of government policies are needed to facilitate the formation of a competitivesubcontracting network, but further discussion of this is beyond the scope of thispaper.

Another strategy that has been employed by some governments of the NIEsis the purchase of technology by government agencies. Such technology is thentransferred to domestic private manufacturers. This method is mainly used in casesof advanced technology that require large investment beyond the means of theprivate sector or constitutes major technology critical to the development of a largenumber of related industries. The Thai government may like to support thedevelopment of certain sectors through this method if it wants to be more proactivein technology acquisition.

Conclusion

This chapter has reviewed recent developments of the Thai economy and itspolicies. Although the economy is growing at a rapid pace, some weaknessespersist in technological capability and human resource development that will makesuch growth unsustainable in the long run. The present policy trend towardliberalization is good for industries and businesses, but there is a danger that themarket economy will be pushed to an extreme. The two weaknesses mentionedabove take a long time to develop and therefore cannot be expected to respondinstantly to market forces. A senior government official’s remark that thegovernment is changing its role from controller to supervisor hopefully does notmean that government ought to know less. In fact, there is a great need for information in many fields in order to make decisions less fallible and planning

more effective.

Science and technology have yet to assert their influence on the economy of Thailand. Despite a number of programs to boost R&D in both the public and theprivate sectors, time is still needed for these efforts to bear significant fruits. If proper technology strategy is pursued, the technological capability of the countrycan be substantially improved by the end of the Seventh Plan. However, theultimate limitation could be due to S&T manpower. This present shortage, if allowedto persist, will certainly have detrimental effects on investment and industry and canaffect the development of the country as a whole. In the short term there is nochoice but to import needed personnel and launch massive training programs. Inthe medium term, the ability of educational institutions to expand enrollment will belimited by the availability of teachers. In the long term there are more options andfewer excuses for not working out a good solution.

Needless to say, effective implementation is more important than animmaculate strategic plan. A good NESDB plan can only serve as a guideline for 3ministries to draw up their yearly implementation plans. It is up to the ministries tomake the plans work. However, NESDB should closely monitor these plans toensure conformity. On the other hand, long-term sectoral plans (beyond ten years)

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will need to be developed to guide Thailand into the type of society in which thepeople of Thailand want to live.

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Documents

4.6 a- Technology Upgrading in Thailand a Strategic Perspe