Vietnam: A long way to catch up or Is Thailand putting on the blinders?

[FarangFarang]

This really has to be be one of the mist ill-informed, head in the sand, delusional opinion pieces I've ever read in the Bangkok Post. If this is really the thinking of people who have any sort of decision making authority in Thailand start packing your bags because the place is doomed.

A long way to catch up

Published: 14/09/2011 at 12:00 AM

Newspaper section: News

To those who fear Thailand is losing its competitive edge to newly emerging economies like Vietnam, I say: think again. Because the truth on the ground is starkly different.

Vietnam has been called an "emerging Asean tiger" but a visit to the country and its industry tells a very different story.

Vietnam today is not even close to Thailand in the late '80s _ that's as far as I can remember (taking my age into consideration). But even so, that leaves the country decades behind Thailand. And if Thailand does not become complacent in its achievements, this gap will keep on widening.

Faulty logic which you're usually taught in beginning debate class. Here's an example that illustrates how stupid this statement is:

If you are sitting in a taxi at Asok and Sukhumvit on your way to Charlie Brown's on Soi 11 and I have just entered the BTS at Ekkamai you are closer to Soi 11 than I am but I will be traveling faster than you because the BTS doesn't slow for traffic. There's a better than average chance that I will be seated sipping a beer before your taxi makes it to CB's.

Thailand's GDP growth rate has been:

2008: 2.5%

2009: -2.3%

2010: 7.8%

Vietnam's GDP growth rate has been:

2008: 6.3%

2009: 5.3%

2010: 6.8%

So let's take a baseline of 100. Thailand's GDP went to 102.5 in 2008, 100.14 in 2009 and 107.95 in 2010.

Vietnam's GDP went from 100 to 106.3 in 2008, 111.93 in 2009, and 119.54 in 2010.

Last time I checked, 119.54 is bigger than 107.95. Vietnam outperformed Thailand by over 10% in that 3 year period.

Obviously Vietnam is still playing catch-up but the gap between Thailand and Vietnam decreased by 10% during 2008 - 2010.

That is a narrowing gap, not a widening one.

Vietnam has over the past few years been trying to copy Thailand's success story and in its efforts to do so has managed to attract a sizable foreign direct investment. But all this has not helped the country move up the growth path as fast as one might have expected.

Who is this "one" with the expectations? Is he quoting any economists? Is he quoting Vietnamese politicians?

No, most likely he's quoting himself. He wants to downplay Vietnam's success so he does so by making up some imaginary path that Vietnam was supposed to be on and then claims they're not doing as well as "he" expected.

There are various reasons for this, but among the biggest is a lack of infrastructure to support a surge in investment and flow of labour.

Though Vietnam has indeed been trying to sort out the issue of infrastructure, the problems are chronic _ to the point where the average vehicle crawls along at a pace of a mere 50-60km per hour on most major highways.

The highways are not well-maintained, and while they are being expanded, most remain well below that of international standard. The government has massive plans to undertake the investment in infrastructure such as building airports, a rail network and highways, but the time these will take to materialise amounts to at least 5-10 years.

Driving down from Ho Chi Minh City to the new industrial estate of Binh Doung, a distance of about 35km, takes anywhere between 45 and 90 minutes. Not because of the bad traffic but because of the lack of good roads that would help keep the traffic moving.

This is really a weak argument because if there's one thing that is true across the world its that money speeds things up. If Vietnam needs to quickly move goods from Point A to Point B they will build railroads, ferries, more roads, etc. Industry and the government will be more than happy to pay for that if it means bringing in more money.

Besides, what is the author really saying? That once Vietnam builds the infrastructure that they'll blow Thailand away? Five to ten years is not a lot of time. If the author is admitting that Vietnam will have the infrastructure to compete with Thailand in 5 -10 years he might try containing his ego just a bit.

And remember, Vietnam already outperformed Thailand by over 10% lacking the proper infrastructure. What happens to Thailand when Vietnam does build the roads, airports, trains, etc?

This lack of infrastructure is keeping some companies at bay. One Thai company, Amata Corp Plc, has admitted that it continues to wait for a highway and airport under a planned new project covering 1,400 hectares. Amata already did its study of this project seven years ago.

Vietnam says all these things are in the planning stage. Which means these plans have a long way to go before seeing the light of day in implementation.

In the various meetings I held and venues I visited, it was evident the Vietnamese are trying to copy every aspect of Thailand's success, be it the shopping complexes, the hospitals or infrastructure and transport projects.

But despite its attempt to copy Thailand's success, Vietnam continues to remain far behind, be it in the quality of products offered, or the level of skills within the labour force.

Whatever they give this guy to smoke, I want some. There are tons of Thai businesses operating in Vietnam right now. He pulls out one example and tries to make his entire assessment of the country based on one company?

Thai businesses operating there have admitted that at times they've had to fly in their technical staff from Thailand to their site in Vietnam, because the local staff there were not skilled enough.

This is not surprising, considering that Vietnam's system of education has not much to offer. Apart from no free education, the quality of schools is nowhere close to what we have in Thailand, although a few new universities are coming up.

Yeah, he's really buzzing now because Thailand has one of the worst educational systems and English literacy rates in the world. One of the things helping Vietnam is not having enough universities in the country. More and more people are being educated overseas.

Also, in a somewhat related note, the last survey indicated that the average Vietnamese reads 40 books per year. Thais read, on average 2.

This is exactly why Vietnam is such a huge threat to Thailand. They're behind Thailand today but they're catching up fast and they're hungry. Those 40 books being read each year by the Vietnamese are an indication that they're willing to invest in themselves. They see a brighter future.

More importantly, they realize they're behind. That's what makes them hungry.

Thailand has always had a problem with self-reflection. It never sees itself as the rest of the world sees it. So going back to the author's opening statement, Thailand is already complacent. Instead of English literacy rates improving or the quality of students upon graduation improving the numbers are getting worse.

Corruption _ a social evil in most Third World countries _ is rampant, with every province having its own power to make decisions, which means a lot of the decisions are made by the provincial authorities rather than the central government.

The central government, some investors claim, is also not as powerful as those in other countries, such as China. Which means that investors are not too confident about how things will move once they decide to take the plunge.

Which is the other side of the coin in terms of the problems Thailand faces. Everything is centralized at in Bangkok and local people have no authority to make their own decisions. Bangkok buys them things they don't need so some fat-cat in Bangkok can scoop millions off the top.

Unlike Thailand's Board of Investment or Indonesia's Investment Coordinating Board which have the power to make decisions on issues like tax breaks, Vietnam's decisions are mostly made by the provincial authorities (unless the project is really large).

Which is how most successful democracies operate.

This also mean lots of corruption to get a basic job done. People who have invested in that country say, "This is part of life."

Compared to what? The low amount of corruption in Thailand? WTF?!?!

The low pay, high inflation and the desire to have the best of the best, be it a US$10,000 Honda motorcycle or dining at Armani Cafe, is pushing the country's population to the edge, where the lower classes are barely making ends meet while those in the middle and upper classes are in a different league altogether.

Saddled with such a gap in society, a deficient education system and lack of proper infrastructure, the fear that Vietnam might soon overtake Thailand is nothing but a fallacy _ and will remain so, as long as the Thai private sector and the Thai government don't become complacent.

http://www.bangkokpost.com/opinion/opinion/256417/a-long-way-to-catch-up

Has the author even been to Thailand? Weren't the red shirt protests a byproduct of the widening gap between rich and poor? I hate to get all religious but what's that quote from The Bible:

How can you say to your brother, 'Brother, let me take the speck out of your eye,' when you yourself fail to see the plank in your own eye? You hypocrite, first take the plank out of your eye, and then you will see clearly to remove the speck from your brother's eye.

This is why Vietnam will overtake Thailand in the next 10 or 20 years.

[alan675]

Yep - another individual at the Post that is so far up himself he can barely see daylight .......

[CiaranM]

u could just substitute Vietnam with Thailand .... and Thailand with the Developed Nations .... and have an article on why Thailand will never catch up with the Developed world !!!

although i fancy Vietnam's chances more !!!

[FarangFarang]

u could just substitute Vietnam with Thailand .... and Thailand with the Developed Nations .... and have an article on why Thailand will never catch up with the Developed world !!!

although i fancy Vietnam's chances more !!!

True. And this comes out on the same day as another article in the same publication that suggested that the cure for corruption in education was to legalize bribing of schools.

http://www.thailandfriends.com/showthread.php/47282-How-to-stop-corruption-Make-it-legal.?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+thailandfriends+%28ThailandFriends%29&utm_content=Google+Reader

[Hazel]

Maybe the author is also banking too much and too complacently on BKK being voted most popular city of the world for two years running, and being in the top ten since 2002. However, it seems more and more people who used to be attracted by BKK's tourism are increasingly attracted to Vietnam and Laos...

Edited September 15, 2011 by Hazel

[Dave40]

The world's busiest air route is...Tokyo Haneda-Sapporo Chitose. Indeed the top ten are all in the Asia Pacific region, which reflects its rise as the world's pre-eminent aviation market. Many of Asia's leading route pairs are in the established markets of Japan and Australia. But it is also interesting that among the airports represented as end points in the top 10 routes, ten of the airports fail to rank in the world's Top 30 airports. Though Sapporo has an enormous seat offer to Haneda, it has far less impact elsewhere

http://www.centreforaviation.com/analysis/the-worlds-top-ten-routes-are-in-asia-58178

Interesting Bangkok / Phuket is number 24 I wonder if it can keep pace in the next few years as the region will continue grow, Phuket has many problems transportation around the island, greed, corruption, just to name a few, will they kill the golden goose!!!!!

[FarangFarang]

Interesting article in the WSJ about Thailand's slow growth over the last 10 years while nearly everyone surrounding Thailand is doing great.

Thailand has also drifted somewhat lately when it comes to attracting foreign direct investment, pulling in less than neighbors such as Vietnam and Indonesia the past few years after consistently beating them a decade ago. In the early parts of the last decade, for instance, Thailand regularly clocked between $3 billion and $6 billion in foreign investment a year, while Indonesia suffered net outflows of investment. In 2010, Thailand nabbed $5.8 billion in foreign investment, versus $13.3 billion for Indonesia.

Economists attribute Thailand's underperformance in part to a series of natural disasters and political convulsions that have rocked the country in recent years, including a giant tsunami in 2004, a military coup in 2005, rolling protests that shut down the country's main airport in 2008, and antigovernment demonstrations in 2010 that ended with more than 90 people dead after a bloody crackdown. The events, capped by Thailand's current flood crisis, have at times rattled foreign investors and distracted policy makers from projects needed to improve the country's strained infrastructure to further attract foreign capital.

They end by saying:

But the country's problems in recent years means the effort to boost flood-control measures represents a "make-or-break" moment for Thailand, Mr. Neumann at HSBC said. "If Thailand delivers a very determined response to [the floods] and cleans the streets and puts in infrastructure to make sure it doesn't happen again, then this could actually turn out to be a catalyst for reform and attracting new investment," he said.

"But if the disaster response is lacking and we have funds dissipating through various channels and the government focuses more on short-term policies, then that would certainly reinforce an impression that's already been gaining strength among international investors that perhaps Thailand is not the most business-friendly environment" anymore.

If you're not a WSJ subscriber, go to Google News and look up the story there and then click on that link and you should get to view the news story for free.

http://online.wsj.com/article/SB10001424052970203707504577011850569565924.html

The article title is: Submerged Thailand Slips Against Peers

[StuckinBKK]

Reading between the lines it shows that Vietnam has more slaves willing to do some low end manufacturing jobs cheaper then the Thais can, due to Thailands advancement in the last couple of decades causing a higher cost of living thus higher wages.

That companies are moving there due to less regulation, lower taxes an ability to exploit whatever they can for a quick profit etc...

In 20 years the same companies will be traipsing around the Brazilian rain forest or Sub Saharan Africa looking for the next untapped batch of cheap labour, you wouldnt want to compare your economy to such places.

Also if you wish to judge the standard of living and how well an economy is really doing look at the rate of growth of wages in the private sector. But GDP growth in Vietnam is bound to be growing at a faster rate then Thailands as its a far poorer economy, just like comparing Thailand growth to that of Germanys isnt the best way to get a perspective.

You mention education as being a catalyst for growth but its actually lack of an educated workforce willing to do any old crap for slave wages that is causing the Vietnam economy to grow, once the kids have a degree in Media Studies from some Western University they wont be willing to make Nikes for free.

The race to the bottom continues!

IMHO Thailand should look to Malaysia and similar economies in the region and see why it isnt doing aswell, Thailand will struggle to compete with slave wages unless it continues to import millions of slaves from bordering countries to the detriment of the Thai working class and social cohesion.

Edited November 11, 2011 by StuckinBKK

[FarangFarang]

I'm guessing you didn't read the WSJ article, did you? LOL

They actually made the point that wages were increasing in most of the countries that Thailand competes with:

The average manufacturing wage in China now is about $400 a month, he said, versus about $250 in Thailand. Ten to 15 years ago, he said, the countries' relative positions would have been reversed.

It also goes to point out that the problem is that with every crisis Thailand suffers, red shirts, yellow shirts, tsunami, 2011 floods, they loose more and more of the middle class. People fall out of the middle class when they lose their jobs which are hit by these events but the economy doesn't grow enough to replace them before the next crisis hits. Or, in layman's terms, the rich keep getting richer and the poor keep getting poorer.

That companies are moving there due to less regulation, lower taxes an ability to exploit whatever they can for a quick profit etc...

Yeah, you know, because the regulations are so strictly enforced in Thailand. Also, the tax rates for both countries are:

Vietnam:

Personal Income Tax: 35%

Corporate Tax: 25%

VAT: 10%

Thailand:

Personal Income Tax: 37%

Corporate Tax: 30%

VAT: 7%

I'm sorry, but I don't think you decide where to invest a tens (or hundreds) of millions of dollars on such small differences in tax rates.

Vietnam is generally known for having relatively high-skilled labor compared to other countries in SEA. Right now, they are attracting more banking and white collar sort of investment than they are manufacturing as Thailand is.

And if you did read the article, basically what they said was that the companies who are already in Thailand tend to keep investing in Thailand but those who are thinking about investing are looking at alternatives like Vietnam and Malaysia. Not for the cheap labor but for the stability and access to better skilled labor.

Also if you wish to judge the standard of living and how well an economy is really doing look at the rate of growth of wages in the private sector.

Okay, let's look at that. In 2011, the Thai minimum wage increase 7% (same as the Philippines and Indonesia) but Vietnam raised their minimum wages 11.5%.

This BusinessWeek article from last year pretty much explains why many companies are looking at Vietnam:

http://www.businessweek.com/magazine/content/10_26/b4184012382639.htm

In case you don't read that, the summary is that Thailand is falling apart at the seams. Politically and economically the country is stalled.

Meanwhile, in Vietnam they are decentralizing government, including foreign investment, and growing.

President Nguyen Minh Triet's government has cut taxes, such as import duties on personal computer parts, and is promising to improve the country's roads and ports. It's building nuclear power plants and a high-speed train line from the capital to Ho Chi Minh City. The leadership also vows to eliminate some of the notorious red tape that has frustrated investors.

Now, if you're a company looking to make a major investment in SEA do you do it in Thailand which seems to have a political upheaval every 5 or so years and is almost the antithesis of business friendly or do you take your business to Vietnam that seems eager to change their system to accommodate foreign investors?

I mean, just read the above.

The Thai government notices that foreign firms are importing all sorts of high-tech equipment like computers and such in order to run their business in Thailand. Do you:

a) Lower import duties on those items thus making it easier and cheaper for businesses to import the tools they need to be successful which eventually creates more jobs and more tax revenue.

Raise import duties since those stupid foreigners have to have this equipment to run their businesses and are forced to pay whatever you say they have to pay

c) Raise import duties to a prohibitive level and then offer to sell Thai-manufactured equipment at a huge markup (plus, apply some muscle to local businesses to give you a cut)

d) Figure out a way to get a kickback for helping streamline the process of getting their equipment into the country and buy another 5,000,000 baht Mercedes on your 25,000 baht per month salary.

But I think the biggest indicator of why Thailand is failing is to just ask expats in both countries. I think you would find that most expats in Thailand love Thailand but hate the bureaucracy, the business environment, the corruption, the direction the country is heading in, the political stalemate, the unfriendly work permit/residency climate, and the seeming incompetence of any government to actually get anything done.

I think the fact that most expats in Thailand do not think the above quiz was a joke should speak volumes about why Thailand is faltering. Everything seems to be done for short-term face gaining and personal (financial) enrichment.

And I think if you asked many expats in Vietnam they would tell you that things seem very optimistic and that, generally, the things seem to be changing for the better in terms of ease of doing business, openness to foreign businesses, and the government's attitudes towards free markets.

This isn't about exploiting cheap labor. This is about one country who can't see past tomorrow and another one that is looking a decade or more down the road.

Reading between the lines it shows that Vietnam has more slaves willing to do some low end manufacturing jobs cheaper then the Thais can, due to Thailands advancement in the last couple of decades causing a higher cost of living thus higher wages.

[FarangFarang]

How Thailand's Tragedy Boosts Indonesia and Vietnam

By Carol Kopp Nov 16, 2011 9:30 am

Catastrophic floods have automakers and tech manufacturers looking elsewhere in Asia for factory sites.

Automakers and technology companies are scrambling to repair a critical break in their supply chains caused by the catastrophic flooding in Thailand. And in the long term, many Japanese manufacturers are considering moving some of their factories elsewhere in Asia, particularly to Indonesia and Vietnam.

A number of major Japanese companies are considering building some of their factories in Indonesia and Vietnam as an alternative to Thailand, according to a report in Businessweek.com. The devastating floods in Thailand have created parts shortages and threatened profit forecasts for companies including Pioneer (PNCOF.PK), Honda (HMC), and Toyota ™. Canon (CAJ), Nissan Motors (NSANF.PK), Hitachi (HIT), and Toshiba (TOSBF.PK) also had to shut down factories.

“We acknowledge the need to consider diversifying investment inside Thailand and to other countries in the future,” a Pioneer spokesman told Businessweek after the company had to withdraw its full-year earnings forecast as a result of the factory shutdowns in Thailand.

Thailand had been a preferred factory location for Asian manufacturers because its infrastructure is superior to that of other emerging nations in the region. Indonesia now surpasses Thailand in such investments, and Vietnam is catching up.

The companies are not expected to abandon Thailand entirely. But Japanese executives, still reeling from damage to their homeland operations caused by the March 11 earthquake, want to diversify their manufacturing locations.

The floods, only now beginning to ease after four months, shut down 891 factories north of Bangkok. Parts shortages reverberated from there through the supply chain.

Workers’ hours were cut at a Honda plant in Swindon, England, and mass production of a new Honda Civic model there was postponed, according to a BBC report.

Honda may even shift some production from Thailand to US factories, according to the English-language Tokyo Times.

The technology industry also has been hit hard. Thailand was the world’s second-largest manufacturer of hard drives, after China, leading to fears of shortages and price increases on PCs and laptop computers this winter.

Most prominently, Dell Computer (DELL) warned Tuesday that its revenues for the quarter could be hurt by a worldwide shortage of hard drives caused by the flooding in Thailand.

British site PC Advisor says the UK prices of PCs and laptops already are rising, as a shortage of hard drives forces their costs “through the roof.” Western Digital (WDC), the largest manufacturer of disk drives, is among the manufacturers who had to shut down factories in Thailand.

According to PC Advisor, vendors are opting to keep their biggest business customers supplied, meaning building shortages and higher prices for consumers over the months to come.

http://www.reuters.com/article/2011/11/16/us-usa-healthcare-poll-idUSTRE7AF1BD20111116