The modern industrial world emerged in the late 1700s out of artisanal home workshops and into purpose-built factories with the advent of mechanisation, steam power and water power. Roughly a century later, a second wave of innovation delivered the division of labour and mass production powered by electricity, ushering in what is now referred to as the second industrial revolution, or industry 2.0. Another century went by before industry 3.0 began to take root, with more advanced electronics and information technology paving the way for computerised automation in the 1970s.
Nearly 50 years later, we are now living in the early days of industry 4.0. This modern incarnation of industry brings the most advanced modern technology to bear on an industrial scale, utilising cyber-physical systems, the internet and cloud computing innovations to devise more efficient production processes.
Domestic Development
Early adopters of this industrial strategy were primarily the knowledge-based Western economies, though the trend has now spread rapidly throughout the world and is being employed in many regions. In Thailand’s case, the industrial sector has progressed quickly through the first three stages of development. Initial stages of industrialisation were focused on the agricultural strengths of the country and in developing light industry to boost downstream activity in the sector, followed by the second industrial wave that capitalised on inexpensive labour to boost basic manufacturing capacities. The addition of more complex manufacturing processes followed, as the country became a regional centre for the production of vehicles and electronics.
Now established as one of Asia’s premier economies, driven in large part by a thriving industrial foundation, Thailand is poised to take the next developmental step from a simple manufacturing base to a knowledge-based, high-value economy, focusing on cutting-edge fields. By moving further up the value chain, the government is hoping to avoid sinking into the middle-income trap, and stemming the rise of growing income disparity and unbalanced economic development across different demographic segments.
This shift will require a dramatic restructuring in the way the current industrial system operates. The previous shift to export-driven industrialisation focused on boosting manufacturing capacity at the expense of developing in-house technological capability. This strategy emphasises exports and comparatively low wages in order to be competitive in the global market. The existing volume-based, capital-driven model that has been highly successful in producing goods like cars and computer chips at very competitive costs will need to be reconfigured to focus on value-based, innovation-driven capabilities, with human intellectual capacity gradually replacing physical capital.
Government Initiative
Seeking to move this agenda forward, Thailand 4.0 was launched in 2016 and focuses on 10 targeted industries, split into two overlapping developmental categories, that are projected to create a progressive series of industrial growth spurts. The first category builds upon existing capacities in the short and medium term, specifically through accelerating growth and adopting more advanced technologies for five industries: next-generation automotive; smart electronics; high-income tourism and medical tourism; efficient agriculture and biotechnology; and food innovation. Once these sectors take root, the focus will turn towards the second five cutting-edge industries of automation and robotics; aerospace; bioenergy and bio-chemicals; digital; and medical and health care.
Each industry is expected to move progressively up the value chain through increased investment in new manufacturing methods, technology transfer, and research and development (R&D), with each progressive step building upon the success of earlier efforts. The final target of developing industrial and lifestyle robotics manufacturing will be based on previous success in creating next-generation automotive and smart electronics technology, which in turn will grow out of existing electronics and vehicle production bases currently operating in the country. Thailand’s renowned tourism sector, including a growing medical tourism segment, will be leveraged to pave the way for the establishment of a global medical hub and supporting aviation and logistics centre. The successful agricultural sector will continue its evolution from the country’s first viable industry into a catalyst for next-generation bioenergy and biochemical manufacturing. Lastly, digitalisation and interconnectivity will run as common threads through each of these future industries, boosting efficiency and developing synergies between them.
While larger corporations typically have sufficient resources to get the ball rolling, smaller businesses will benefit from the shift to Thailand 4.0 as well. “The Thailand 4.0 initiative is being implemented to emphasise the application of IT, high-tech management systems and manufacturing processes to enable sustainable growth for small and medium-sized enterprises, and facilitate their shift from traditional industries to new value-based industries, in line with the rest of the Thai economy,” Pasu Loharjun, director-general of the Department of Industrial Promotion, told OBG. Furthermore, incentives offered by the government will support organisations of all sizes.
Sweetening The Pot
In order to support this broad initiative, Thailand’s Board of Investment (BOI) rolled out a series of incentive packages focused specifically on the industries promoted in Thailand 4.0. Some of these incentive packages break from traditional benefits, which were largely targeted at capital expenditures by implementing tax holidays and duty exemptions for importing capital equipment used in manufacturing processes. Many of the new incentives are designed to help develop core technologies necessary for high-tech industries, including biotech, nanotech, advanced material and digital technology. Incentives are also in play to boost R&D efforts and the transfer of technology to public and private entities in Thailand, as well as human resource development and attracting foreign talent.
Incentive programmes promoting these areas have been bolstered by the BOI and given “++” status. Essentially, a new, more generous category of incentives was created to up the ante from benefits afforded to companies qualifying for the original Investment Promotion Act in accordance with the Seven-Year Investment Promotion Strategy (2015-21), as well as the technology-based Revised Investment Promotion Act (BOI+). Created specifically for Thailand 4.0, the BOI++ incentives were enacted to target potential investors operating in named core businesses by offering additional benefits with which they would not otherwise have set up shop in Thailand.
Corporate income tax exemptions, for instance, are capped at eight years for standard BOI companies and 13 years for BOI+, but extend to 15 years for BOI++ businesses. Qualified companies will also be eligible for a portion of a BT10bn ($282m) pool of grants to be distributed for projects focusing on R&D, innovation or human resource development in specific areas.
In keeping with its theme of enhancing technology and innovation, companies may also receive tax deductions of up to 300% for qualified R&D expenditures, up from 200% previously. Other deductions of up to 200% are also available for qualified tech sectors to offset expenditures made in intellectual property acquisition and licensing fees for commercialising technology developed in-country; advanced technology training; donations to specific research and training institutions; and sourcing support industry work to Thai companies.
Much of the new investment in these areas is expected to take place in existing industrial clusters, which already produce and export automobiles, food products, electronics and medical equipment.
Early Returns
In just its first year of existence, investment applications in qualified Thailand 4.0 sectors totalled $13.9bn, spread over 1313 projects in the first eleven months of 2016, according to BOI data. The most successful industry was the well-established automotive segment, which garnered 39 investment applications worth a combined $1.23bn. Other major recipients were the electrical and electronics segment with $1.09bn spread over 64 projects, and 44 projects in the petrochemicals sector valued at $972.3m.
It remains to be seen how effective these and future investments will be in raising incomes and allowing the country to escape the middle-income trap, and will depend largely on how enthusiastically foreign and domestic companies buy into the guiding principles of Thailand 4.0. The Thailand Development Research Institute sees various outcomes for the Thai economy pertaining to the evolution of the industrial sector, the most beneficial being the transition to a knowledge-based economy, aligning with the target of Thailand 4.0, and includes the modernisation of the agricultural sector. Under this model, per capita income would reach $28,400 in 2045 as a result of reaching an average growth rate of 5.2% per year. The country would thus move past the middle-income level in 2028.
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