The development of the country’s logistics and supply chain is very important because efficient logistics will reduce the cost of economic activities, increase the volume of transactions and trade, create value in the economy and expand the overall economy. For this reason, the government needs to prioritize the country’s logistics strategy. Recently, I was honored to be a speaker on the topic of “Direction of Development of Thailand’s Logistics System” towards formulation of Thailand’s 20-year logistics strategy (2017 – 2036) at the meeting of the Logistics Study Sub-Committee under the Transport Commission, National Legislative Assembly of Thailand. I made quite a few suggestions for the preparation of the country’s logistics strategy. For example:
1. Connecting Thailand’s logistics to the new CIA with Thailand as a hub
The expansion of transport and logistics activities will be driven by global expansion, in which the 21st century is expected to be the “Asian-Pacific Century”. The economies of China, India, and ASEAN, which I call the “new CIA”, will be the most important group in the world and in Asia Pacific because the economic growth rate of these countries is higher than in other parts of the world (Figure 1). As a result, this should be the emphasis of Thailand’s strategy, through a focus on the connection with China, India, and ASEAN (but not neglecting the links with other important countries).
Thailand must be linked with China, China is looking for sea access through Myanmar and Thailand. However China finds it easier to rely on Thailand, and make links with Thailand, because Myanmar has internal problems, whereas Thailand does not.
Thailand must be linked with India, because India has the potential in the far future to overtake China for first position in global economy, and India is seeking to strengthen its relationship with ASEAN through the policy “Look East and Act East”.
Thailand must be linked with ASEAN, especially Indonesia, without neglecting other countries, because Thailand has the advantage of being located at the center of ASEAN, and the integration with ASEAN gives Thailand great benefits.
In order to connect with ASEAN, there are several things to consider:
1) “Action needs to be taken quickly”. At present Thailand enjoys the important status of being second “biggest” in ASEAN in term of economic size, and has an important voice. But in the future, Thailand may slip to become only the 3rd or 4th rank in ASEAN, making it difficult for Thailand to push forward the agenda. The important thing is not just “the size of the project”, but the government should pay attention to speed of implementation of the project as well.
2) “Must play a leading role”. Each of the 10 ASEAN countries has its own agenda, so if Thailand does not play a leading role, Thailand will not realize the full benefit from being a member of ASEAN.
3) “TCLMV, not CLMVT”. Thailand must not be content to be only one of a group of five countries – Cambodia, Laos, Myanmar, Vietnam and Thailand (CLMVT) – but must serve as the link between the remaining countries (TCLMV). The benefits of being just one of the members of the group (CLMVT) are much less than those gained from being the center of the group (TCLMV).
4) “Widen the definition of logistics” in order for Thailand to become the true center in every aspect. Because the definition of logistics has been too narrow, it didn’t enable Thailand to play a major role in the region. Logistics should not be limited only to transportation, travel or infrastructure, but should cover other topics as well. For example, people in CLMV countries like Thai drama and understand Thai language. This is linguistic logistics. What can be done to establish Thai language centers in universities in the various CLMV countries, in order to promote the use of Thai language? And, to take another example, at present these countries are already using Thai currency, which can be considered as currency logistics.
2. Initiate high-impact projects. At present, the government has rather comprehensive basic infrastructure development plans with domestic and international linkages, in accordance with regional cooperation. But I propose that Thailand should initiate high-impact projects that will change clearly the economic landscape, change competitiveness, change the economic structure, and create strong negotiating power or the competitive advantage.
For example, long ago, we talked about connecting the Gulf of Thailand and the Andaman but there was no conclusion. Personally, I think we should link the two, by choosing the best way, be it the Southern Land Bridge, the Thai Canal, because connecting the Gulf of Thailand and the Andaman is a strategy that will make Thailand more attractive, increase Thailand’s negotiation power and will change the economic landscape and geopolitics in this region. If done properly, it could make Thailand the regional hub for shipping instead of Singapore (Figure 2).
In any case, in implementing this kind of project, we need to consider very carefully the value of the investment. Apart from this, we need to ensure good distribution of logistics activities, and not risk putting all our eggs in a single basket, or putting all our hopes on a single project. An example of this approach is the Dawei deep water port project. I am not sure whether or not this project will succeed because there are many ways that the Indian Ocean can be linked to Thailand via Myanmar, each route having its pros and cons. Dawei has strengths and weaknesses, such as insufficient water depth, and challenges with minority groups in the area that are difficult to deal with. At present everyone assumes that the project will be successful, so they are fully committed to making plans to link with Dawei. But in the event that Dawei does not succeed, the country will suffer considerable loss of development opportunities and resources.
3. Development of “specialized special economic zones”. Special Economic Zones (SEZs) were launched to reduce logistics costs by encouraging entrepreneurs to invest in order to build clusters of industries and infrastructure to support economic development in the area and to spread prosperity to other provinces and border areas.
However, in the past, SEZ development might not have entirely achieved their objectives because SEZs in different provinces have had to compete with the many SEZs established by neighboring countries. These countries have lower labor costs than Thailand. In addition, SEZs in Thailand promote duplication of industries (Table 1), leading to broad standards and support systems, not specific to any particular industry. The result may be that the ecosystem necessary for success of each industry may not come into being.
If the establishment of SEZs is not successful, a lot of investment will be wasted. So I would like to suggest that the government adjust the SEZ development strategy by requiring some areas of high potential to be “comprehensive SEZs”. Secondary cities and small border towns should become “specialized SEZs”, developing on the basis of their comparative advantages and strengths, and building linkages and mutual dependence with other towns that differ in many ways.
The way to develop specialized special economic zones is that every sector and every operation should have the same direction and same goal, and establish investment incentives appropriate to the nature of the business, to attract investment and develop infrastructure that supports the target industry. Moreover, local universities need to shift to be “Specialized Universities”; every faculty, every department should support the target industry, and focus on teaching and undertaking research related to the target industry. Government staff working in Local Administrative Organizations need to have expertise in consistent with that of the town.
These are only few thoughts. I also have many more ideas for logistics development that I have presented elsewhere and I will be happy to share these if the opportunity arises.
Figure 1: Economic growth in China, India and ASEAN Higher than the world average
Table 1: Targeted business in the Special Economic Zone 10 provinces
Source: A consulting firm, compiled from Announcement of the Board of Investment year 2015-2016
Figure 2 : Thai Canal Project to connect Gulf of Thailand and Andaman.
ISSUE 0125 (May – June 18)
Senior Fellow at Harvard University’s Center of Business and Government.