Adapting Thailand 4.0 to an uncertain world

Thailand 4.0 is a comprehensive and ambitious long-term strategy for improving the economy’s competitive performance through innovation-driven growth. It aims at developing advanced technology and skills to produce high-value products and services for international markets. This strategy faces two important challenges. 
First, Thailand has lagged on traditional measures of innovation, such as investment in research and development. Past efforts to stimulate innovation have had limited success. Implementing Thailand 4.0 is thus likely to be demanding, requiring significant resources, long lead times and collective effort. 
Second, it will be implemented in an uncertain, slow-growth global economic environment, particularly in the developed economies of the US and EU – traditional final markets for Thailand’s manufactured exports. 
A well-defined focus on relatively faster growing Asian emerging markets – especially Asean, China and India – could contribute greatly to implementing Thailand 4.0. This requires a different but complementary “demand side” perspective on innovation, less anchored in “highest technology and skills” and thus more accessible to Thai firms, especially SMEs. It also entails a different perspective on consumers in Asian emerging markets, and how best to serve their unmet needs. 
In recent decades Asian emerging economies have achieved remarkable growth. This reflected the region’s close integration into the global economy via global value chains such as electronics. Consumers outside the region, primarily in the US and the EU, have driven this growth. China has become the largest market for the region’s manufactured exports, importing around 50 per cent of all Asia’s exports of parts and components. But this is mostly for final assembly of products such as iPhones for the developed markets of the US and EU.
The exceptional past global conditions are unlikely to repeat in coming years. The US economy’s tentative recovery, coupled with the Trump administration’s uncertain trade policy, make doubtful its continued role as “market of last resort” for Asian manufactures. The EU is stuck in slow growth, and faced with the uncertainty of Brexit. The dominant German economy with its overdependence on exports – 47 per cent of GDP and highest trade surplus in the world in 2016 – is fragile. Italy’s financial crisis threatens German and French banks, posing risks to the global financial system. 
Meanwhile for all the enthusiasm surrounding the size of Asian GDPs and increasing number of affluent households, the vast majority of people in Asian emerging economies will likely continue to be low income and low middle-income in coming years. 
China is an example of the region’s “two-speed economies”. Average annual per-capita disposable income in 2014 was around 20,000 yuan, or US$3,000. But this is misleading. While household annual per capita disposable incomes in Beijing and Shanghai are over 48,000 yuan ($7,000), rural and urban households in interior provinces are earning far less than the national average. In 2030 Chinese consumer purchasing power is likely to be still only around 22 per cent that of the US. In 2014, of Asean’s approximately 158 million households, around 10 million had annual disposable incomes over $25,000, 12 million $15,000 to 25,000, 36 million $7,500-15,000, and 100 million with annual disposable incomes below $7,500 (Euromonitor). While incomes are expected to increase by 2030, the vast majority of Asean households’ annual disposable incomes will remain under $15,000 – with most below $7,500. In addition, income inequality, fragmented markets and high proportion of rural population will limit consumer spending in the region. 
Yet there exist considerable business opportunities well within the reach of Thai firms, including SMEs able to innovate products, processes and business models suited to Asian emerging market consumers. This requires a different but complementary approach to Thailand 4.0’s focus on cutting-edge R&D, advanced technology and highly skilled workers. 
A “demand side” approach to innovation involves user-driven creation of new products, including adapting existing technologies to local needs and constraints. For Thai firms, interaction with potential consumers at early stages of product development is particularly important for understanding the needs and constraints of the region’s consumers. This is essential for successful market-responsive product development. Commercialisation then involves investing in sales, marketing, distribution channels, services and business models essential for reaching consumers in fragmented lower-tier urban and rural markets. 
This approach to innovation, more accessible to Thai firms, can lead to products and services suitable for a majority of the region’s consumers, or frugal innovation. It may also allow scaling up to serve global niche markets, including developed economies, or reverse innovation. This requires focusing on “breakthrough customer insights” more than “breakthrough technology” – and on “value for many” not only on “value for money”.
Focusing on Asian emerging markets through demand-side innovation could add an important dimension to Thailand 4.0. It involves a more modest approach for supporting Thai firms, particularly SMEs, in adapting existing technology to serve unmet needs and local constraints, innovating all along the value chain, and addressing gaps such as financing for early-stage innovation and market experimentation and learning. This could lead to significant nearer term payoffs, and support longer-term objectives of Thailand 4.0.

Demand-driven tech: the success stories
There are useful examples for Thailand, particularly from India and China. 
India’s Jain Irrigation Systems manufactures micro-irrigation systems that use 30-85 per cent less water than traditional irrigation techniques, significantly increasing crop yields, especially for small farmers. China’s Galanz developed microwave ovens that are simple, energy efficient, low cost, small and flexible for local needs with novel applications for stir-frying, deep-frying, and steam cooking – then built on local success to expand global exports. In India and China 
GE developed user-friendly ultrasound and electrocardiogram machines specifically to meet income, infrastructure and service constraints found in emerging Asia. They have now also found lucrative US niche markets, leading to a global strategic initiative called GE Healthymagination, focusing on under-served or marginal communities. 
India’s First Energy’s Oorja stove is a low-smoke, low-cost, efficient stove, powered by rechargeable batteries, that works on pellets – an organic biofuel made of processed agricultural waste such as peanut shells and bagasse. Partnering with two NGOs and involving local women entrepreneurs to market the product, First Energy developed a sophisticated rural distribution network. It introduced larger stoves for urban commercial markets such as hotels, restaurants and caterers, and is expanding exports in the region. 

Dr George Abonyi, based in Ottawa, Canada, is visiting professor at the Maxwell School (Executive Development Programme), Syracuse University, New York, and an international consultant.