Firms are being urged to look beyond domestic markets and embrace world trade as a key source of future growth
PUBLISHED : 24 Jul 2023 at 07:48
WRITER: Wichit Chantanusornsiri
Why are Thai small and medium-sized enterprises (SMEs) unable to penetrate foreign markets as other countries do? Apart from a lack of courage in tackling obstacles to international trade, Thai SMEs' lack of research and development (R&D) is one of the key factors hindering them from entering the global market.
R&D helps companies develop new products, meet consumer needs, and allows them to stay ahead of competitors by creating differentiated products, but only 0.2% of Thai SMEs invest in R&D, said Rak Vorrakitpokatorn, president of Export-Import (Exim) Bank of Thailand.
Gaining domestic market share alone may not save Thai SMEs from the debt crisis. At present, half of all non-performing loans (NPLs) in the commercial banking system come from SMEs. As a result, Exim Bank supports and promotes SMEs in international trade by providing credit facilities, guarantees, and insurance against risks. Currently only 1% of SMEs are exporters. The income of exporting SMEs increases by four times when compared to SMEs which focus only on domestic sales.
“Thai SMEs are in the comfort zone and do not dare to change, with the belief that exporting to foreign countries is too far to reach, too hard to handle, and incurs high costs,” Mr Rak said.
SMEs which focus only on domestic trade faced higher limitations from economic stagnation during 2018-2022, with average growth of only 0.9% per year, compared to the markets of neighbouring countries like Vietnam at 5.7% per year and Indonesia at 3.4%. Thailand’s relatively small market size is another limitation with only 70 million people, compared to 98 million and 274 million in Vietnam and Indonesia, respectively.
In addition, Thailand has become an ageing society, according to the UN’s definition.
Last year, 22% of Thailand’s population was over 60, compared to a rate of 14% in Vietnam and only 11% in Indonesia, according to the World Bank report.
Mr Rak added that the internationalisation of SMEs helps tap larger markets and provides more opportunities to generate more income. Based on the bank’s data analytics, it was found that internationalised SMEs perform better than domestic market-focused SMEs, as shown by these higher indicators: income by four times, net profit by 1.5 times, and return on assets by 1.5 times.
Thai products that are sold in the global market often face the same problem, which is a lack of new products or services or product differentiation from competitors, as only 0.2% of GDP, or around 3 million SMEs, invest in R&D to elevate their businesses.
Since 2020, Thailand’s expenditure on R&D by business enterprises has remained constant at 1% of GDP, compared to South Korea at 4.5% and Singapore at 2%.
Thai SMEs still incur high levels of bad debt in the commercial banking system. In the first quarter of this year, NPLs were recorded at 500 billion baht, of which gross SME NPLs accounted for 50% of the total.
Furthermore, NPLs of “zombie firms” — defined as companies older than 10 years that have persistent problems meeting their interest payments, but depend on the refinancing of maturing debt or government assistance measures for their continued existence — stood at 9% of the total outstanding SME loans.
Rak: Global market offers vast opportunities
Mr Rak said the global market had vast opportunities for Thai entrepreneurs with the courage to explore and unleash their potential, such as the markets in the CLMV (Cambodia, Laos, Myanmar and Vietnam) group of countries. He suggested that entrepreneurs who are inexperienced in exporting may start with the CLMV market which is composed of neighbouring countries and is influenced by Thai soft power, such as TV series and music. This can help create a multiplier effect for many other goods and services to follow, such as tourism, food, consumer goods and lifestyle products.
It is commonly known that Thai products have enjoyed a strong brand presence in CLMV for a long time as “Made in Thailand” goods are recognised as premium products. Thailand’s top export products to CLMV over the past five years included cosmetics, pet food, and condiments.
According to Statista estimates for 2023-2027, the pet food market in Vietnam will grow at an average annual rate of 9%.
The Middle East is about to become a new market or open new opportunities for Thai products and businesses, particularly after Saudi Arabia restored its diplomatic relations with Thailand for the first time in 32 years.
In 2023, the International Monetary Fund expects many Middle Eastern economies, especially oil-exporting countries, to continue to expand when compared with Thailand’s main export markets such as the US, EU and Japan. For example, the economies of the United Arab Emirates (UAE) and Saudi Arabia are expected to grow by 3.5% and 3.1%, respectively.
The Middle East represents a market with great potential in terms of size and growth, with a population of up to 470 million people and high purchasing power.
Saudi Arabia and the UAE are fairly affluent markets with annual incomes per capita of US$29,922 and $49,452, respectively.
Thai exports to the Middle East in 2022 included vehicles and auto parts, canned and processed seafood, gems and jewellery, and electrical appliances.
Another potential market is the halal sector in Islamic countries, which continues to grow. The global halal food market is expected to grow from $1.3 trillion in 2017 to $2.6 trillion in 2027, with an average compound annual growth rate (CAGR) of 15%.
Mr Rak said the halal food industry is promising due to the large Muslim population of around 1.9 billion, representing a quarter of the world’s population. Therefore, Thai businesses should expedite their product adjustments for halal certification, including food to meet Muslims’ preferences for sweets and canned food.
Workers process shrimp for export at a plant in Songkhla province. Thai exports to the Middle East last year included canned and processed seafood products. Wichan Charoenkiatpakul
The so-called sustainable economy, or green economy, has a high market value, and is projected to grow from $13.7 billion in 2017 to over $51 billion in 2027, at an average CAGR of 21%.
Sustainable business management includes the monitoring of air and water pollution, carbon footprint management, crop tracking, fire detection, forest area management, green buildings, soil and moisture management, sustainable mining and exploration, water management, and weather monitoring and forecasting.
Total global spending by governments, businesses and individuals on energy and land-use systems will need to rise by $3.5 trillion a year (equivalent to the size of India’s GDP in 2022), every year, to achieve net-zero emissions in 2050, according to global consultancy McKinsey.
The main drivers include products and packaging made from waste, plant-based food, electric vehicles and eco-tourism.
Undoubtedly, many countries around the world are becoming ageing societies. It is expected that by 2040 the world will have around 2 billion elderly people (60 years of age or over), accounting for a quarter of the world’s population, most of them in Europe and some in Asian countries, particularly Japan, which will shape future consumer demand.
According to Bruegel, a leading European research institute, the global average gross income of “silver consumers” is around $14,500 annually, compared to a global average of $12,300 among all age groups. Products that offer good potential to tap into the silver market include chewable foods, care robots, hearing aids and adult diapers.
As the senior citizen market becomes the major consumer group of the coming decades, product packaging should be designed to be more suitable for the elderly, for example by increasing font sizes on labels for legibility, and taking into consideration functional design for ease of use.
It should come as no surprise that Chinese women are among the planet’s most influential consumer groups, given that China is the world’s largest “SHEconomy”.
China is home to nearly 400 million female consumers aged 20 to 60, who accounted for as much as $1.2 trillion in spending in 2022.
In addition, women now play an increasingly important role in business. It was found in 2021 that the share of women executives globally has increased to 26% of the total, compared to 15% in 2015. This is considered to be a group with high purchasing power. The products that have good opportunities tapping into these markets include cosmetics, anti-ageing vitamins, body care products, jewellery, fashionable clothes, and online personal stylists.
Thailand has completely entered into an ageing society according to the United Nations universal definition. The country had a proportion of population at 60 years of age or over at 22% of the whole population in 2022. Patipat Janthong
On the occasion of Exim Bank’s 29th anniversary, the bank unveiled the “EXIM for Little People” programme which not only helps solve business debt problems, but also assists and enhances the capabilities of Thai entrepreneurs so they can start or expand their international operations.
Mr Rak said that under the programme, the bank will help people become exporters, including community enterprises which normally produced and distributed their products domestically or sold them to exporters, and indirect exporters such as merchants selling products to foreign tourists. As tourism rebounds, it is expected that as many as 25-30 million visitors will return to Thailand. This represents a good opportunity for more Thai goods such as handicrafts and lifestyle products to be sold in overseas.
One of the fastest ways to enter the global trade market is through e-commerce or digital trade. Over the last three years, global trade was greatly influenced by the Covid-19 pandemic as consumers bought via the e-commerce market, with a value of 770 billion baht in 2022, up 8% year-on-year.
As a result, the bank launched “EXIM Thailand Pavilion” to help Thai entrepreneurs access the online trade platform Alibaba. EXIM Thailand Pavilion will also help link entrepreneurs with trading and fulfilment networks both at home and overseas as well as provide consultancy services to those who are new to online trading. The bank has recently been negotiating with to provide entrepreneurs with more online trading channels. This is in line with Exim Bank’s goal to create new exporters and new business opportunities for Thai entrepreneurs with connectivity along the global e-commerce supply chain.
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