a national innovation system model - industrial development in thailand

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A National Innovation System ModelIndustrial Development in Thailand

A Thesis Presented to the Faculty

OfThe Fletcher School of Law and Diplomacy

By

PRATANA VONGPIVAT

In Partial Fulfillment of the Requirements for the Degree of Doctor o f Philosophy

May 2002


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PRATANA VONGPIVAT

e-mail: [email protected] 435 Washington St. Apt. 306 45 Ramkamhang 14 Rd.Somerville, MA 02143 Bangkok 10240, Thailand(617) 547-2055 (662) 718-6173

Education

1998-2002 THE FLETCHER SCHOOL OF LAW AND DIPLOMACY, TUFTS MEDFORD, MAPh.D. in Law and Diplomacy Degree, May 2002Field of study: Technology Policy and Management and International Business Relations Co-president o f East Asian Club

1996-1998 THE FLETCHER SCHOOL OF LAW AND DIPLOMACY, TUFTS MEDFORD, MAMaster o f Arts in Law and Diplomacy degreeField of study: International Communications and Development Economics Additional credited coursework at John F. Kennedy School o f Government and Harvard Business School, Harvard University Active member of International Communication Club

1991-1995 CHULALONGKORN UNIVERSITY BANGKOK, THAILANDBachelor o f Arts in Political ScienceFirst Class Honors with Gold Medal, the first Rank o f 264Major in International relations, East and Southeast Asian studiesAwarded King Bhumipol Scholarship, the highest academic achievement

Experience

Summer 1998 MINISTRY OF SCIENCE BANGKOK, THAILANDSummer Consultant Joined the business consulting department in identifying and solving technology

development problems among small and medium enterprises fSME) of Thailand Assisted online Internet database and homepage incubator unaer the new joint-project

o f the Canada Thailand Technology Network (CTTN) to match demand and supply for technology within Thai industries and the world

1995-1996 PHATRA THANAM T FINANCE AND SECURITIES PLC BANGKOK, THAILANDPolitical Analyst Monitored international and local politics as well as forecasted their subsequent

effects on the stock market of Thailand for morning presentation to investors Evaluated and recommended investors decisions on stocks listed on the Stock

Exchange o f Thailand in sector of commerce and building materials Published investment recommendations on Thai stock market for distributions to

customers

Personal

Citizenship o f Thailand, J-l visaLived and traveled extensively in many parts of United Kingdom and North America Enjoy traveling and foreign cultures, horseback riding, golfing, scuba diving, and Yoga


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A National Innovation System Model:

Industrial Development in Thailand

Abstract

This dissertation addresses a gap in prior research, which does not fully specify

the key processes essential to innovation in developing countries and long-term industrial

growth. This research is an extension of the national innovation system concept, which is

employed to identify and compare the keys to industrial technology development in

developing countries over time. The dissertation develops two unique research findings

to fill gaps in academic and policy literature. First, a structured framework o f analysis

for the National Innovation System (NIS) model is developed. The NIS model specifies

the flow process and interactions between components in the national innovation system,

building upon the theoretical foundations identified in previous research. Second,

empirical evidence of the processes and problems of innovation o f the Thai automobile,

textile, and electronics industry is analyzed to validate or challenge the assumptions

implicit in the NIS model. This dissertation employs pattern analysis methodology, using

the NIS model and multiple case studies as tools to test the propositions that national

idiosyncrasy matters in industrial innovation and that within a national concept two major

variables in the macro environment, government policy and international conditions, are

the biggest contributors to technology development. The hypotheses prove correct for

the case studies o f specific Thai industries. Positive impacts from a favorable local


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content requirement policy and liberalization pressure from macro factors drove positive

interactions of the national variables in industry structure and suppliers network that

resulted in better technology outcomes in the Thai auto industry. Unbalanced and

inconsistent policies triggered a chain of negative impacts on system linkages and a

subsequent dearth of innovative supply, which turned the liberalization trend into a threat

to the Thai textile and electronics industry. The detailed description o f the three

industries innovation processes and component interactions provides a foundation for

future policy remedy and prescriptions. This dissertation shows that industrial innovation

results from macro variables, specifically domestic government policy and international

conditions, which obviously affect the microenvironment, shape competitive conditions,

and eventually drive the demand that triggers technology supply. The interactive

influences of the system components on flow of innovation processes validate the

importance of national characteristics for Thai technology development.

A Thesis by

Pratana Vongpivat

Presented to

Faculty of the Fletcher School o f Law and Diplomacy:

Lee McKnight, Associate Professor o f International Communication

William Moomaw, Professor of International Environmental Policy

Paul Vaaler, Associate Professor o f International Business

March 2002


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Input Box -U sers of Economy

Feedback loop New ingredients,

pressure and incentives, structure and competition

for the enviomment

i rTechnologyBehaviors

|| SupplyI I

Technologystocks

Macro (mimmo

Demand

I ITechnology choices and

behaviors

O O utput Box - S upp liT of Econom y

Pratana Vongpivat May 2000


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For my parents and my brother..

With the deepest gratitude and the sincerest appreciation

for their never-ending support


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Acknowledgements

This dissertation would not have been completed without the intellectual

guidance, constructive criticism, and encouragement from my family, my three advisors:

Lee McKnight, Bill Moomaw, and Paul Vaaler, colleagues from the National Science and

Technology Development Agency o f Thailand, especially Dr. Chachanat Theptaranonth,

Ms. Ake-anong Jangbua, Dr. Chatri Sripaipan, and Dr. Yongyuth Yuthavong, and all my

friends, to whom I owe a great debt o f gratitude for this success.


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Vongpivat i

Table of Contents

Chapter 1: Introduction.................................................................................. 1

OVERVIEW...........................................................................................................................2STRUCTURE OF THE THESIS........................................................................................ 8

Chapter 2: Thailands Eroding Comparative Advantage: In search for New Assets....................................................................................................... 11

BACKGROUND.................................................................................................................. 152.1 SHIFT IN PRODUCTION STRUCTURE................................................................ 18

2.1.1 F rom prim ary to labor- intensive pro duction and ex po r t ...................... 212.1.2 From labor- intensive to higher-tech m a n u fa ctu rin g ..............................27

2.2 CHANGES IN COMPARATIVE ADVANTAGES: SIGNALS FOR UPGRADING.......................................................................................................................29

2.2.1 P ressures to sh ift aw ay from prim ary pr o d u c tio n .....................................292.2.2 P ressures to sh ift aw ay from labor- intensiv e pro d u c tio n ....................34

Internal Factors o f Success and Failure....................................................................... 35External Factors of Success and Failure...................................................................... 37In Summary................................................................................................................... 41

2.3 NEW ADVANTAGE FOR NEXT STRUCTURAL TRANSFORMATION. 42CONCLUSION.................................................................................................................... 54


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Chapter 3: Literature Review..................................................................57

INTRODUCTION............................................................................................................... 583.1 TECHNOLOGY CAPABILITY CONCEPTS.....................................................593.2 SUCCESS AND FAILURE OF FIRMS AND INDUSTRIES............................65

3.2.1 Industrial econom ics an d co rpo ra te v ie w ......................................................653.2.2 Strategic managem ent and dynam ic explanations o f fir m sPERFORMANCE..................................................................................................................................... 663.2.3 System and holistic v iew ...........................................................................................69

3.3 EXISTENCE OF THE NATIONAL INNOVATION SYSTEM....................... 743.3.1 Levels o f a n a l y sis ........................................................................................................ 783.3.2 Innovation pro cess: dem a nd and s u p p l y ...........................................................83

3.4 EXISTING INNOVATION MODELS.................................................................. 883.5 APPLICATIONS TO DEVELOPING COUNTRIES AND THAILAND 91CONCLUSION.................................................................................................................... 99

Chapter 4: Research Design........................................................................100

4.1 RESEARCH OBJECTIVES.................................................................................. 1024.2 HYPOTHESES........................................................................................................ 1054.3 EXPLORATORY SURVEY.................................................................................. 1064.4 METHODOLOGY.................................................................................................. 108

4.4.1 T he m odel fram ew ork o f An a ly sis .....................................................................1144.4.2 Param eters and da ta so urces o f th e st u d y ................................................... 1234.4.3 C om pletion o f th e M o d e l ........................................................................................ 132

4.5 TERMS AND SCOPE.............................................................................................1334.6 UNIT OF ANALYSIS..............................................................................................1354.7 EXPECTED CONTRIBUTIONS..........................................................................137


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Chapter 5: Automobile Industry...........................................................139

P R O L O G U E ......................................................................................................................................... 142

5.1 M A C R O E N V IR O N M E N T ...............................................................................................144

5.1.1 Macro eco nom ic c o n d it io n s ................................................................................. 1455.1.2 T rade, investm ent , an d industrial p o l ic y ..................................................149

Investm ent P rom otion ................................................................................................................ 150Local Content R equirem ent....................................................................................................151M odel L im itation .........................................................................................................................152Factory Expansion C o n tro l.......................................................................................................152Im port D uty and B a n ..................................................................................................................153Tariffs on O ther Raw M ateria ls .............................................................................................. 155Export P rom otion.........................................................................................................................156Technology D evelopm ent......................................................................................................... 156Environm ental P ro tec tion ......................................................................................................... 157

5 .1.3 Intern a tio n a l C o n d it io n s ...................................................................................... 159

5.2 M IC R O E N V IR O N M E N T ................................................................................................ 162

5 .2 .1 T ypes an d C ha racteristics o f te c h n o l o g y ....................................................1625.2.2 M a rk et and industry stru ctu re ......................................................................... 165

A utom obile M arket..................................................................................................................... 165Parts and Com ponents M arket.................................................................................................170

5.3 IN PU T /D E M A N D F L O W S ............................................................................................... 174

5.3.1 D em and v a r ia b l e s ...................................................................................................... 1745.3.2 C om petitive conditions fo r technology dev elo pm en t .......................... 176

5.4 N E T W O R K E X T E R N A L IT IE S ......................................................................................178

5.4.1 Factor m a rk et co n d itio n s o f T h a ila n d ........................................................... 1785.4.2 C apita l m a rket c o n d it io n s .................................................................................... 1855.4.3 N etw ork o f suppliers a n d supporting in d u st r ie s ........................................187

5.5 C O M P O N E N T S A N A L Y SIS ............................................................................................190

5.5.1 Pu b l ic .................................................................................................................................1915.5.2 P r iv a te .............................................................................................................................. 1955.5.3 Academ ic a r e n a ........................................................................................................... 198

5.6 O U T P U T /S U P P L Y F L O W ................................................................................................ 199

5.6.1 P roxy indexes for t ech n o lo g y capability d e v e l o pm en t ........................ 1995.6.2 T echno lo gy perform ance o u tco m e ................................................................... 2075.6.3 Econom ic status fo r tech n o lo g y perfo rm a n ce .......................................... 215

R E T R O S P E C T .................................................................................................................................... 219


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Chapter 6: Textile Industry.................................................................. 222

B A C K G R O U N D ................................................................................................................................ 225

6.1 M A C R O E N V IR O N M E N T ..............................................................................................229

6.1.1 Macro eco n o m ic c o n d it io n s ................................................................ 2296 .1.2 T rad e , investm ent , and industrial p o l ic ie s ..................................................230

Trade P ro tection ism ................................................................................................................... 2 3 1Export A llocation S ystem ........................................................................................................ 233Investm ent and Export P rom otion ........................................................................................234Capacity Expansion C o n tro l.................................................................................................. 235Environm ental Protection and Technology D evelopm ent.............................................236

6.1.3 In tern a tio n a l c o n d it io n s ......................................................................................237N A FTA : N orth A m erican Free Trade A rea....................................................................... 238M FA: M ulti-Fiber A rrangem ent............................................................................................ 239G A TT and A TC: A greem ent on Textile and C lo th in g .................................................... 242AFTA: A SEA N Free Trade A re a .......................................................................................... 244

6.2 M IC R O E N V IR O N M E N T ................................................................................................245

6.2.1 T ypes and cha racteristics o f tec h n o lo g y .....................................................246K ey Technology in Textile Industry ....................................................................................246Fiber M aking ...............................................................................................................................248S p inn ing ....................................................................................................................................... 248W eav ing ....................................................................................................................................... 249F in ish in g ......................................................................................................................................249G arm ent and C lo th ing ..............................................................................................................250

6.2.2 M a rk et a n d industry structure ......................................................................... 252

6.3 IN PU T /D E M A N D F L O W S .............................................................................................. 255

6.3.1 D em and v a r ia b l e s ......................................................................................................2556.3.2 C o m petitiv e conditions fo r tech nolog y d e v e l o pm e n t ........................... 257

6.4 N E T W O R K E X T E R N A L IT IE S ...............................................................................259

6.4.1 Fa c t o r m a rk et c o n d it io n s ..................................................................................... 2596.4.2 C a pita l m a rk et c o n d it io n s .................................................................................... 2656.4.3 N etw o r k o f suppliers and supporting in d u st r ie s ........................................266

6.5 C O M P O N E N T S A N A L Y SIS................................... 267

6.5.1 Pu b l ic ................................................................................................................................ 2686.5.2 Pr iv a te .............................................................................................................................. 2696.5.3 Ac a d e m ia ......................................................................................................................... 270

6.6 O U T P U T /S U P P L Y F L O W _______________________________________________ 272

6.6.1 P rox y ind ex es fo r technology c a p a b il it y ..................................................... 2726.6.2 Eco n o m ic indicators fo r technology pe r fo r m a n c e ..................................283

C O N C L U S IO N ................................................................................................................................. 287


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Chapter 7: Electronics Industry........................................................... 289

BACKGROUND................................................................................................................2947.1 MACRO ENVIRONMENT..................................................................................295

7.1.1 M acro eco nom ic c o n d it io n s ................................................................................. 2957.1.2 T rad e , investm ent , an d industrial po lic ie s .................................................2977.1.3 Intern a tio n a l c o n d it io n s .....................................................................................300

7.2 MICRO ENVIRONMENT....................................................................................3037 .2 .1 Types and cha racteristics o f tech n o lo g y ....................................................3037.2.2 M ark et a n d industry stru ctu re ........................................................................ 304

7.3 INPUT/DEMAND FLOWS.................................................................................3067.3.1 D em and v a r ia b l e s .....................................................................................................3067.3.2 C om petitive conditions fo r technology d e v e l o pm e n t ....................... 309

7.4 NETWORK EXTERNALITIES.......................................................................... 3107 .4 .1 Fa ctor m a rk et c o n d it io n s ....................................................................................3017.4.2 N etw ork o f suppliers and supporting in d u str ies .......................................317

7.5 COMPONENTS ANALYSIS................................................................................3217.5.1 Pu b l ic ............................................................................................................................... 3217.5.2 Priv a te .............................................................................................................................3237.5.3 Ac a d em ia ........................................................................................................................326

7.6 OUTPUT/SUPPLY FLOW................................................................................... 3277.6.1 Proxy indexes fo r technology c a pa b il ity .................................................... 3277.6.2 Econ om ic indicators for tech nolog y perfo rm a n ce .................................337

CONCLUSION.................................................................................................................. 345


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Chapter 8: Industry Sectors in the NIS: Similarities and Differences.349

INTRODUCTION............................................................................................................. 3518.1 MACRO ENVIRONMENT.................................................................................358

8.1.1 Ma cro co n d itio n s and p o l ic y ..............................................................................3588.1.2 T rade , in v estm en t , an d technology po licy ................................................. 3608.1.3 Intern a tio n a l c o n d it io n s .....................................................................................362

8.2 MICRO ENVIRONMENT ..............................................................................3648.2.1 N ature o f tec h n o l o g y ............................................................................................ 3648.2.2 Ma rk et a n d industry stru ctu re ........................................................................365

8.3 INPUT/DEMAND FLO W S................................................................................. 3668 .3 .1 Ma rk et D em an d v a ria bles ....................................................................................3668.3.2 C om petitive con ditions for technology d e v e l o pm e n t .......................... 367

8.4 NETWORK EXTERNALITIES.........................................................................3688 .4 .1 Factors M a r k e t ......................................................................................................... 3688.4.2 Su ppliers n etw o r k and supporting in d u stry .............................................. 369

8.5 COMPONENTS ANALYSIS............................................................................... 3718.6 OUTPUT/SUPPLY FLOW _______________________ 372

8 .6 .1 Proxy indexes fo r tech nolog y c a pa b il ity .................................................... 3728.6.2 Econ om ic status for technology perfo rm a n ce ......................................... 375

8.7 SUMMARY OF THE FINDINGS AND SURVEY RESULTS___________376CONCLUSION AND POLICY RECOMMENDATIONS.........................................384

Chapter 9: Conclusion.................................................................................389

Bibliography...................... 401


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List of Tables

Chapter 2: Thailands Eroding Comparative Advantage: In search for New Assets

T able 1 Percen ta ges o f exports by econo m ic s e c t o r ............................................... 23T able 2 V alue o f P rincipal E x p o r t .....................................................................................23T able 3 Percen ta ge o f imports by econom ic cla ssifica tio n in T h a il a n d 24T able 4 Co n tribu tio n o f agriculture and em plo y m en t sh a re in GDP..............25T able 5 Sha re o f em ploy m ent in ag ricultu re an d m a n u fa ctu rin g ....................26T able 6 T h a ila n d s structure o f ex po rts....................................................................... 28T able 7 Ex po r t sh a re by production ca teg o r ies ......................................................... 29T a ble 8 M a r k et foreign exchange rates (Ba h t to U S $).......................................... 32T able 10 N u m ber o f live b ir t h s .............................................................................................. 37T able 11 M a n ufa ctu ring w age and pro ductivity In d e x ............................................37T able 12 In tern a tio n a l Com parisons o f so urces o f GERD.......................................46T a ble 13 In tern a tio n a l com parisons o f h u m an ca pita l in d ex es ............................48T a ble 14 In tern a tio n a l com parisons o f n a tio n a l pa tent a p p l ic a t io n s 51T able 15 In tern a tio n a l Com parisons o f tech n o lo g y balan ce o f paym ents . 52T able 16 To tal Fa c to r Productivity : C ontributions o f gro w th in T hailand

..............................................................................................................................................................54T a ble 17 C om petitiv en ess o f T hailand from 1992-1999 ..............................................56

Chapter 4: Research Design

T able 18 T ech n o lo g y capability e q u a t io n ...................................................................... 119T able 19 D eterm in ants o f tech nolog y c a p a b il it y .....................................................120Table 20 V a ria bles in m acro and m icro en v ir o n m en t ...............................................124Table 21 In put / d em a nd side o f t ec h n o l o g y ...................................................................... 125T a ble 22 N etw o r k externalities o f th e sy stem in fr a str u c tu r e .........................127T a ble 23 Co m po n en ts a n a l y sis ............................................................................................... 128Ta ble 23 O u tpu t flo w : tech nolog y C a pa bility s u p p l y ..............................................131T a ble 25 1996 Eco n o m ic indicators o f 13 ta rg eted in d u str ies .............................. 136Ta ble 26 M a n u fa ctu rin g production an d % ch a n g es fro m previo us y ea r .... 137

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Chapter 5: Automobile Industry

T able 27 V ehicle T ax ation fro m 1962 to 2000 (percent) ...............................................155T able 28 Im port tariff rates o f basic raw materials for auto parts production

......................................................................................................................................................... 156T able 29 1996 ASEAN A uto Pa r ts N etw o r k s ....................................................................... 162T a ble 30 Existing A utom obile a ssem blers in T h a ila nd .................................................167T able 31 Sale Con cen tra tio n o f the T o p M a n u fa ctu rers ...........................................171T able 32 N ew registrations o f A sia s c a r m a rket (Thousand u n its) ..................... 177Ta ble 33 R&D personnel o f pu blic ag en cies classified by sectors in 1996 ........ 179T able 34 R&D P ersonnel in t h e priv ate secto r in 1995................................................ 180Table 35 Educational com po sitio n o f R& D personnel in public corpora tion in

1996..................................................................................................................................................181T able 36 Supply o f hig her educa tio n in the autom obile in d u s t r y .......................... 182Table37 Projection o f D em a n d a n d Supply for Labo r in A uto an d M etal

In d u s t r y ....................................................................................................................................... 185T able 38 Co st o f tech nolog y a cq u isitio n from a b r o a d ............................................... 202T able 39 R&D expenditure o f th e au to m obile industry in 19 9 6 ...............................202T able 40 N um ber o f T r a d em a rk applications classified by se c t o r s ...................... 203T able 42 technology a s s e s s m e n t ........................................................................................... 211T able 43 Relative auto parts pro duction c a pa b il ity .................................................... 212T able 44 Cost com pa rison o f au to m o bile and other supporting in d u st r ie s ...... 213Table 45 CM S analysis o f t h e T hai au to m o bile in d u stry ............................................215Ta ble 46 RCA In d ex in A u to m o bile In d u stry in 1993..................................................... 219T able 41 C ountry rank fo r a ttra ctiv e in v estm en t ........................................................220

Chapter 6: Textile Industry

T able 47 M inim um w age in T h a il a n d .......................................................................................229Table 48 Tariff structure o f t h e T ha i textile in d u st r y .............................................. 231T able 49 C om parative rate o f protection am ong each production o f the T hai

tex tile ........................................................................................................................................... 232Ta ble 50 Relative raw m a teria l im po rt tariffs in 1996................................................ 233T able 51 G ^ T T schedule fo r MFA libera liza tio n ............................................................ 243T a ble 52 M inim um efficien t pl a n t s iz e ...................................................................................252Ta ble 53 Relative c o st o f w a t er usage in the textile industry in 1994 .............. 261T able 54 Skill com po sitio n in T h a i tex tile ind ustry ...................................................... 262Table 55 Research perso n n el co m pa riso n in various secto rs ................................... 262T able 56 T hai tex tile labor c h a r a c t er istic s .....................................................................263T able 57 Com parative w age rate in 1994 ............................................................................ 264Table 58 Recognition of pu blic ag en cies , private association , a n d aca dem ic

INSTITUTES..................................................................................................................................... 271T a ble 59 Com parative R&D ex pen d itu re in various se c t o r s ......................................273Ta ble 60 T radem ark a pplica tio n s in tex tile , tex tile products, a n d fo o tg ea r 274


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T able 61 R elative c o st o f tech n o lo g y acquisition from a bro a d in the T haiINDUSTRIES.....................................................................................................................................274

T able 62 S pinning m a ch in ery com pa rison s in 1997........................................................... 276T able 63 W eaving m a ch in ery com pa riso n in 1997.............................................................276T able 64 R ela tive c o s t factors in ring spinning pro duction in 1993......................281T able 65 C o n sta n t M a r k et S ha re (CMS) in d e x e s .............................................................282T able 66 In v estm en t attra ctiv en ess ranked in 199 3 ..................................................... 284T able 67 C om parativ e m a rket sh a re am ong exporting co u n tries in major

MARKETS........................................................................................................................................ 285T able 68 Statistics o f T hai tex tile exports a n d im ports from 1990 to 1999...... 286

Chapter 7: Electronics Industry

T able 69 T ariff rates a fter 1 9 9 7 ..............................................................................................299T able 70 S ize o f firm s in the T hai electronics secto r .................................................... 305T able 71 R elative m a rk et size o f electronics ind ustry from 1993-2000............. 309T able 72 H um an reso u rces o f th e electrical c om po nen ts in d u s t r y .....................312T able 73 Do m estic sa les a n d expo rt ratio am ong electrical com po nen t firms

318T able 74 En tran ts into the T h a i electronics ind ustry from 1970 t o 1990s ...... 325T a b le 75 C o m p a ra t iv e R&D e x p e n d i tu r e in 1996............................................................... 328T able 76 Co m pa r a tiv e co st o f tech nolog y a cq u isitio n from a b r o a d .................. 329T able 77 T echnology t ra n sfer and absorption in the electronics sector of

T h a ila n d ....................................................................................................................................... 332T able 78 C a pa bility a ssessm en t in the T hai electronics f ir m s .................................335Table 79 T echnica l perfo rm a n ce o f IC packaging firm s in T h a il a n d ................... 336Table 80 Rela tive R C A index o f electronics pr o d u c ts .................................................339Table 81 T rade sta tistics in t h e T hai electronics s e c t o r .......................................... 341T able 82 Ra tio o f lo ca l a n d im ported input fo r c o m p u t e r s .......................................341T able 83 Loca l c o n te n t pr o po r tio n ........................................................................................342T able 84 In v estm en t incen tiv e ranking in e l e c t r o n ic s .................................................344T able 85 SW O T a n a l y s is ...............................................................................................................346

Chapter 8: Industry Sectors in the NIS: Similarities and Differences

T a b le 86 S u m m a ry o f t h e k e y f in d in g s t h r o u g h t h e NIS m o d e ls p a r a m e te r s . .377


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List of Figures

Chapter 2: Thailands Eroding Comparative Advantage: In search for New Assets

F igure 1 C limb up th e tech nolog y la d d er a n d pro duction st r u c t u r e ....................19F igure 2 C hanges in production stru ctu re o f T h a il a n d ............................................... 22F igu re 3 Em plo ym ent and real w age b y s e c t o r s ................................................................26F igure 4 Irrig a ted land lim itation in 1993............................................................................. 30F igu re 5 Term s o f trade o f T hailand fro m 1965 to 1990..................................................33F igure 6 Selected m acroeconom ic in d ica to rs o f T ha ila nd from 1970 to 1 9 9 1 .3 5F igure 7 Co m pa r iso n of w age rate in in d u stria l s e c t o r ................................................ 38F igure 8 Rela tiv e C om parative A d v antag e (RCA) V a l u e ..............................................41F igure 9 Ab so lu te R&D expenditure a n d as percen t o f GDP in T h a ila n d ..............44F igure 10 International com pa rison s o f G ross D om estic Expenditure on R&D

(GERD) AS PERCENTAGE OF GDP............................................................................................. 44F igure 11 International com pa rison s o f B usiness Dom estic Expenditure o n R&D

(BERD) an d H igh er Education Expen diture on R&D (HERD) as percentageo f GDP ...........................................................................................................................................46

F igure 12 In tern a tio n a l com pa rison s o f R&D personn el and RSE ............................48F igure 13 Internationa l com pa rison s o f RSE personn el by sources of su pply . 49 F igure 14 W o rld com petitiveness in infrastru ctu re fa c to r ........................................52

Chapter 3: Literature Review

F igure 16 E vo lu tion o f t ech n o lo g y c a pa b ility d ev elo pm en t ...................................... 62

Chapter 4: Research Design

F igure 17 S im plified w orkin g pro cess o f th e NIS m o d e l .......................................... 109F igure 18 T h e N ation al Inn ova tio n Sy stem (NIS) M o d e l ........................................116F igure 19 Rela tion sh ip M a p o f th e N IS ............................................................................. 123

Chapter 5: Automobile Industry

F igure 20 P rod uction and D om estic s a l e s ........................................................................... 147F igu re 2 1 C B U an d Spare parts e x po r t ...................................................................................147F igure 22 C a pa city U tilization in t h e a u to in d u stry o f T h a il a n d ..........................148


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Vongpivat xi

F igure 23 A utom obile production by vehicle types in 1 9 9 9 ........................................ 165F igure 24 Production C apacity o f V arious V ehicle Ty p e s ...........................................168F igure 25 V ehicle Sa les by C o u n t r ie s ................................................................................... 174F igure 26 Em plo ym ent Structure by Levels o f E d u c a t io n ......................................... 185F igure 28 N et Foreign D irect Investm ent in M a ch in ery a n d T ransport

Eq u ipm en t ....................................................................................................................................204F igure 29 P roduct-tech nolog y m a t r ix .................................................................................206F igure 30 V alue added per w orker o f the T ha i a u to m o bile in d u st r y .................. 213F igure 31 A utom obile P roduction o f T hailand from 1961 to 1999......................... 216F igure 32 A utom obiles an d Parts E xport o f T ha ila n d from 1974 to 1999 ..........217

Chapter 6: Textile Industry

F igure 33 Stages of value chain production o f t ex tile in d u st r y ............................228F igure 34 M ark et sh a re o f the US textile im p o r t ........................................................... 239F igure 35 Volum e and value o f T hai a pparel expo rt to MFA a n d non-MF/1

MARKET..........................................................................................................................................241F igure 36 E xport value of textile industry o f T h a ila n d from 1985 to 1995.... 242F igure 37 Industry structure o f the T hai tex tile in d u s t r y .......................................253F igure 38 Dom estic con sum ption o f textile pro ducts o f T h a il a n d ........................ 256F igure 39 Com parison o f electricity charges acro ss c o u n t r ie s .............................260F igure 40 Survey o f pro duct and process d evelopm en t a m o n g T hai textile mills

.......................................................................................................................................................... 277F igure 41 P roductivity tren d in four stages o f p r o d u c t io n ..................................... 278F igure 42 Labo r productivity trend in four stag es o f pr o d u c t io n ........................ 279F igure 43 T rend in v a lu e-added grow th of t ex tile a n d c lo th in g in d u str y ...... 279F igure 44 Rea l price a n d quality im provem ent o f T hai tex tile pro d u c ts ........... 280F igure 45 Reveal Com parative A dvantage tren d o f T hailand and other

co u n tries ..................................................................................................................................... 284

Chapter 7: Electronics Industry

F igure 46 V alue chain production in the electronics in d u stry o f T h a ila n d ... 292F igure 47 N et flow o f FD I by industries o f T h a il a n d ....................................................301F igure 48 R&D personn el in T hailand classified by in d u st r ie s ............................... 312F igure 49 Ex perience o f IT personnel in T haila nd in 1991........................................... 314F igure 50 C hanges in sk ill com position o f th e T hai electro n ics in d u st r y .........315F ig u re 51 O w n ersh ip s t r u c t u r e o f su p p lie rs in e l e c t r o n i c i n d u s t r y dm 1993.... 318F ig u re 52 M e a n s o f a c q u i r in g te c h n o lo g y f o r T h a i PCB M o n i to r f i r m s ............ 330F igure 53 FDI in the electronics sub-sectors fro m 1987 to 199 3 .............................331F igure 54 R elative labor productivity in electro n ics in d u st r y .............................333F igure 55 R C A index b y SITC product ca t e g o r ie s ........................................................... 338F igure 56 M a rk et sh a re o f various electronics pro ducts o f T h a ila n d ...............340F igure 57 Relative o u tpu t value g r o w t h ............................................................................343


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Chapter 8: Industry Sectors in the NIS: Similarities and Differences

F igure 58 R elationship betw een type o f tech n o lo g y and type o f productionSTRUCTURE THROUGH INCOME LEVEL AND TIME................................................................ 353

F igu re 59 T he N ation al Innovation System (NIS) m o d el ........................................ 355F igure 60 R ela tion sh ip M a p o f the N IS ............................................................................ 357F igure 61 S urvey q u estio n ......................................................................................................380F igure 62 S urv ey r esu lts ........................................................................................................ 381


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Introduction Vongpivat 1

CHAPTER 1 INTRODUCTION

TABLE OF CONTENTS

OVERVIEW....................................... 2STRUCTURE OF THE THESIS................................ 8


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Introduction Vongpivat 2

Chapter 1 Introduction

Overview

This dissertation develops and applies a national innovation system conceptual

model to selected industries of an emerging-market country - Thailand. The national

innovation system framework offers a new explanatory power for being national- and

system-oriented, rather than element-oriented. A novel framework, the National

Innovation System (NIS) model, is an extensive refinement of both Nelsons narrative

approach of the national innovation systems,1 and Gotschs and McEachrons pictorial

technology development model2 that comprehensively identifies and frames all the key

variables in the innovation process of various Thai industries. These previous innovation

system studies, however, locate variables in the innovation process without complete,

comparable frameworks or industrial applications in developing countries. Other studies

on the industrial performance generalize certain key factors across countries.3 Innovation

in one country like Thailand is, nonetheless, different from another country like the US.

1 Richard R. Nelson, ed., The National Innovation Systems: A Comparative Analysis (Oxford and New York: Oxford University Press, 1992).2 Carl H. Gotsch and Norman B. McEachron, "Technology Choice and Technological Change in Third World Agriculture: Concepts, Empirical Observations and Research Issues," in Technology Choice and Change in Developing Countries: Internal and External Constraints, ed. Babara G. Lucas and Stephan Freedman (Dublin: Tycooly International Publishing Ltd., 1983).3 Please see the literature review chapter for details on various levels of analysis behind industrial performance from industrial organization and corporate-level school to strategic management advocates.


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a national innovation system model - industrial development in thailand

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