Can Thai Tech Go High-Tech?

Bangkok wants to move beyond piece work

Four years ago, the Asian crisis took a wrecking ball to Thailand's aspirations of becoming a serious high-tech player. The Thais were forced to shelve a raft of state-backed projects, including science and software parks, because the contractors building them ran out of cash. Another prominent casualty: a $1.2 billion chip-fabrication plant that entrepreneur Charn Uswachoke planned to build with Texas Instruments Inc. Strapped for funds, Charn, CEO of Alphatec Group, also backed out of a joint venture with the state to build a research-and-development facility.

Now there is a new government in power, and Thailand is reviving its high-tech ambitions. In late April, Thaksin Shinawatra, the telecom tycoon turned Prime Minister, convened a meeting of business leaders and technocrats to explore ways of jump-starting various industries, including high tech. So far, his team has announced no new policies, but it is promoting a number of projects restarted by the previous administration.

Thirty kilometers north of Bangkok, Phase One of the $20 million Science Park is nearing completion. Not far away, a new software facility is signing up tenants. Charn is even trying to restart his chip fab. "We're behind--that's obvious," says Thaweesak Koanantakook, head of the state-backed National Electronics & Computer Technology Center. "We must create a supply chain for IT products."

The idea is to move beyond low-margin piecework. While electronics made up fully 35% of Thailand's $70 billion in exports last year, Thais do little more than package chips for the likes of Sony (SNE ), or make PC cases for such contract manufacturers as Flextronics (FLEX ). By contrast, Singapore and Malaysia have subsidized the construction of chipmaking facilities (box), and are regional manufacturing hubs for the likes of Hewlett-Packard (HWP ), Dell (DELL ), and Gateway (GTW ). "If Singapore [and] Malaysia can do it," says Pairash Thaj-chayapong, chief of the National Science & Tech-nology Development Agency, "why can't Thailand?"

There are many reasons, skeptics say. For starters, Thailand suffers from corruption, infrastructure bottlenecks, and a slow, opaque bureaucracy. Its underfunded school system also fails to produce the well-educated, English-speaking workers that employers want. Just ask Nikhil Srinivasan. Last year, the 33-year-old former banker went looking for engineers to set up, a personal-finance Web site. He discovered that Thailand had "literally a handful of Java programmers," and was forced to outsource the work to India.

Moreover, these days foreign companies are more likely to pour their IT dollars into China. Celestica Inc. (CLS ), a Toronto-based contract manufacturer, employs 4,000 Thais to assemble audio and video conferencing equipment and build workstations. But N.K. Quek, Celestica's senior vice-president for Asia, says the outfit is now focusing less on Thailand and more on the Chinese city of Suzhou. "In five years," says Quek, "I wouldn't be surprised if Celestica in Suzhou was as big--if not bigger--than in Thailand."

So far, the government's initiatives are creating little momentum. While a handful of state labs are to move into the science park this fall, no private companies have expressed any interest. That's not surprising, sighs park director Yoot Rojvirasingh: "In Thailand, companies still think of R&D as an expense, not an investment." While 33 companies have rented space at the software park, most are startups. Park administrators are trying to attract Indian software firms. Then again, so is Vietnam.

"IT'S A SHAME." Meanwhile, a government effort to train a corps of chip designers may be too little too late; China already boasts thousands of such people. Still, officials are reviving plans for an $80 million R&D chip fab, where students can learn design skills by making small batches of chips. While it will produce 6-inch wafers, which were state-of-the-art 15 years ago, officials hope the fab will prompt more students to become engineers. The goal is to graduate 3,000 a year, compared with almost zero today. Manoo Ordeedolchest, president and CEO of Datamat, a systems integration company, is urging the state to add another 10,000 software engineers by 2004, double the current number. At the moment most locally trained software engineers move to Silicon Valley or Singapore. "It's a shame," says Manoo.

It's a pity, too, Thai officials and businessmen say, that the country isn't taken more seriously as a potential tech center. Richard D. Han, CEO of local chip assembler Hana Microelectronics Group, recalls how during the crisis "people said we should go back to pulling rice out of the field." But even Han acknowledges Thailand's high-tech prospects are limited. He has shifted some of his own circuit board production to Shanghai. Why? Because he finds the red tape less onerous. Thailand, Han reckons, "will be a medium-tech country. I don't think there's any shame in that." Eventually, other Thais may be forced to reach the same conclusion.

By Bruce Einhorn in Bangkok

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