Connectivity brings challenges and opportunities

Connectivity brings challenges and opportunities

All across the region, people are looking forward to new road and rail links working together efficiently, along with upgraded or new seaports and airports that will spur trade and economic development. Everyone agrees better infrastructure will help close development gaps, creating economic activity along the newly established routes and also strengthening countries’ competitiveness.

DR SUTAPA AMORNVIVAT

However, this does not mean that everyone can sit back and watch the money roll in. Over the next five years and beyond, the transformation of the competitive landscape will force companies to adapt to changes. Only those that can anticipate new conditions and execute better tactics in response will flourish. 

“Every challenge comes with an opportunity. The key is having the flexibility to adjust strategy to capture the benefits of the more connected environment,” said Dr Sutapa Amornvivat, chief economist and executive vice-president of Siam Commercial Bank Economic Intelligence Center (SCB EIC).

“Businesses should move quickly and aggressively to take advantage of the new opportunities, which can help prevent new foreign entrants from becoming competitors.”

Once physical connectivity is firmly established, it will bring urbanisation which will lead to improvements in various service sectors. Opportunities will grow in provincial markets that benefit from investment in new and better transport infrastructure. Businesses should work to serve new demand in sectors such as retailing, real estate and tourism.

SCB EIC points to the construction of Laem Chabang port as a good example of the opportunity. Since the port’s completion in 1991, Chon Buri’s services sector has been growing by an average of 9% per year, up from 2% previously.

The availability of physical connectivity also can be factored into a business’s risk management. With the increased frequency of natural disasters in the region, companies need to diversify their supply chains. They need to source from multiple locations or connect with suppliers who can serve as backup sources on demand.

One sign of this interdependence can be seen in the production of electronic parts and devices in East Asia. In 2000, imported inputs accounted for only 28% of the value of these manufacturers’ output. The ratio rose to 53% in 2011. Therefore, minimising the risk of unexpected events is imperative.       

“Online is becoming a very important channel to access a larger-volume customer base with a limited cost,” said Dr Sutapa. “This is the key area that small and medium-sized companies should look into more deeply.

“Only about 6% of Thai SMEs currently have their own websites. The number is very small compared to emerging economies such as China and Brazil where the figure is over 60%.”

The online channel offers a very cheap way for businesses to sell products directly to a broader range of customers. But once the transaction takes place online, physical connectivity will come into play to ensure that the process goes smoothly.

In any case, without qualified and high-potential employees, no company can excel. The liberalisation of labour movement across borders in Asean might lead to a net loss of talent in Thailand and some other countries. When rules were relaxed in Europe years ago, a large number of workers and professionals emigrated from Eastern Europe to countries that offer higher benefits such as Germany and England.

Businesses will need to optimise their compensation to remain competitive to attract good foreign talent as well as retain good domestic staff.

“Making your compensation packages more attractive does not necessarily mean paying a higher salary,” explained Dr Sutapa. “Companies can offer packages such as international health insurance benefits to attract new foreign talent, and also offer some overseas opportunities for local staff to retain high flyers.”

Some companies in Thailand have already adjusted their corporate cultures by creating a more international environment internally. Examples include issuing all internal documents in English, so that foreign staff can easily get access to information on the company.

“The best way to proceed is to have a very good human resource management team that can recruit actively, proactively and continue to retain good staff,” she said.

Amid a groundswell of exciting opportunities arising in a more integrated market, fear of change holds some SMEs back. The key for many will be to clearly identify who and where they are in their industry and what opportunities are available to them.

For example, in the tourism sector, local restaurants have a very high chance of getting more customers and should not fear new competition from foreign food providers, since tourists always seek out authenticity, said Dr Sutapa.

“They need to be able to identify themselves. The competition will not be fierce in all sectors; some could see an ever-present opportunity. They should look at where the high-growth markets are and find ways to cheaply take advantage out of that. Companies that adapt decisively to change will come out ahead,” she concluded.

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