As the domestic economy struggles and exports remain subdued, Thai enterprises are turning their attention to “CLMV” countries — Cambodia, Laos, Myanmar and Vietnam — where they see great potential from political stability, strong domestic demand growth, an emerging middle class, and their proximity to China and India.
This is a great opportunity for Thai exports to accommodate rapidly rising domestic demand and expansion to nearby consumer markets of three billion people.
However, with these increased opportunities also come additional challenges.
The CLMV markets are now much more open, welcoming more foreign companies and increasing their participation in global value chains, which can pose a significant threat to the dominant role of Thai products.
Notable Asian investors in CLMV along with Thailand are China, Japan, Taiwan, South Korea and Singapore.
It is commonly known that Thai products have enjoyed a strong brand presence in CLMV for a long time, even before these countries opened up their markets to the world. Most of Thailand’s top export products hold strong positions in various markets and often have a leading share.
The preference for Thai products is due to their high quality, which comes at a reasonable price.
Nevertheless, according to recent statistics, the average growth rate of Thai products in these markets has been slowing down as competitors aggressively catch up.
Krungsri Research conducted a study on Thai products in the CLMV market and found that since 2010 many of our key products have begun to lose competitiveness.
This trend is clearly seen in Cambodia, Laos and Myanmar (CLM) where Thailand holds the top spot in most product lists.
The overall market share of key exports in CLM has dropped about 4% from 2010-2014. Whereas in Vietnam it's a slightly different story.
Unlike the CLM, where most of the exported products are finished consumer goods, Vietnam usually imports semi-manufactured products from Thailand.
However, as its economy become more open and advanced, foreign companies are heavily investing in Vietnamese manufacturing sectors.
A lot of Thai products that were once needed in Vietnam can now be produced domestically or imported from other countries through closer-trade incentives.
Thailand has long been 5th among all foreign exporters in Vietnam though has gradually lost its market share.
According to Krungsri Research, for the CLMV market, Thailand ranks 4th place in terms of market share, falling behind China, South Korea and Japan respectively.
From 2010-2014, the gap between Thailand and its leading competitors widened. The latest available source indicated the market share of products from China, which is the top of the list, is now 22% larger than those from Thailand. The figure was recorded at 15% in 2010.
It is clear that Thai exports to CLMV are now facing many challenges, and is vital that Thai exporters continue to develop their business models in order to capture the more competitive business landscape in these markets.
Since the realisation of the Asean Economic Community at the end of 2015, the region will gradually become much more integrated.
CLMV, which have been reducing their import tariffs from other Asean members (the intra-regional tariffs among CLMV as of 2014 is at 1.33%), are set to reduce their duty to zero by 2018.
This is an excellent opportunity for Thai exporters to capitalise from its strategic position as the closest source of imports among other Asean members for CLMV.
As Thai authorities recognise the need to channel investment to the logistical infrastructure necessary to support economic growth, exporters should boost more border export activities with these emerging neighbours.
Improving product qualities and customising products to answer more diversified market needs are essential to remain competitive.
Amid rising competition, Thai exports must find their niches and be more innovative in marketing their products and services.
In order to maintain their share as well as keeping a dominant role, Thai exporters whose products are from labour-intensive sectors must focus on cost reduction and a value-added strategy.
Offering a better product with good packaging and efficient service would help retain our image of “good quality at an affordable price”.
Moreover, Thai exporters should seek out products and services that are related to improving people’s living standards to capture the rising demand of CLMV’s expanding middle-class households.
These sectors include construction and materials, convenience stores, retail sales, skin care, food and beverage, hotels, hospitals, restaurants, entertainment and automotive.
Nevertheless, partnering with the right local companies would enhance the success rate of the businesses.
It’s important to note that these tremendous opportunities in CLMV will not only be limited to Thai players; therefore Thai exporters must act quickly and take advantage of their proximity, expertise and existing product popularity.
Krungsri Research anticipated that CLMV would remain an important market for Thailand’s exports going forward.
Somprawin Manprasert, PhD, is chief economist, Research Department, Bank of Ayudhya PCL.