Technology & Skills in Thailand 9789814376877

Table of contents :
Contents
List of Tables
Foreword
Preface
1. Industrialization in Thailand
2. Theoretical Framework and Research Methods
3. Transfer, Adaptation, and Development of Technology in the Machinery and Electronics Industries
4. Conclusion and Recommendations
Bibliography
THE AUTHORS

Citation preview

TECHNOLOGY AND SKILLS IN THAILAND

The A.'iEAN Secretariat, based in Jakarta, was formally established by an agreement signed by the ASEAN Foreign Ministers during the First Meeting of ASEAN Heads of Government in Bali in February 1976. The Secretariat provides a central administrative organ for the co-ordination of the activities of ASEAN bodies and the implementation of ASEAN projects and activities. It is headed by a Secretary-General, appointed on a rotational basis among member countries. The Secretariat has three functional bureaus - Economics, Science and Technology, and Social and Cultural - each headed by a Director. The Japan Institute of International Affairs (JIIA), founded in 1959 by former Prime Minister Shigeru Yoshida, is a non-profit research organization concerned with international affairs. The Institute's priority areas of research are on the ASEAN countries, China, Korea, the Soviet Union and Japan's relations with these countries. Research projects are conducted by the Institute's research staff members in cooperation with university scholars and researchers from other institutions in the public and private sectors. Research output is published in the form of either books or articles in any of the Institute's five periodicals, including the monthly Kokusai Mandai (International Affairs). The JIIA currently serves as the secretariat in Japan for the Pacific Co-operation Committee, the ASEAN Regional Studies Promotion Programme, and the Japan-Indonesia Conference. The Institute of Southeast Asian Studies was established as an autonomous organization in May 1968. It is a regional research centre for scholars and other specialists concerned with modem Southeast Asia, particularly the multi-faceted problems of stability and security, economic development, and political and social change. The Institute is governed by a twenty-two-member Board of Trustees comprising nominees from the Singapore Government, the National University of Singapore, the various Chambers of Commerce, and professional and civic organizations. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute's chie£ academic and administrative officer. The ASEAN Economic Research Unit is an integral part of the Institute, coming under the overall supervision of the Director who is also the Chairman of its Management Committee. The Unit was formed in 1979 in response to the need to deepen understanding of economic change and political developments in ASEAN. The day-to-day operations of the Unit are the responsibility of the Co-ordinator. A Regional Advisory Committee, consisting of a senior economist from each of the ASEAN countries, guides the work of the Unit.

ASEAN Regional Studies Promotion Programme General Editors: C.Y. Ng, R. Hirano, Robert Y. Siy, Jr.

EFFECTIVE MECHANISMS FOR THE ENHANCEMENT OF TECHNOLOGY AND SKILLS IN THAILAND

Nathabhol Khanthachai (Principal Researcher) National Institute rif Development Administration Kanchana Tanmavad Ramkamhaeng Universiry Tawatchai Boonsiri Chantana Nisaisook Anucha Arttanuchit National Institute rif Development Administration

The ASEAN Secretariat and

Japan Institute of International Affairs in collaboration with

ASEAN Economic Research Unit Institute of Southeast Asian Studies

Cataloguing in Publication Data Nathabhol Khanthachai Effective mechanisms for the enhancement of technology and skills in Thailand/Nathabhol Khanthachai ... [et al.]. Paper presented at a meeting held for ASEAN Regional Studies Promotion Programme: phase II, Tokyo, 1985. l. Technology transfer - Thailand. 2. Technology and state- Thailand. 3. Technological innovations - Thailand. 4. Thailand- Industries. I. Nathabhol Khanthachai. II. ASEAN Regional Studies Promotion Programme: phase II. III. ASEAN. Secretariat. IV. Japan Institute of International Affairs. V. Institute of Southeast Asian Studies. ASEAN Economic Research Unit. DS503.4 A83 no. 2T 1987 ISBN 9971-988-54-2

Published by Institute of Southeast Asian Studies Heng Mui Keng Terrace Pasir Panjang Singapore 0511 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior consent of the Institute of Southeast Asian Studies.

© 1987 Institute of Southeast Asian Studies The responsibiliry for facts and opinions expressed in this publication rests exclusive(y with the authors and their interpretations do not necessari(y rijlect the views or the policy rif the Institute or its supporters. Typeset in Singapore by Integrated Graphics Pte. Ltd. Printed in Singapore by Kim Hup Lee Printing Co. Pte. Ltd.

Contents

List of Tables Foreword Priface

IX Xlll

XV

I. INDUSTRIALIZATION IN THAILAND

Introduction Past Trends and Patterns Policies in the Industrial Sector Foreign and Domestic Capital Investment Role of Technology and Skills in the Industrialization of Thailand 2. THEORETICAL FRAMEWORK AND RESEARCH METHODS Theoretical Considerations of Development, Transfer, and Adaptation of Technology Scope of the Study and Research Methods 3. TRANSFER, ADAPTATION, AND DEVELOPMENT OF TECHNOLOGY IN THE MACHINERY AND ELECTRONICS INDUSTRIES Development of the Machinery and Electronics Industries Main Characteristics of the Sample Firms Policies Concerning Transfer, Adaptation, and Development of Technology in the Machinery and Electronics Industries Channels ofTechnology Transfer Terms and Conditions of Technology Transfer Costs of Technology Transfer Test of Differences and Similarities of Technology Appropriateness of Technology and Employment Implications Absorbtive Capacity and Adaptation and Indigenous Development of Technology Training for Local Manpower Adaptation of Technology and Research and Development Research and Development Capability of Local Manpower Linkages with Local Institutes for Research and Development

I

2 6 lO

12

17 17 19

25 25 27

32 33 35 41

43 47

54 58

60

62 62

Contents

Vl

Linkages with and Technological Adaptability of Local Suppliers of Intermediates The Determinants of Transfer, Adaptation, and Development of Technology 4. CONCLUSION AND RECOMMENDATIONS Conclusion The Channels of Technology Transfer Terms and Conditions ofTechnology Transfer Costs of Technology Transfer Differences and Similarities of Technology Appropriateness of Technology and Employment Implications Absorbtive Capacity, Adaptation, and Indigenous Development of Technology Other Bottlenecks in the Process of Technology Transfer Recommendations General Policy of the 9"overnment on the Enhancement of Technology and Skills of Local Manpower in Foreign Invested Firms The Establishment of the Centre for the Development of Industrial Technology Improving the Quality of Manpower through Education and Training Textbooks, Handbooks, and Manuals which Summarize Scientific Knowledge of Production and Management should be Printed in Thai More Economic Incentives and Opportunity for Higher Positions for Scientists, Engineers, and Other Local Personnel Strengthening the Roles of Official Centres for Technology Transfer and Development Strengthening the Role of Business Associations Promotion of a Sub-contract System Strengthening a Domestic or Preferential Patent System Enhancement of Export Competitiveness and Technology Transfer Promotion of Social Institutions, Value Systems, and Incentives Favourable to Technology Transfer and Development Regional and International Arrangement

Bibliography

65 65

73 73 73 73 74 74

75 75 76 77

77

78 78

79

80 80 81 81 81

82 82 83

85

Ust of Tables

I. 2. 3. 4.

5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

Main Features of the Thai Economy, 1960-83 Gross Domestic Product at 1972 Prices Structure and Growth of Manufacturing in Thailand, 1969-83 Private Direct Investment Flow by Country, Cumulative Total, 1970-82 Net Inflow of Direct Investment in Thailand by Economic Sector, Cumulative Total, 1970-82 Registered Capital of Firms with Promotion Certifications from the Board of Investment (as of December 1983) Investment by Industry and Regional Grouping of Companies (In percentages) Outward Remittance and Net Investment Flow, by Country, 1970-82 Promoted Firms in the Machinery and Electronics Industries, Classified by Size and Nationality Sample Firms in the Machinery and Electronics Industries, Classified by Nationality and Promotional Status Indicators of Export Performance by Product Group, 1970-72 and 1976-78 (In percentages) Sample Machinery Firms as Classified by Main Products Sample Electronics Firms as Classified by Main Products Main Manufacturing Activity of Local and Foreign Firms Sources of Raw Materials and Intermediate Goods in Machinery and Electronics Industries Trends of Use of Local Raw Materials and Intermediate Goods in the Machinery and Electronics Industries Sources of Technology in the Machinery and Electronics Industries Acquisition of Foreign Technology in the Machinery and Electronics Industries Sources of Machinery and Equipment Used in the Machinery and Electronics Industries Terms and Conditions in Technology Agreements in the Machinery and Electronics Industries

3 5 7 11 12 13 14 15 21 23 28 29 29 30 31 31 33 34 35 37

Vlll

21. 22.

23. 24.

25.

26. 27.

28. 29. 30.

31. 32. 33.

34. 35.

List qf Tables

Percentage of Royalties, Technology Fees, and Foreign Expert Fees in the Machinery and Electronics Industries, 1983 Cobb-Douglas Production Function in the Machinery Industry, 1982 and 1983 Cobb-Douglas Production Function in the Electronics Industry, 1982 and 1983 Me.an and Standard Deviation of Values of Outputs, Fixed Assets, and Wage Bills and Quantity of Labour in the Machinery Industry, 1982-83 Mean and Standard Deviation of Values of Outputs, Fixed Assets, and Wage Bills and Quantity of Labour in the Electronics Industry, 1982-83 Preparation of Local Technicians, Engineers, and Managerial Staff for Technology Transfer in the Machinery and Electronics Industries The Number and Qualifications of Technicians and Engineers Employed by the Firms for Research and Development Purposes Provision of Training for Thai Technicians and Engineers in the Machinery and Electronics Industries Adaptation ofTechnology and Research and Development in the Machinery and Electronics Industries Evaluation of Research and Development Capability of Thai Technicians and Engineers at Present in the Machinery and Electronics Industries Relationship with Local Institutes for Research and Development of the Firms in the Machinery and Electronics Industries Technical Advice and Assistance to Local Suppliers in the Machinery and Electronics Industries Percentages of the Firms Reporting Satisfactory Success in Technology Transfer in the Machinery and Electronics Industries Bottlenecks in Technology Transfer in the Machinery and Electronics Industries Impact on Research and Development as Well as Technology Transfer of the Government's Foreign Investment Promotion Policies in the Machinery and Electronics Industries

42 45 48

50

51 55 56

59 61

63 64 66 67 69

71

Foreword

One of the central objectives of the Association of Southeast Asian Nations (ASEAN), as embodied in the Bangkok Declaration under which ASEAN was founded, is the promotion of Southeast Asian studies. In this context, ASEAN warmly welcomed the offer of Mr Zenko Suzuki, the Prime Minister of Japan, in early 1981 to support the launching of an ASEAN Regional Studies Promotion Programme. After extensive consultations among ASEAN member countries and between ASEAN and Japan, it was agreed that the ASEAN Regional Studies Promotion Programme, initially to extend over a period of five years, should focus on policyoriented socio-economic research. Given the overriding importance that ASEAN attaches to economic development and the vital role of ASEAN-Japan economic relations in this regard, ASEAN-Japan Industrial Co-operation was adopted as the first topic of research under the Programme. The second topic chosen was Effective Mechanisms for the Enhancement of Technology and Skills in ASEAN. An integrated ASEAN-Japan Overview, together with volumes on the individual ASEAN countries, are the fruits of this second phase of research. The recent history of ASEAN-Japan relations has been marked by a degree of ambivalence. As the first Asian nation to industrialize successfully and to have risen as a phoenix from the ashes of war-time destruction to the leading heights of industrial and technological power, Japan has always been held with a degree of awe and admiration by its southern ASEAN neighbours. Such awe and admiration have, however, been tinged with a certain amount of suspicion derived from war-time memories, especially as the impact of Japan's post-war economic expansion becomes increasingly felt in the ASEAN region. On the Japanese side, historical circumstances and the need for economic reconstruction in the early post-war years made it unavoidable that, initially, its external relations were largely oriented towards the West, especially the United States. However, as Japan rose to global economic prominence, and its economic presence in Southeast Asia grew, it increasingly came to attach greater importance to its relationship with the ASEAN countries. ASEAN first approached Japan collectively in the early 1970s on the question of Japan's production of synthetic rubber and its adverse impact on the ASEAN economies. From such narrow beginnings, the dialogue has quickly expanded into the preserit broad-based consultative framework of the ASEAN-Japan Forum. Given the historical background, there is a general recognition that while economics must remain the central pillar of ASEAN-Japan relations, the socio-political context under

X

Foreword

which such economic relations evolve is also of prime importance. Thus, a central objective of the ASEAN-Japan dialogue is the development of greater mutual awareness, understanding, friendship, and trust between the peoples of ASEAN and Japan, especially among the younger generation. In this regard, it is particularly heartening that the present Programme has begun to bring together many young researchers from both ASEAN and Japan in collaborative research on various important and pressing issues of mutual concern. The interactive thought process involved in such research, and the development of common perceptions on a wide range of issues, cannot but help improve the effectiveness of the dialogue and establish ASEAN-Japan relations on a firm basis. The ASEAN Secretariat and the Japan Institute of International Affairs, as thf' ASEAN and Japanese co-ordinating units for the Programme respectively, are happy and honoured to be playing a part in this process. Phan Wannamethee Secretary-General ASEAN Secretariat Jakarta

March 1986

Kinya Niiseki Chairman Board of Directors Japan Institute of Intf'rnational Affairs Tokyo

Preface

The study on "Effective Mechanisms for the Enhancement of Technology and Skills in ASEAN" was undertaken as the second phase of research under the ASEAN Regional Studies Promotion Programme, the first being "ASEAN-Japan Industrial Cooperation". Country research teams from the five ASEAN countries and Japan were required to identify and examine problems in their respective countries in technology transfer and skills enhancement. Such a study, involving different countries with varied experiences, naturally poses problems of comparability. Nevertheless, to maximize comparability across countries, the study relied on the use of a common core questionnaire as well as a common analytical framework and data analysis procedure. In addition, the incorporation of country-specific factors salient and relevant to technology transfer and skills enhancement was encouraged. The final research design therefore attempts to accommodate such requirements. Thus, primary data were collected through sample surveys taken on selected industries located in the ASEAN countries. Conclusions were then drawn and recommendations made from the findings of such surveys. From this exercise, five ASEAN-country papers were produced by the respective ASEAN-coumry research teams. These together with two papers prepared by the Japanese team giving Japanese perceptions and historical experiences on technology transfer and skills enhancement in ASEAN form the basis of an integrated overview which has been published under the title, Effective Mechanisms for the Enhancement of Technology and Skills in ASEAN: An Overview. The five country-papers are also being published separately. The monograph that follows is one in the series. C. Y. Ng, R. Hirono, and Robert Y. Siy, Jr. General Editors

1

Industrialization in Thailand

Introduction

In the years that have elapsed since Thailand has made serious attempts to diversify its economy, the transfer of technology has become an increasingly important subject, while the complexities of the transfer process have not yet been fully appreciated. The transnational corporation (TN C) is recognized as the main vehicle for technology transfer and the enhancement of skills in the labour force of Thailand. This research represents an attempt to reveal the complexities of the technology transfer process, the role played by the TNCs, and their impact on skills improvement of Thailand's labour force. The specific research objectives are outlined below: l. To look into the pattern of international transfer of industrial technology, particularly from Japan to Thailand. 2. To study the practices, attitudes, and behaviour of the TNCs with regard to the transfer of industrial technology and skill development of the local manpower in their subsidiaries in Thailand. 3. To analyse and identify Thailand's capacity to absorb foreign technology and bottlenecks in the transfer process. 4. To find out how co-operation between the TNCs on the one hand and their Thai counterparts and the Thai Government on the other can be improved and how the Japanese Government can be of assistance with regard to the transfer of technology and skill development in Thailand. The research starts out by looking into the past trends and patterns of economic development in Thailand, whereby the main policies and salient patterns of industrialization in the Thai economy are discussed. Chapter 2 provides a theoretical framework and examines research methods used in the investigation of technology transfer and skill development in the Thai manufacturing sector. For illustration and analytical purposes, electronics and machinery industries are selected, the results of which are presented in Chapter 3. The selection of the electronics industry as a case study on industrial technology transfer and skills improvement of the local manpower is based primarily on the grounds that it represents one of the high export-potential maufacturing industries in Thailand and that Japan, whose government has expressed an intention to assist in enhancing industrial technology and skills in ASEAN, has been recognized as one of the highly industrialized countries that has commanded highly advanced technology in the industry. With regard to the machinery industry, it is regarded as a

2

Technology and Skills in Thailand

basic industry which is vital to the development of other industries in Thailand. In addition, the Thai Government is currently promoting the expansion of domestic production of machine tools and equipment in order to reduce its dependence on imports of capital goods which has aggravated the chronic trade and current account deficits in recent years. Finally, Chapter 4 summarizes the main research findings and outlines appropriate mechanisms by which the private sector, particularly in Thailand andJ a pan, as well as the respective governments can adopt in order to effectively participate in the process of the enhancement of technology and skills in developing countries, especially Thailand and ASEAN as a whole. Past Trends and Patterns 1 The past two decades saw the Thai economy experience structural changes and impressive rates of grqwth while stability was also maintained. In general terms, Thailand is, at this point in time, no longer a poor country by most standards. Studies of past development performance as well as an analysis of emerging and long-run trends, however, reveal that Thailand's path to future development is still rough and it will face increasingly difficult problems of development. (Refer toN. Khanthachai, eta!., "ASEAN-Japan Industrial Cooperation: A Country Paper of Thailand", mimeo [Singapore: ISEAS, 1983].) As shown in Table I, the population of Thailand now stands at about 50 million, one of the largest in the Southeast Asian region, and although the annual growth rates are falling, the population still continues to grow considerably fast. Gross domestic product (GDP) at current prices totalled more than 928 billion baht in 1983, having grown consistently at around 7 per cent per year in real terms throughout the 1970s. The growth pattern of the Thai economy is expected to continue into the 1980s, albeit at a slower rate. The population is becoming increasingly better off, with per capita income averaging at about 18,247 baht at current prices in 1983, up from about 4,200 baht just eleven years ago. According to the World Bank, Thailand now stands in the middle-income country group and has reached the stage where incomes are high enough to provide substantial buying power over the above basic needs. As shown in Table I, an important change in the composition of gross national product has taken place since 1960. The share of manufacturing value added rose significantly from 13.1 per cent in 1960 to 17 in 1972 and further to 21 per cent in 1983. On the other hand, the output share of the agricultural sector declined from 40 per cent in 1960 to 23.6 per cent in 1983. The utilities, construction and services value added, accounted for about 47 per cent in 1960, and increased substantially to 55.4 per cent in 1983. Such a structural change does not, however, imply that agricultural output has declined. On the contrary, it has increased at the rate of about 5 per cent a year, mainly due to the lateral expansion ofcultivated areas, and there is scope for further growth based on increased yields and cropping intensities. Agriculture remains the mainstay of the economy which still accounts for over two-thirds ofemployment and exports. Moreover, a large part of manufacturing production is concentrated in the processing of agricultural products and a significant proportion of the income of the

3

lndustriali;;,ation in Thailand

TABLE I Main Features of the Thai Economy, 1960--83 Items Population (million persons) Annual growth rate (%) Retail price index GNP per capita (,B current prices) GDP (,B million, current prices) GDP (.8 million, 1972 price) Annual growth rate (%) Gross fixed capital formation (% of GDP) Value added as% ofGDP Agriculture Manufacturing Utilities, construction & service Imports as % of GDP Exports as % of GDP Manufactured imports by SITC (% of total imports) Manufactured export by SITC (% of total exports) Manufacturing employment (% of total employment) Share of mfg. output in the Central Region (mainly Bangkok) Trade balance (million baht) Payment balance (million baht) International reserve (million US $) - as month of imports

1960

1972

27.1 37.35 3.0 2.6 2.0 2,056.0 4,257.0 55,816.0 164,626.0 59,40o.oh 164,626.0 7.1' 14.9 21.0

1980

1982

1983"

46.96 48.49 49.46 2.1 1.9 1.8 19.7 5.2 3.8 14,475.0 16,906.0 18,247.0 684,930.0 846,136.0 928,548.0 292,852.0 324,050.0 343,392.0 4.1 6.0 5.8 24.4 20.6 20.3

40.0 13.1 46.9

30.3 17.0 52.7

24.9 20.7 54.4

24.6 20.8 55.0

23.6 21.0 55.4

17.2 15.4 74.6

18.8 13.7 73.5

27.5 19.5 55.4

23.24 18.89 58.4

25.48 15.77 64.7

1.4

10.1

26.4

39.57

41.89

n.a.

18.5

26.8

25.64

26.27

73.2 -269.0 1,655.0

73.9 -8,885.0 3,991.4

87.7 -55,489.0 5,179.3

353.0 9.1

968.8 7.8

3,026.1 4.4

n.a. 82.64 -36,888.0 -89,889.0 3,314.3 -18,078.0

2,651.6 3.7

2,555.1 3.0

a Estimate. h Prices in 1962. 'Compared with the year 1972.

SouRCE: Nathabhol Khanthachai (1983), p. 4 (quoted with some adjustment).

service sector is derived from collecting agricultural commodities and distributing farm inputs. The manufacturing industry in Thailand during this period was concentrated mainly on import-substitution, especially from 1960 to the early 1970s. As a result, this industrialization policy has brought about a structural change in the composition of imports and exports. The share of the manufactured imports dropped from 74.6 per cent in 1960 to 55.4 per cent in 1980, suggesting that the import-substitution policy has been carried out successfully only since the early 1970s. However, the import of manufactured goods, as shown in Table 1, started

4

Technology and Skills in Thailand

to rise again after 1980. In general, there was a decline in the share of consumer goods imported (35 per cent in 1960 to 12 per cent in 1978), and an increase in that of raw materials, including fuel and lubricants and intermediate products (29 per cent to 48 per cent in the same period). The increase of the import share of fuel and lubricants was almost threefold since 1960. In the same period, however, the share of capital goods imports rose only slightly from about 25 per cent to 28 per cent. In short, the import-substitution oriented industrialization in Thailand has brought about a sharp decline in imports of consumer goods, but has significantly increased the imports of raw materials, and fuel and lubricants. The increases in import volumes and prices, particularly those offuel and lubricants, have greatly aggravated Thailand's balance of payments in recent years. The share of manufactured exports as a percentage of total exports increased from 1.4 per cent in 1960 to 10.1 per cent in 1972, and further to 41.8 per cent in 1983. In the early stages, the manufactured exports consisted mainly of processed primary products, such as processed food and textiles. In recent years, however, the exports of manufactured goods, mainly non-traditional products such as textiles, electronics and clothing, have become an increasingly important source of growth. Nevertheless, this change of export composition has not been able to alleviate Thailand's balance of payment problems. As demonstrated in Table 1, Thailand has continuously had a deficit balance of trade since 1960. In recent years the gap has widen to serious proportions and, as a result, has aggravated Thailand's balance of payments. However, the devaluation of the Thai currency in 1982 as well as natural gas and oil discoveries in Thailand point hopefully to an improvement in the deficit in the coming years. The growth of the manufacturing industry also contributed significantly to a rise in the share of manufacturing employment from about 18.5 per cent of the total in 1972 to about 26.3 per cent in 1983. This resulted in the concentration of wage labour in Bangkok as most of the manufacturing firms established their factories in Bangkok and the surrounding provinces. The large share of manufacturing output originating from Bangkok in the total output also reflects this trend. With respect to inflation, Thailand has traditionally been a country of considerably stable prices. Domestic price inflation in the fifteen years ending 1973 in Thailand averaged only 2 per cent a year, with the maximum increase in any one year being less than 4 per cent. During the oil crisis of 1973{74, domestic prices jumped sharply to an average annual increase of20 per cent. However, the rate was brought down to 4 per cent in 1976, 8 per cent in 1978, and 10 per cent in 1979. Since the early 1980s the inflation rates have shrunk to single-digit levels. This is partly because of careful management and control of the annual budget as well as the government's cautious attitude towards international and external borrowing by the public sector, and partly because of the stable prices of imported oil. Industrial development in Thailand has taken place largely through the initiative of the private sector responding to market forces. Throughout the past two decades, the manufacturing sector has grown in real terms at about lO per cent a year, contributing nearly 30 per cent of overall growth in GDP during the period. Due to the import-substitution policy adopted by the government, most of the

lndwtriali;:ation in Thailand

5

TABLE 2 Gross Domestic Product at 1972 Prices (Millions of baht) Economic Sector

1977

1978

1979"

1980°

1981°

1982h

1983'

Agriculture

56,537 (27.6)

72,513 (27.8)

71,408 (25.8)

72,784 (24.9)

77,701 (25.0)

78,502 (24.2)

80,940 (23.6)

3,526 (1.5)

4,104 (1.6)

4,531 (1.6)

4,780 (1.6)

4,623 (1.5)

4,431 (1.4)

4,368 (1.3)

Manufacturing

48,071 (20.3)

52,521 (20.1)

57,841 (20.9)

60,597 (20.7)

64,490 (20.7)

67,317 (20.8)

71,947 (21.0)

Construction

11,996 (5.1)

13,583 (5.2)

14,547 (5.3)

16,576 (5.7)

15,500 (5.0)

15,097 (4.7)

15,843 (4.6)

4,144 (I. 7)

4,500 (1.7)

5,178 (1.8)

5,560 (1.9)

6,330 (2.0)

6,755 (2.1)

7,394 (2.2)

14,474 (6.1)

16,205 (6.2)

17,663 (6.4)

18,811 (6.4)

20,209 (6.5)

21,715 (6.7)

23,609 (6.9)

41,213 (17.4)

43,658 (16.7)

45,497 ( 16.4)

48,227 (16.5)

51,103 (16.4)

52,739 (16.3)

55,592 (16.2)

11,574 (4.9)

13,443 (5.1)

15,582 (5.6)

17,419 (6.0)

19,197 (6.2)

21,396 (6.6)

24,330 (7.1)

3,823 (1.6)

4,052 (1.6)

4,289 (1.6)

4,502 (1.5)

4,723 (1.5)

4,936 (1.5)

5,152 (1.5)

9,555 (4.0)

10,166 (3.9)

11,594 (4.2)

12,423 (4.2)

13,192 (4.2)

13,833 (4.3)

14,399 (4.2)

23,260 (9.8)

26,352 (10.1)

28,777 (10.4)

31,173 (10.6)

34,202 (11.0)

37,261 (11.5)

39,304 (11.5)

Mining and quarrying

Electricity and water supply Transportation and communication Wholesale and retail trade Banking, insurance, and real estate Ownership of dwellings Public administration and defence Services Gross Domestic Product (GDP)

237,173 261,097 276,907 292,852 311,270 324,032 342,878 (100.0) (100.0) ( 100.0) (100.0) (100.0) (100.0) (100.0)

Revised. of Thailand figures. 'Estimate. 0

h Bank

SouRCE: Office of the National Economic and Social Development Board. growth was aimed at the domestic market, especially with regard to consumer goods. However, a good domestic business situation, relatively low wage rates, and a favourable disposition towards exports on the part of the government have resulted in businessmen aiming more at production for export. This trend will continue into the 1980s. As illustrated in Tables I and 2, in 1960 manufacturing value added was 13.1 per cent of gross domestic product, increasing to 17 per cent and 21 per cent in 1972 and 1983 respectively. Tliis has been accompanied by an overall change in the structure of the Thai economy as mentioned earlier. Within the manufacturing

6

Technology and Skills in Thailand

sector, however, there have also been major structural changes during the last twenty years. In 1960 manufactured goods were mostly processed foods, beverages and tobacco, non-durable consumer goods and construction materials. These products have since declined in terms of proportionate shares in total production. Petroleum products, textiles, intermediate products chiefly for consumer goods, transport equipment and durable consumer goods are the new principal products. Table 3 illustrates the current structure of manufacturing in Thailand. The bulk of production is still closely related to the primary producing sectors: processed food (rice milling, sugar, tapioca pellets, animal feeds, slaughtering, frozen seafood, and fruit canning), beverages and tobacco accounting for 29.4 per cent of value added, with an additional 3. 7 per cent being due to processing mineral, wood, and rubber. The most rapidly growing industries of any size are textiles and apparel, machinery, and transport equipment (mostly motor vehicles). The reasons for the growth of these industries vary. Textiles and garments, for example, have grown as the comparative advantage arising from cheap labour has moved away from South Korea, Taiwan, Hong Kong, and Singapore. Thailand is now in a position to take advantage of the situation. On the other hand, the vehicle industry has grown to meet the domestic market with a proliferation of makes and models; more than twenty assemblers are supplying an annual market of around 22,000 cars and 66,000 commercial vehicles (including imports of 18,000). In addition, production of major manufactured exports, for example, integrated circuits, rubber and plastic products, and pharmaceutical products increased in line with the rising export trend. Compared with other manufacturing sectors, the capital goods sector is still weak. Most machinery and equipment are still imported, machinery imports amounting to more than three times domestic output. At the present time, however, the government is taking steps to build up the domestic engineering industries, for example, metal products, machinery, transport equipment, and electrical machinery. The Thai economy now has a high degree of diversification. Main sources of export earning are from both agricultural goods, such as rice, sugar, tapioca products and maize, and industrial products, such as textiles, garments, and electronic circuits. Its industrial base has reached a stage where component parts and other intermediate capital goods are being produced locally; at the same time wide range of locally made products can compete successfully in world markets. Thailand's long-term development relies heavily on the continuation of this growth in manufacturing. Policies in the Industrial Sector Government policy as well as events inside and outside the country has brought about changes in the industrial sector of the Thai economy over the past two decades. With respect to policy, the government has been promoting private investment in manufacturing since the First National Economic Development Plan, 1961-66. The role of the government has been to construct and create physical and institutional infrastructure and to provide effective incentives through the Board of

TABLE 3 Structure and Growth of Manufacturing in Thailand, 1969~83

Value Addedb 1969 Processed food Beverages Tobacco and snuff Textile Wearing apparel Leather, leather products Wood and cork Furniture and fixtures Paper and paper products Printing and publishing Chemicals and chemical products Petroleum Rubber and rubber products Non-metallic mineral products Basic metal products Metal products Machinery Electrical machinery Transport equipment Miscellaneous Total Manufacturing GDP a Share

of manufacturing in GDP. baht in 1972 prices.

b Million

SOURCE: NESDB.

1978

Share in Manuf. Current Prices (%)

Growth (% per year)

1980

1983

1969--78 1978-80

4,545 2,720 2,287 1,626 1,012 241 858 291 160 469 1,283 1,262 270 1,088 481 398 480 378 1,165 448

8,380 5,585 3,610 7,197 4,560 317 815 351 732 1,412 3,544 3,246 1,386 3,193 577 488 872 989 4,141 1,126

8,598 5,890 4,601 8,839 5,566 315 829 353 959 1,665 5,035 3,108 1,611 3,387 710 632 1,102 1,237 4,812 1,348

10,750 6,068 4,358 9,871 8,356 451 578 475 1,056 2,050 6,131 3,249 1,566 4,085 495 643 1,455 1,373 6,596 2,340

10.4 9.3 6.5 16.4 17.7 4.0 2.5 2.1 17.9 13.1 8.4 10.4 19.3 13.2 1.6 1.8 7.8 10.4 17.3 9.4

21,362 141,830

52,251 261,097

60,597 292,852

71,946 343,392

11.0 6.9

1.3 2.7 12.9 10.8 10.5 ~3.0

0.9 0.3 9.4 8.6 19.4 ~2.1

7.8 3.0 10.9 13.8 12.4 11.8 7.8 9.4 7.4 5.9

1980-83 7.73 0.99 ~ 1.79 3.74 14.50 12.70 ~ 11.32 10.40 3.26 7.17 6.78 1.48 ~0.93

6.44 -11.32 0.57 9.70 3.53 11.08 20.18 4.8 5.5

1969

1978

1980

1983

24.6 9.2 9.1 6.4 4.9 0.7 3.4 1.5 0.7 2.5 9.3 7.3 1.4 6.5 1.4 3.0 1.9 1.4 5.9 2.0

17.2 8.7 6.7 8.6 9.2 0.5 2.2 1.0 1.1 2.1 5.8 8.4 2.5 6.5 2.2 2.3 1.3 2.3 9.1 2.3

14.5 8.2 5.9 8.8 10.5 0.4 2.4 0.9 1.2 2.2 6.8 10.8 2.3 6.4 2.0 1.2 1.2 2.3 8.5 2.5

14.9 8.4 6.1 13.7 11.6 0.6 0.8 0.7 1.5 2.8 8.5 4.5 2.2 5.7 0.7 0.9 2.0 2.0 9.2 3.3

100.0 15.7"

100.0 18.9"

100.0 19.6"

100.0 21.1 a

8

Technology and Skills in Thailand

Investment (BOI, established in 1959) and the Investment Promotion Act ( 1962) to the private sector on a non-discriminatory basis. This has had great significance in national development for it laid down the groundwork for what later proved to be a successful utilization of local resources and entrepreneurship and made it possible for the smooth assimilation of the Chinese minority into the Thai society. The framework of the industrial policy of the First Plan was further expanded during the subsequent plans ( 1967-86). With regard to industrial development, the policy of import substitution, which had started in the early 1960s, is evident in the system of taxation of foreign trade and domestic production, and the promotion of investment. The system of taxation provided a certain degree of tariff protection in order to assist domestic production while exports did not benefit from such a scheme. There was, however, a subsidy on the export of sugar ( 1960-66) and cement. The promotion of industrial investment, aimed at facilitating the setting up of private enterprise, was another measure taken in furtherance of the import substitution policy. This measure included tax concessions on imported machinery, equipment, raw materials, and intermediate inputs. In addition to the measures mentioned above, measures relating to industrial control (which regulated entry and expansion), import and export controls, and credit assistance through the Bank of Thailand were also used. In Thailand the import-substitution process was equally import dependent, with only small overall import replacement. Moreover, the package of incentives offered to investors, both local and foreign, while stimulating investment and growth, has been hindered by most firms being small and inefficient. A few large firms, on the other hand, were too capital-intensive in the local context, with heavy dependence on imported capital equipment and even raw materials. An Export Promotion Act was passed in 1972, followed by an Export Promotion Committee being set up in the same year to promote exports as a whole. However, import control on some products was usually implemented in response to complaints about competition from imports. This implies that the effort to assist import substituting industries continued into the period of export promotion. During the Fifth Plan ( 1982-86), the government will continue to promote private investment, both domestic and foreign, in the production and sale of industrial products while the main objective of industrial development policies is to contribute towards stable economic growth, and to help solve the basic problems of the country, such as the trade deficit, unemployment, uneven distribution of income, and poverty. For these purposes, the basic industrial development policies are: 1. to promote manufactured export; 2. to restructure the existing industries to be more efficient; 3. to promote small-scale industries; 4. to promote rural industries; 5. to set up a system for the development of basic industries; 6. to encourage energy saving in industrial production; 7. to promote industrial employment; 8. to control quality standard and to prevent pollution of the environment; 9. to set up a system to promote and monitor foreign investment. (NESDB 1981, pp. 28-29).

Industrialization in Thailand

9

The BOI is responsible for the encouragement and regulation of foreign and domestic investment. The target areas for foreign investment today are defined as follows: 1. Agro industries 2. Labour-intensive industries 3. Export-oriented industries Within this framework, opportunities are categorized thus: l. Agro products and commodities 2. Minerals, metals, and ceramics 3. Chemicals and chemical products 4. Mechanical and electrical equipment 5. Other products 6. Service industries. The BOI's major discretionary power is the granting of Promotional Investment Privileges also known as Promotional Status. This includes a twenty-six-point package of incentives and tax concessions as follows: General Incentives Guarantees: • Against nationalization • Against competition of new state enterprises • Against monopolization of sales of products • Against price control • Permission to export • Against imports by government agencies or state enterprises with taxes exempted. Protection Measures (subject to justifications and needs): • Imposition of a surcharge on foreign products at a rate not exceeding 505 of the CIF value for a period not longer than one year at a time • Import ban on competitive products • The Chairman is empowered to order any assisting actions or tax relief measures to be adopted for the benefit of promoted projects. Permission: • To bring in foreign nationals to undertake investment feasibility studies • To bring in foreign technicians and experts to work under promoted projects • To own land for carrying out promoted activities • To take or remit abroad foreign currency. Tax Incentives: • Import duties and business taxes on imported machinery may be exempted or reduced 50 per cent • Import duties and business taxes on imported raw materials and components may be reduced up to 90 per cent for one year at a time • Corporate income tax may be exempted for 3-8 years. Any losses incurred can be carried forward and deducted as expenses for up to 5 years • Exemption of up to 5 years on withholding tax on good will, royalties or fees remitted abroad • Dividends derived from the promoted enterprises are excluded from taxable income during the income tax holiday.

Technology and Skills in Thailand

10

Additional Special Incentives 1. For enterprises in Investment Promotion Zones: • A maximum reduction of 90 per cent of business tax on the sales of products for a period of up to 5 years • A reduction of 50 per cent of corporate income tax for 5 years after the termination of normal income tax holiday or from the date of income earning • Permission to double the cost of transportation, electricity and water supply for deduction from the corporate taxable income • Permission to deduct from the corporate taxable income up to 25 per cent of the investment in the costs of installing infrastructural facilities for lO years from the date of income earning. 2. For export enterprises: • Exemption of import duties and business taxes on imported raw materials and components • Exemption of import duties and business taxes on re-export items • Exemption of export duties and business taxes • Permission to deduct from the corporate taxable income the amount equivalent to 5 per cent of an increase in income derived from export over the previous year, excluding costs of insurance and transportation. (The Business Publications [Thailand] Co., Ltd., 1983, p. 94)

Foreign and Domestic Capital Investment

Thailand experienced an investment boom for most of the 1970s when the rates of private investment averaged about 18 per cent of GDP. Foreign direct investment has increased substantially since 1960. The significance of direct investment in the capital account, however, has declined since the mid-1970s due to the increasing volume of official and private loans. In recent years ( 1979-82), net direct investment inflow accounted for only 8. 7 per cent of the total net capital inflow of the country. Table 4 shows the net direct investment inflow (cumulative total, 1970-82) by main investing countries. The United States and] a pan appeared to be the two most important foreign investors, together accounting for almost 60 per cent of the net investment inflow in the period considered. The United States was the largest equity investor, while Japan contributed most in terms of direct investment loans. Hong Kong and Singapore also have emerged as major foreign investors in Thailand over the last decade. Table 5 demonstrates that over the period 1970-82 the foreign direct investment flows were channelled into different economic sectors. Trade, construction, mining and quarrying (mainly oil exploration) together accounted for almost half of the investment flow. Manufacturing alone accounted for 32.9 per cent of the net inflow, with textiles and electronic and electrical goods being the most important industries. With less than I per cent of the total investment inflow, agriculture appeared to be the sector receiving the least foreign investment. Much of the foreign investment in manufacturing as well as in other economic sectors, was made under BOI investment promotion. There were 1,465 firms receiving BOI promotional status in 1983. Ofthese, 767 firms or 52.4 per cent were wholly owned by Thai nationals, 665 firms or 45.4 per cent were joint ventures

II

Industrialization in Thailand

TABLE 4 Private Direct Investment Flow by Country, Cumulative Total, 1970-82 Amount (million baht) Total

Equity

Percentage

Loans

Total

Equity

Loans

Net Balance Total Japan U.S. U.K. W. Germany Hong Kong Singapore Others

30,670.2 23,112.0 8,291.9 6,146.3 9, 761.5 8,836.1 1,700.7 1,071.8 1,040.8 870.0 3,259.4 2,614.1 1,786.2 1,050.0 4,829.7 2,523.7

7,558.2 2,145.6 925.4 628.9 170.8 645.3 736.2 2,306.0

100.00 27.04 31.83 5.55 3.39 10.63 5.82 15.74

100.00 26.59 38.23 4.64 3.77 11.31 4.54 10.92

100.00 28.39 12.24 8.32 2.26 8.54 9.74 30.51

Inflow Total Japan U.S. U.K. W. Germany Hong Kong Singapore Others

61,747.3 25,861.1 35,886.2 11,103.5 6,583.5 4,520.0 14,579.4 9,596.2 4,983.2 2,120.3 1,185.8 934.5 284.1 1,299.8 1,015.7 8,54!.8 3,087.0 5,454.8 17,218.5 1,266.7 15,951.8 6,884.4 3,126.2 3,757.8

100.00 17.98 23.61 3.43 2.11 13.83 27.89 11.15

100.00 25.46 37.1 4.59 3.93 11.94 4.90 12.08

100.00 12.59 13.89 2.61 0.79 15.20 44.45 10.47

Outflow Total Japan U.S. U.K. W. Germany Hong Kong Singapore Others

31,077.1 2,812.0 4,817.9 419.6 259.0 5,282. 7 15,432.3 2,053.6

100.00 9.05 15.50 1.35 0.83 17.00 49.66 6.61

100.00 15.97 27.74 4.16 5.32 17.26 7.91 21.64

100.00 8.37 14.32 1.08 0.40 16.97 53.70 5.16

2, 740.5 28,336.6 437.6 2,374.4 760.1 4,057.8 114.0 305.6 145.7 113.3 473.2 4,809.5 216.7 15,215.6 593.2 1,460.4

Sot:RcE: Bank of Thailand.

between Thai and foreign investors, and the remaining 33 firms or 2.2 per cent were wholly owned by foreign investors. Table 6 shows that foreign equity capital together accounted for 25 per cent of the total registered capital in promoted activities, with Japan being the most important foreign investing country, followed by the United States and the Republic of China. As far as the nature of foreign investment is concerned, Table 7 reveals that in 1982 the North American group of companies (USA and Canada) was the strongest in mining (39.1 p~r cent of all foreign mining companies), paper (29.4 per cent), and pharmaceuticals (30.8 per cent). The Western European companies (U.K., W. Germany, Holland, Switzerland, and Scandinavian countries) were strongest

12

Technology and Skills in Thailand

TABLE 5 Net Inflow of Direct Investment in Thailand by Economic Sector, Cumulative Total, 1970-82 Net Inflow Economic Sector

Million baht

%

I. Financial Institutions 2. Trade 3. Construction 4. Mining & Quarrying 4.1 Oil Exploration 4.2 Others 5. Agriculture 6. Industry 6.1 Food 6.2 Textiles 6.3 Metal-based & Non-metallic 6.4 Electric Appliances 6.5 Machinery & Transport Equipment 6.6 Chemical & Paper 6. 7 Petroleum Products 6.8 Construction Materials 6.9 Others 7. Services 7.1 Transportation & Travel 7.2 Housing & Real Estate 7.3 Hotel & Restaurants 7.4 Others

2,155.6 5,370.1 4,695.7 4,967.9 4,382.4 858.5 270.6 10,102.4 556.1 2,412.5 532.7 2,887.6 777.2 1,143.2 1,335.7 -45.1 502.5 3,107.9 1,672.6 293.6 4!4.7 727.0

7.03 17.51 15.31 16.20 14.29 1.91 0.89 32.94 1.81 7.87 1.74 9.42 2.53 3.73 4.36 -0.15 !.64 10.13 5.45 0.96 1.35 2.37

Total

30,670.2

100.00

Sot:RCE: Bank of Thailand.

in pharmaceuticals (43.6 per cent), trading, and the wood industry. With respect to the Japanese companies, direct investment was strong in almost every section. In the case of the transport industry, Japanese investment has almost created a Japanese monopoly. The Hong Kong-Taiwan group was still relatively small, but it managed to make a strong showing in plastics (41.5 per cent), food, and textiles.

Role of Technology and Skills in the Industrialization of Thailand Technology is an important element in the process of industrialization of less developed countries. Theoretically, industrial technology can be transferred from abroad and adapted to the local conditions, or be developed by the local scientists, or can be a combination of the two methods. In the early stages of industrialization, Thailand, like other less developed

13

Industrialization in Thailand

TABLE 6 Registered Capital of Firms with Promotion Certifications from the Board of Investment (as of December 1983)

Nationality of Ownership Thai Foreign l. 2. 3. 4. 5. 6. 7. 8. 9. 10. II. 12. 13. 14. 15. 16. 17. 18. 19.

Japan United States China, Rep. of U.K. Singapore Hong Kong Netherlands Australia Malaysia Germany, Fed. Rep. of India Switzerland France Panama Denmark Philippines Israel Portugal Others

Total

Total

100% Owned

Joint Venture

Amount

%

10,977,388 689,822

10,341,497 6,446,193

21,318,885 7,136,015

74.92 25.08

204,194 102,740 3,000 11,000 I I 1,138

1,537,174 661,913 708,858 587,638 292,659 376,832 94,750 I 10,470 192,930 134,228 117,227 99,586 66,477 49,801 47,236 29,705 14,750 13,649 1,310,310

1,741,368 764,653 711,858 598,638 403,797 376,832 224,750 210,470 192,930 153,978 127,227 99,586 66,477 49,801 47,236 29,705 14,750 13,649 1,310,310

6.1 2.7 2.5 2.1 1.4 1.3 0.8 0.7 0.7 0.5 0.4 0.3 0.2 0.2 0.2 0.1 0.1 0.1 4.6

24.4 10.7 10.0 8.4 5.7 5.3 3.1 2.9 2.7 2.1 1.8 1.4 0.9 0.7 0.7 0.4 0.2 0.2 18.4

16,787,690

28,454,900

100.0

100.0

130,000 100,000 19,750 8,000

11,667,210

Foreign*

* Percentage of total foreign registered capital. SouRcE: Board of Investment.

countries, was a technologically backward country. Local universltles and research institutes were not sufficiently equipped to supply skilled manpower to the labour market. Under these circumstances, foreign direct investment was promoted since it was considered a means by which the needed technology would be brought into the country. At the same time, applied research activities by local universities and research institutes were encouraged, though with limited success. This is partly because of the poor co-operation between the public and private sectors and partly because of a lack of explicit policy and effective measures on the part of the government. In so far as technology transfer is concerned, some empirical evidence tends to suggest that technology transfer in foreign invested firms is not significant. As revealed by a research survey (Tambunlertchai 1980) on attitudes and experience in Thai-Japanese joint venture investment, the Thai partners did not receive much

TABLE 7 Investment by Industry and Regional Grouping of Companies (In percentages)

Region Industry

Total North Western No. of Hong Kong Rest of Companies America Europe Japan & Taiwan the World

!. Mining

23 (100)

9 (39.1)

6 (26.1)

3 (13.0)

I (4.3)

4 (17.4)

2. Food beverages & tobacco

98 (100)

16 (16.3)

20 (20.4)

24 (24.5)

23 (23.5)

15 (15.3)

3. Textiles & wearing apparel

100 (100)

6 (6.0)

12 (12.0)

35 (35.0)

28 (28.0)

19 (19.0)

4. Wood

23 (100)

0 (-)

9 (39.1)

6 (26.1)

4 ( 17.4)

4 (17.4)

5. Paper printing & publishing

17 (100)

5 (29.4)

2 (11.8)

5 (29.4)

2 ( 11.8)

3 (17.6)

6. Chemicals, oil & rubber

79 (100)

13 (16.5)

19 24.1)

25 (31.6)

13 (16.5)

9 (11.4)

7. Pharmaceuticals

39 (100)

12 (30.8)

17 (43.6)

8 (20.5)

I

(2.6)

I (2.6)

8. Plastics & manmade fibres

41 (100)

2 (4.9)

7 (17.1)

12 (29.3)

17 (41.5)

3 (7.3)

9. Non-metallic mineral products

25 (100)

4 (16.0)

6 (24.0)

7 (28.0)

6 (24.0)

2 (8.0)

10. Basic metal

18 (100)

4 (22.2)

3 (16.7)

6 (33.3)

3 (16.7)

2 (11.1)

II. Fabricated metal

43 (100)

5 (11.6)

10 (23.3)

13 (30.2)

7 (16.3)

8 (18.6)

12. Elect. & mech. Machinery

82 (100)

12 (14.6)

21 (25.6)

29 (35.4)

14 (17.1)

6 (7.3)

13. Transport

49 (100)

3 (6.1)

6 (12.2)

36 (73.5)

2 (4.1)

2 (4.1)

14. n.c.c. (other industries)

36 (100)

2 (5.6)

II (30.6)

5 (13.9)

7 (19.4)

II (30.6)

15. Trading

30 (100)

5 (16.7)

13 (43.3)

12 (40.0)

0 (-)

Total

703 (100)

98 (13.9)

162 (23.0)

226 (32.1)

128 (18.2)

SouRcE: Board of Investment.

0 (0) 89 (12.7)

TABLE 8 Outward Remittance and Net Investment Flow, by Country, 1970~82

Country I. 2. 3. 4. 5. 6.

U.S.A. Japan U.K. Germany Hong Kong Others

Total SouRcE:

Outflow

Profit and Dividends

Management Fee

Interest

Copyright Fee

Total Outflow

Direct Investment Inflow

9,100.2 2,623.4 3,610.1 224.8 781.4 3,394.2

1,010.4 72.7 203.0 25.5 137.5 303.0

14,250.3 2,329.9 3,334.3 568.9 7,471.5 8,334.1

990.6 2,407.2 246.7 124.2 71.5 777.2

25,3?1.5 7,433.2 7,394.1 943.4 8,461.9 12,808.5

9,761.5 8,291.9 1,700.7 1,040.8 3,259.4 6,615.9

259.71 115.05 434.90 90.64 259.62 193.59

19,734.1

1,752.1

36,289.0

4,617.4

62,392.6

30,670.2

203.43

Bank of Thailand.

Inflow (%)

16

Iudustriali::ation irt Thailand

of the technical know-how although most of them showed satisfaction with the business partnership. In many companies, the high level of technology in production was known only to the japanese expatriates and was beyond the reach ofThai staff members. As far as transfer of technology in the form of direct foreign investment is concerned, there have been cases in which foreign investors have brought to a host country second-hand machines and semi-obsolete "labour intensive" technology (Panchareon 1980, p. 28). This practice of the foreign investors would result in the training and employment of a corps of repair mechanics in the company, but would also undoubtedly result in high maintenance costs which could well offset any benefit derived from increased employment in the host country, particularly when groups of foreign experts are brought in to repair the machines. A study of licensing agreements of local and joint-venture firms in Thailand (Santikarn 1978) testifies that the technology buyers in Thailand are restricted by several requirements and prohibitions. For instance, the buyer must purchase raw materials and intermediate products from the owner, and must also purchase machinery from the owner of technology. In addition, the agreements also protect the owner of technology from potential competitors who are licensees of the technology by means of various market restrictions. Table 8 suggests that the purchase of technology through licensing agreements, as is evident from the relative significant amount of outward remittance of copyrights and patent royalties, has widely been practised among joint-venture firms in Thailand. This has resulted in the outflow of funds being greater than the inflow. Transfer, adaptation, and development of technology are important issues in promoting the industrialization and technological self-reliance of Thailand. Unfortunately, the Thai Government has paid little attention to this area up until now. Policy measures should therefore be formulated and seriously implemented to facilitate the transfer of technology by foreign firms, the adaptation of foreign technology to local environment, and the further development oftechnology by the local scientists.

2

Theoretical Framework and Research Methods

Theoretical Considerations of Development, Transfer, and Adaptation of Technology Technology may be developed locally or transferred from various sources and adapted to suit the local requirements and resources. Technological development is a continuous and cumulative historical process. As technology advances, technological development often takes the form of new methods of producing existing products, new designs which enable the manufacture of products with important new characteristics, and new techniques of organization and management. Modern technology involves inanimate power, scientific operations and methods, as well as skilled manpower. According to the technological life cycle (TLC) hypothesis, development of a technology passes through four stages: pre-introduction, introduction, growth, and standardization. The standardized technology is considered the appropriate choice for industrialization in the developing countries (Sen 1976) and a successful transfer of technology from its origin is a key factor contributing to the continuous development of industries. It is important, therefore, to determine where the technology to be transferred originates and who owns it, as different exchange procedures could be devised depending upon the nature of the entities involved. In the Western industrial world, modern technology is developed and owned by the private sector, particularly the transnational corporations (TNCs), and has become its most valuable asset. It follows that if the technology is to be used where it is so sorely needed, ways must be found that facilitate the transfer of this sine qua non of development under conditions acceptable both to the transferer and to the recipient. With respect to the process rif technology transfer, many diversified means can be used to transfer technology from one country to another. None is perfectly suited to all circumstances; each has its advantages and its shortcomings. The first method includes technology as part of the so-called "investment package" together with management, marketing services, and capital. In recent years, however, the concept of an investment package is being seriously questioned. Thus, an increasing number of governments are striving to find new ways to "unbundle" the package and are hoping to be able to treat technology, management, capital, and marketing independently from one another. The second method is the purchase of technology through a licensing and management agreement system. The license system can be successful if the recipient country

18

Technology and Skills in Thailand

has a well-developed infrastructure and a high degree of managerial and industrial receptivity. Technology can be given away without payment of any sort being made by the users. In the industrial field, however, it is unfortunately not realistic to expect in the real world of today that the owners of technology would agree to give this "commodity" away without recompense of some sort. Finally, the technology can be transferred through stealth or by misappropriation from those who have developed it. Such transfers are undoubtedly interesting but not the focus of this study. The cost oftechnological transfer can be defrayed in a number offormulre; at least five payment models can be conceived. They are outlined below. The first model involves royalty payments under license and technical assistance agreements. In normal practice, this formula provides for a down payment upon the signing of the contract and royalty payments computed as a percentage of net sales and a yearly minimum payment. The foreign investment package, in many circumstances and particularly in the short run, may be considered the most effective and cheapest way for technology to be transferred. In the long run, however, this formula can be very costly and can result in the local government having little or no say about important decisions being made in remote places by executives who may be uninterested or unfamiliar with the consequences of their actions. Payment of technology can also be done by supplying the raw materials needed by the owner of the technology. This method is used frequently in the extractive industries of developing countries whereby capital, management, and technology are provided by the owner of technology in exchange for raw materials. In addition, service fees may be involved. Payment for technology can be arranged in the form of the supplying of products manufactured by the licensee. This method is being actively promoted by most East European Bloc Countries and has been in operation for a number of years in Yugoslavia and Hungary. Finally, transfer of technology can be tied in with the export sales of the licenser. In this form of payment for technology the owner of the technology may very well license a local company at marginal rates but in the expectation of making up on the profits realized on the export sale, such as that of components. Despite the fact that the payment models outlined above represent the most frequently used licenser-licensee relationships, many variations exist. One of the most popular is that in which the owner of the technology acquires a minority equity position in the local licensed company. Closely related to the forms of payment for the transfer of technology is the price of technology. It has never been easy to determine the "fair price" to be paid by the developing nations for the technology needed for their progress. Emotional and political considerations often cloud most attempts towards analytical studies of pncmg. The fact that technology is part of the real cost of doing business is often misunderstood and has resulted in the governments of the developing nations issuing regulations specifYing that royalty payments from a subsidiary to a parent must cease

Theoretical Framework and Research .Methods

19

completely or be computed as a percentage of the profits realized instead ofbeing based on sales. Prohibiting royalty payments or relating them to profits is a somewhat devious way of restricting profit remittances and it is to be feared that such regulations will very seriously affect both foreign investments and the transfer of technology itself (de Cubas 1974, p. 15). Another important issue concerning technology transfer is the quality or appropriateness of the technology for industrialization of the developing nations in terms of the needs and capacity of their people, the size of their markets, and factor endowment. The following listing highlights some of the basic issues which have often been the cause of growing concern in international circles. I. The technology transferred does not take into account the social cost which may be incurred. These include, among others, pollution, urban giantism, slum proliferation, social discontent, the breakdown of traditional family patterns, and unemployment. 2. The technology transferred is obsolete, resulting in inferior products as well as high operating and maintenance costs. 3. The technology transferred is not suited to local needs. In several cases, the products and/or production process are beneficial to the upper- or middleincome groups at the expense of the lower-income groups that form the majority of the people in the developing nations. 4. The transfer of technology does not attach sufficient importance to the availability oflocal materials and components. This has resulted in deteriorating trade and balance of payment deficits among the developing nations. Some of this criticism may be highly controversial, and broad generalizations should be avoided. In addition, much more detailed research and cost/benefit analyses are needed before fair conclusions can be reached. Technological transfer involves not only the acquisition of the technology through the various channels and arrangements discussed above, but also the adaptation and dissemination of the technology into the local market, creating backward and forward linkages in the economy. However, past experience has indicated that in the developing nations, very little adaptation and dissemination of technology as well as industrial skill development of the local manpower has been made. Successful adaptation and dissemination offoreign technology depends to a large extent on the availability of skilled and technical manpower and managerial resources, together with appropriate government policies for generating such manpower resources as well as international environments conducive to technology development and transfer. At the national level a variety of investment incentives and reorganized educational and training programmes must be installed, while an international code of conduct on technology transfer and transnational corporations must also be introduced at the regional and international levels (Hirano 1981, p. I).

Scope of the Study and Research Methods A number of research studies have been conducted on technology transfer in Thailand. The reader who is interested in past research studies on the matter may refer to Katona et a!. ( 1976); Panchareon ( 1980); Santikarn ( 1981); and Satayarakwit

20

Technology and Skills in Thailand

(1983). For a preliminary perspective of technology transfer in the ASEAN countries and other developing countries, he may consider those attempted by Kojima ( 1979) and by Hirono (1981). This research concentrates on international transfer of technology and skill development of the local manpower in the machinery and electronics industries in Thailand. As an element in the industrialization process, technology in this research is defined in its broadest sense to include knowledge or methods of modern sciences that can be applied in the carrying on or improving of the existing production and distribution of goods and services. The knowledge or methods range from those which help an entrepreneur to make the right decision at the right moment regarding his various business activities to those which consist of such professional know-how, for example, managerial knowledge which involves corporate planning and control, an understanding of accounting procedures, engineering knowledge, and production know-how which is necessary for the production process, and sales and marketing technology which involves skills for searching out and attracting more customers. Technology is embodied in many forms: in human capital, physical capital, in manufactured products, and in recorded information. Often the "soft" technology (marketing, purchasing, organization, training, overall management, finance, and so forth) may be more important than the "hard" technology embodied in machinery and equipment (Colman and Nixon 1978, p. 220). Thus, technology which is embodied in human capital is ultimately the most important form for developing nations as it is necessary for long-term national development. In this light, true transfer means transfer of knowledge which can eventually lead to technological self-reliance of the recipient. With special reference to the machinery and electronics industries in Thailand, the research looks at the pattern and process of technology transfer in terms of the channels, appropriateness, costs, and terms and conditions of technology transfer. Since technology transfer is a continuous process, the research investigates further into the process of adaptation, dissemination, and development of technology in both the private and public sectors of Thailand. Determinants of transfer, adaptation, and development of technology in the selected industries will be identified. Firms in the machinery industry include those manufacturing general, agri-cultural, and transportation machinery and equipment. On the other hand, firms in the electronics industry include those manufacturing electronic machinery and electrical appliances. Lists of firms obtained from the Ministry of Industry, the Board of Investment, and the Labour Department, Ministry of the Interior, indicate that altogether there were about 395 firms in the two industries, both promoted and non-promoted. When these firms were classified by size, however, 322 firms were small and medium ones. In this study, firms employing 10-49,50-199, and 200 and over workers were considered small, medium, and large respectively. In addition, the majority (51 out of73 firms) of the promoted firms in the selected industries were large and joint-venture firms between the local and foreign investors. Table 9 presents the number of firms in the machinery and electronics industries which were promoted by the Board of Investment as of 1983, classified by size and nationality. It should also be noted that most of the firms in the selected industries, as well as

TABLE 9 Promoted Firms in the Machinery and Electronics Industries, Classified by Size and Nationality Electrical and Electronics Industry

Machinery Industry

Total

Small

Medium

Large

Total

Thai-Japan Thai-American Thai-U.K. Thai-Germany Thai-N etherlands Thai-Italy Thai-Swiss

48 12 4 4 2 I 3

2 I

2 I

12 6 3 I

16 8 3 2 2

Total

74

SouRcE: BOI Thailand, 1983.

-

I I -

-

I -

5

4

-

2

2

24

33

Small

Medium

Large

Total

5

6

21 3

-

5

I I I

-

I

32 4 I 2

9

27

41

22

Technology and Skills in Thailand

in other manufacturing industries, were located in Bangkok and the surrounding provinces of Samutprakarn, Nonthaburi, Patumtani, and Ayudhya. Data and information for this research came from various sources. Most of the secondary data were obtained from the Board oflnvestment, the National Economic and Social Development Board, the Ministry oflndustry, Labour Department of the Ministry of the Interior, Bank of Thailand, and the Association of Thai Industries. Non-official data such as those collected by other researchers were made available to the research team in the original form or in completed surveys and studies. This research, however, relied heavily on the data and information from the field-work survey of the sample manufacturing firms in the selected industries conducted by its research team. The sample manufacturing firms of this research was selected by the disproportional stratified sampling technique. First of all, the population manufacturing firms were stratified by various criteria, that is, industrial sector, types of venture, promotional status, location, and size. In the second step, a quota was assigned to every stratum in order that each stratum was represented. This resulted in a sample unequal and disproportional to the original number of firms in the various strata, ranging from 100 per cent in the stratum where there was only I or 2 firms to 40 per cent of the total number of the firms. By this arbitrary allocation of stratum size, the sample manufacturing firms totalled eighty, forty firms for each selected industry. Finally, a simple random sampling technique was applied in the selection of the sample firms in each stratum for data collection purposes. In addition, another list of firms was prepared by the same procedure for replacement purposes in the event that some of the selected firms failed to co-operate in providing the necessary data. With regard to the instrument of observation, a main questionnaire was constructed. It consisted of thirteen parts, namely: I. characteristics of the TNCs; 2. research and development in the TNCs; 3. technology transfer within the TNCs; 4. characteristics of the subsidiaries in Thailand; 5. the relationship between the TNCs and their subsidiaries; 6. technology transfer from the parent companies; 7. bottlenecks in the process of technology transfer; 8. research and development in the subsidiaries; 9. the relationship between the subsidiaries and the local research and development institutes; 10. the relationship between the subsidiaries and local labour market; 11. the relationship between the subsidiaries and the local suppliers of raw materials and intermediate goods; 12. the relationship between the subsidiaries and the consumers; 13. the relationship between the TNCs and their subsidiaries on the one hand and the government on the other. Although the questionnaire was designed primarily for the foreign invested enterprises, instruction was also provided for the interviewers to skip over or modify some questionnaire items which were not directly applicable to the local firms that were not subsidiaries of TNCs.

TABLE lO Sample Firms in the Machinery and Electronics Industries, Classified by Nationality and Promotional Status

Promotional Status

Machinery

Electronics

Thai

Japanese

Other

Total

Thai

Japanese

Other

Total

Total

13.0 (3)

94.4 (17)

100.0 (5)

54.3 (25)

20.0 (4)

91.7 ( 11)

88.9 (8)

56.1 (23)

55.2 (48)

Non-Promoted

87.0 (20)

5.6 (I)

45.7 (21)

80.0 (16)

8.3 (l)

ll.l (l)

43.9 (18)

44.8 (39)

Total

26.4 (23)

20.7 (18)

52.9 (46)

23.0 (20)

13.8 (12)

10.3 (9)

47.1 (41)

100.0 (87)

Promoted

5.7 (5)

24

Theoretical Framework and Research lvf ethodl'

The main questionnaire had undergone a pre-test and adjustment before the start of the actual field-work on 1 June 1984 (until30 July 1984). During the field-work, the interviewers visited the sample firms and asked for an interview individually with the general manager or the president of the company, the production manager, and the personnel manager, using the questionnaire to collect data as complete as possiblt:. Generally speaking, co-operation from the sample firms was satisfactory partly because they were informed that the research was connected to the Board oflnvestment from where some of them had obtained promotional privileges and partly because they were convinced that results from the survey would help the government in formulating appropriate strategies and policies to facilitate the operation of their business. In addition, the research team also received help and co-operation from the Japanese Embassy in Bangkok, which smoothened the path for the interviews in the Japanese invested firms. As is usually the case, however, there were some firms which failed to co-operate in providing the required data and information. This was particularly the case for the non-promoted and local firms. The difficulty was easily solved, for the interviewers could replace them with those in the replacement list. At the end of the field-work, the research team managed to obtain satisfactory interviews with a total of87 firms, 46 being from the machinery industry and 41 from the electronics industry (Table 10). Informal interviews with government officials and those attached to the Association of Thai Industries were also conducted in order to collect data and information to supplement that collected from the field-work. The following chapter presents results of this empirical research.

3

Transfer, Adaptation, and Development of Technology in the Machinery and Electronics Industries

Development of the Machinery and Electronics Industries

Following the International Standard Industrial Classification (ISIC), in this research study the machinery industry includes firms producing non-electrical machinery and transport equipment whereas the electronics industry comprises firms producing electrical and electronic goods. In Thailand, the development of the machinery and electronics industries, as well as that of other industries, resulted mainly from the government's import-substitution policies, starting in the late 1960s, and the responses of the private sector to these policies. The automobile industry, which started with automobile assembly about two decades ago, may be considered one of the most important contributors to rapid growth in the machinery industry in Thailand. Today it has developed into a manufacturing industry, as increasing proportions oflocal parts and accessories are used. These include: l. For the lower parts- springs, exhaust pipes, wheels, tires and tubes, brake accessories, and so forth. 2. For the body- upholstery, rubber mats, wind-shields, lamps, fenders, rubber seals and linings, grills, paints and base for paints, bakerite or chromiumplated parts and accessories, and so forth. 3. For the engine component- batteries, radiators, fan-belts, rubber or metal hoses, spark plugs, electrical wire plugs, oil filters, switches, and so forth. At present there are fifteen automobile manufacturers in Thailand, most of which are Thai-Japanese joint ventures, such as Toyota (Thailand) Co. Ltd., Thai-Reno Motor Co. Ltd., Nissan (Thailand) Co. Ltd., and Isuzu Motor Co. (Thailand) Ltd. Their combined production in 1980 totalled 73,985 units. Although this was only about 59 per cent of the capacity installed, it was an increase of 10.9 per cent from the previous year. This is because import of completely built passenger cars and buses of certain categories have been banned since 1978. The imposition oflocal contents regulations by the Ministry oflndustry on the automobile manufacturing in 1974 has given a boost to the autoparts industry in Thailand. According to the regulations when initially introduced, it was compulsory for car assembly plants to incorporate 25 per cent of locally manufactured parts in the car being assembled here. This local parts content percentage has been gradually increased each year and now stands at 45 per cent.

26

Technology and Skills in Thailand

In addition, most factories manufacturing autoparts and accessories have gone into making several kinds instead of a single item for both the domestic market and exports. The autoparts and accessories which are exported in considerable quantities from Thailand include batteries, tires, rubber mats, hoses, V -belts, distributors, spark plugs, wheels, radiators, air and oil filters, brake pads, shock absorbers, piston rings, rubber door linings, among many others. Owing to the world economic recession in the past few years, Thailand's exports of automobile P.~Its- and accessories have decreased. However, since the conditions are now improving, exports of these items are beginning to regain momentum again. The motor cycle and agricultural machinery industries have also expanded as a result of the import substitution policies pursued by the Thai Government coupled with high domestic demand, particularly the manufacture of small diesel engines for agriculture. Large and medium enterprises in the machinery industry are in the form ofjointventures, Thai investors holding more than 50 per cent of the total investment. On the other hand, small enterprises and those employing not more than twenty workers are usually 100 per cent Thai-owned, most of which developed from repair shops and some still making repairs as part of their business activities. A number of these Thai enterprises produce small farm tractors, threshing machines, water pumps, and other agricultural machinery for mostly the domestic market. In the electronic and electrical appliances industry there are now about twenty large companies producing television sets, radios, refrigerators, air conditioners, electric fans, and integrated circuits. Some of these firms produce all items mentioned above, some of them produce one or two items. In addition, there are a lot ofsmall shops, and those employing not more than twenty workers producing radios and electric fans and sometimes television sets. These types of firms are usually 100 per cent Thai-owned shops which developed mostly from repair shops. Some of them are still running a repair business as their major economic activity. Most of the large firms are Thai-Japanese joint ventures, such as the National Thai Co. Ltd., Sanyo Universal Electric Co. Ltd., Hitachi Consumer Products (Thailand) Co. Ltd., and Nippondenso Thailand Co. Ltd. Among the large firms, Tanin Industrial Co. Ltd., a totally Thai-owned company is both innovative and dynamic in the sense that it manufactures almost all types of components, either by employing subcontractors in Thailand or by making the components by itself. This is unlike other radio and television set-producers which are concerned mainly with assembling imported components. Investment in the electronics industry has been very attractive for both Thai and foreign investors since the industry requires low investment yet produces a quick turnover. Only fixed assets ofbetween a half and two-thirds ofthe value required in developed countries are needed here to give a comparable output. The working capital can be turned over four to six times in a year. On this basis, gross manufacturing profits of up to 40 per cent can be made to give net earnings to total capital of some 20--25 per cent (Panchareon 1980, pp. 21~22). Under these circumstances, it is expected that the industry will see its scale of production expanded to reach its full potential in response to the increasing demand for electronic and electrical appliances both in the domestic and foreign markets.

Transfn, Adaptation, and Development of Technolol;y

27

Export potential and growth in the machinery and electronics industries in Thailand have been increasing very satisfactorily since 1970. This is due mainly to the favourable degrees of relative competitiveness of the two Thai industries (Table

II). Main Characteristics of the Sample Firms

This section describes the main characteristics of the sample firms and some comparable production processes of the foreign and local firms in the machinery and electronics industries. An empirical test using regression technique will then be employed to show whether the two types of firms were using the same techniques of production. The sample firms in the machinery and electronics industries were classified by the forms of venture into three types, that is, Thai, Japanese, and other. The Thai firms were those where total equity was owned by Thai investors. Firms with total or partial Japanese equity share were classified into one group - "Japanese", whereas those with total or partial equity share of another foreign nationality were grouped under "Other". It should be noted, however, that the distribution of sample firms of this research as classified by nationality cannot be considered a truly proportional representation of the population firms in the machinery and electronics industries since the principal sampling technique employed was the disproportional stratified sampling technique in order to obtain a substantial number of local and foreign firms for comparison purposes. Tables 12 and 13 present main products of the sample firms as classified by the nationality of the owners of the firms in the machinery and electronics industries in Thailand. It is apparent that most of the sample Thai firms in the machinery industry were engaged in manufacturing agricultural machinery, motor vehicles, motor cycles, parts and equipment, whereas the majority of the foreign firms, particularly Japanese, were those manufacturing motor vehicles, motor cycles, general machinery and equipment. In the motor vehicle and motor cycle industries, most Thai firms were engaged mainly in the production of parts and components primarily for the domestic market as the government had imposed regulations increasing the proportion of local content on the assembly plants, which were mainly foreign invested firms. Auto parts and components, such as jig and fixtures, fuel tanks, shock absorbers, brake drums, brake discs, wiring harnesses, radiators and other fast-moving parts have a high export potential and currently the government has been considering promoting producers to help increase production for export. Agricultural machinery and equipment, manufactured mostly by small and medium-sized Thai firms and mainly for domestic use, included small farm tractors, water pumps, and agricultural machinery and equipment for use in sowing, planting, harvesting, and threshing. In the electronics industry, Table 13 demonstrates that in terms of their main products local and foreign firms did not differ appreciably. Large firms, either foreign or local, concentrated production on refrigerators, air conditioners, and television sets, while the smaller firms concentrated on radios and electric fans. In recent years, however, a few large foreign firms have concentrated on producing

TABLE II Indicators of Export Performance by Product Group, 1970-72 and 1976-78 (In percentages) External Effects

Export (SITC) Total manufactures (5 to 8) Chemicals (5) Manufactured goods classified chiefly by material (6) Machinery and transport equipment (7) Miscellaneous manufactured articles (8) Selected product groups: Leather, leather manufactures, n.e.s. and dressed· fur skins (61) Rubber manufactures, n.e.s. (62) Wood and cork manufactures, excluding furniture (63) Paper, paperboard and manufactures thereof (64) Textile yarn, fabrics, madeup articles and related products (65) Non-metallic mineral manufactures, n.e.s. (66) Iron and steel (67) Non-ferrous metals (68) Manufactures of metal, n.e.s. (69) Machinery other than electric (71) Electrical machinery, apparatus and appliances (72) Transport equipment (73) Clothing and footwear (84, 85) SouRcE: UNIDO.

Internal Effects

--Compound Rate Demand Change Change of in In m World Market Product Competi- Growth 1970-78 Market Composition Composition tiveness 37.6 35.8

-2.9 2.5

-1.6 -3.5

66.8 65.2

35.1 38.4

45.5

-4.5

4.4

54.6

29.8

3.2

1.7

0.2

94.9

89.9

10.8

-0.9

0.8

89.3

67.2

35.6

40.0

-5.0

29.3

47.0

29.1

-3.2

-0.1

74.2

49.5

20.6

1.7

5.5

72.2

51.7

41.8

-5.6

6.3

57.5

41.1

14.5

-2.7

1.4

86.9

53.6

71.8 86.3 59.5

-0.8 29.0 -10.9

14.6 23.7 23.1

14.4 -39.0 28.3

31.5 26.0 21.3

25.8

-6.8

-2.5

83.6

46.2

8.8

1.6

0.6

89.0

60.8

2.2 9.3

1.9 1.2

-0.0 0.9

95.9 88.5

102.6 75.8

9.0

-1.6

0.1

92.6

89.8

TABLE 12 Sample Machinery Firms as Classified by Main Products

Type of Products Diesel engines Agricultural machinery and equipments Industry machinery and equipments General machinery and equipment, except electrical Motor vehicles,· motor cycles, and parts Metal-working machinery

Thai (n=23)

Japanese (n= 18)

Others (n=5)

Total (n=46)

0.0 (0) 37.5 (15) 5.0 (2) 15.0 (6) 32.5 (13) 10.0 (4)

4.0 (I) 8.0 (2) 8.0 (2) 24.0 (6) 56.0 (14) 0.0 (0)

0.0 (0) 20.0 (I) 60.0 (3) 0.0 (0) 0.0 (0) 0.0 (0)

1.43 (I) 25.71 (18) 10.0 (7) 17.14 (12) 38.57 (27) 5.71 (4)

NoTE: One firm may produce more than one main product.

TABLE 13 Sample Electronics Firms as Classified by Main Products

Type of Products Home electrical appliances Industrial electrical equipments Radios, television sets, and electronic equipment Insulated, eramelled electric wire, cables, and the like Generators, motors, converters, transformers, rectifiers, and inductors Electric bulbs and fiuorescences Other electrical equipment Refrigerators and air conditioners

Thai (n=20) 13.33 (4) 20.0 (6) 16.67 (5) 0.0 (0) 3.33 (I) 20.0 (6) 3.33 (1) 23.33 (7)

Japanese (n= 12) 14.81 (4) 18.52 (5) 22.22 (6) 14.81 (4) 0.0 (0) 3.70 (I) 0.0 (0) 25.92 (7)

NoTE: One firm may produce more than one main product.

Others (n=9)

Total (n=41)

14.29 (2) 7.14 (I) 42.86 (6) 0.0 (0) 0.0 (0) 7.14 (I) 0.0 (0) 28.57 (4)

14.08 (10) 16.90 (12) 23.94 (17) 5.63 (4) 1.41 (1) 11.27 (8) 1.41 (I) 25.35 (18)

Technology and Skills in Thailand

30

integrated circuits mainly for export purposes in response to the BOI's present manufactures export promotion policies, for example, NMB (Thailand). In terms of main activities of the firms (Table 14 ), the majority oflocal firms in the machinery industry were involved in production, whereas the majority of foreign firms were involved in both production and assembly. This pattern demonstrates that some of the local firms in this industry were suppliers of parts to the foreign firms. In the electronics industry, on the other hand, the majority oflocal firms had production and assembly lines in the same plant. This was the same in the case of Japanese invested firms. Compared with other foreign firms in this industry, the Japanese invested firms seemed to have higher domestic content in their assembly lines. Tablesl5 and 16look further at the sources of raw materials and intermediate inputs of the local and foreign firms in the selected industries. The data show that the local firms used more local raw materials and intermediate inputs than the foreign firms in both industries under consideration. A comparison between the two groups of foreign firms reveals further that the Japanese invested firms in the electronics industry made more use oflocal raw materials and intermediate inputs than their counterparts, while the opposite was true in the case of the machinery industry. Data on the future use oflocal content among the three types of firms exhibited increasing trends in both the machinery and electronics industries. The main reasons for not using local raw materials or intermediate inputs were that there was no domestic supply, in the case of the local firms in both industries, and poor quality of local raw materials or intermediate inputs.

TABLE 14 Main Manufacturing Activity of Local and Foreign Firms

Machinery Activity

Thai

Japanese

Production

121.7 (28)

22.2 (4)

20.0 (I)

4.3

(I)

44.4 (8)

56.5 (13) 100.0 (23)

Assembly Production and assembly Total

Electronics

Other Total

Thai

Japanese

Other Total

Total

71.7 (33)

40.0 (8)

100.0 (12)

II.! (I)

51.2 (21)

62.1 (54)

20.0 (1)

21.7 (10)

25.0 (5)

16.7 (2)

77.8 (7)

34.1 (14)

27.6 (24)

72.2 (13)

80.0 (4)

65.2 (30)

85.0 ( 17)

108.3 (13)

66.7 (6)

87.8 (36)

75.9 (66)

100.0 (18)

100.0 (5)

100.0 100.0 (46) (20)

100.0 (12)

100.0 (9)

100.0 100.0 (41) (87)

TABLE15 Sources of Raw Materials and Intermediate Goods in Machinery and Electronics Industries

Sources Totally imported

Machinery

Electronics

Thai Japanese Other Total

Thai Japanese Other Total

Total

8.7 (2)

I I. I (2)

20.0 (I)

10.9 (5)

0.0 (0)

8.3 (I)

0.0 (0)

2.4 (I)

6.9 (6)

Whole local content

82.6 (19)

0.0 (0)

0.0 (0)

41.3 (19)

20.0 (4)

16.7 (2)

22.2 (2)

19.5 (8)

31.0 (27)

More than 50% local content

73.9 (I 7)

66.7 (12)

100.0 (5)

73.9 (34)

120.0 (24)

133.3 (16)

22.2 (2)

102.4 (42)

87.4 (76)

Less than 50% local content

17.4 (4)

44.4 (8)

0.0 (0)

26.1 (12)

10.0 (2)

66.7 (8)

I I 1.1 (10)

48.8 (20)

36.8 (32)

100.0 (23)

100.0 (18)

100.0 100.0 (46) (5)

100.0 (20)

100.0 (12)

100.0 (9)

100.0 (41)

100.0 (87)

Total

TABLE 16 Trends of Use of Local Raw Materials and Intermediate Goods in the Machinery and Electronics Industries Machinery

Electronics

Usc of Local Content

Thai Japanese Other Total Thai Japanese Other Total Total

Percentage use of local content

53.3

35.4

36.6

41.7

45.8

45.4

24.6

38.6

70.0 (14)

75.0 (15)

80.0 (4)

73.3 (33)

55.6 (10)

91.7 ( l I)

92.3 (12)

76.7 75.0 (33) (66)

Decreasing Higher domestic prices

5.0 (l)

10.0 (2)

6.7 (3)

3.4 (3)

Inadequate local supply

5.0 (l)

5.0 (I)

4.4 (2)

2.3 (2)

No domestic supply

10.0 (2)

5.0 (I)

6.7 (3)

27.8 (5)

Have already met the local content requirement

5.0 (l)

5.0 (I)

4.4 (2)

5.6 (I)

4.4 (2)

11.1 (2)

40.2

Future trend of use of local content: Increasing

Poor quality

5.0 ( l)

20.0 (l)

8.3 (I)

7.7 ( l)

I 1.6 (5)

9.1 (8)

7.0 (3)

5.7 (5)

4.7

4.6 (4)

(2)

32

Technology and Skills in Thailand

Policies Concerning Transfer, Adaptation, and Development of Technology in the Machinery and Electronics Industries Although technology is an important element in the process of national development as well as industrialization in Thailand, it is only in recent years that the importance of technology as well as science in national social and economic development has formally been recognized. During the period of past national development plans, the use of science and technology to increase production efficiency has been rather limited. Most of the technology used was imported from abroad without any screening process to suit Thailand's socio-economic needs. Moreover, modification or improvement of the imported technology, and technological development have continued at a slow pace. For these reasons, the government is now determined to develop science and technology suitable for raising agricultural and industrial production efficiency as well as technology related to the consumption and conservation of energy. As a result, it has outlined the following policies and measures to be implemented during the course ofthe Fifth National Social and Economic Development Plan (1982-86) (NESDB 1982, pp. 99-105): 1. To promote the survey of basic data essential for technological development in order to make technological development consistent with the national problems, users' requirements, and the country's natural resource base. 2. To promote appropriate foreign technological transfer by formulating a master plan for selection, importation, and adaptation of foreign technology; by establishing the Technological Transfer Center; and by formulating the necessary fiscal and monetary measures to promote the importation, adaptation, and improvement of certain forms of foreign technology. 3. To increase the country's scientific and technological research and development capacity by increasing the country's research and development budget to 0.5 per cent ofGDP, the private sector being encouraged to spend 5 per cent of net profits on research and development; and to establish the Institute of Material Science and Metallurgical Engineering to provide among other things, engineering consulting services for solving problems related to the use of materials in factories, selecting suitable materials in the production, and the adaptation of foreign technology, etc. 4. To mobilize manpower for scientific and technological development. 5. To improve and expand the national standard system, quality control including reference standards, metrology, and calibration. 6. To develop local engineering consultant services in order to provide consultant services to industry, business, and the government on preinvestment feasibility studies, planning, designing, and work supervision. 7. To improve the scientific and technological information system by establishing a National Scientific and Technological Information Center, etc. 8. To promote local technological transfer by improving the operations of the Industrial Promotion Department, etc. 9. To improve the formulation of science policies by establishing a Science and Technology Board, etc.

33

Transfer, Adaptation, and Development of Technology

10. To promote scientific and technological co-operation with foreign countries. 11. To encourage the general public to become more interested in science and technology. The science and technology policies outlined above are meant to be implemented in all sectors of the economy. As far as the machinery and electronics industries are concerned, apart from the general policies, specific policies have not been formulated. Moreover, the effectiveness of the implementation of the science and technology policies has yet to be evaluated. Among other things, this study aims at providing specific policies, as well as evaluating the general policies on science and technology, for enhancing transfer, adaptation, and indigenous development of technology in the machinery and electronics industries in Thailand.

Channels of Technology Transfer Technology used in any particular firm can come from a variety of sources. With regard to the machinery and electronics industries in this study, major sources of technology were classified as self-invented, that is, the technology that firms tried to invent or innovate by themselves, using their own experiences. In other cases they acquired the technology from parent companies (in the case offoreign firms or jointventure arrangements), or from other overseas companies, and sometimes even from other companies in Thailand. Table 17 presents a combination of percentage share of firms' technology from various sources in the machinery and electronics industries respectively. It is apparent that the majority of the foreign firms in both industries

TABLE17 Sources of Technology in the Machinery and Electronics Industries Machinery

Electronics

Sources

Thai Japanese Other Total

Thai Japanese Other Total

Self-invented

52.27 (23)

0.0 (0)

0.0 (0)

84.62 (22)

42.86 32.46 (3) (25)

0.0 (0)

85.19 (23)

57.14 48.43 40.28 (31) (8) (56)

Other overseas companies

22.73 (10)

3.85 (1)

14.29 15.58 (1) (12)

30.44 (7)

3.70 (1)

21.43 17.18 16.54 (3) (11) (23)

Companies in Thailand

4.55 (2)

11.54 (3)

0.0 (0)

6.49 (5)

4.35 (1)

0.0 (0)

0.0 (0)

1.56 (1)

Other

20.46 (9)

0.0 (0)

14.29 12.98 (1) (10)

13.05 (3)

0.0 (0)

0.0 (0)

4.68 9.25 (3) (13)

Parent companies

Total

28.57 32.47 52.17 (2) (25) (12)

1l.l1 (3)

7.14 25.0 (1) (16)

Total 29.50 (41)

4.33 (6)

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 (44) (7) (77) (23) (27) (26) (12) (62) (139)

NoTE: The figures represent number of responses, not that of the firms.

34

Technology and Skills in Thailand

obtained their technology from their parent companies, whereas the local firms used self inventions and other sources from both overseas and Thailand. Foreign technology can be obtained in a variety of forms. Table 18 shows that the most significant means of foreign technology acquisition in both the machinery and electronics industries was through the purchase of machinery and equipment, licensing agreements, employment of foreign experts, and overseas training. Thai firms obtained foreign technology mostly in the form of purchase of machinery and equipment whereas the foreign firms relied on a variety of forms of technology transfer, that is, purchase of machinery and equipment, licensing agreements, employment of foreign experts, and overseas training. Between the two groups of foreign firms under consideration, their principal means for the acquisition of technology were not significantly different. It should be noted, however, that the Japanese firms appeared to rely more on overseas training as a form of technology transfer than did the other foreign firms. Table 19 shows the sources from which the firms purchased machinery and equipment. In the cases of the Thai and Japanese firms, japanese machinery and equipment played the most important role in the production process of the machinery and electronics industries. Several Thai firms appeared to get machinery and equipment from local sources, but much of this was second-hand and originally imported from abroad. Apart from Japanese firms, other foreign firms obtained their machinery and equipment mostly from their respective countries. Another important emerging source, particularly among the Thai firms, was machinery from

TABLE 18 Acquisition of Foreign Technology in the Machinery and Electronics Industries Electronics

Machinery Means

Thai Japanese Other Total

Thai Japanese Other Total Total

Purchase of machinery and 55.26 26.92 (21) equipment (14)

40.00 39.00 34.49 33.33 (39) (10) (II) (4)

34.78 34.12 36.76 (29) (68) (8)

Licensing agreement

7.89 28.85 (3) (15)

30.00 21.00 (21) (3)

15.39 33.33 (II) (4)

21.74 23.53 22.16 (41) (20) (5)

Employment of foreign experts

10.52 26.92 (4) (14)

10.00 19.00 (I) (19)

15.39 (4)

27.27 (9)

17.39 20.00 19.46 (17) (36) (4)

Overseas training

15.78 (6)

17.31 (9)

20.00 17.00 (2) (17)

27.59 (8)

6.06 (2)

26.09 18.82 17.84 (6) (16) (33)

Imitation

11.45 (4)

0.0 (0)

0.0 (0)

10.34 (3)

0.0 (0)

0.0 (0)

Total

4.00 (4)

3.53 (3)

3.78 (7)

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 (33) (38) (10) (100) (29) (23) (85) (185) (52)

NoTE: Same as Table 17.

35

Transfer, Adaptation, and Development of Technology

Taiwan which had penetrated the Thai market a few years earlier. Machinery from the United States and other European countries, despite having a reputation for durability in terms of working age, received less attention as a result ofbeing more expensive than Japanese and Taiwanese machinery. Terms and Conditions of Technology Transfer

This section concentrates on the terms and conditions attached to technology agreements. In most parts of the analysis, technology agreements include licensing agreements, technical assistance and management, and trademark agreements. The conditions in technology agreements affecting marketing, purchasing, and pricing strategies as well as the transmission of technology will be highlighted. In addition, a comparison will be made between the various sources of technology in order to identify the similarities and differences in terms and conditions in the technology agreements. Before the empirical data pertaining to terms and conditions in technology agreements of this study are presented, it is worthwhile mentioning some previous

TABLE 19 Sources of Machinery and Equipment Used in the Machinery and Electronics Industries Machinery

Electronics

Sources

Thai Japanese Other Total

Japan

28.89 76.92 (13) (20)

1!.!1 42.5 (!) (34) 6.25 (5)

Thai Japanese Other Total Total 21.05 70.37 (19) (8)

11.76 35.37 38.99 (29) (63) (2)

15.79 (6)

3.70 (I)

35.29 15.85 1!.11 (13) (6) (18)

USA

6.67 (3)

3.85 (I)

!!.!! (I)

U.K.

1!.!1 (5)

7.69 (2)

33.33 12.5 (3) (10)

5.26 (2)

7.41 (2)

5.88 (1)

6.10 9.26 (5) (15)

W. Germany

17.78 (8)

0.0 (0)

11.!1 (I)

7.90 (3)

7.41 (2)

23.53 (4)

10.98

13.30 (6)

11.54 (3)

11.11 12.5 (!) (10)

23.68

(9)

7.41 (2)

5.88 (1)

14.63 13.58 (12) (22)

Taiwan

20.0 (9)

0.0 (0)

0.0 (0)

11.25 (9)

15.79 (6)

0.0 (0)

0.0 (0)

7.32 9.26 (6) (15)

Other

2.22 (I)

0.0 (0)

22.22 (2)

3.75 (3)

10.52 (4)

3.70 (I)

17.64 (3)

9.76 6.79 (8) (II)

Thailand

Total

11.25

(9)

(9)

ll.ll (18)

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 \00.00 (45) (26) (9) (80) (38) (27) (17) (82) (162)

NoTE: Same as Table 17.

36

Technology and Skills in Thailand

studies on the issues under consideration. Santikarn ( 1981, pp. 130-42) examined 256 technology contracts submitted to the Bank of Thailand and found, among other things, that in the various industries the most general forms of market restriction were the stipulations that the recipient might not, without the previous written consent of the supplier, export the agreed products, nor knowingly sell or dispose of the agreed products to any firms or persons intending to export or to resell the products for export. Export restriction was most common in the electrical appliance, chemical, and petrochemical industries. Other industries in which half of the contracts stipulated some form of export restrictions were paints, pharmaceuticals, cosmetics, metal equipment, and vehicle parts assembly. Tied purchases of raw materials and intermediates was the second most common practice, particularly in contracts for the synthetic filament, pharmaceutical, electrical appliance, and vehicle parts industries. In addition, all contracts for filament yarn and cement, and about one-third of all contracts in the auto parts and electrical appliances industries exhibited tied purchases of equipment and machinery. Most of the technology sellers in these industries were Japanese. Other conditions affecting marketing and pricing policies of recipients, albeit to a lesser extent, were that the recipients agreed to supply certain products to local agents appointed by technology sellers and that the recipients agreed not to produce competitive products. Regarding conditions affecting transmission of technology, the same author found in the analysis of the contracts that the most common condition in all areas is confidentiality. Other popular restrictions include a prohibition on the transfer or sub-licence of received know-how to other individuals and enterprises recipients agree to return technical information to suppliers and not to use the technology upon the expiration or termination of the contract; also, the recipients agreed to unilaterally grant suppliers the right to use any improved technology discovered by the recipients. In addition to this, some non-restrictive practices were noted, namely, the training oflocal staff in the suppliers' plant as well as a promise on the part of suppliers to inform the recipients of any useful information regarding improvements to agreed technology; the recipients were not required to disclose their improvements. The crucial question that cannot be answered by Santikarn's examination of the technology contracts is to what extent and how effectively all the conditions mentioned above have been enforced in practice. Based on data from an interview with the plant managers, this research will take up these points a little further. Table 20 compares the restrictive and non-restrictive conditions affecting the marketing, purchasing, and pricing strategies of technology agreements as well as those affecting transmission and diffusion of technology among the three types of firms in the machinery and electronics industries. With regard to marketing, purchasing, and pricing strategies, the empirical data clearly reveals that in both industries export restrictions were directly imposed on the recipients, the most salient one being the condition that the recipients might not, without the approval of the suppliers, export the agreed products. A substantial number of the agreements also effectively prohibited total or partial export of goods in the agreement. In addition, the japanese-invested firms appeared to impose relatively more stringent

TABLE 20 Terms and Conditions in Technology Agreements in the Machinery and Electronics Industries Machinery Terms and Conditions

Thai (n=23)

Japanese (n= 18)

Electronics

Other (n=5)

Total (n=46)

Thai (n=20)

Japanese (n= 12)

Other (n=9)

Total (n=41)

Total (n=87)

Conditions Affecting Marketing, Purchasing, and Pricing Strategies: I) Recipient firms are totally prohibited from exporting of goods in the agreement

0.0 (0)

38.9 (7)

0.0 (0)

15.2 (7)

5.0 (1)

25.0 (3)

33.3 (3)

17.1 (7)

16.1 (14)

2) Recipient firms are allowed to export goods in the agreement to some restricted areas

0.0 (0)

33.3 (6)

0.0 (0)

13.0 (6)

5.0 (I)

50.0 (6)

44.4 (4)

26.8 (11)

19.5 (17)

3) Recipient firms need export approval by the suppliers

0.0 (0)

55.6 (10)

0.0 (0)

21.7 (10)

10.0 (2)

58.3 (7)

55.6 (5)

34.1 (14)

27.6 (24)

4) Suppliers will not export into Thailand

0.0 (0)

66.7 (12)

20.0 (I)

28.3 (I3)

15.0 (3)

41.7 (5)

55.6 (5)

31.7 (I3)

29.9 (26)

5) Suppliers will appoint local sales agents

0.0 (0)

22.2 (4)

0.0 (0)

8.7 (4)

10.0 (2)

8.3 (I)

33.3 (I)

9.8 (4)

14.0 (8)

6) Prices of agreed products are fixed by suppliers

0.0 (0)

II.! (2)

0.0 (0)

4.3 (2)

5.0 (I)

0.0 (0)

22.2 (2)

7.3 (3)

5.7 (5)

7) Recipient firms need approval by suppliers to sell intermediate products

0.0 (0)

38.9 (7)

0.0 (0)

15.2 (7)

5.0 (I)

I6.7 (2)

0.0 (0)

7.3 (3)

11.5 (10)

(Continued on next page)

TABLE 20 -

Continued

Machinery

Electronics

Thai (n=23)

japanese (n=l8)

Other (n=5)

Total (n=46)

Thai (n=20)

japanese (n= 12)

Other (n=9)

Total (n=41)

Total (n=87)

8) Recipient firms are prohibited from production of competitive products

0.0 (0)

55.6 (10)

20.0 (I)

23.9 (II)

5.0 (I)

33.3 (4)

22.2 (2)

17.1 (7)

26.3 (18)

9) Recipient firms must buy machinery and equipments from suppliers

0.0 (0)

44.4 (8)

0.0 (0)

17.4 (8)

5.0 (I)

8.3 (I)

11.1 (I)

7.3 (3)

19.3 (II)

0.0 (0)

27.8 (5)

20.0 (I)

13.0 (6)

5.0 (I)

16.7 (2)

11.1 (I)

9.8 (4)

11.5 (10)

4.3 (I)

66.7 (12)

40.0 (2)

32.6 (15)

15.0 (3)

50.0 (6)

44.4 (4)

31.7 (13)

32.2 (28)

12) Recipient firms must keep in confidence 4.3 the technology after the expiration (I) of the agreement

55.6 (10)

40.0 (2)

28.3 ( 11)

10.0 (2)

50.0 (6)

33.3 (3)

26.8 (II)

27.6 (24)

13) Recipient firms must not sub-license 4.3 or transfer the technology to other firms (I)

50.0 (9)

20.0 (I)

23.9 (II)

20.0 (4)

58.3 (7)

55.6 (5)

39.0 (16)

31.0 (27)

14) Recipient firms must not use the technology upon expiration of contracts

0.0 (0)

33.3 (6)

20.0 (I)

15.2 (7)

10.0 (2)

8.3 (I)

55.6 (5)

19.5 (8)

17.2 (15)

15) Recipient firms must not duplicate the technology or reverse engineering process

4.3 (I)

27.8 (5)

0.0 (0)

13.0 (6)

10.0 (2)

41.7 (5)

33.3 (3)

24.4 (10)

18.4 (16)

Terms and Conditions

10) Recipient firms must buy raw materials and intermediates from suppliers

Conditions Affecting Transmission of Technology: II) Recipient firms must keep in confidence the technology during the terms of the agreement

I6) Recipient firms must terminate production of goods in the agreement upon expiration of contracts

4.3 (I)

33.3 (6)

20.0 (I)

I7.4 (8)

10.0 (2)

I6.7 (2)

33.3 (3)

I7.I (7)

I7.2 (I5)

I7) Recipient firms need approval by suppliers to enter into third party agreements

4.3 (I)

44.4 (8)

20.0 (I)

21.7 (10)

5.0 (I)

41.7 (5)

33.3 (3)

22.0 (9)

21.8 (19)

18) Recipient firms must grant the suppliers 8.7 the right to use improved technology (2) discovered by recipients

44.4 (8)

40.0 (2)

26.1 (12)

5.0 (I)

33.3 (4)

55.6 (5)

24.4 (10)

25.3 (22)

I9) Suppliers must grant the recipient firms the right to use improved technology discovered by recipients

8.7 (2)

6l.l (11)

40.0 (2)

32.6 (15)

15.0 (3)

50.0 (6)

55.6 (5)

34.1 (14)

33.3 (29)

20) Both parties must be granted the right to make use of improved technology

8.7 (2)

55.6 (10)

40.0 (2)

30.4 (14)

10.0 (2)

41.7 (5)

44.4 (4)

26.8 ( 11)

28.7 (25)

21) Suppliers must provide training of recipients' staff

8.7 (2)

93.3 (14)

40.0 (2)

39.1 (18)

20.0 (4)

83.3 (10)

77.8 (7)

51.2 (2I)

44.8 (39)

22) Suppliers guarantee the take-over by local staff in specified period

4.3 (1)

27.8 (5)

20.0 (l)

15.2 (7)

10.0 (2)

33.3 (4)

33.3 (3)

22.0 (9)

18.4 (16)

23) Suppliers guarantee certain achievements in quality of products

4.3 (I)

77.8 (14)

40.0 (2)

37.0 (17)

15.0 (3)

83.3 (10)

55.6 (5)

43.9 (18)

37.9 (33)

24) Suppliers will adapt the technology to suit local conditions

4.3 (1)

27.8 (5)

40.0 (2)

17.4 (8)

10.0 (2)

50.0 (6)

44.4 (4)

29.3 (I2)

23.0 (20)

25) Others

0.0 (0)

0.0 (0)

0.0 (0)

0.0 (0)

0.0 (0)

8.3 (I)

0.0 (0)

2.4 (I)

1.9 (l)

NoTE: This is not mutually exclusive for each firm.

40

Technology and Skills in Thailand

export restrictions on the recipients of technology than other foreign-invested firms. Thus, the finding fails to support the argument that Japanese investment is tradecreating while investment from other developed countries, notably the United States, is anti-trade oriented (Kojima 1979, pp. 83-102). Another salient feature regarding export was the agreement that the technology suppliers would not export the agreed products into Thailand. This condition seems to indicate a substantial success of the implementation of import-substitution policies of the Thai Government. Evaluation of such policies, however, will have to consider such arrangements as tied purchases of raw materials and intermediate inputs as well. In this regard, it was found that tied purchases of raw materials and intermediate inputs were quite common practices, particularly among the Japanese-invested firms in the machinery industry. Another point that is worth mentioning is the purchase of machinery and equipment from technology suppliers. Again, this practice seemed to be common in the Japanese-invested firms, especially in the machinery industry. One explanation is that in most Japanese investments, one member of the investing consortium is normally a trading company. It follows that it is in the interest of the trading company partners to specify tied purchases of machinery and equipment in order to collect the commission. Other conditions that affected the marketing and pricing policies of technology recipients were that the recipient firms were prohibited from production of competitive products, that they needed approval by suppliers to sell intermediate products, and that they agreed to supply certain products to local agents appointed by technology sellers. Notably, all such practices were more apparent in the case ofJapanese-invested firms than other foreign-invested firms. An explanation of the arrangements could be that this was an attempt to honour the obligations of the technology suppliers to local agents who marketed these products prior to local production. With respect to conditions affecting technology transmission and diffusion, the most popular restrictive condition in both the machinery and electronics industries was confidentiality, both during the term and after expiration of the agreements. Other common restrictions found in both selected industries included the prohibition of the transfer or sub-licence of the agreed technology to other firms, as well as the need for approval by suppliers before recipients could enter into thirdparty agreements. A comparison between the Japanese-invested firms and other foreign-invested firms revealed that in general the Japanese restrictive practices were more stringent than that of their foreign counterparts. One explanation may be that they are over cautious in their industrial management due to the fact that they are late-comers in the field and lack overseas management experience. Reciprocal arrangements on the exchange of information and the right to use improved technology discovered by either party were on fairly equal terms. In most cases, however, the common practice was in favour of the recipients in that they would be granted the right to make use of any improvement made on the technology by the recipients. Comparison between the two types of foreign-invested firms suggested that the Japanese were slightly more generous than their foreign counterparts, especially in the machinery industry. The majority of foreign-invested firms, particularly the Japanese-invested firms,

Transfer, Adaptation, and Development of Technology

41

offered training to the recipients' staff. In addition, the Japanese appeared to be more concerned about product quality than their foreign counterparts were. Finally, both types of foreign-invested firms, as anticipated, appeared to attach less weight to the local staffs' takeover of the whole management and the adaptation of technology to suit local requirements. The former could be attributed to their unfavourable attitude toward the capability of the local staff, while the latter to Gost of the adaptation, and size of the local market as well as the suppliers' commitment to international standards of the products.

Costs of Technology Transfer A technology contract may include any or all of the following provisions: selection of plant site, machinery, and equipment; supervision of construction of factories and installation of machinery; repair and maintenance services; provision of technical information; arrangements for technical dissemination by despatching engineers from suppliers to train local staff; permission to recipients to send local staff to be trained in suppliers' plant at the expense of the recipients; laboratory and testing services; managerial consultant services; marketing services; establishing an accounting system; the right to use patented or secret production processes or to produce patented products; and the right to use trademarks, and so forth. Thus, the wide differences in the content of each contract complicate cost comparisons. In addition, costs of technology can be in explicit and implicit forms. With regard to the form of payments, payments of know-how may take several forms. The common types of payment are: lump sum once-and-for-all payments; fixed annual payments; initial payments plus running royalties based on output, gross or net sales, and ex-factory value of sales (subject to fixed minimum royalties); annual payments based on output, gross or net sales, and ex-factory value output (subject to fixed minimum royalties). These various dimensions of technology costs further complicate the matter. For practical purposes, explicit costs of technology were considered in this study, that is, the annual total technology costs which all firms must submit to the Bank ofThailand. This total annual cost was then divided by 1983 gross sales in order to neutralize cost differences affected by sales value since the most general form of technology payments in Thailand is payment based on annual sales. Table 21 presents the technology fees paid by the three types of firms in 1983 in the machinery and electronics industries. In the machinery industry, only two of the interviewed local firms reported any charges on foreign know-how and brand name fees. A Thai firm producing engine and auto parts paid 0.5 to 1 per cent of the gross sales for foreign know-how of certain products. Another Thai firm which produced car accessories was charged 5 per cent of net sales for a brand name. Comparison between the Japanese-invested and other foreign-invested firms revealed that the former type of firms exhibited a wider range of technology fees paid than the latter. The wider range of technology fees in the Japanese-invested firms could be due to the fact that there were more Japanese-invested firms with more types of products than the other foreign-invested firms. Although the modal technology charge in the japanese-invested firms was within the range paid by the other foreign firms, it was observed that a japanese-invested truck assembly plant

TABLE 21 Percentage of Royalties, Technology Fees, and Foreign Expert Fees in the Machinery and Electronics Industries, 1983 Electronics

Machinery Thai

Japanese

Other

Thai

Japanese

Other

Technology Cost

Net Sales

Gross Sales

Net Sales

Gross Sales

Net Sales

Gross Sales

Net Sales

Gross Sales

Net Sales

Gross Sales

Net Sales

Gross Sales

I) Percentage of royalties and technology fees as of net or gross sales: Minimum Maximum Mode

5.0* 5.0* N.A.

0.5 1.0 N.A.

3.0 5.0 N.A.

1.4 8.3 3.0

N.A. N.A. N.A.

3.0* 5.0* N.A.

6.0* 6.0* N.A.

3.0 4.0 N.A.

1.0 3.0 3.0

1.4 5.0 2.0

N.A. N.A. N.A.

1.5 7.0 5.0

N.A. N.A.

-

0.04 0.50

2) Percentage of foreign expert fees as of gross sales: Minimum Maximum NoTE: N.A. = No available data. * = Data from only one firm.

3.5 3.5

-

0.05 5.80

1.2 1.2

-

-

0.29 1.50

Transfer, Adaptation, and Development of Technology

43

charged as much as 36 per cent of gross sales for technology fees. Moreover, another Japanese-invested car assembly plant reported 16.6 per cent extra charge on imported raw materials and equipment by the parent company, while maintaining that no royalties were charged of the subsidiary. The latter case suggests that transfer pricing was practised by this company. In the electronics industry, only two local firms reported technology fees charged by foreign sources- 6 per cent of net sales being charged by a weli-knownJ apanese electronics TNC of the local colour television set assembly firm. In comparison, the Japanese technology seliers seemed to offer a better price than their foreign counterparts in the electronics industry. One explanation is that the United States and other developed countries stili enjoy higher prestige than Japanese sellers. As far as foreign expert fees are concerned, Table 21 reveals that the Japaneseinvested firms paid in total a relatively higher amount of fees than other foreigninvested firms. This was due to the fact that Japanese-invested firms commonly employed more experts of their own nationality than did the other foreign-invested firms. Moreover, the employment ofJapanese experts in the japanese-invested firms was practised for a longer period of time than in the other foreign-invested or the local firms. Very few foreign experts were employed in the local firms. If there were at ali, it was for a very short period of time in most cases due to the fact that payments to them were much higher than to the local staff.

Test of Differences and Similarities of Technology Technology in this research study includes both the production techniques and operation as weli as management ability. In other words, it includes both hardware and software technology. It is very hard, however, to separate the role of software technology from that of hardware with the existing available data in actual research since the former is always embodied in the latter. A firm wili produce efficiently only when its management system is efficient. In this study, therefore, in the comparison of technology used between the local and foreign-invested firms, the software technology will be considered together with the hardware technology in terms of the ability of the firms to aliocate their factor inputs to produce the outputs. For these purposes, an attempt was made in this study to estimate the production functions in the different types of industries covered in the sample. Various functional forms were tested but, on the whole, the Cobb-Douglas production function appeared to be the best. The following general equation was used:

(I)

Q. = value of output measured in thousand baht

where

K L

IX

= value of fixed assets measured in thousand baht

= labour,

number of workers employed or total wage bills in thousand baht A = efficiency parameter IX = partial elasticity of output with regard to capital /3 = partial elasticity of output with regard to labour + /3 = degree of return to scale.

44

Technology and Skills in Thailand

Taking the natural log, we get

In Q.

= In A +

a InK+ PinL

(2)

This section will present some empirical tests of the technology used between promoted and non-promoted firms as well as between local and foreign firms by making use of the Cobb-Douglas production function and applying it to the Chow Test (Chow 1960). Chow tries to test whether the relationship remains stable in the two periods of time, or whether the same relationship holds for two different groups of economic units. For an illustration, if we have the total number of observations as n + m, then the idea here is to test whether them additional observations are from the same regression as the first sample of n observations. For this purpose, F test is applied as an indicator. If the F test is significant, the Alternative hypothesis will be accepted, implying that the two sets of observations are statistically different from each other. On the other hand, if the Ftest is insignificant, the Null hypothesis will be accepted, implying that the two sets have the same relationship. Data obtained from the field survey were of cross-sectional type. Information was given for the years 1982 and 1983 in order to compare the industry's performance. In the production function analysis of this study, Q.and K were confined to the value of output, and the book value of fixed assets, while L was confined to the number of workers or wages and salaries. To compare the technology used by the various types of firms in each industry in each year, 1982 and 1983, one regression equation was fitted for three sets of observations in each industry type. For example, in the case of the machinery industry the Cobb-Douglas (CD) production function was fitted for three sets of observations: 1. for the observations in the Thai firms, 2. for the observations in the foreign-invested firms, 3. for the pooled observations of Thai and foreign-invested firms. The same thing was done for both the observations in 1982 and 1983. After fitting these equations, the F-test was used as an indicator. Ifthe computed Fis less than the theoretical F, the Null hypothesis that the two sets of firms have the same structure in terms of production function is accepted. However, if the computed F is greater than the theoretical F, the Alternative hypothesis that the firms have different production functions is accepted. The results of fitting the CD production function in order to compare the technology used between the local and foreign-invested firms in the machinery industry are shown in Table 22. In both years, the F values of the Chow Tests were not statistically significant (p < 0.05), indicating that the two types of firms in the machinery industry had the same production function. The difference in the production functions is caused by the differences in the level of technology which is represented by the efficiency parameter (A). In both years, however, the efficiency parameters in the local firms were lower than those in the foreign-invested firms. This suggests that local firms tended to be less efficient than foreign-invested firms. Consider the value of a + p which determines the degree of return to scale, a test to see whether the value of a + pin each of the twelve categories is statistically different from one. The test shows that the t-statistics of a + P for all regression

TABLE 22 Cobb-Douglas Production Function in the Machinery Industry, 1982 and 1983 Value of Quantity Constant Fixed Asset of Labour (A) (IX) (/1 I)

Type of Firms

-0.2541

0.381* (0.135)

-0.4477

0.206 (0.146)

-0.2089

0.331* (0.147)

-0.3097

0.274 (0.176)

-0.0927

0.321 (0.325)

-0.0543

0.459 (0.273)

-0.3467

0.206 (0.319)

-0.0869

0.407 (0.262)

0.836** (0.199)

R' Wages (/1,)

R' (%)

Adjusted (%)

F

DurbinWatson

-

.90

.88

64.38**

2.402**

0.792** (0.158)

.91

.90

80.69**

2.091**

-

.90

.88

64.27**

2.015**

0.785** (0.192)

.88

.86

54.62**

1.891 **

-

48

.42

7.48**

1.874**

0.832** (0.248)

.56

.50

10.14**

2.180**

-

.47

.40

7.09**

1.749**

0.842** (0.278)

.52

.46

8.69**

2.008**

1982 Thai Firms (n= 18)

0.989** (0.212)

1983

1.224* (0.456)

1982 Foreign-invested Firms (n= 19)

l.l84* (0.456)

1983

(Continued on next page)

TABLE 22 -

Continued

Value of Quantity Constant Fixed Asset of Labour (A) (rx) ({J I)

Type of Firms

-0.1377

0.373* (0.159)

-0.2218

0.332* (0.142)

-0.1592

0.321 (0.161)

-0.1910

0.346* (0.146)

R2 Wages ({12)

R2 (%)

Adjusted (%)

F

DurbinWatson

.74

.72

47.96**

2.074**

0.780** (0.152)

.78

.77

59.68**

2.349**

-

.77

.75

55.75**

!. 734**

0.798** (0.162)

.78

.77

6!.27**

!.991 **

!.035** (0.250)

1982

Total (n=37)

!.111 ** (0.247)

1983

Non:: * p < 0.05. ** p < 0.00!.

Figures in parentheses are S.E. Chow's Tests of equality between sets of coefficients in two linear regressions (machinery industry):

Year

Functional Form

1982

LogY= Log a + fJ,Log K + '{J 2 Log (Quantity of labour)

0.483 (df. = 3,31)

1982

Log Y = Log a + {J,Log K + fJ 2 Log (Wages)

0.464 (df. = 3,31)

1983

Log Y = Log a + {J,Log K + {J 2 Log (Quantity of labour)

(df. = 3,31)

LogY= Log a + {J,Log K + {J 2 Log (Wages)

(df. = 3,31)

1983

Chow's Test (F)

0.371 0.201

Transfer, Adaptation, and Development of Technology

47

equations of the two types of firms, local and foreign-invested, were statistically insignificant, indicating that both types were subject to a constant return to scale. Consideration of the results of production functions analysis in electronics industry (Table 23) reveals that the local and foreign-invested firms had the same production function since all of the F-statistics of the Chow Tests were not statistically significant. The efficiency parameters (As), representing the level of technology of the firm, however, in the local firms were lower than those in the foreign-invested firms in both 1982 and 1983. For these reasons, the same conclusion that local firms tend to be less efficient than the foreign-invested firms could also be applied here in the electronics industry. In addition, the values of IX + f3 which determine the degree of return to scale, were not statistically significant from one, indicating that the industry under study was also subject to a constant return to scale.

Appropriateness of Technology and Employment Implications Generally speaking, appropriateness of technology may be viewed in two broad categories, the factor endowment and the type of product. The first type is widely discussed whereas the second is quite neglected. Inappropriate products may be brought from developed to developing countries by means of technology transfer for two main reasons. One is that they are overspecified: the characteristics they embody are excessive in relation to the income levels of the developing countries. Another is that they are inappropriate because they are manufactured by the capital-intensive method. These concepts of inappropriateness, however, are very closely related. In this study, the appropriateness of technology will be judged from the degree of factor intensity which is operationally defined here as the proportion between the firm's capital input and the labour employed. In other words, the capital-labour ratio is to be used as a measurement for factor intensity. Tables 24 and 25 compare the factor intensity or K/L ratio between the local and foreign-invested firms in the machinery and electronics industries. In the machinery industry, in both years, no matter whether the number of workers employed or the value of the wage bills was used as a measure oflabour intensity, the local firms had a lower average capital-labour ratio than the foreign-invested firms, particularly the Japanese-invested firms. The difference in the average capital-labour ratios was supported to some extent by F-statistics which were significant at p < 0.0 l. Consideration of the average values of output and capital as well as the average amount of wage bills paid to workers and the average number of workers employed in each type of firm revealed that in all cases the local firms were smaller than the foreign ones. This implies that firm size could be a factor contributing to factor intensity in the sense that the larger the firm size, the more capital-intensive the firm was likely to be. It should also be noted, however, that during the years 1982-83 there was a decreasing capital-intensive trend among almost all types of the firms under study in the machinery industry. In the electronics industry (Table 25), the data also suggests the same principal findings as those found in the machinery industry, that is, that the local firms appeared to be less capital-intensive than the foreign-invested firms. The japaneseinvested firms, however, exhibited lower capital-intensiveness than the other

TABLE 23 Cobb-Douglas Production Function in the Electronics Industry, 1982 and 1983 Value of Fixed Asset (ex)

Quantity of Labour

-0.4345

0.774 (0.378)

0.160 (0.596)

-0.4775

0.834 (0.406)

-0.4786

0.570 (0.369)

-0.6266

0.933* (0.401)

-

1.4565

0.144 (0.177)

0.730** (0.183)

1.7194

0.258* (0.117)

-

1.1232

0.272 (0.183)

0.743** (0.185)

1.3090

0.527* (0.160)

Constant (A)

Type of Firms

(P,l

R2 Wages (p2)

R2

(%)

Adjusted (%)

F

DurbinWatson

0.54

0.47

7.56**

1.488**

0.54

0.46

7.49**

1.384**

0.56

0.49

8.23**

1.715**

0.53

0.46

7.42**

1.214**

0.65

0.61

14.93**

2.231 **

0.81

0.78

33.43**

2.165**

0.68

0.64

16.94**

2.574**

0.68

0.64

16.64**

1.933**

1982

Thai Firms (n= 16) 1983

0.292 (0.455) 0.528 (0.580) -0.119 (0.447)

1982

Foreign-invested Firms (n= 19)

0.755** (0.177)

1983 0.551 ** (0.139)

-0.6209

0.491 ** (0.172)

-0.5715

0.442* (0.163)

-0.6412

0.438* (0.166)

-0.5741

0.597** (0.156)

O.S65* (0.242)

0.65

0.63

30.03**

1.551 **

0.68

0.66

33.53**

1.691 **

0.69

0.67

35.74**

I. 703**

0.65

0.63

29.90**

I. 739**

1982 Total (n = 35)

0.535** (0.186) 0.682** (0.229)

1983 -

0.359* (0.174)

NoTE: * p < 0.05.

** p < 0.001. Figures in parentheses are S.E. Chow's tests of equality between sets of coefficients in two linear regressions (electronics industry): rear

Functional Form

1982

Log r

=

Log a + {J,Log K + /3 2 Log (Quantity of labour)

0.967 (rif. = 3,29)

1982

Log Y

=

Log a + fJ,Log K + {J 2 Log (Wages)

(dj. = 3,29)

1983 1983

Chow's Test (F)

1.183

Log r = Log a + {J,Log K + {J,Log (Quantity of labour)

(dj.

0.293 = 3,29)

Log Y = Log a + {J,Log K + fJ,Log (Wages)

(dj.

0.951 = 3,29)

50

Technology and Skills in Thailand

TABLE 24 Mean and Standard Deviation of Values of Outputs, Fixed Assets, and Wage Bills and Quantity of Labour in the Machinery Industry, 1982-83 (In millions of bahts) F

33.211 (56.957)

504.006 (1009.361)

35.000 (34.422)

2.339

1983

X SD

40.232 (72.893)

643.656 (1290.324)

33.350 (31.560)

2.477

1982

X SD

24.886 (43. 707)

170.709 (210.528)

23.862 (19.473)

5.837**

1983

X SD

25.956 (46.281)

189.774 (212.317)

25.290 (21.412)

7.470***

1982

X SD

107.571 (151.318)

277.625 (303.837)

148.600 (157.178)

2.681

1983

X SD

109.000 (156.381)

332.177 (342.321)

144.600 (145.167)

4.485**

1982

X SD

4.051 (6.007)

22.876 (35.093)

8.268 (5.022)

3.184*

1983

X SD

4.345 (6.703)

26.442 (38.232)

8.724 (5.287)

3.871 *

1982

X SD

27.475 (39.378)

73.661 (77.414)

20.201 (12.196)

3.578* 6.046**

4. Wages

--------

1983

X SD

21.688 (19.877)

65.500 (60.724)

20.900 (12.456)

1982

X SD

10.966 (18.413)

29.602 (62.260)

2.903 (1.412)

1.250

1983

X SD

9.486 (11.167)

24.352 (49.573)

2.814 (1.315)

1.370

6. Capital-wage ratio

NoTE:

Others

X SD

3. Quantity of labour

5. Capital-labour ratio

Japanese

1982 I. Value of total outputs

2. Value of total fixed assets

Thai

* p < 0.05. ** p < 0.01. *** p < 0.001.

foreign-invested firms. With regard to the change in factor-intensity over time among the three types of firms, the local firms exhibited an increasing trend whereas the trend in the foreign-invested firms could not be established with any degree of certainty. In order to find out what the most important factors contributing to the difference in KJL ratio between the foreign and the local firms were, the following hypotheses were proposed:

Transfer, Adaptation, and Development

of Technology

51

TABLE 25 Mean and Standard Deviation of Values of Outputs, Fixed Assets, and Wage Bills and Quantity of Labour in the Electronics Industry, 1982-83 (In millions of bahts) Thai

Japanese

Others

X SD

97.706 (215.254)

295.018 (319.799)

176.750 (153.931)

2.156

X

140.069 (330.262)

360.546 (368.440)

242.375 (205.576)

1.546

SD 1982

X SD

45.851 (91.512)

172.048 (198.470)

209.538 (325.103)

2.307

1983

X SD

48.497 (91.543)

179.741 (218.813)

196.789 (310.315)

2.076

1982

X SD

105.632 (126.132)

491.455 (525.221)

844.778 (1339.720)

3.630*

X

110.790 (142.059)

526.364 (558.648)

926.333 (1411.379)

3.937*

4.612 (6.160)

20.632 (30.576)

24.356 (45.707)

1.794

SD X SD

5.428 (7.800)

21.703 (33.435)

26.943 (50.324)

1.660

28.375 (35.356)

42.638 (24.369)

81.235 (63.120)

4.561 **

SD X SD

30.261 (36.418)

41.407 (26.255)

71.539 (65.847)

2.662

X

9.853 (10.688)

22.825 (37.497)

20.607 (21.841)

1.073

10.098 (11.934)

38.447 (67.846)

36.105 (62.995)

1.375

1982 I. Value of total outputs

1983

2. Value of total fixed assets

3. Quantity of labour 1983

SD 1982 4. Wages 1983 1982 5. Capital-labour ratio 1983 1982

X

x

SD

6. Capital-wage ratio 1983

X SD

NoTE:

*p ** p *** p

= = =

F

0.05. 0.01. 0.001.

I. The difference in K/L ratio was due to the difference in the type of firms, foreign or local; 2. The difference in KJL ratio was due to the difference in the size of firms, output, capital, and employment being indicators of the size of firms; 3. The difference in KJL ratio was due to the difference in labour productivity,

QJL; 4. The difference in KJL ratio was due to a combination of the above I, 2, and 3.

52

Technology and Skills in Thailand

Two regression equations were formulated in order to test the above hypotheses, one for 1982 and another for 1983.

= j(Op

KI' LI' 0,/LI' XI' d~' d2 , d3 , d2 0p d3 01' d,Kp d3 KP d,LI' d2 L,)

( 1)

K 2 /L 2 = j(0 2 , K 2 , L 2 , 0 2 /L 2 , X 2 , d4 , d5 , d6 , d5 0 2 , d6 0 2 , d4 K 2 , d6 K 2 , d4 L 2 , d5 L 2 )

(2)

K,/L,

Where~ = firm's K ratio in 1982 L,

L

~=firm's K ratio in 1983 L2 0

1

L = output value in 1982

0 2 =output value in 1983 K, =capital value in 1982

K 2 =capital value in 1983 L, =labour value in 1982 L 2 = labour value in 1983 X 1 = dummy variable for type of firms in 1982

X, = 0 if local firms

X, = 1 if foreign firms

x2

=dummy variable for type of firms in 1983

x2

= 0 if local firms

X 2 = I if foreign firms

d, = dummy variable for output as size in 1982 d, = 0 if0 1

~

5,000,000 baht

d1 = I if 0 1 > 5,000,000 baht d2 =dummy variable for capital as size in 1982

d 2 = 0 if K, d2 = I if K,

~

3,000,000 baht

> 3,000,000 baht

d3 = dummy variable for labour as size in 1982 d 3 = 0 if L 1

~

100 persons

d3 = I if L 1 > 100 persons d4 =dummy variable for output as size in 1983 d4 = 0 if 0 2

~

5,000,000 baht

d4 = I if 0 2 > 5,000,000 baht d 5 =dummy variable for capital as size in 1983 d5 = 0 if K 2

~

3,000,000 baht

d5 = I if K 2 > 3,000,000 baht

Transfer, Adaptation, and Development

1!/ Tnhnologv

53

d6 = dummy variable for labour as size in I 983

d6 = 0 if L 2

d6

=

~

100 persons

I if 1. 2 > 100 persons

Both equations (I) and (2) were tested for each selected industry. In order to select the best explanatory variables accounting lor the difference in KJ L ratio between the foreign and local firms, step-wise multiple rf'gression was used. Results from the analysis are presf'ntecl below: Afachinery lndustt_v

1982 ~ 37; L 1

=

23.628 +

(n=

+

0.440** L 1 0.898*** K, (0.0004) ~0.035) 0.200 (}I + 0.104· X 1 (0.001) (10.461)

R 2 = 0.781

R' adjusted = 0.753

= 28.439** dj: Durbin-Watson test

F

19B3 K, = 25.167 (n=38) L,

+ +

= 4,32 = 1.807**

0.999** K, 0.552* * d6 L, (0.024) (0.0003) 0.357 o, + 0.13B X, (0.001) ~8.393) 0.136 0,/L, (0.699)

R' = 0.822 R' adjusted = 0. 795 F = 29.618** dj = 5,32 Durbin-Watson test = 1.703** Electronic.\ Industry

l9B2 K, = 24.954 (n=35) L,

+

1983 K 2 (n=35) L,

+

0.826>~