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Cablegate: Corrected Copy: Skilled Labor Shortage, High Transport Costs

VZCZCXRO7135
PP RUEHCN RUEHDT RUEHGH RUEHHM RUEHVC
DE RUEHCHI #0053/01 0880947
ZNR UUUUU ZZH
P 280947Z MAR 08
FM AMCONSUL CHIANG MAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0722
INFO RUCPDOC/USDOC WASHDC PRIORITY 0003
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHOO/CHINA POSTS COLLECTIVE
RUEHKO/AMEMBASSY TOKYO PRIORITY 0044
RUEHCHI/AMCONSUL CHIANG MAI 0778

UNCLAS SECTION 01 OF 02 CHIANG MAI 000053

SIPDIS

(CORRECTED COPY)
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV ELTN ETRD ETTC SOCI TH
SUBJECT: CORRECTED COPY: SKILLED LABOR SHORTAGE, HIGH TRANSPORT COSTS
HINDER OPPORTUNITIES FOR DEVELOPMENT IN NORTH

REF: 08 CHIANG MAI 52: "REGIONAL BUSINESS CONFERENCE ON LOGISTICS BRINGS TOGETHER U.S. AND MEKONG REGION BUSINESSES"

CHIANG MAI 00000053 001.2 OF 002


-------
Summary
-------

1. In meetings with the Ambassador March 18, business leaders
highlighted a shortage of highly skilled labor and unusually
high transportation costs as key obstacles to expanding
development and American investment in northern Thailand. Local
Thai business leaders echoed the calls of American firms for
investment in more specialized skill sets for Thais, and
lowering of non-tariff barriers to trade. American companies
Monsanto and GE also noted challenges to expanding their
investments in biotechnology and medical equipment refurbishment
in Thailand. End Summary.

2. In sidebar meetings during a recent Consulate-hosted
conference on logistics development in the Greater Mekong
Subregion (GMS) (reftel), Ambassador met with representatives of
the Chambers of Commerce of Chiang Mai and Chiang Rai, the
Federation of Thai Industries, and the GMS Business Forum. He
also met with executives from American firms Monsanto, Innovex,
GE Corporate Thailand, UPS, and PepsiCo. Attendees discussed
challenges to economic development and foreign investment in
Thailand, specifically in the northern provinces.

---------------------------------
Lots of Labor, Shortage of Skills
---------------------------------

3. A shortage of highly skilled labor is a challenge for
development and expanding American investment in northern
Thailand, attendees told the Ambassador. Innovex President and
CEO Terry Dauenhauer said that his company, which produces
electronics components in northern Thailand's Lamphun province,
has difficulty finding qualified, high-skilled labor at the
undergraduate and graduate levels among the Thai population. He
said that in order to remain competitive in the Mekong region,
Thailand needs to improve its educational system to produce more
workers with high-tech skill sets. PepsiCo International
Director in Thailand Songyos Ruengsakulrach echoed Innovex's
concerns, noting that most of his company's middle and upper
level managers in Thailand are from India, China, and Hong Kong,
though PepsiCo would prefer to hire local Thais if they
possessed these management skills. Innovex's Dauenhauer called
for Thailand to establish more incentives for businesses to
invest in human resource development by building research
laboratories or supporting university curricula that proved
courses in applied technology studies.

4. Thai business leaders emphasized similar concerns in a
separate meeting. Chiang Rai Chamber of Commerce President
Patana Sitthisombat said that the key to development not only in
northern Thailand but also in the wider GMS is human resource
development. He reported that Chambers of Commerce in the north
are working with universities and vocational schools to improve
and expand training opportunities. He said that "northern
Thailand is trying to duplicate Singapore." GMS Business Forum
former Chairman Jingjai Hanchanlash noted that Malaysia has
expressed interest in establishing a GMS regional university
based in Chiang Rai. Patana and Jingjai agreed that the key to
economic development in the Mekong region is networking, trade
facilitation, and capacity-building, all of which require higher
level skill sets.

-----------------------------------
The Not-So-Hidden Barriers to Trade
-----------------------------------

5. Aside from limited access to skilled labor, American firms
also raised concerns about the high costs of transportation in
Thailand. Innovex, which exports 90% of its products
(electrical components for hard drives and mobile phones) to
China, said that transportation and infrastructure costs in
Thailand are "dangerously high." PepsiCo stated that if it
could import more raw materials into Thailand, it would then
expand its investment here. In addition to lower freight and
duty costs, PepsiCo supports resuming negotiations toward a
Thai-U.S. Free Trade Agreement to open the opportunity for
importing potatoes - the main input for its Lays potato chip
plant in Lamphun province - from the United States.

6. The Chiang Rai Chamber of Commerce's Patana pointed to the
wider region's high transport costs as an obstacle to further
development. He noted that freight costs from Vientiane to
Bangkok are the same as from Bangkok to Los Angeles, and argued
that Thailand should modernize its logistics and supply chain
management to lower costs. Chiang Mai Chamber of Commerce Vice

CHIANG MAI 00000053 002.2 OF 002


President Udomrat Ukrachinores called for building a container
yard in Chiang Khong, which is located on the Mekong River
border with Laos, because currently shipping companies have to
bring empty containers up from Bangkok, yet another cost in the
Mekong region's trade system. Udomrat noted that Chinese
investors are looking into the feasibility of the container
yard, whereas no major Western companies have expressed interest.

--------------------------------------------- -----
Limited Access to Biotechnology, Medical Equipment
--------------------------------------------- -----

7. Monsanto representative Shanti Shamdasani highlighted the
RTG's sluggish progress in expanding biotechnology use in
Thailand. She said that although Thailand had been a pioneer in
biotechnology, countries such as Vietnam and Philippines have
surpassed Thailand in this field. Shanti speculated that the
RTG is concerned about a backlash from NGOs and the media if
progress were to continue more rapidly. She argued that
expanding biotechnology usage is one way to reduce the high rate
of labor flowing from rural areas to urban centers and
industrial hubs because it adds value to the agricultural
sector. (See 2007 Chiang Mai 155 for a fuller discussion of
Monsanto's views on biotechnology in Thailand).

8. GE Thailand Country Director Pornlert Lattanan expressed
concern about the Ministry of Health's prohibition on purchasing
refurbished medical equipment. GE sees a market for such
equipment in Thailand because the prices are more accessible to
hospitals throughout the country. The Ministry's requirement of
purchasing new equipment raises costs 50-60%, making it
affordable only to the best hospitals in Bangkok. Pornlert
noted that some European and Japanese suppliers evade the
prohibition by not labeling their used equipment as refurbished.
GE, which does not engage in this practice, then loses sales to
these competitors.

-------
Comment
-------

9. Although the U.S. is Thailand's second-largest investor
(after Japan), the RTG can and should do more to create more
favorable economic conditions for potential future investors and
to ensure that current investors stay and expand rather than
relocate. Such steps would also attract greater U.S. business
involvement in the north, which to date is thin outside of the
seasonably-vulnerable agriculture and tourism sectors. With
rising competition from countries such as Vietnam, Thailand will
need to work hard to make sure its labor force has skills that
are in demand and that the costs of managing trade are
sufficiently low to remain competitive.
MORROW

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