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 
 
 
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Summary 
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¶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. 
 
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Comment 
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¶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