VZCZCXRO1080
PP RUEHWEB
DE RUEHCHI #0078/01 1660155
ZNR UUUUU ZZH
P R 150155Z JUN 09
FM AMCONSUL CHIANG MAI
TO RUEHC/SECSTATE WASHDC PRIORITY 1064
INFO RUEHCHI/AMCONSUL CHIANG MAI 1146
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS

UNCLAS SECTION 01 OF 04 CHIANG MAI 000078 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ELAB EINV ETRD ECON BTIO TH
SUBJECT: PUBLIC-PRIVATE EFFORTS BUILD NORTH'S CREATIVE ECONOMY AND 
FILL SKILLS GAP 
 
REF: A. 08 CHIANG MAI 160 (LAMPHUN) 
     ¶B. BANGKOK 1319 (FIGHTING UNEMPLOYMENT) 
     ¶C. 08 CHIANG MAI 58 (SKILLED LABOR SHORTAGE) 
     ¶D. CHIANG MAI 74 (INVESTORS COMPLAIN) 
     ¶E. CHIANG MAI 39 (CNX-WOOD) 
 
CHIANG MAI 00000078  001.3 OF 004 
 
 
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Summary and Comment 
 
------------------- 
 
 
 
¶1. A wave of public and private sponsored initiatives is seeking 
to empower the northern Thailand labor market with the skills 
needed to support and develop high-tech and creative industries 
in the region.  This strategy aims not only to address 
complaints by foreign and domestic firms about a skilled labor 
shortage in the north, but also to diversify the land-locked 
region away from over-reliance on agriculture and tourism, both 
of which are vulnerable to seasonal fluctuations.  Local 
universities are expanding options for students who wish to 
specialize in technology-related fields, including computer 
design, graphic design, animation, and software development. 
Government and private initiatives are providing post-graduate 
training in the north to make new entrants to the labor market 
more attractive to U.S. and European firms seeking to outsource 
such work overseas.  While support is strong in the north to 
develop what Prime Minister Abhisit Vejjajiva has labeled "the 
creative economy," the challenges of expanding domestic demand 
for skills-intensive products and improving widespread respect 
for intellectual property rights (IPR) remain obstacles to the 
policy's success in the north. 
 
 
 
¶2. Comment:  Current initiatives to develop the creative and 
high-tech sectors of the northern Thai economy have the 
potential for a real public policy success story, with Thai 
public institutions recognizing a significant need - solving the 
skilled labor shortage, especially in the north - and seeking to 
address it directly.  However, adding these skills to the 
northern labor market will only contribute partly to the broader 
effort to build up the north's "creative economy."  Broader 
challenges, including low domestic demand for goods produced 
with higher skills and low public awareness about respect for 
intellectual property, must also be met in order to maximize the 
expansion of new investment (both foreign and domestic) in these 
sectors in the north.  End Summary and Comment. 
 
 
 
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A Public and Private Push to Build IT Skills 
 
-------------------------------------------- 
 
 
 
¶3. Government and industry efforts to build a northern Thai 
labor force equipped with IT skills have been impressive.  On 
the government-side, the Software Industry Promotion Agency 
(SIPA) has established a Chiang Mai-based center whose main 
purpose is to develop the creative and high-tech aspects of the 
local economy through IT training.  SIPA in Chiang Mai trains 
local workers in the IT and creative sectors with the objective 
of its graduates starting their own firms.  For the graduates 
themselves, entrepreneurial endeavors may be too risky, but 
SIPA's training is useful to make them more marketable to 
foreign firms seeking to outsource parts of their production 
processes to Thailand. 
 
 
 
¶4. The unique element of SIPA's Chiang Mai office is the 
Northern Animation Studio (NAS), which equips IT professionals 
with the software skills necessary to produce high quality 
films.  Thus far, the animation program has provided training to 
over 500 hopeful IT professionals.  While the program provides 
training to workers on how to use in-demand software to produce 
animated films (skills which workers know pay off thanks to 
outsourcing), the NAS encourages them to use their skills to 
produce their own original films.  Unfortunately, according to 
SIPA's animation director, the NAS has only produced one 
original short animated film.  Moreover, SIPA's animation 
director said that despite the agency's training courses, 
private firms still have to provide additional training before 
the Agency's graduates are ready to work independently. 
Ultimately, the training that SIPA provides equips workers with 
specialized skills to do a specific task (such as reproduce an 
animated character in various positions), but does very little 
 
CHIANG MAI 00000078  002.3 OF 004 
 
 
in terms of developing creativity and original thought. 
 
 
 
¶5. Recognizing the limits to public sector support of IT skills, 
the software industry in the north has organized itself to build 
skills that are most in demand.  One industry-sponsored project 
is called the IT Application and Service Cluster and aims to 
expand the software development industry in the Upper North 
provinces of Chiang Mai, Chiang Rai, Mae Hong Son, Phrae, Nan, 
Lampang and Lamphun by providing in-kind support (volunteer 
programmers) to provide training and mentorship for 
up-and-coming IT professionals.  Additionally, individual 
Thai-based firms are partnering with universities to expand the 
number of skilled laborers in the market.  The Thai software 
development firm Soft Square 1999, for example, is partnering 
with North-Chiang Mai University and Mae Fah Luang University in 
Chiang Rai to educate computer science majors about 
entrepreneurship.  Similarly, software development company Mfec 
is partnering with Chiang Rai Rajabhat University and Mae Fah 
Luang University to provide job guarantees to interested 
graduates at the firm's newly established Chiang Rai location. 
 
 
 
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Universities Try to Fill the Skills Gap Up North 
 
--------------------------------------------- --- 
 
 
 
¶6. In addition to partnering with private firms, northern Thai 
universities are also acting independently to try to supply the 
market with the high-tech skills needed to develop a northern 
Thai creative economy.  The recent establishment of the Computer 
Network Operation Centre (CNOC) at Chiang Mai University is one 
example of a university effort to develop IT skills among locals 
in the labor market.  According to the center's director, CNOC 
hopes to turn Chiang Mai University into a technology training 
hub for the northern region.  CNOC is intended to serve as a 
technology laboratory that can provide final-year undergraduates 
from the university's Faculty of Engineering with specific skill 
sets, such as a training program that results in a networking 
engineer certification.  Presently, the CNOC can only 
accommodate 5,000 students for laboratory study and only 30 
students achieve the network certification per year, which does 
not come close to meeting the demand for such educational 
services in the north, according to the CNOC director. 
 
 
 
¶7. Curricula in university computer science and technology 
programs are also trying to adapt to the region's demand for 
greater IT and "creative" skills.  In 2006, Chiang Mai 
University established a College of Art, Media and Technology 
(CAMT) which is growing in popularity with 392 students 
declaring majors in the college last year.  The most popular 
major in that program is Modern Management and Information 
Technology (MMIT), while Animation is the second most popular. 
The MMIT program also established a campus in Lamphun province, 
where several foreign firms produce high-tech products for 
export (ref a).  According to the Dean of the CAMT, the 
increasing number of students each year in the college is a good 
sign for Chiang Mai because it is developing the core skilled 
labor force the city needs to develop a creative economy.  The 
dean was confident that northern Thailand's skilled labor force 
can compete with other countries', including China's and India's. 
 
 
 
¶8. Of the fifteen universities across the north of Thailand, all 
reported having some departments and majors related to the 
concept of the creative economy, including fine arts, 
architecture, computer design, graphic design, animation, and 
technology management.  In Chiang Mai specifically, it is 
estimated that, per year, about 900 Chiang Mai University 
graduates, 265 Rajamangala University graduates, and 140 Mae Jo 
University graduates receive degrees in fields related to the 
creative economy.  Accounting for smaller programs at other 
Chiang Mai area universities, we estimate about 1,500 graduates 
per year in these fields in Chiang Mai city. 
 
 
 
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A Thai Silicon Valley? 
 
---------------------- 
 
 
CHIANG MAI 00000078  003.3 OF 004 
 
 
 
 
¶9. A longer term project, which also aims to expand the creative 
economy of northern Thailand, is the Northern Science Park 
(NSP).  The NSP remains in the planning stages and was envisaged 
about four years ago by the central government under the idea 
that regional science parks should be established outside of 
Bangkok to encourage such economic development elsewhere in the 
country, including the northern provinces of Chiang Mai, Chiang 
Rai, and Phitsanulok.  According to representatives of the NSP 
office in Chiang Mai, which is currently located at Chiang Mai 
University, the park is expected to have a variety of functions, 
the main one being to serve as a center for scientific research 
and development in the north. 
 
 
 
¶10. The NSP hopes to achieve that goal by hosting domestic and 
foreign university research institutes and pilot high-tech 
manufacturing programs at a R&D park to be located near the 
currently established Lamphun Northern Regional Industrial 
Estate.  The NSP planners hope that the park will specialize in 
food and agribusiness, biotechnology, and renewable energy 
research, pulling from Chiang Mai and Lamphun's agricultural 
environment.  The NSP representatives said that they are moving 
closer to the construction phase of the program, which they hope 
will begin sometime within the next two years.  (Note: The NSP 
invited post to encourage U.S. universities, research 
institutes, and businesses to learn about and consider 
opportunities for investing in the park.) 
 
 
 
--------------------------------------------- ------------ 
 
Skilled Labor Shortage Fuels Creative Economy Development 
 
--------------------------------------------- ------------ 
 
 
 
¶11. Despite high unemployment in Thailand throughout this 
economic crisis (ref b), firms operating in the northern 
region's high-tech and creative sectors (including software 
development, animation, graphic design, etc.) continue to 
complain about a shortage of skilled labor, which is partly the 
motivation for this joint governmental, private sector, and 
academic push to build IT skills.  The CEO of Mycos 
Technologies, a U.S. investment-based software development 
company which provides outsourcing services in Chiang Mai for 
U.S. and European clients, said that while local universities 
provide seemingly advanced technology curricula in computer 
software design, the resulting skill sets are inadequate for new 
hires to begin work right way.  The CEO said that to measure 
applicants' basic understanding of the mathematics foundation 
required for more advanced computer science work, he asks each 
applicant a basic math problem (what is the square root of 
100?).  He disappointedly reported that only about 40% of the 
applicants could answer the question immediately.  In addition 
to a lack of sufficient math and technical skills, the CEO said 
that poor English skills (or a lack of confidence in speaking 
English) are another challenge because workers must be able to 
communicate with foreign clients.  Both U.S. and other foreign 
firms operating in northern Thailand have also complained to us 
about this lack of skills in the region (see ref c and d). 
 
 
 
¶12. The result of the skills shortage has been an added cost 
burden to northern-based firms.  Mycos Technologies told us that 
each new software developer that the firm hires requires an 
additional six months (at least) of training before he or she 
can work independently.  The additional training is needed 
despite the fact that each new employee graduated (usually) from 
Chiang Mai University's (CMU) Faculty of Computer Science or 
Faculty of Engineering and has completed two to five years of 
relevant work experience.  Creative Kingdom International, a 
U.S.-based graphic animation and architecture design firm 
investing in Chiang Mai, also reported that it has to spend 
significant training time with new employees, despite their 
educational background (see ref e). 
 
 
 
--------------------------------------------- ----- 
 
Despite Skills Shortage, North Remains Competitive 
 
--------------------------------------------- ----- 
 
 
 
 
CHIANG MAI 00000078  004.3 OF 004 
 
 
¶13. Many high-tech and creative sector investors see northern 
Thailand as a promising investment destination despite the 
skilled labor shortage described above.  According to Mycos 
Technologies, the firm chose to establish itself in Chiang Mai 
because of two reasons: reasonable costs and high quality of 
life.  According to Mycos' CEO, the cost of rented space, 
high-speed internet access, and other operating expenses is so 
much lower in Chiang Mai compared to Bangkok that he can pay his 
software developers salaries between $800 and $850 per month, 
which he said is higher than average salaries for similar work 
in Bangkok.  The higher salaries - combined with the fact that 
the firm seeks locally born and raised staff who wish to 
continue living in Chiang Mai - keep the employees loyal to the 
firm; the CEO reported that in the last seven years, Mycos had 
only one programmer resign from its staff of 30.  By keeping the 
employees loyal to the firm (a relative rarity in the Bangkok 
market, Mycos says), the firm is able to save on training costs 
in the long-run. 
 
 
 
¶14. The reasonable climate, friendly atmosphere, and low cost of 
living is also an attractive characteristic of northern Thailand 
for investors.  According to the CEO of Creative Kingdom 
International, Chiang Mai's variety of luxury hotels, 
restaurants, and spas makes hosting clients much easier here 
versus competing outsourcing destinations such as China and 
India.  The CEO of Mycos echoed those comments saying that his 
clients enjoy coming to Chiang Mai and often choose to do 
business with the firm as an excuse to travel to Thailand for 
tourism.  Both of these firms said that the low cost of 
operating combined with the high quality of life make the extra 
costs of training new staff, due to the skills shortage, 
worthwhile. 
 
 
 
----------------------------------- 
 
Challenges: Domestic Demand and IPR 
 
----------------------------------- 
 
 
 
¶15. While the skills shortage is the most imminent challenge to 
developing the northern Thai creative economy in the short-run, 
two longer term challenges remain: (1) boosting the low level of 
domestic demand for goods produced in a creative economy and (2) 
establishing a strong intellectual property rights (IPR) regime 
that is the foundation of such an economy.  The first problem is 
linked to Thailand's appetite for imported goods (or, at least, 
imported brands) that are skills-intensive, such as movies, 
video games, and software.  According to a representative of 
Creative Kingdom, "Thai people don't like to consume their own 
creative products," and it is only once a Thai brand becomes 
well-known overseas that it becomes popular domestically in 
Thailand.  This low domestic demand for Thai-created goods 
limits domestic investment in such goods.  According to SIPA's 
animation director, the cost of producing an animated film is 
about $8,000 per minute; he said that no Thai entrepreneur finds 
that cost worthwhile given the small size of the Thai market. 
 
 
 
¶16. Invariably linked to the problem of low domestic demand for 
Thai creative goods is the second problem of weak IPR protection 
in Thailand.  On the one hand, piracy keeps the price of foreign 
creative goods low such that there is even less of a market for 
Thai-created products.  While piracy keeps domestic demand for 
legitimate goods (foreign or domestic) low, it also lessens the 
incentives for Thai entrepreneurs to invest in designing and 
producing such goods domestically.  The result is a widespread 
lack of understanding about the benefits of a strong legal 
framework for intellectual property and, consequently, a lack of 
non-governmental actors in the region fighting for those rights. 
 While IT firms and SIPA told us that foreign clients are not 
very concerned about IPR in Thailand because they export only 
part of their production process to the country, they did 
believe piracy will remain an obstacle to developing the Thai 
creative economy beyond its current level. 
MORROW