M A N U FA C T U R I N G I N T H A I L A N D

Thai-American Business

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Thailands Skilled Labor Shortfall

When Will it End?
In early 2006, speculation
surrounded Seagate Technologys
potential investment in a new Baht
40-billion high-tech magnetic
media facility in Thailand. In the
end, Seagate choose to split the
investment between two locations:
a substrate plant in Johor, Malaysia
and an additional media facility in
Singapore. Seagate cited the
proximity of the two locations and
its existing operation in Singapore
as reasoning for their choice, but
many sources reported that limited
labor availability in Thailand was a
leading factor in their decision.

Later in 2006, the Federation of
Thai Industries (FTI) released
findings that the supply of
engineers in Thailand would be

including Thailands own success

at rehabilitating its economy and
attracting skill-intensive FDI since
1997, have contributed to the
supply crunch.

THAILAND IS REAPING
PRELIMINARY GAINS FROM
EDUCATION REFORM

Reform in Thailands education
system succeeded at achieving
almost universal primary
education in the 1990s. Secondary
education, though, continued to
lag; ranking well behind Hong
Kong, Singapore and Taiwan
according to the World Banks
Thailand Social Monitor.
According to the Monitor,
Thailands secondary school

The engineer and skilled labor shortage is deterring

new foreign direct investment (FDI) and causing
companies to reevaluate Thailands attractiveness.

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short 50,000 people by 2008. The

Education Ministry took this
further, finding that if the status
quo is maintained, the shortfall
would double to 100,000 by
2010. The Ministry went on to say
that Thailand would have an
overall labor shortfall of 580,000
over the same period.

The engineer and skilled labor
shortage is deterring new foreign
direct investment (FDI) and
causing companies to reevaluate
Thailands attractiveness. Many
believe Thailands educational
policy is primarily at fault for the
shortage, but several other factors,

completion rate, defined as 12

years of education, succeeded in
growing from 17% of the
workforce in 1997 to 40% in
2004, though these gains were
outstripped by increased demand
for engineers and skilled labor
over the same period.

According to most employers, the
reforms have not done enough to
boost supply and prepare Thai
workers for the demands of highvalue added industry jobs. At the
tertiary level, the number of
graduates from Thailands top
engineering programs
Chulalongkorn, Thammasart,

Mahidol and Sirinthorn

Universities and the King
Mongkut Institute of Technology
(KMIT) and King Mongkut
University of Technology Thonburi
(KMUTT) was 3,663 in 2006. If
this number remains unchanged,
only 14,652 additional engineers
will enter the workforce by 2010,
far short of the predicted demand
of 100,000. Less prominent
universities and vocational
programs will pick up some of this
slack, but to demanding investors
the top universities are the only
schools they will source from.

The inability of Thai schools to
produce qualified engineers is not
the only cause of the shortage;
Thailands success at attracting
high-value added investment
since the 1997 East Asian
Economic Crisis has also played a
pivotal role.

WHERE HAVE ALL THE
ENGINEERS GONE?

Since 1997, FDI in Thailand has
evolved from low-skill exportoriented activities to higher-skill
and technologically intensive
manufacturing. This evolution in
Thailand, plus the emergence of
China as a low-cost powerhouse,
has been pivotal in raising the
demand for engineers in Thailand.

According to FTI, Thailands
automobile industry created most
of the additional demand for
engineers. From 1996 to 1997,
automobile production
plummeted from 360,303 units
to158,130. As part of Thailands
economic rehabilitation plans,

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M A N U FA C T U R I N G I N T H A I L A N D
officials targeted the automobile
industry to produce 1.8 million
vehicles by 2010, making
Thailand the Detroit of Asia. So
far, these plans have been a
success, with 1.2 million vehicles
produced in 2006 and over 42%
of them exported. As the
automobile industry races towards
the production of 1.8 million
vehicles, the demand for
engineers continues to grow
rapidly; by 2010 the automotive
industry is forecasted to need
18,850 engineers, a 10,300
increase over 2005.

In March 2007, Seagate reaffirmed
its commitment to Thailand, citing
the addition of 100 new
technicians to its hard disk
production operation since
October 2006. Seagates
continued dedication to Thailand
is a good sign; however, the
decision to forgo expanding its
investment with the economies of
scale and integration it has
because of a lack of skilled labor
is a significant red flag to other
companies interested in high-

government increased universal

compulsory education from six to
nine years. This policy shift was
the single most important impetus
behind the more than doubling of
the number of workers with a
secondary education by 2004.
However, the easy success of
these early policy changes has
already been achieved; additional
changes, including greater access
to secondary school and
increased spending per student,
will be needed to continue the
momentum Thailand has achieved
in educational reform. To produce
the engineers and skilled workers
demanded by industry, Thailand
needs to do more than simply
increase secondary education
completion but make high-quality
tertiary education more widely
available.

The current NEDS plan (20022016) emphasizes the creation of
a knowledge-based society in
Thailand by integrating education,
religion, art and culture. More
pertinent is the Software and
Investment Promotion Agencys

The engineer and skilled labor shortage is deterring

new foreign direct investment (FDI) and causing
companies to reevaluate Thailands attractiveness.
value added investment and a
wake-up call for the government.
The government must now
consider what it can do to increase
the average education and skill
levels of its labor force.

WHAT IS BEING DONE

The Thai government has been
actively working to improve
education in Thailand since the
first National Education
Development Scheme (NEDS) in
1932; secondary and tertiary
education have been the focus
since the 1990s. In 1999, the Thai

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(SIPA) plan to train 5,000

additional software engineers by
2010. Finally, the Board of
Investment (BOI) introduced Skill,
Technology and Innovation (STI)
incentives for new investments in
Thailand that offer incentives for
investments or expenses made in
advanced technology training,
orsupport of an educational
institution.

The private sector can also be an
impetus for the growth of a highquality skilled labor force. In
Vietnam, the Intel Corporation is
implementing a digital ASEAN

(d-ASEAN) program where it will

join with local governments to
invest in technical education.

Comprehensive investment and
education plans like Intels are
ideal for Thailand, providing
high-quality results that benefit
the government, country and
investors.

A FIX IN SIGHT?

Despite the increasing numbers
of graduates and investments by
the government and private sector
to increase the pool of qualified
engineers, the fact remains that
Thailand will continue to
experience a labor shortage for
an unknown period into the
future. More must be done to
promote high-quality technical
education and increase the
capacity of the system to train
students and possibly ease
requirements for employing
foreign nationals.

The perception among foreign
investors is that Thailand is
becoming an increasingly risky
location for investment with the
recent coup, capital controls and
continuing unrest in the South.
This is the ideal time for the
government to expend political
capital and increase investment
in technical education to give
Thailand a more competitive
industrial labor force and
improve Thailands image as a
location for high-value and
knowledge-intensive investments.

Thailand would be wise to
improve and increase the
incentives for investors to
participate in strong publicprivate partnerships in
engineering and technical
training in addition to
government investment in
education.

Written By: Edward Russell, Research
Analyst, Tractus Asia. He may be reached
at edward@tractus-asia.com.