It is not a controversial opinion that increasing technological intensity in an economy increases prosperity. Certainly, the benefits of a tractor over a farm animal or automated mass production over handicraft production make this apparent.
Thailand, like many countries, has been attempting to build a local tech innovation ecosystem where local startups grow to be tech unicorns.
In the period after the global financial crisis with zero per cent interest rates, it seemed plausible that every country could build its own version of a mini-silicon Valley as global venture capital investment exploded from US$43 billion in 2007 to over US$300 billion a year from 2018 on.
Unfortunately, despite huge efforts by many fantastic people in the private sector and the government, the level of start-up activity has stubbornly refused to grow and is about the same level now as 5 years ago.
And the output of the ecosystem reflects this. The UK, which has a similar population size to Thailand, has about 3–4000 funded deals a year. Of which about 2000 are seed or early stage. Thailand is having a great year if it gets over 30.
Also Read: The upside of conglomerate influence in Thailand’s tech industry
The cumulative result of this over time is that Thailand has 658 funded tech startups in its ecosystem and the UK has over 43 thousand.
Source: StartupBlink
So now that we have the evidence that the current strategy is not achieving the desired output, what should a country like Thailand do?
The Silicon Valley/Cambridge Cluster model of tech startup and scale up requires a number of factors to all be in place simultaneously to work:
- It takes a lot, a lot, of patient yet high risk capital
- It requires large numbers of highly educated young people willing to take risks
- It requires a lot of experienced service providers to support startups (70 per cent of the employment in tech clusters is in support companies such as marketing agencies, lawyers, etc)
- It requires world class universities that have the right policies on IP for spin outs
- It requires a legal and tax system that is conducive to the risk and reward nature of tech investing
- It requires a culture that views failure as something that develops skills so everyone in the system is more willing to take risk
If any of these factors are missing, the ecosystem fails to thrive. And out of these six factors Thailand has, it could be argued, none.
And as shown above, the outputs reflect this with a small number of funded startups each year that is barely growing.
Which of these factors can Thailand realistically change in the short to medium term? Again, probably none.
This is not because Thailand is worse than any other country. Despite a tsunami of money over the last decade and more, 75 per cent of all unicorns still come from just three ecosystems. Its just not a model that works in many places.
So what should a country like Thailand do? Just give up and accept it will just be a customer buying new technology from overseas forever?
An alternative strategy is that Thailand (and other countries in a similar position) should do in technology entrepreneurship what it does in every other business, understand that it cant do everything itself, that its part of global supply chains and find its place in those chains where it can create prosperity for itself.
An example for Thailand that worked before was its focus on being part of global automotive component supply chains rather than building a national car company like Malaysia tried.
Also Read: Thailand’s startup ecosystem in 2024: Fewer funding announcements, but promising opportunities ahead
Once the component production was in place and the workforce developed skills, experience and international relationships, and the government and local partners understood what investors needed, more of the supply chain began to be deployed in Thailand until, eventually, Thailand not only became a global assembly hub for cars, “The Detroit of Asia”, but now is a leading destination for global investment in EV production based on this foundation of acquired expertise and infrastructure.
However, now is not then. And the companies producing the technologies that create enormous value today have different requirements than in the past when Thailand was first industrialising.
Cheap labor, cheap land for factories, easy environmental regulations, good physical infrastructure in the industrial zones, policies based on large investments paying off over several years and a government capable of working with large foreign companies aren’t what are needed anymore.
The new industrial strategy needs to work with the smaller and midsized growth tech companies rather than the mature tech companies where its just a customer or competes with low cost countries to be a supplier.
So it needs to be focused around highly skilled local staff, flexibility in location, ease of foreign workers working in the country in flexible time periods, high environmental standards, excellent digital infrastructure and a government that knows how to work with foreign startups and SMEs.
And similarly, government goals based on investment amounts, employment generated and exports aren’t appropriate in an age when 55 employees can generate in four years US$19 billion of value as those at WhatsApp did.
The great thing about the leading tech clusters is that they are already highly internationalised and are very open to working with all comers. Its well known the majority of US unicorns are created by immigrants as just one example, showing the willingness of the VC industry to invest in newcomers and development of the global internet in the last 25 years means physical proximity becomes optional.
Thailand’s tech ecosystem should become something that extends beyond it’s borders and overlaps the existing global tech ecosystems. And vice versa, it should be easier for the world to work with and in Thailand.
And most importantly, there needs to be real deployment projects that both sides get to work alongside each other and build the mutual understanding, trust and ability to achieve goals together and solve problems that can’t be developed theoretically or through discussion at conferences.
And, paradoxically, the interactions with the earlier stage of the global tech ecosystems must be led by the larger Thai companies. As I’ve discussed before the presence of “Institutional Gaps” means that the deployment of new technologies is easier for companies that have the highly skilled staff on hand and the resources to bridge those gaps.
It looks initially as if its cementing large corporate dominance, but it will help create an ecosystem that is intertwined and connected to the leading tech clusters of the world, prosperous and growing, with exposure to the new technologies and trends earlier that will fuel the next generation of Thai entrepreneurs that will have benefited from working on successful tech deployment projects with young international tech companies and built up the skills, experience and international networks to give them the confidence and access to resources to leave the corporates and make their own entrepreneurial activities a success.
So anyone looking to have an impact on an emerging market tech ecosystem I would suggest not becoming the 47th investment fund or the 23rd accelerator, but to help build bridges, working relationships and extended networks between locals and the global clusters that will make the country an extended part of a larger ecosystem that supplies from its entirety, not just locally, all the factors necessary for tech innovation success.
—
Editor’s note: e27 aims to foster thought leadership by publishing views from the community. Share your opinion by submitting an article, video, podcast, or infographic.
Join us on Instagram, Facebook, X, and LinkedIn to stay connected.
Image courtesy of the author.
The post Thailand’s tech renaissance: Building bridges to global success appeared first on e27.