[BANGKOK] Thailand's two biggest industrial groups are raising their R&D spending to develop higher-end products, leading a growing troop of Thai companies under pressure to quickly evolve their low-value and increasingly uncompetitive business models.
Thai companies are expanding their line-up of premium products as rivals in neighbouring Vietnam win more orders for low-margin, commoditised goods with cheaper prices.
A recent hike in Thailand's minimum wages has also dampened the country's competitiveness, forcing some foreign investors to shift operations to other Southeast Asian countries including Vietnam and Myanmar where labour costs are lower.
Siam Cement, a barometer of Thailand's economic health, lifted its research and development budget to a record 4.8 billion baht (S$201 million) this year, or 1.0 per cent of projected sales. That compares with 2.7 billion baht, or 0.6 per cent of sales, in 2014.
Thailand's third-largest listed company is no stranger to high value-added products, which accounted for 35 per cent of its sales last year compared with just 4 per cent a decade ago. These days, Siam Cement is focusing on higher-margin petrochemical products including high-end plastics and food packaging such as glassine paper.
To encourage innovation, the Thai government has increased R&D corporate tax deductions equal to 300 per cent of R&D spending, from 200 per cent previously.
PTT, the country's biggest oil and gas company and the largest firm on the Thai bourse, aims to spend 2.25 billion baht on R&D in 2015, versus 2.08 billion baht in 2014. The group has a policy of spending 3 per cent of its income on R&D. The state-controlled company is expanding into specialty products including biodegradable coffee cups and high-density polyethylene used to make fluorescent nets for night-time fishermen.
"It's in line with global trends as major petrochemical producers shift from commodity-grade products to specialty grade, and that's why they need to spend more on research," said Songklod Wongchai, an analyst at Finansia Syrus Securities in Bangkok.
"But given the weak economic outlook and poor domestic consumption, I'm worried about demand because everyone needs to control costs. Prices of premium grade products are much higher than normal."