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Evolution of Thai management post-crisis
(Part Two of Three)
October 1999
This is the second part of Kriengsak Niratpattanasai's trilogy on Thai Management Post-crisis leading up to the millenium. The first installent can be accessed here. The final instalment is upcoming next week (Eds.)
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Second Trend : From Protected Market to Deregulated Market
Thailand used to be the protected market. You name it - energy, banking, insurance, petrochemical, telecommunication etc... The government protected the market because they worried that local Thai businessmen were not capable of competing with their external competitors. Many industries were protected as the nature of their business were viewed as a public service. But now GATT and AFTA agreements as well as the conditions of IMF funding has forced Thailand to deregulated the market for free competition.
What does this mean? It means that the level of competition will dramatically increase. New techniques and tactics to win customers need to be deployed.
Implications for Thai managers from this trend
- Competitive Advantage:
Since the key players are now either Global Brands or Regional Brands, Thais can not play according to the old rules. Actions that worked in the past will be most unlikely to work in the future. Thais need to find a Competitive Advantage for their product or service. It's the never-ending story of "Me Too" category. The product or service that does not have unique selling point will not be in the market for long.
- Creativity:
To be unique, you need Creativity. Thais need it to create a good unique selling point. Thais need it to develop a solid plan and implement the plan creatively. This is not easy for Thais. The Thai education system does not prepare Thai managers to be creative. Furthermore, Thais have been ruled by the "monarchy society" for a long time, creating the habit of "waiting for the senior's command".
- Customer Focus:
Many protected industries never take good care of their customers. For example, take the case of the banking industry in Thailand. Most bankers used to think that as customers came to the bank to ask for help in obtaining a loan they thought that it was a favour provided, not a service. When Citibank came to Thailand 15 years ago, they deployed aggressive marketing campaigns focusing on retail customers. They ended up by gained a good chunk of market share with only one branch operation. (The Thai government allows foreign banks only one branch). Recently, retail bank customers were asked to compare service expectations with the actual delivery. The result was big gap. Top executives of one local bank, told their bank executives - "...We are still the leader, not because we are better than other local banks, but rather because we are not the worst..."
In the near future, customers will demand "real" good service (not the lip-service that every bank is claiming) than value for their money. And many Global or Regional players are better able to respond to those needs.
History tells us that service in America in the 1980's was terrible. Now it's time for Thailand. The challenge is in undertanding how we can improve our service?
- Privatisation:
The Thai government was advised by IMF to privatise state enterprises and
some government functions. After the privatisation period, there will be a massive lay-off of non-productive workers and senior age employees. The work processes in those organizations will be redesigned. Office automation and new technology will replace many manual work processes. Computer skills are a must for the new work force in any organization. English communication skills are also. This is because many privatisated organizations will be owned by foreigners who come in with new technology.
The third Trend : From Bubble economy to Real Demand
Before the crisis, Thailand enjoyed double-digit growth. There are many sectors that will not grow as in the past. Let's look at the major sectors below:
- Export industries: These industries powered Thai growth in the previous decade, and their prospects depend on their basis. For example, labor intensive or low labor-cost sectors like the garment, shoe, or computer component sectors, will no longer be able to compete with cheap labour markets like China. Food export and Agricultural products however will be able to maintain good growth.
- Sales volumes in the Real estate, housing, automobile, and luxury product industries are dropping. At the very least we can say that real demand will be less than in the "bubble days". It is harder to predict the "real" demand in the future with any certainty. Some argue that the drop in current demand in these areas may be caused by emotional panic and that this may not represent real market demand.
- Consumer package goods (those basic needs) are quite stable with a slight drop at present. Consumer products in the low income segment have reported growth as the white collar consumer, careful about their spending, shift to buying medium-grade products. The lower middle income class also exhibit a similar behaviour by shifting to puchasing lower-grade products
Implications for Thai managers from this trend
- Cost Cutting:
As real demand declines, businesses will be unable to operate at the same cost as yesterday. The managers have to lead the organization in a direction that "Produces more with less". Resources need to be managed carefully. Unnecessary expenses will be cut. Many entertainment and luxury expenses will be minimized. Those who work in the entertainment and luxury business will be significantly affected.
- Creativity:
If we have to turn our businesses 180 degrees can it be done with just slight modifications? Can we adjust minor operational bits and pieces here and there? The answer is we have to do it Creatively. Think out of the box. Forget your previous frame work and experience. You need to have a courage to do that.
- From "Management by Gut Feeling" to "Information Based Management":
Markets and consumers are hard to predict. The way Thais manage must be information focused. We need to have reliable information that can be accessed at the right time in the right quantity and of the highese quality. Do we invest now in the information to prepare ourselves for the future?
- Be good at Planning:
Thais are not good planners. One Westerner who has lived in Thailand for over 30 years commented on why Thais are not good at planing. He analyzed this based on the sociological aspect of Thailand. If you take a close look at Thai history, as a rich and plentiful country with a good environment - in the old days, Thailand was rich with resources. Thais used to have the motto - "...In the river has fish, in the farm has rice..." Food was usually available right in front of their house. Why bother to do the inventory! Furthermore, natural disasters like earth-quakes or severe changes in seasons like snow in winter did not occur in Thailand. So people just did not plan for anything. For example, a day in the life of a Thai family in a rural area went started in the morning by going out to the farm and river and getting something to cook for the day. They did not have to plan ahead to fight with nature like many had to in the West So planning ahead is a must.
Thais have a joke for the English word "Plan-ning". "Ning" when pronounced in the Thai language means "Unmoving". When Thais say "Plan-ning" it sounds like Plan! - and they do nothing (just plan and unmoving, so nothing happens!).
Unfortunately, Thais do not have sufficient resources any more. Lots of farmers sold their land during the Bubble Time. Thais are unable to do luxury act's like that anymore!
- From Single Media to Multimedia:
The cake is get smaller. Thai businesses will have to win the customers heart faster and more efficiently. While we used only limited media to reach customers in the past we now have to use a Multimedia approach by adding Internet, Radio, Telemarketing, direct selling and TV integrated with clear strategic direction.
Fourth Trend : From Diversification to Focus
Major Thai conglomerates have diversified their businesses in various dimensions. Siam Cement Group diversified from Cement production to Construction, Telecommunication, Automobiles, and many other industries. The Charoen Phokaphan Group (CP) diversified from Agriculture to Telecommunication, Cable TV, Retail Business, Motorbikes in China, Energy and many other areas. United Communication (UCOM) diversified from Telecommunication to Retail Business, Regional Airlines, and Cable TV. Jusmin Group diversified from Local telecommunication to Regional Telecommunication, Energy, and Telecom Infrastructure Network Provision etc.
When these companies diversified, they hunted a lot of high caliber talent from the market. When they business shrank, a majority of these "high calibers" were laid off. Some of them were transferred back to the core business of the group.
Most of the diversified conglomerates are focusing back on what are they good at.
Implications for Thai managers from this trend
- Mix of management styles:
High calibers who transfer to the core business of their company will have to adapt to a new environment. For example if they are transferred from the Telecom industry to the Agriculture industry, it would take some time to catch up with industry knowledge. However, they can also bring in initiatives that no one in that industry has ever seen before. But they have to be able to sell new tricks to the old dogs. Unfortunately, they often find it quite difficult, because the existing executives often have the wrong perception. (If the new-comers are so good, why have they closed down shop?) Top management has to learn to balance the mix of management styles.
- Less New Product Development and Research Budget:
Many Thai organizations stop spending on New Product Development and Customer Research. They want to save as much as possible. Again, the MNC's are spending money to understand customers and develop a product to suit the new needs. Who will be the consumer's choice?
The Fifth Trend : From Pay by the market rate to Pay by Performance
In the bubble economy, finding good people was not easy. Corporations had to buy high calibers at a high prize. Compensation and benefits had to paid for Thai executives. Company cars with driver, cellular phone, secretary and unlimited travel and entertainment budget was the norm. Because of the shortage in the market, and the "unreal demand", it was hard to identify who was the good one or who was just the lucky guy. In every resume, you will find claims of success in terms of sales increase, profit increase and business expansion. It seemed that at the time, the prize of compensation was fitted to the qualifications. Now things are different. Most companies have cut all unnecessary expenses. Many of them have cut management salaries by 30%.
Implications for Thai managers from this trend
- Ability to Spend has Decreased:
If a Thai manager earned Baht 100,000 in the past, they could send their first kid to study overseas. The youngest kid could go to the UK on an educational trip once a year. (The majority of Thais Executives have 2 kids). They could afford to buy a Condominium in a resort area like Pattaya, Huahin, or Chiangmai paying monthly instalments of Baht 15,000. They could buy a new home in Bangkok with a monthly instalment of Baht 30,000. The list went on and on.
Most of them did not reserve any cash. Suddenly, se their income dropped to
Baht 70,000 (30% reduction), personal funding had to be reallocated. Many became very depressed, but considered themselves luckier than those who lost their job. Those who lost their job often had major difficulties even after spending all of the money from the lay-off package.
- Mental Therapy:
With the above life crisis, Thai executives often became depressed. Some used the Thai way of therapy by going to the Buddhist Temple and practicing Buddhist religion. Unfortunately, Buddhist monks are not good at counselling skills. If they were good, it would be a great source of curing the mental illness of Thai managers. There will be an opportunity for the mental therapy experts.
As in USA history, it became accepted to see a therapist in the 70's. So, this could happen to Thailand as well!
- Work Smarter:
Thai managers may also maintain or even increase their level of income by a pay by performance scheme. Managers must think about the work output and compensate based on the quantity and quality of work. ..And the basis of performance measurement must change.
Again, in order to increase output productivity, you have to work smarter not work harder.
- Ending of the tradition of Long Term Employment:
Thais are very good at relationships. We are a "feelers country", not a "logical country". Our work has to do a lot with relationships. This extends to the employment relationship between employer and employees. We used to have the belief that regardless of how lazy or incapable the employees were, as long as they did not steal money or property, they would not be terminated. That belief just cannot be applied any more. Honesty alone is not enough, you must contribute to the organization.
- Learn to Stand on Your Own Feet:
As most organizations continue to reduce their workforce, employees have more responsibilities. They may no longer have company car, personal driver, and personal secretary. They have to drive themselves (in their own car in some cases). They have to share a secretary with colleagues or the boss. They have to pour their own coffee, make their own telephone calls, type their own memos or letters, and send their own emails or faxes. They have to re-learn basic administration skills. The key important thing is that Thais are quite concerned about "face value". They care to show others how big they are (it might because the monarchy system that taught them us to care about the empire or territory). So, it's hard to "Do it yourself" in the clerical areas".
The final instalment of Kriengsak Niratpattanasai's trilogy on Thai management for the millenium, focuses on techniques for change. It will be available soon as the next column of Thailand Tales. (Eds...) Kriengsak Niratpattanasai
DBS Thai Danu Bank, Bangkok, Thailand
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