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Services as the new growth driver for thailand

Driven by an increasingly larger role in overall output and employment, the service sector is dominating the global economy. According to the World Bank, 69% of global GDP is now driven by the service sector. Services have become increasingly important for growth on a global level due to their complementarity with manufacturing, from R&D to after sales service.

 

In 2016, the share of revenue from the service sector accounted for 56% of the country’s GDP, a prime determinant of national income. It encompassed diverse industries such as tourism, healthcare, communications, transportation and R&D.

 

The world’s top tourist destination

Accounting for 17% of the country’s GDP, tourism is a key revenue source for Thailand which remains a top destination for travelers from around the world. In 2016, there were 32 million foreign visitors to Thailand, The sector generated total revenue of THB 2.52 trillion (USD 75.4 billion), a notable increase of 11% from 2015.

 

The tourism-related sector, including hotels experienced 6% growth in 2016. Some high performers could even experience a double-digit growth in this sector. For example, the Erawan Group, Thailand’s leading hospitality company with diverse hotels in key destinations in the country, experienced an increase in revenue of 14% from 2014-2016, far outpacing the industry’s growth rate. In addition to direct income from tourism spending, the sector contributes to the economy through job creation and investments. With Thailand’s cultural and culinary delights, Le Cordon Bleu has joined forces with Dusit Thani to open Le Cordon Bleu Dusit Culinary School. The school offers both local and international students the opportunity to experience the best of French and Thai gastronomic training as one of the leading culinary educational institutions in the Asian region.

 

The hub of wellness and medical tourism

With its world-class medical facilities and premium healthcare services at highly competitive rates, Thailand is aiming to become the leading destination for medical tourism. In 2015, the medical tourism segment maintained strong growth with revenue totaling THB 105 billion (USD 3.1 billion) from income generated by private hospitals. This represents annual revenue growth of 15%. Over two million international patients travel to Thailand every year for medical treatment. Private hospitals are taking action. For example, Bangkok Dusit Medical Services (BDMS) invested THB 10.8 billion (USD 323 million) to acquire Park Nai Lert Hotel to develop a new state-of-the-art wellness clinic. The clinic will provide premium comprehensive wellness and preventive healthcare services to upmarket Thai and international customers. BDMS will be investing another THB 2 billion (USD 59.8 million) to develop the new wellness clinic.

 

The Medical and Wellness Tourism sector continues to possess strong potential as many countries in the world are having to deal with rapidly ageing societies. Quality healthcare services will be an important solution and will drive further demand along with increased activities in medical devices and pharmaceuticals to support growth in medical tourism. Thai Otsuka Pharmaceutical and Cardinal Health are two of many examples. Thai Otsuka Pharmaceutical recently invested in its new medical food production plant which will be able to handle a fourfold increase in manufacturing capacity. Cardinal Health, a global, integrated healthcare services company that distributes pharmaceuticals and medical products, also recently completed its expansion for the manufacturing of surgical gloves last year with an investment of over THB 8 billion (USD 239 million).

 

Communicating in a digital world

As one of the government’s ten targeted industries, the Digital Economy encompasses tremendous opportunities within the service sector. With an internet penetration rate of 67% and 46 million Thais who have access to internet platforms, Thailand is a world leader in the number of internet and social media users. Currently, communications are conducted through social media platforms, with roughly 75% of total mobile messaging being done through instant messaging apps.

 

With a high number of internet users and social media penetration in the country, LINE Corporation (Thailand), a global mobile platform, has experienced widespread growth over the past year, surpassing 33 million active users in 2016, making it the second largest market after Japan. Thailand is also one of Facebook’s largest markets. There were more than 47 million Facebook users in Thailand as of May this year, ranking the country ninth in the world. As the country continues its transition to an era of connectivity and digitalization, the Digital Economy opens up a new investment frontier given Thailand’s rapidly growing internet-led consumer market.

 

Growing into ASEAN’s logistics hub

Thailand is rapidly emerging as a key logistics hub with its well-developed infrastructure, growing regional trade links and its location in the heart of Southeast Asia. According to the Office of the National Economic and Social Development Board (NESDB), logistics costs as a percentage of GDP in Thailand have declined significantly over the past 10 years, from 18% in 2007 to about 14% in 2016. This represents significant progress in further developing this valuable and growing sector.

 

Taking advantage of the emerging digital market, the logistics sector will benefit from increased demand for product shipments in addition to the convenience of conducting business and completing transactions using online platforms. Apart from state-owned Thailand Post which has over 1,200 postal office outlets throughout the country and a strong distribution network,Lalamove, Kerry Express, SCG Express in partnership with Yamato, DHL eCommerce, and FedEx are a few of many door-to-door logistics service providers apart from industrial logistics players such as Yusen Logistics, CEVA Logistics and WHA Logistics in Thailand. Kerry Express has effectively tapped into the Consumer to Consumer (C2C) market having the highest percentage in the online C2C market in the world. Today, this segment contributes over 60% of the company’s total revenues. SCG Express, a newcomer to this thriving market, also unveiled an expansion plan to cover all of Thailand through its distribution network by 2018.

 

Providing R&D for science and technology

In shifting the country to a knowledge-based economy through Thailand 4.0, R&D will be a core sector in helping Thailand to strengthen its value chain and achieve its long-term economic goals. The government and the BOI are targeting increased R&D in Biotechnology, Nanotechnology, Advanced Materials Technologies and Digital Technologies, whereby local researchers will be further supported by the BOI through the Strategic Talent Center (STC) which will link up available research personnel for the private sector for their R&D and innovation activities. From the beginning of 2016, the BOI has approved investment incentives for 40 projects in the biotechnology sector involving research and development (R&D). The approval of these projects, worth THB 6.4 billion (USD 191.4 million), underscores the confidence that investors have in Thailand’s future.

 

A brighter future through services

The service sector will serve as a new growth driver to support Thailand in achieving higher incomes and new job opportunities serving both domestic and global markets. In moving towards higher value-added services, the government is committed to ensuring that these positive trends continue, guaranteeing a new wave of growth.

 

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