The University of New South Wales

THE UNIVERSITY OF NEW SOUTH WALES

DYNAMICS OF INDUSTRIAL DEVELOPMENT IN BORDER TOWNS: CASE STUDIES OF THAILAND (VOLUME I)

CHUTHATIP MANEEPONG

A THESIS SUBMITTED TO FULFIL THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY

FACULTY OF THE BUILT ENVIRONMENT

UNIVERSITY OF NEW SOUTH WALES

SYDNEY, AUSTRALIA

For my parents, who gave me a profound insight into their experience of living in Thailand’s border towns and for the people of Thailand’s border towns

Warning: This thesis is protected by Australian copyright law. Copyright owners are entitled to take legal action against a person who makes unauthorized reproduction or distribution of this thesis, or any part of it.

คําเตือน: วิทยานิพนธนี้คุมครองโดยกฎหมายลิขสิทธิ์ของประเทศออสเตรเลีย เจาของ ลิขสิทธิ์มีสิทธิที่จะดําเนินคดีตามกฎหมายกับบุคคลที่จัดพิมพหรือ จําหนายจายแจก วิทยา นิพนธนี้หรือสวนใดสวนหนึ่งของวิทยานิพนธนี้โดยมิไดรับอนุญาต

ABSTRACT

This thesis examines the dynamics of industrial development in the areas where Thailand borders with neighbouring countries. It argues that the locational advantages approach — one that focuses on social and economic connections in border towns, government investments, policy measures and the role of export- oriented multinational companies — is not necessarily an appropriate approach. An investigation is conducted to find out to what extent the locational advantages approach applies to Thai border towns. An assessment of the government role in promoting and managing industrial development has also been undertaken to identify the success of this industrial decentralisation scheme. Other factors that contribute to industrial development are also examined. The thesis uses a comparative case study approach, comparing sponsored and non-sponsored towns, and presents four case studies of border towns in Thailand, bordering Myanmar and Laos. This research method provides a better assessment than an internal assessment of government programmes would. The results show that the dynamics of industrial development in Thai border towns is better explained by the production network approach emphasising the embeddedness of small and medium sized local manufacturing industries. The entrepreneurship and social networks of entrepreneurs promote the emergence and growth of industrial development. Horizontal industrial relationships promote flexible operations and compensate for limited access and resources in border towns. In addition, a border location does not by itself stimulate economic link with the neighbouring country because negative perception and regulatory barriers to the crossing of borders hinder mutual cooperation. Due to the discrepancy between government assumptions programmes and the dynamics of industrial development, the survey shows that the impacts of government investments on industrial development are marginal. The thesis concludes that the applicability of the locational advantages approach for industrial development in Thai border towns is limited and that the policy of the government and international agencies should be diverse and should consider other approaches such as a production network approach. Similarly, government programmes should accommodate the needs of small and medium sized manufacturing industries. The role of local government and the private sectors in minimising barriers to the crossing of borders should also be considered.

Abstract in Thai ii

บทคดยั อ

วิทยานิพนธฉบับนี้ศึกษาเกี่ยวกับพลวัตของการพัฒนาอุตสาหกรรม ในเมืองชายแดนของ ไทย แนวทางการพัฒนาอุตสาหกรรมซ ึ่งอาศัยความไดเปรียบของทําเลที่ตั้งเมืองชายแดน (Locational Advantages Approach) ที่เกิดขึ้นจากการใช อิทธิพลของความสัมพันธทาง เศรษฐกิจและสังคมของเมืองชายแดนกับประเทศเพื่อนบาน ผลประโยชนจากการลงทุนและ มาตรการสงเสริมการลงทุนของภาครัฐและ บทบาททางเศรษฐกิจของบรรษัทขามชาติที่เนนการ ผลิตเพื่อสงออกมาสนับสนุนการพัฒนาอุตสาหกรรมในเมืองชายแดนนั้นไมจําเปนจะเหมาะสม กับ ทุกพื้นที่เสมอไป วิทยานิพนธนี้จึงไดศึกษาถึงระดับความเหมาะสมในการประยุกตใชแนวทางการ พัฒนานี้กับเมืองชายแดนของไทย นอกจากนี้ยังไดประเมินบทบาทของภาครัฐในการสนับสนุน และบริหารจัดการการพัฒนาอุตสาหกรรมในเมืองชายแดน เพื่อชี้ถึงความสําเร็จของแผนงาน กระจายอุตสาหกรรมสูเมืองชายแดนและเมืองภูมิภาคดวย รวมถึงปจจัยอื่นที่มีอิทธิพลตอการ พัฒนาอุตสาหกรรมในเมืองชายแดนก็ไดนํามาวิเคราะหรวมดวย วิธีวิจัยหลักใชกรณีศึกษาเปรียบเทียบ ระหวางเมืองชายแดนที่ไดรับการสนับสนุนพิเศษ จากหนวยงานสวนกลาง กับเมืองชายแดนที่ไมไดรับการสนับสนุนพิเศษจากหนวยงานสวนกลาง โดยศึกษาเปรียบเทียบเมืองชายแดน ๔ เมืองของไทยที่อยูติดกับประเทศสหภาพพมาและ สาธารณรัฐประชาธิปไตยประชาชนลาว วิธีวิจัยนี้ใหผลการเปรียบเทียบชัดเจนมากกวาการเปรียบ เทียบภายในกันเองระหวางโครงการของภาครัฐที่ใชกันอยู ผลการศึกษาพบวาพลวัตของการ พัฒนาอุตสาหกรรมในเมืองชายแดนของไทยอธิบายไดดีกวาดวยแนวทางการพัฒนาโดย อาศัย เครือขายการผลิต (Production Network Approach) ซึ่งเนนการรวมกลุมของอุตสาหกรรม ขนาดเล็กและขนาดยอมที่เปนอุตสาหกรรมหลักของทองถิ่น ความสามารถของผูประกอบการและ เครือขายทางสังคมของผูประกอบการเปนปจจัยสําคัญที่กระตุนใหเกิดการพัฒนาและ สรางความ เจริญเติบโตทางอุตสาหกรรมใหกับเมืองชายแดน ความสัมพันธทางอุตสาหกรรมในแนวนอน (Horizontal industrial development) ก็มีบทบาทสําคัญสงเสรมใหิ การดําเนินธุรกิจปรับเปลี่ยน ไดงายและยังทดแทนความเสียเปรียบในการเขาถึงบริการและปจจัยการผลิตอื่นๆ ไดดวย นอก จากนี้ ผลการศึกษายังชี้วาทําเลที่ตั้งของเมืองชายแดนเพียงปจจัยเดียวไมสามารถกระตุนความ เชื่อมโยงทางเศรษฐกิจกับประเทศเพื่อนบานไดเพราะทัศนคติในแงลบและ ความแตกตางในดาน กฎระเบียบการผานแดนยังเปนอุปสรรคตอความรวมมืออันดีของทั้งสองประเทศ ความไมสอด คลองกันระหวางแนวทางการพัฒนาของภาครัฐกับ พลวัตของการพัฒนาอุตสาหกรรมที่เกิดขึ้นสง ผลการลงทุนของภาครัฐไมสามารถกระตุนการพัฒนาอุตสาหกรรมไดเทาที่ควร

Abstract in Thai iii

ดังนั้นวิทยานิพนธนี้จึงสรุปผลวาการประยุกตใชแนวทางการพัฒนาอุตสาหกรรมโดยอาศัย ความไดเปรียบของทําเลที่ตั้งเมืองชายแดนเพื่อการพัฒนาอุตสาหกรรมในเมืองชายแดนของไทยมี ความเหมาะสมนอยและนโยบายการพัฒนาอุตสาหกรรมในเมืองชายแดนของรัฐบาลและ องคกร ความชวยเหลือตางประเทศจึงควรเปดกวางและพิจารณาแนวทางการพัฒนาอื่นที่เหมาะสม เชน แนวทางการพัฒนาโดยอาศัยเครือขายการผลิต และแผนงานของภาครัฐก็ควรจะปรับเปลี่ยนให รองรับความตองการและ เงื่อนไขของอุตสาหกรรมทองถิ่นขนาดเล็กและขนาดยอมใหมากยิ่งขึ้น และ ควรสงเสริมบทบาทของหนวยงานทองถิ่นและภาคเอกชนทองถิ่นในการลดขอจํากัดของการ ผานแดน

ACKNOWLEDGEMENTS

This thesis would not have been possible without the generous help and support of a number of institutions and individuals. Professor Chung-Tong Wu, my supervisor, Deputy Vice-Chancellor (Development & International) of the University of Western Sydney, former Dean of the Faculty of the Built Environment, the University of New South Wales (UNSW) has been a great source of support and encouragement since the first day when I showed an interest in undertaking the PhD study. I am deeply indebted to him for his helpful guidance, comments, enthusiasm and insightful discussions at the various stages of my thesis. The time he made available to me and his wisdom and knowledge were more than I could have expected. I am also grateful to Dr Susan Thompson, my co-supervisor, Senior Lecturer of the Faculty of the Built Environment, UNSW for her thorough comments and suggestions and kind understanding that have assisted me with my study. I gratefully acknowledge the Faculty of the Built Environment for providing me with a Faculty of the Built Environment Doctoral Scholarship, covering my studies, my field research and the presentation of papers at the 41st Annual Association of Collegiate Schools of Planning Conference in Chicago in 1999, the 29th International Geographical Congress in Seoul in 2000 and the Public Policy Network Conference of Schools of Public Policy in Australia and New Zealand in Tasmania, 2002. In the proposal preparation process, Associate Professor Johanna W. Looye from the University of Cincinnati, USA offered me valuable advice. Her support was greatly appreciated. I also wish to acknowledge the support of Michael Mattingly, Development Planning Unit, University College London; Professor Douglas Webster from the University of Stanford, USA; Dr George Abonyi, Associate Senior Fellow of the Institute of Southeast Asian Studies, Singapore; Ian Green, Executive Director of Culpin Planning Ltd., UK; Itsushi Tachi, expert at the Japan Institute of Cooperation Agency; and Craig Townsend, a doctoral student at Murdoch University, Australia. I am grateful to Professor Terry McGee from the University of British Columbia, Canada for his insightful comments and encouragement. I also very much appreciate the help I received from Dr Hal Colebatch from the School of Social Sciences and Policy, UNSW with his encouraging comments and suggestions about the draft of my thesis. I also extend my thanks to Dr Henry Sandee from Vrije Universiteit, the Netherlands; to Dr Peter van Diermen from School of Resources, Environment and Society and Professor Peter J. Rimmer from School of Pacific and Asian Studies, the Australian National University; to Mr. Keiju Mitsuhashi from the Japanese Bank for

International Cooperation; to Dr. Henk van Houtum from University of Nijmegen, the Netherlands to Dr. Jörg Meyer-Stamer, a free-lance consultant in Germany; to Professor Sid Gray and Associate Professor William Purcell from the School of International Business, UNSW; and to Associate Professor Geoffrey Bamberry from Charles Sturt University, Australia for their valuable comments and suggestions about my thesis. My appreciation is extended to my former executives and colleagues at the National Economic and Social Development Board, especially Dr Pornchai Rujiprapa, Deputy Secretary-General, Mr Amnard Poltecha, Mr Praditha Damrongcharoen, Mrs Wilawan Tanratankul, Mr Suradech Leawongputhorn, Ms Chanpen Taesrikul, Mr Teeparat Vacharangkura, Mr Somboon Mekpaiboonwattana, Ms Sumitra Pooltong, Mr Montree Deemanop and Ms Thanajit Suksong for their helpful discussions regarding my proposal and my survey research and the documents they were able to supply from Thailand. Mr Chutichat Boonchuwit and his staff at the National Statistics Office, Mr Apinut Umpawa at the Department of Industrial Works and Mr Somsak Wongpanyathaworn, Team Executive Economic Research Division and his staff at the Bank of Thailand, the Northern Regional Office provided much appreciated statistical data. During the survey research in Thailand, Associate Professor Somchai Ratanakomut, Associate Professor Samart Chiasakul and Professor Pasuk Phongpaichit from the Faculty of Economics, Associate Professor Sakchai Kirinpanu and Dr Suwattana Thadanithi from the Faculty of Architecture, Chulalongkorn University, Dr Ramon C. Sevilla at Institute for Population and Social Research, Mahidol University, Dr Chana Kasipar from Asian University of Science and Technology, Dr Warin Wonghanchao, President of Socio-economic Consultants Co Ltd and Mr Somchai Achavanuntakul, President of Asian Engineering Consultants Corp Ltd provided me with very helpful suggestions. I very appreciate the discussion and advices of Associate Professor Preerasit Kumnun from the Faculty of Humanities and Sociology, Mr Veerapon Wongprasert from the School of Economics of Khon Kaen University, Mr Prasong Viriyavipart, former Executive Officer, Economic Research Division, Bank of Thailand, Northeastern Regional Office, and Mr Surachai Klangphranatara, Technical Industrial Officer of the Industrial Promotion Centre, Region 5. Further thanks go to academics and officers in Chiangmai province for their kind suggestions: Assistant Professor Vasant Siripool from Faculty of Economics, Assistant Professor Usdanka Porananond from Department of Geography, Mrs Suree

Boonyanupong, Researcher of the Social Research Institute of Chiangmai University and Mr Nopasit Chakpitak, former Deputy Director and his staff of the National Science and Technology Development Agency, the Northern Network Office. As well, I wish to thank Theeranun Bopan for her great assistance in collecting data in the field and Chantana Wattanasup for her kind support in the pilot study session, which I greatly appreciated. I would like to extend my sincere appreciation to the entrepreneurs, representatives of local government agencies, financial institutions and colleges as well as to the provincial chambers of commerce and federations of industry in the pilot study area and the four case study areas for their time and support in supplying the facts needed for my survey and for their influential connections to significant informants and access to data. During the process of writing this thesis, I gained great support from many of the staff of the Faculty of the Built Environment, UNSW. Among the academic staff I greatly appreciate the comments, encouragement and support of Professor Peter Murphy, Dr William Lawson, Associate Professor Robert Zehner, Associate Professor Robert Freestone, Professor Jon Lang, Professor Martin Loosemore, Dr Kevin Dunn and Dr Bruce Judd. Among the administrative staff I thank Eddy Ward, Harry Chambers, Edith Chu, Patricia Poynting, Margaret McInnes, Brian Newell, Jizelle Dabaghi, Keo Phetsaya and Kent Nguy for their assistance and kindness. Thanks also to Dr. Bronwyn Hanna, Gabi Duigu and Gillian Gillett for their editing of this thesis. I also thank Mr Thongleuan and Mrs Amphone Phongsavan for their translation of Laotian documents and moral support. I very much appreciate Dr Philayrath Phongsavan’s comments and suggestions on my draft thesis. Further thanks go to my Thai friends: Jaruwat Trinate, Daoroong Nindam, Chanrit Uawongkun, Suravat Eksuwan, Chanigarn Woottamee, Onchuma Meewongukote, Nalin Choonchuongchot, Akadate Ittiphakorn, Attasit Suwanlertwattana and Thaworn Umnuayraksakul for their computer assistance. I also extend my thanks to all my friends at the Faculty of the Built Environment, UNSW, especially Dr Cristina Martinez, Paul Hogben, Ayu Suartika, Sherman Heng, Xinling Chan, Phil Choi, Dewi Jayanti, Peggy James, David Rollinson and Eman Al Nakib for technical and moral support. Lastly, I would like to thank my late father and my mother for a profound insight into their experience of living in border towns and to my sister Orr, my brother Ti, my sister-in-law Ben, my brother-in-law Pee Noi, my nieces Nong Pear and Nong Jean and my nephew Nong Ten for their understanding, support and tolerance during the three years it took to complete my study. To them I dedicate this thesis.

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CONTENTS

Abstract in English and in Thai i

Acknowledgements ii

PART I: INTRODUCTION

Chapter 1: Introduction 1

1.1 Background of the research 1 1.2 Locational advantages approach 3 1.3 Research questions 7 1.4 Definition of terms 12 1.5 Scope and structure of the thesis 13

Chapter 2: Research method 16

2.1 Introduction 16 2.2 Comparative case study method 16 2.3 Methods of data collection and analysis 20 2.4 Methodological considerations 27 2.5 Summary 29

PART II: THEORETICAL FRAMEWORK

Chapter 3: Conventional theories of regional industrialisation and 30 cross border development

3.1 Introduction 30 3.2 Conventional theories of regional industrialisation and cross border development 31 3.3 Previous studies on industrial development in Thai border towns 40 3.4 Applicability of conventional theories to cross border development in Thailand 41 3.5 Conclusion 43

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Chapter 4: A conceptual framework 45

4.1 Introduction 45 4.2 Contemporary approaches to production networks 46 4.3 Research areas and significant planning issues for further study 53 4.4 A Conceptual framework for examining the dynamics of industrial development in border towns 55 4.5 Conclusion and thesis propositions 67

PART III: CONTEXT

Chapter 5: Border town development in Thailand 70

5.1 Introduction 70 5.2 The background to Thailand’s decentralisation and sponsorship of 71 border towns 5.3 The importance of industrialisation in economic decentralisation 73 5.4 Government policies and strategies for planned border towns 75 5.5 The characteristics of border towns and industries 83 5.6 Small and medium-sized manufacturing industries in Thailand 84 5.7 Conclusion 91

Chapter 6: Case studies of border towns 92

6.1 Introduction 92 6.2 The socio-economic background of the case studies 93 6.3 The industrial development of the case study towns: an overview 108 6.4 Conclusion 125

Chapter 7: The role of local government and the private sector 127

7.1 Introduction 127 7.2 The role of local government agencies in sponsored towns 128 7.3 The role of local government agencies in non-sponsored towns 135

7.4 The role of the local private sector in sponsored towns 138 7.5 The role of the local private sector in non-sponsored towns 141 7.6 Conclusion 143

PART IV: EMPIRICAL DATA AND ANALYSIS

Chapter 8: Dynamics of entrepreneurship in border towns 144

8.1 Introduction 144 8.2 Characteristics of industries in border towns 145 8.3 Criteria for establishing the factory 145 8.4 Growth and survival factors 151 8.5 Economic and social advantages/ disadvantages of locating in border towns 159 8.6 Case studies of industrial activities 164 8.7 Comparison between sponsored and non-sponsored towns 168 8.8 Comparison between case studies of north and northeast regions 172 8.8 Conclusion 173

Chapter 9: The regional embeddedness of border towns industries 175

9.1 Introduction 175 9.2 Vertical industrial linkages 176 9.3 Horizontal industrial linkages: clusters and networks of entrepreneurs 195 9.4 Comparison between sponsored and non-sponsored towns 203 9.5 Comparison between case studies in the north and northeast regions 210 9.6 Conclusion 211

Chapter 10: Policy and research implications 214

10.1 Introduction 214 10.2 Conclusions of the research 215 10.3 Implications for industrial development in border towns 220

10.4 Implications for cross border development 230 10.5 Implications for an assessment of government impact 233 10.6 Recommendations for future research 234 10.7 Final remarks 236

BIBLIOGRAPHY 239 APPENDICES 265 Appendix A: Details of research methods 265 Appendix A1: Analysis of selection of case studies and tables for sampling method 265 Appendix A2: Pre-test interview questionnaire of industrial entrepreneurs in English and Thai 275 Appendix A3: Questionnaire form of industrial entrepreneurs in English and Thai 281 Appendix A4: Interview guidelines for stakeholders in English and Thai 313 Appendix B: Summary of results from industrial entrepreneurs, compared by sponsorship 321 Appendix C: Summary of results from industrial entrepreneurs, compared by region 365 Appendix D: Summary of survey of stakeholders’ opinions 388 Appendix E: Border towns of the neighbouring countries 393

List of Tables:

1.1 Category of factories, defined by this thesis 13 2.1 Similar characteristics of selected case studies in the northeast 19 2.2 Similar characteristics of selected case studies in the north 20 2.3 Distribution by case studies surveyed, 2001 23 4.1 Significant analytic issues identified by the locational advantages approach and the production network approach 54 5.1 Share of gross regional product (at constant 1988 price) 72 5.2 Per capita income by region 72 5.3 Proportion of GDP Manufacturing classified by regions 75 5.3 Percentage of gross provincial product at constant 1988 prices of six border provinces 76 5.5 Manufacturing data of border towns and regional cities 85 5.6 Major characteristics of Thai entrepreneurs in provincial areas 87 6.1 Economic indicators of four case study provinces 100 6.2 Border trade volume and labour force of four case study provinces 104 6.3 Manufacturing data of border towns and regional cities 109 6.4 Manufacturing statistics of case study towns 111 6.5 Industrial structure of case study towns 117 7.1 Budget allocation per capita of case study provinces 129 7.2 Revenue and expenditure of municipality of case study towns 132 8.1 Economic reasons for establishing the factory 146 8.2 Social reasons for establishing the factory 147 8.3 Economic reasons for establishing a factory in the border town 148 8.4 Social reasons for establishing a factory in the border towns 148 8.5 Ways of gaining regular customers 153 8.6 Ways of knowing irregular customers 153 8.7 Main growth factors 156 8.8 Main factory strategies 157 8.9 Advantages of locating the factory in the border town 161 8.10 Disadvantages of locating the factory in the border town 162 9.1 Type of operations in relation to the business registration 178 9.2 Spatial supply and demand linkages of industries in border towns 182 9.3 Comparison of spatial supply and demand linkages between sponsored towns and non-sponsored towns 205

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9.4 Similarities and differences of regional embeddedness between sponsored and non-sponsored towns 212 10.1 Similarities and differences of industrial characteristics and dynamics in sponsored and non-sponsored towns 219 10.2 Discrepancy between government programmes assumptions and industrial dynamics in Thai border towns 223 10.3 Summary of the dynamics of industrial development in border towns: Case studies of Thailand 237

List of Maps:

Map 1: Major border town targeted by the National Economic and Social Development Board, 1997 2 Map 2: Case studies in the north: Mae Sai and Mae Sot border areas 5 Map 3:Case studies in the northeast: Nakhon Phanom and Mukdahan border areas 6 Map 4: Route No.9, Road network linking Thailand at Mukdahan to Vietnam 94 Map 5: Route No.8, Road network linking Thailand at Nakhon Phanom to Vietnam 97

List of Photos:

Photo 1 Large-scale shopping plaza and three hundred commercial buildings, sixty-four retail shops at Chong Mek border town, bordering Laos. 79 Photo 2 New international bridge and border checkpoint at Mae Sot, liking Myanmar border towns. 83 Photo 3 Examples of labour-intensive and technology-intensive industries 122 Photo 4 Examples of handicraft industries 124

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List of Diagrams: Diagram 4.1 Factors driving entrepreneurship and cross border economic relationship 57 Diagram 4.2 A conceptual framework for examining the dynamics of industrial development in border towns 59 Diagram 4.3 Forms of entrepreneurial interconnections across borders 61 Diagram 6.1 Conceptual framework map of East-West Economic corridor development, from Myanmar (at the west) to Vietnam (at the east) 95 Diagram 9.1 Competition market areas 189 Diagram 9.2 Production subcontracting linkages in border towns 192

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List of Abbreviations:

ADB: Asian Development Bank APEC: Asia-Pacific Economic Cooperation ASEAN: Association of Southeast Asian Nations BMR: Bangkok Metropolitan Region BOI: Board of Investment, Thailand CUCU: Chula Unisearch Chulalongkorn University CUSRI: Chulalongkorn University Social Research Institute EU Commission: European Commission ESCAP: Economic and Social Commission for Asia and the Pacific FDI: Foreign Direct Investment GDP: Gross Domestic Product GMS: Greater Mekong Sub-region program GPP: Gross Provincial Product GRP: Gross Regional Product GSP: Generalized System of Preferences IFCT: Industrial Finance Corporation of Thailand JPPCC: Joint Public and Private Sector Consultative Committee MOI: Ministry of Interior NEM: New Economic Mechanism policy NESDB: National Economic and Social Development Board NIC: Newly Industrializing Countries SIFC: Small and Medium Industrial Finance Corporation of Thailand SIJORI: Singapore–Johor–Riau Triangle Program SME: Small and Medium sized Enterprises TBC: Township Border Committee TDRI: Thailand Development Research Institute TISTR: Thailand Institute of Scientific and Technological Research Thai Baht: Unit of Thai Currency AUD$1 = 21.32 Thai Baht UN: United Nations WTO: World Trade Organization

Chapter 1

Introduction

This thesis investigates the contemporary dynamics of industrial development in the areas where Thailand borders neighbouring countries (Map 1). Industrial development is generally the leading sector of economic growth in border areas such as the US-Mexico border development (Herzog, 1991), the Hong Kong and Shenzhen region, the Pearl River Delta (Chan, 1998) and the Tumen River Development Zone (Karl et al, 1998). In Thailand's border areas industrial development comes third, after the agriculture and trade sectors, when measured in gross provincial product (NESDB, 2002). Scholars of economic development suggest that the success of the locational advantages approach for industrial development in border areas depends on social and economic connections, government investment policies and the role of export- oriented multinational companies (Chen, 1995; van Grunsven et al, 1995; Chan, 1998; Romsa et al, 1998). The aim of this thesis is to examine how this approach applies to industrial development in Thai border towns, and to identify the factors contributing to and hindering the establishment and growth of industrial development in border towns. The factors, that are crucial to Thailand’s border towns are: the impact of government policies, the role of small and medium sized manufacturing industries, social factors and networks associated with entrepreneurship. This introductory chapter outlines the research background, research questions, the aims and the structure and scope of the thesis.

1. 1 Background of the research

There is widespread international concern about the unequal spatial distribution of economic growth in developing countries (NESDB, 1997; Poppe, 1998; Bird et al, 1999). Many planners and scholars have argued that decentralisation policy can make an important impact on the development of regional cities and peripheral areas. Decentralisation policy has generally been found to affect employment generation, industrial development and regional development (Rondinelli et al, 1983; Rondinelli, 1990; Poppe, 1998; Bird et al, 1999). Since the late 1980s, the development of border towns and cross border regions in Asian countries has been promoted as a

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(Not to scale)

Major border towns targeted by the National Economic and Social Development Board, 1997

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mechanism for decentralisation and as a stimulus for economic cooperation with neighbouring countries (ADB, 1993; NESDB, 1997; Wu, 1998). Governments’ role in implementation has been acknowledged as having a major influence on the success of the development (van Grunsven et al, 1995; Tse et al, 1997; Scott, 1999). A significant part of decentralisation strategy relies on industrial development to accelerate the economic growth of border towns. Industries located on borders are understood to attract investors because of the differences in price, wage levels, the quality and availability of goods and services. The similarities in culture, traditions, dialects and religions through kinship, clan and ethnic connections between the two countries can also increase business benefits and promote industrial linkages (van Grunsven et al, 1995; Clement, 1997; Thant et al, 1998; Wu, 1998). Responding to these possibilities, government agencies have designed a variety of projects, often in conjunction with bilateral or multilateral agencies, to promote export-oriented, multinational enterprises as key agents of industrial development in border towns. With their substantial resources for capital investment and their potential for foreign currency earnings, these companies have the potential to generate extensive employment with multiplier effects on associated small and medium sized manufacturing industries. In sum, this aid generates local and national economic growth (ADB, 1993; Tierney & Partners Pty Ltd, 1994).

1.2 Locational advantages approach The theory of regional industrialisation that encourages such development is called the ‘locational advantages approach’. It assumes that the economic advantages of border location combine positively with the economic potential of large-scale and multinational enterprises and with the impact of government investments and measures. This theory has been effectively deployed in the free economic zones in China, Taiwan, Singapore-Johor-Riau Growth Triangle and Mexico (Chen, 1995; van Grunsven et al, 1995; Romsa et al, 1998). Since the mid 1970s, the Thai government has also promoted the industrial development of border towns as a mechanism for decentralisation and as a stimulus for cross-border development with neighbouring countries (Office of the Secretary for Ministry of Interior, 1993; International Consultancy Network Co, Ltd, 1996; NESDB, 1997). The Thai government, like that of many other industrialising countries, is concerned about the “over-concentration” of development in and around its capital city. It has developed and implemented a number of policies aimed to relocate industry and urban growth away from Bangkok, towards regional centres and peripheral areas of the

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country (NESDB, 1987; NESDB, 1992; NESDB, 1997). Border towns were focused on their potential role as new centres of economic activities and as ‘economic bridges’ linking Thailand with neighbouring countries (NESDB, 1997). Bilateral and multilateral funding agencies such as the Asian Development Bank (ADB) have also favoured the development of peripheral areas including border towns (Tierney & Partners Pty Ltd, 1994; ADB, 1996; GIBB Ltd. et al, 1998; Thant et al, 1998). In addition, the Thai government has joined with the governments of neighbouring countries in developing two sub-regional cooperation programmes: the Greater Mekong Sub-region1 Programme in 1992, and the Indonesia-Malaysia- Thailand-Growth Triangle Programme in 19932. These cooperative programmes have focused on facilitating and enhancing trade flows, improving the investment climate and increasing the standard of living of the population in the sub-regions. High priority projects and programmes, such as cross border road planning and implementation, and policy development around regulatory barriers to borders are now taking place (ADB, 1998; Thant et al, 1998). With the progress of sub-regional cooperation projects both ongoing and planned, it is expected that the pace of development in border towns will accelerate. The Thai government has taken a leading role in implementing industrial development in border areas through a number of programmes, including special, large-scale projects addressing transport networks and public utilities (GIBB Ltd. et al, 1998). Several border towns have been selected as the focus for government investments and other measures (Office of the Secretary for the Ministry of Interior, 1993; International Consultancy Network Co Ltd, 1996; NESDB, 1998). In this thesis, the towns of Mukdahan (in the northeast, bordering Laos) and Mae Sot (in the north, bordering Myanmar) are identified as “sponsored towns” that have received considerable support and encouragement from the central government (Map 2; Map 3). The towns of Nakhon Phanom (in the northeast, neighbouring Laos) and Mae Sai (in the north, on the border with Myanmar) have not received this level of government sponsorship and are classified as “non-sponsored” towns (Map 2; Map 3). Secondary data found during this research, such as the number of factories, size of capital investment and employment generation in border towns seem to point to

1 Greater Mekong Sub-region (GMS) is an economic cooperation between the six countries linked by the Mekong river: Thailand, Laos PDR, Cambodia, Myanmar, China (Yunnan Province), and Vietnam. Seven major sectors of cooperation are identified: (i) transport, (ii) energy, (iii) telecommunication, (iv) environment, (v) human resources, (vi) trade and investment, and (vii) tourism (ADB, 1998).

2 In this thesis, cooperation programmes between Thailand and neighbouring countries are called “Southeast sub-region cooperation programmes”, referring to the sub-region cooperation programmes of the Asian Development Bank.

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Case study town

(Not to scale)

Case study town

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Vinh

Da Nang

Case study town (Not to scale)

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the success of the favourable locational advantages approach, justifying government investments and measures (International Consultancy Network Co, Ltd, 1996; ADB Study Team, 2000). For example, manufacturing data collected between 1993 and 2000 by the Thai Department of Industrial Works show that a number of factories in the sponsored town of Mae Sot generated rapid growth in employment, at forty-five per cent per annum. While employment growth in the non-sponsored town of Mae Sai was admittedly still substantial, it was only half the rate of Mae Sot: twenty-four per cent annually (Department of Industrial Work, 2001). Many policy planners and international agencies have argued from the macro perspective that there are benefits in developing industry in border towns, and especially in sponsored towns (International Consultancy Network Co, Ltd, 1996; ADB Study Team, 2000). Key economic indicators include the gross provincial product, the size of the labour force, provincial per capita income, and evidence of linkages to local raw materials such as agricultural products and mineral resources. Thus, the growth rate of Mukdahan province was almost double that of its own region during Thailand’s economic booms in the early 1990 (NESDB, 1998). The industrial sector of Tak province, which includes the border town of Mae Sot, boasts a forty per cent share of gross provincial product (NESDB, 1998). The industrial development of border towns in neighbouring countries is also used to justify for sponsoring the growth of industrial development in Thai border towns (Mukdahan Provincial Office, 2000; ADB Study Team, 2001; International Development Centre of Japan et al, 2001). For example, Savannakhet is Laos’ s second largest region of foreign direct investment and industry, neighbouring Mukdahan, Thailand’s sponsored town. The economic development of central Vietnam, including five industrial estates and the upgrading of a deep seaport, is also expected to enhance cross border business linkages to Thailand at Mukdahan (via Laos’ s Savannakhet) (ADB Study Team, 2000; International Development Centre of Japan et al, 2001).

1.3 Research questions Despite these convincing arguments for the locational advantages approach, there are still doubts about whether it explains all successful industrial development in border areas (Lee, 1998; MacLachlan et al, 1998; Stryjakiewicz, 1998; Wu, 1998; Nijkamp, 2000). There are also doubts about whether this approach is applicable to Thai border towns. There is uncertainty over how much benefit industries in border towns gain from government investments and measures (Maillat, 1992; Bertram, 1998; Grundy-Warr et al, 1998; Ho, 1999; Wu, 1999) and how other factors influence the

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industrial development in these towns (van Houtum, 1997; Maneepong et al, 1999). These doubts give rise to a series of research questions, expanded below. Firstly, the locational advantages approach has been the centre of many debates. The question for this thesis is not whether policies supporting the industrial development in border towns are right or wrong, but whether they are applicable, feasible and effective in Thai border towns. The locational advantages approach is limited by several assumptions, and furthermore, constrained by central assumptions about the state apparatus (Wu, 1998; Nijkamp, 2000). The most crucial disadvantage is that it is costly and requires large capital resources. An example is the Tumen River development in northeast Asia (Wu, 1998). Lee (1998) has highlighted the poor economic performance, geographical constraints and military tensions in the Tumen River area as immediate problems hindering the success of long-term preparation by government and international agencies. In the Maquiladoras, MacLachlan et al (1998) reports that the growth of large, export-oriented industries has not promoted backward linkages to the Mexican economy, but has increased Mexican dependence on imported materials from the US. In response to such critiques, Stryjakiewicz (1998) and Wu (1998) recommend that industrial development in cross border regions should utilise local endowments and preserve local natural resources and local environment. Examples include cottage industries relying on indigenous materials and the informal sector. In low and medium income countries like Thailand, the typical local economic structure consists mainly of micro, small and medium sized enterprises, with relatively few large-scale enterprises. According to the Bangkok Bank, small and medium sized enterprises accounted for ninety-two per cent of the total number of enterprises in Thailand in 1998 (Sevilla et al, 2000). GIBB Ltd et al (1998) confirms that this emphasis on small businesses exists in eleven Thai border towns in five regions. The International Development Centre of Japan et al (2001) also reports a majority of small and medium sized manufacturing industries operating in two border provinces in the northeast, Thailand. Industrial data from 1993 to 2000 show that the growth pattern of factories in sponsored towns indicates a stagnant and declining trend in small and medium sized manufacturing industries, even before the economic crisis in 1997 (Department of Industrial Work, 2001). By comparison, continuous growth of small and medium sized manufacturing industries is a major feature of industrial development in non-sponsored towns. Thus, this industrial structure favouring small and medium sized manufacturing industries may not thrive under the locational advantages approach.

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So far, policy makers have shown little interest in the question of whether the locational advantages approach is appropriate to industrial development in Thai border towns. Only TDRI (1991) and the International Development Centre of Japan et al (2001) studies have examined the effects of economic factors on industrial development in border regions and how they differ from other regional areas. Furthermore, little attention has been paid to the advantages or disadvantages of Thai border industries or to the problems and constraints they face. Secondly, there has not been a thorough evaluation of the impact of Thai government investment and policy measures aimed at promoting the industrial development in border towns. Previous studies have researched border towns in relation to development policy issues, but these have usually been commissioned by, or for, Thai central government agencies. Furthermore, they generally follow the fundamental assumptions of the central government such as the role of large scale, multinational enterprises. Moreover, most of the assessment and evaluation reports investigate successes and failures in the industrial development by focusing on local entrepreneurs and local government agencies. These government-commissioned studies and analyses identify the main problems in terms of the low capacity and short- term vision of local entrepreneurs (GIBB Ltd et al, 1999) and a lack of efficient border networks and facilities (Noijaibon, 1993; Dumrong Rachanupab Institute et al, 1997; GIBB Ltd. et al, 1999; PAL Consultants Co. Ltd. (Thailand), 2001). Other significant problems include security and sovereignty problems between Thailand and neighbouring countries (NESDB, 1998) and negative attitudes and antitrust practices found in Thai investors (Sriwanthana, 1990; Waiyaratpanich, 1995; Provincial Office of Commerce of Mukdahan, 1996; Ministry of Commerce, 2000). By contrast, Maillat (1992), Grundy-Warr et al (1998) and Bertram (1998) have highlighted the limitations of local institutional and political arrangements when it comes to efficiently attracting economic activities and sustaining development growth in border regions. Maillat (1992) has also identified differences in regulation and the effects of competition as key constraints to the industrial cooperation programme in the border region of France and Switzerland. Bertram (1998) finds that the German-Polish border development under the Phare programme3 of the EU Commission cannot attract investors because core regions such as Warsaw and Berlin are dominant and drain border region resources including labour. Wu (1999) has argued that

3 The Phare programme is one of the three pre-accession supports of the European Communities to assist the central European countries with their preparations for joining the European Union (European Commission, 2002).

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government investment is not necessarily the key factor in successful cross border development. Other important economic factors include institutions to manage cross border development and the presence of a nearby growth-centre. The availability of local resources is also found to promote economic growth. Some studies have found that the ‘production network approach’, emphasising a complexity of social factors including the social networks of entrepreneurs, has contributed to the success of the industrial development (Lorenz, 1991; Larson, 1992; Özcan, 1995; van Houtum, 1997; Maneepong et al, 1999; Meyer-Stamer, 1999). Thai studies also highlight the influence of social factors in developing regional industrialisation, such as the commitment of entrepreneurs to their hometown development, the advantages of information sharing, and the financial support of networks of entrepreneurs via dialect groups and kinship connections, especially Thai Chinese entrepreneurs (Ueda, 1995; Ministry of Industry et al, 1997; Seung et al, 1997; Pyatt et al, 2000). This is discussed further in Chapter 4. These studies still tend to discuss social and economic factors separately, yet these two factors are closely linked because most entrepreneurs cannot operate their businesses without the support of social connections and institutionalised structures (Lorenz, 1991; Larson, 1992; Upadhya et al, 1997). Therefore, this thesis critically examines broader issues including the economic and social factors that contribute to and hinder the industrial development in border towns. In border areas, some important issues concerning the dynamics of entrepreneurs and local industries have not been researched, such as how social factors compensate for economic disadvantages or give economic advantages to industries. Also, most recent studies tend to focus on either the start-up stage of small and medium sized manufacturing industries, or their growth patterns, to determine the key factors influencing decision-making for their establishment, or other factors affecting industrial growth. An understanding of the dynamics of regional embeddedness4 cannot be gained from the study of just one isolated stage of development. It is important to integrate these two significant stages in order to understand the dynamics of regional embeddedness.

4 In this thesis, regional embeddedness of industries is defined as the relationship of industries with their competitors, customers, suppliers and public organisations within a region (Harrison, 1992; Markusen, 1994; Yeung et al, 2000).

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To fill this gap, this thesis considers these issues and focuses on three research areas: 1. An investigation of the current characteristics and dynamics of the industrial development in relation to the applicability of the locational advantages approach to Thai border towns; 2. An assessment of the Thai government’s role in promoting and managing industrial development in border towns, partly based on an examination of assumptions underlying government policies and 3. An examination of other factors that contribute to and hinder the success of border town industrial development in Thai border towns.

The three main research questions of this thesis are: 1. What theory best explains the dynamics of industrial development in border towns? 1.1 To what extent does the ‘locational advantages approach’ apply to Thai border towns? 1.2 To what extent does the ‘production network approach’ apply to Thai border towns? 2 To what extent do the industries in border towns benefit from government investments and measures? 3 What other factors contribute to and hinder industrial establishment and growth in border towns, and how?

This thesis addresses these questions at three levels: theoretical, methodological and practical. At the theoretical level, the thesis explores contemporary cross border and regional development theories. Previous research has focused on locational advantage; the dominance of large scale, multinational enterprises, and government interventions, thus disregarding the role of small and medium sized manufacturing industries. This thesis emphasises the role of small and medium sized manufacturing industries, and also focuses on the importance of social factors for industrial development in border areas in Thailand — factors that have been largely ignored by other research. As well, the thesis identifies the relationships between economic and social factors that contribute to the industrial development in border towns. It is also important to compare the similarities and differences between the dynamics of industrial development in other Thai provincial areas.

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Few decentralisation and government investment studies have closely compared those developments that were planned and sponsored by central government or international agencies with those that did not have such sponsorship. At the methodological level, this thesis provides a comparative assessment that provides a better understanding of the impact of government investments and measures. At a practical level, this analysis of the applicability of the locational advantages approach to industrial development in Thai border towns offers a realistic view of what that approach can achieve. The thesis reveals the impact of government investments and measures and makes a more thorough evaluation of the extent to which government investment and policy measures enhance the industrial development. This thesis helps to answer the question of what the government and international aid agencies need to do to promote this development.

1.4 Definition of terms To avoid ambiguity, it is necessary to define the terms used for border towns and the size of the manufacturing industries being analysed. According to the Thai Department of Local Administration, Ministry of Interior and the Armed Forces, border towns in Thailand are defined by geographical boundaries and national territoriality, as being adjacent to the neighbouring countries of Malaysia, Myanmar, Laos and Cambodia (Dumrong Rachanupab Institute et al, 1997). In this thesis, border towns are defined by district administration boundaries, not provincial boundaries. For example, Mukdahan and Nakhon Phanom border towns are defined as being part of the Muang (city centre) district. They are not defined as the Mukdahan and Nakhon Phanom provinces since most border activities are agglomerated in the Muang district (Asian Engineering Consultant Corp. et al, 1998; Savan, 1998; Provincial Office of Commerce of Nakhon Phanom, 2000). Mae Sot and Mae Sai border towns are defined as the districts of Mae Sot and Mae Sai, rather than as Tak or Chiangrai provinces. This is because these two districts are the focus of border trade and industrial development in these provinces in relation to cross border development (Asian Engineering Consultant Corp. et al, 1998; Harintornvech, 1998; Team Consulting Engineering and Management et al, 1998). The category of factory size in this thesis is not defined by the method used by the Department of Industrial Works, the Department of Industrial Promotion and Advanced Group (Advanced Group, 1997). They have been redefined because, according to the statistical data of the Department of Industrial Works from 1993 to

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2000, most rural industries consist of micro, small and medium sized manufacturing. Table 1.1 shows the five categories of industries defined in this thesis: (i) a micro factory, (ii) a small sized factory, (iii) a small-to-medium sized factory, (iv) a medium sized factory, and (v) a large-scale factory.

Table 1.1: Category of Factories, defined by this thesis

Number of Capital investment Machinery Category workers (AUD$) horsepower Micro 0-9 Less than 47,000 Less than 10 Small 10-20 47,000-470,000 10-20 Small-to-medium 21-50 480,000-2,340,000 21-50 Medium 51-200 2,350,000-4,700,000 51-100 Large More than 200 More than 4,700,000 More than 100

Source: Maneepong, 2002

Entrepreneurship is defined here as the personal characteristic of entrepreneurs. One school of thought that analyses psychological characteristics suggests that entrepreneurs behave in accordance with typical, specific values and attitudes (Cunningham et al, 1991). Three personality characteristics include: (i) personal values such as honesty, duty, responsibility, and ethical behaviour, (ii) a propensity for risk-taking, and (iii) a need for achievement (Cunningham et al, 1991; Loh et al, 1998; Anisya et al, 2000; Ha, 2000). This thesis adopts this definition as suitable for assessing entrepreneurs and their behaviour (Cunningham et al, 1991). Grabher (1993,4) defines ‘embeddedness’ as ways in which economic development is affected ‘by actors’ relations and by the structure of overall networks of relations. In this thesis, the regional embeddedness of industries in border towns refers to the network of relationships between border town industries and their competitors, customers, suppliers and public organisations within the geographical regions in which they operate (Harrison, 1992; Markusen, 1994; Yeung et al, 2000).

1.5 Scope and structure of the thesis A comparative case study approach is used to investigate the dynamics of the industrial development in border towns and to assess the impact of government policy. Four case studies have been chosen: the two ‘sponsored towns’ of Mukdahan, in the northeast; and Mae Sot, in the north; and the two ‘non-sponsored towns’ of Nakhon

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Phanom, in the northeast; and Mae Sai, in the north. The selection criteria are discussed in Chapter 2. The main technique for collecting the case studies data is to interview entrepreneurs and local government representatives. Representatives of private, educational and financial agencies were also interviewed. Cross border and industrial development in case study areas was also observed. The detailed research method is presented in Chapter 2. This thesis focuses on formal and registered factories, although it acknowledges that informal and unregistered factories are also important to local economies. Nevertheless, there is no reliable source of information about the number of unregistered firms. As well, national, provincial and local officers cannot provide the figure of these firms. Therefore, due to time and resource constraints, these industries and associated criminal economies are excluded here. Unregistered industries, such as subcontracting and household workplaces that are directly related to formal and registered factories, are included. The thesis is organised into four parts. Part 1 is an introduction to the thesis framework and method. Within this part, Chapter 2 describes the research method. The Part 2 sets out the theoretical framework. Chapter 3 reviews conventional theories of regional industrialisation including regional growth poles, locational advantages, the international division of labour, and comparative advantage theories and their contribution to cross border development. The review also identifies development assumptions in these theories and what they consider to be significant factors in the mechanisms of development. Critiques of these theorists by contemporary theories are discussed, to identify their weaknesses. Chapter 4 discusses the conceptual framework for examining industrial development in Thai border towns. Key concepts and factors contributing to the success of the industrial development are identified by applying contemporary theories of production networking such as the economics of small firms and business survival strategies, flexible specialisation, and the international networks approach. Part 3 links the conceptual framework to the case studies. Chapter 5 presents the background of border town development in Thailand. It discusses the adaptation of Thailand’s approach to development by analysing policy assumptions and implementation. Chapter 6 introduces the urban setting and analyses industrial development in the four case studies. Chapter 7 discusses the role and contributions of local government and the private sector. Part 4 analyses the main research questions concerning whether the locational advantages approach is applicable to Thai border towns. The impacts of government

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investment and policy measures are also assessed. Other significant factors contributing to the industrial development are examined. The analysis emphasises the dynamics of entrepreneurship and the regional embeddedness of industries in border towns. Chapter 8 identifies factors that influence the decision to establish industries and that affect industrial growth. It also identifies the economic and social advantages of locating them in border towns. Chapter 9 analyses the vertical and horizontal relationships of these industries. In these two chapters, a comparison between sponsored and non-sponsored towns is used to indicate the similarities and differences in their development. The impacts of government investments and policy measures are also assessed here. Chapter 10 describes the policy implications of the research and offers recommendations for future research. The detail of research method is presented in the following chapter. A comparative case studies approach highlights the major method of this thesis. The procedure and sampling of data collection are illustrated. Data analysis and methodological considerations are also discussed.

The thesis files containing Chapter 2 to Chapter 9 are restricted. Chapter 10

Policy and research implications

This final chapter presents research conclusions, then discusses the policy and research implications for three issues: industrial development in border towns, cross border development, and an assessment of government impact. The last section offers recommendations for future research.

10.1 Introduction Since the mid 1970s the Thai government has attempted to attack the excessive concentration of economic activities in Bangkok Metropolitan Region and interregional income disparities. Thailand’s decentralisation policies have been pursued to stimulate economic development in regional cities. Border towns are considered as one of the best target areas to support these policies because of low production costs and export potential. The policy objective is to raise the social and economic conditions of border towns and to strengthen their economic cooperation with the neighbouring countries. A significant aspect of the strategy is industrial development. Offering economic incentives is assumed to be the best way to promote economic development. The Thai government has also selected a number of border towns, identified in this thesis as ‘sponsored towns’, where incentives are available to attract capital-intensive and labour-intensive manufacturing plants. Most government reports and previous studies have been based on an internal assessment of those programmes and have concluded that industrial development in border towns is successful due to the short-term outcomes. Major indicators of the outcomes include the number of factories, the amount of labour and investment, and macro economic indicators such as the growth of the industrial sector in terms of gross provincial products (TDRI, 1991; GIBB Ltd. et al, 1999; ADB Study Team, 2000). This thesis examines the dynamics of industrial development in Thai border towns to investigate how well these cited studies apply to these towns. Furthermore, it focuses on the impact of government investments and policy measures, to evaluate industrial decentralisation policy. The comparison between sponsored and non- sponsored towns provides the basis for this assessment. The comparison between the case studies in the northeast region and those in the north region is supplementary, as

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shown in Appendix C. The thesis also identifies other factors that contribute to the success of industrial development in border towns. The conclusions of the research are drawn from interviews and secondary data. Four case studies form the basis of a discussion of the research implications for industrial development in border towns, for cross border development, and for an assessment of government impact and policy implications. Recommendations for future research reflect significant issues of concern.

10.2 Conclusions of the research Previous research on the industrial development of sponsored towns has found that they have grown. Therefore, it is concluded that the locational advantage approach is appropriate (TDRI, 1991; ADB Study Team, 2000). This thesis investigates the dynamics of industrial development and compares sponsored towns with non-sponsored towns. The conclusions focus on five main issues: (i) What produces entrepreneurs and how they operate — entrepreneurship and social networks of entrepreneurs, (ii) The linkages between entrepreneurs — horizontal industrial relationships, (iii) The significance of border location — advantages, (iv) The impact of government investments and measures, and (v) Similarities and differences between the industrial dynamics of sponsored and non-sponsored towns.

10.2.1 Entrepreneurship and social networks of entrepreneurs Social position and networks significantly influence the emergence and growth of entrepreneurs in border towns. The interviews show that these factors influence industrial start-up, entry mode, business management, growth and survival and economic and social factors of locating in border towns (see Chapter 8). Contrary to the locational advantage and international division of labour theories, the conventional factor of production cost, especially cheap labour, does not generally influence the industrial development and growth of border towns. This thesis argues that both economic and social factors are important for entrepreneurs establishing and operating their enterprises in Thai border towns.

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The industries in border towns share similar features with Thai industries in other cities. For example, Laosuthorn (1987), Panpiemras (1988), Simon (1994) and Ministry of Industry et al (1997) emphasise that entrepreneurs are crucial to rural industrialisation since most government investments and measures fail to attract outside investors. Social factors identified in those studies focus on commitment and social status in the home towns of the entrepreneurs. In border towns the research findings indicate other significant social factors, especially the support of relatives and friends for capital investment, factory land and business networks and having a locally born spouse.

10.2.2 Horizontal industrial relationship Due to limited resources and access, small and medium sized manufacturing industries in border towns necessitate both vertical and horizontal industrial linkages. The horizontal linkages are more important for these industries than the vertical linkages. Most enterprises are independent operations and sell directly to customers. The horizontal industrial relationships provide important sources of information, business cooperation and financial support. Other advantages of the entrepreneurs’ connections and industrial clusters in the study areas include creating specialised functions, providing economies through a mass reserve of workers and craftspeople, and providing a supportive environment (see Section 9.3). Therefore, in contrast to the growth poles theory, the conclusions of this thesis emphasise the importance of the horizontal relationship among small and medium sized manufacturing industries in border towns. However, the intensive competition in the same sector is one disadvantage of the horizontal relationship. In other Thai provinces as well, Panpiemras (1988), Ueda (1995), Seung et al (1997) Unger (1998) and Pyatt et al (2000) identify the advantages of the local entrepreneurs’ connections of common native places, surname and dialect groups, especially among Thai Chinese business people. These networks compensate for marginal access to formal financial, information and business opportunities of local entrepreneurs. This thesis does not classify the interviewees by their ethnic groups, kinship, places of origin, surname or dialect groups, but the finding is similar. Therefore, it implies that the entrepreneurship and social networks of entrepreneurs in border towns are not necessarily limited to social groups.

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10.2.3 Advantages of border location The international division of labour and the comparative advantage theories highlight the differential factor prices and differential relative return as advantages of cross border investment (Dunning, 1981; Buckley et al, 1985). In contrast, research by the Stockholm School of Economics argues that cross border economic relationships depend on the networks of entrepreneurs (Granovetter, 1985; Johanson et al, 1994). Researches by van Houtum (1997) on the border regions of the Netherlands and Belgium and by Kolossov (1998) on the border regions of Russia and the Ukraine find that even though both areas have similar local culture, traditions, dialects and cultural expectations, similar rules and conventions are needed for a successful relationship. Several Thai studies have confirmed that negative attitudes held by both countries are mainly responsible for hindering mutual cooperation (Sriwanthana, 1990; Waiyaratpanich, 1995). Negative perceptions and regulatory barriers to border crossing have also been confirmed by this thesis. Only five per cent of industries in the studied areas cooperate over market and raw materials with the neighbouring countries, and more than half the respondents show no interest in cooperating with the neighbouring countries. They identify the differences in rules and regulations of the two countries and the lack of confidence between Thai and the neighbouring countries’ business people as major hindrances. This thesis therefore suggests that the social and economic advantages of border location do not inevitably contribute to the success of industrial linkages.

10.2.4 Impact of government investments and measures The survey taken for this thesis shows the limited impact of government incentives. Only one percent of all interviewees consider them as a main economic factor involved in establishing their factories in border towns, and only a few factories were granted investment privileges, as most factories in border towns are not export- oriented. Even though these industries are eligible to receive the maximum benefit of investment privileges, they tend not to apply for them. This suggests that the government incentives have made only a minor impact, and none at all on transportation — the major problem faced by border town entrepreneurs. Eighty per cent of enterprises are also suffering from both inadequate and unreliable electricity and water supply. The interviewees’ expectations of any government investment in these areas are limited. It is notable that few business people indicate insufficient social services, government services and financial resources as disadvantages

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because they have used their own assets for capital investment, labour training, technology, marketing and raw materials. As a result, this thesis concludes that government investments and measures exert only a marginal influence on industrial establishment and growth in border towns.

10.2.5 Similarities and differences of industrial dynamics The industrial dynamics of sponsored and non-sponsored towns share two common important features: strong entrepreneurship and social networks (Table 10.1). In both types of towns, entrepreneurs with marginal government support and incentives are highly important to industrial development and growth because they rely on their own finance, technology, raw materials and markets. Their social networks produce business linkages and compensate for limited access and resources in border towns. Industrial linkages also create specialised clusters, economies of mass labour, reserves of craftspeople and a supportive environment for new entrants. In detail, differences in social background and entrepreneurship account for the different dynamics of industrial development in sponsored and non-sponsored towns (Table 10.1). With government incentives and investments, about a quarter of factories in sponsored towns have been persuaded to relocate there because of government incentives and investments. Therefore the percentage of large-scale industries owned by non-locally born entrepreneurs in these towns is higher than that in non-sponsored towns. These mass producers tend to manage their business in a market-driven and business operation style. By contrast, in non-sponsored towns, due to the limited resources of entrepreneurs and their friends and relatives, half the surveyed enterprises are micro or small sized manufacturing industries, mostly handicraft and niche enterprises derived from skills acquired during apprenticeship and experience, and operated independently. In contrast to sponsored towns, the higher local resource endowment and social connections occur in non-sponsored towns, where more indigenous micro and small sized manufacturing industries have been established. The market-driven and business-oriented operations of large and medium sized manufacturing industries in sponsored towns promote wider markets for businesses than is possible for the family- managed small and medium sized enterprises in non-sponsored towns.

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Table 10.1: Similarities and differences between industrial characteristics and dynamics in sponsored and non-sponsored towns

Industrial characteristics and Sponsored towns Non-sponsored towns dynamics (a) Entrepreneurship Strong Strong (b) Social networks of Strong Strong entrepreneurs (c) Business size Large/small Small/medium (d) Business establishment Market-driven Expertise-based (e) Ownership Many non-locally-born Mainly locally-born people people (f) Operation types Increasing supporting Mostly independent and subcontracting industries industries (g) Local resources and Low High connections (h) Industry types More non-indigenous More indigenous (i) Market areas Mainly international and Mainly local and regional national markets markets (j) Vertical industrial linkages High Low (k) Horizontal industrial High Low linkages

Source: Maneepong, 2002

There are noticeable differences in the regional embeddedness of the industries that have developed in these two types of border towns. Owing to the more diverse types of industries in sponsored towns, a greater variety of vertical linkages, especially with Bangkok is apparent there. The diversity of industries in sponsored towns also produces denser horizontal industrial linkages than are found in non- sponsored towns. The leading roles taken by local government and the local private sector in non-sponsored towns, as compared to sponsored towns, has led to more positive attitudes to and cooperation with these two sectors.

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10.2.6 Applicability of the flexible specialisation theory Because of the limited resources and diversity of industries, industries in border towns represent only certain features of flexible specialisation with regard to skilled and flexible labour, rapid adjustment to shifting international demand, product quality, and restricted competition over wages and work conditions. Other significant features of flexible specialisation theory include applying the latest flexible technology, high levels of competitive innovation, inter-firm specialisation for great efficiency, and enabling a regulatory environment — but these are not found in industries in border towns. Since these industries can afford only low technology, about half of them create and produce their own designs according to the product standard, and use their own brand name. Their workforce is dominated by semi-skilled labour (77.16% of total respondents). Inter-firm linkages are limited to the only occasional sharing of raw material, transportation and information. Therefore, this thesis concludes that the flexible specialisation theory is not suitable for analysing the dynamics of industrial development in northeast and north border towns in Thailand.

10.3 Implications for industrial development in border towns The discussion of the approach to industrial development in border towns found in Chapters 3 and 4 can now be applied to border towns in Thailand. A conventional approach to industrial development in border towns is that industries gain more advantages from production cost differences between two countries. In particular, the export-oriented large-scale and multinational enterprises that have high capacity, capital investment and potential foreign currency earnings and can generate the multiplier effect in the local economy are considered to be key factors. Therefore, government investments and measures are important means of attracting these businesses and promoting industrial development in border towns (ADB, 1993; Tierney & Partner Pty., Ltd, 1994; Chen, 1995; van Grunsven et al, 1995; Romsa et al, 1998). However, Wu (1998) and Stryjakiewicz (1998) propose that the rationale for industrial development in border towns does not just depend on these conventionally recognised advantages because there are also other benefits: cottage industries and informal sectors can utilise local endowments and preserve local natural resources and environments, for example.

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10.3.1 The development approach to industrial development in border towns The conventional approach to border towns in Thailand has a limited applicability because the establishment and growth of industry there has not depended on assumptions about the advantages about border location, government investment policy and the role of export-oriented large-scale and multinational enterprises. The embeddedness of small and medium-sized industries, entrepreneurship and social networks of entrepreneurs are the main drivers of industrial development in border towns. Most of these industries are micro, small and small-to-medium industries.47 The characteristics and performance of these industries are also typical of small and medium sized industries (see Chapters 8 and 9). The limited impact of government measures means that entrepreneurship and the social networks of entrepreneurs play a key role. These industries reduce transaction costs by using their personal and professional connections to seek information and to establish business relationships and market opportunities. Local material and labour are the major assets of border towns. These small and medium sized manufacturing industries, especially indigenous industries, have made significant contributions to the local economy of border towns. More than half their entrepreneurs are locally born in border towns. About a quarter of all interviewees inherited businesses from their parents. Most locally born entrepreneurs, with strong local connections and local marketing knowledge, chose to establish indigenous industries derived from local resources such as raw materials and craftsmanship, and to serve local and regional markets, especially in agricultural, food and beverage and service-oriented manufacturing (vehicles and house maintenance and decoration). In contrast, most non-local entrepreneurs own non-indigenous and footloose industries, especially garment industries that use high-quality raw material from Bangkok and international suppliers, and serve non-local markets: Bangkok, regional and international markets. The forward industrial linkages of the indigenous industries are also dense because they can provide subcontracting work to local communities since the business types complement local specialisation and technology. For example, a medium traditional Sa paper producer in Mae Sai in the north can generate subcontracting work for one thousand and five hundred local people in its district and

47 Only six per cent of respondents have a capital investment of more than AUD$0.93 million. Only seven per cent of interviewees use more than two hundred workers per enterprise.

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other districts, and one thousand prisoners in Chiang Rai province (Interview with private sector, 2001). By contrast, the non-indigenous industries depend on government incentives and policies and have limited local economic embeddedness. Therefore, when the government policy changes, border town industrial development becomes vulnerable. For example, after the economic crisis in 1999, when the Thai government abolished the migrant labour policy and prosecuted migrant labour from Myanmar, some Mae Sot factories that employ only Myanmar migrant labour had to move out, and existing factories are stagnating. The Asian Development Bank Study Team (2000) and an interview with provincial government officers in 2001 indicate a production drop of about thirty per cent. As a result, from the production network perspective, the locational advantage approach is not the best one for promoting industrial development in Thai border towns. The production network approach appears to be more useful for such situations. Therefore, this thesis strongly urges that government and international agencies adopt diverse policies for industrial development in border towns and consider strategies such as a production network approach.

10.3.2 Efficiency of government programmes The limited applicability of the locational advantages approach to Thai border towns explains under-achievements of the decentralisation scheme at the local level. It causes discrepancies between government programmes assumptions, and the industrial dynamics in border towns (Table 10.2). Such discrepancy decreases the effectiveness of government measures in four main ways. Firstly, due to the limited size of the local economy of border towns, the targeted industry types of government policies and programmes are inappropriate because most border town industries tend to be small or medium sized manufacturing industries. About forty-six per cent of all interviewees use fewer than ten workers per enterprise. About half the respondents use fewer than 200 workers per enterprise. Most factories registered their capital investment and used an initial capital and revolving capital of less than three hundred thousand Australian dollars.48 Secondly, the assumption underlying the advantages of industrial development in border towns is

48 Seventy-three per cent of total interviewees registered their capital investment as less than AUD$ 234,521.57. Seventy-nine per cent of them used an initial capital investment of less than AUD$ 234,521.57. Eighty-three per cent of all surveyed enterprises used revolving capital of less than AUD$ 234,521.57.

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false because of regulatory barriers to border crossing. Only about five per cent of interviewees use raw material from or have markets in the neighbouring countries. About thirty per cent of respondents employ migrant labour from the neighbouring countries.

Table 10.2: Discrepancy between government programmes assumptions and industrial dynamics in Thai border towns

Issues Government programmes Industrial dynamics in assumptions border towns (a) Targeted industry Large-scale and export- Mainly small and medium types oriented industries sized industries (b) Advantages of border Proximity and differential The regulatory and barriers location factors of production and to border crossing of two larger markets of two nations’ entrepreneurs countries promotes strong prevent significant industrial cooperation. industrial linkages. (c) Factors contributing Economic factors are Social and economic to industrial dominant: Low cost of factors are dominant: establishment and production, financial and Entrepreneurship and growth investment privileges and social networks of infrastructure entrepreneurs (d) Assessment Expected growth in number Local economic benefit and of factories, jobs and capital long-term growth of investment industries.

Source: Maneepong, 2002

Thirdly, the economic factors that are supposed to contribute to industrial establishment and growth in border towns are not successful because government planners do not seem to understand the complex social practices of entrepreneurs and do not acknowledge the value of entrepreneurs nor of their social networks. Because there are few export industries only one per cent of interviewees gained investment privileges and less than ten per cent received direct government assistance. Lastly, without a focus on local economic benefit the government assessment, which is based on a macro economic perspective, is inconclusive. Industrial statistics from 1993 to

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2000 indicate the fluctuating pattern of industries in sponsored towns (Department of Industrial Work, 2001). As a result, these assumptions and policy attitudes prevent the access of most small and medium sized manufacturing industries in border towns to most government investments and assistance, since the discrepancy between business practices and government programmes incurs a high cost and investment in time for these small and medium sized enterprises. Although some industries, especially in sponsored towns, received government support, the level of satisfaction was still minimal (see Section 9.4). This thesis also disputes the conclusions of previous studies claiming that higher levels of employment and other economic indicators in sponsored towns indicate the success of locational advantage policies. Government policies also assume that footloose Bangkok-based assembly line industries generate higher multiplier effects than local small and medium sized manufacturing industries do. These studies and assumptions are false. As the thesis has shown different levels of technology and skill restrict most footloose industries’ economic embeddedness with local resources, workers and markets (see Section 9.4). This thesis also suggests that the basis for the Thai government’s selection of specific sponsored towns is flawed. In particular, the industrial dynamic in non- sponsored towns without government support and promotion is similar to that in sponsored towns, which indicates that the impact of government investments and measures is minimal even in sponsored towns. The lack of genuine local autonomy affects the efficiency of local government agencies, adversely affects financial and educational institutions, and creates antagonism between entrepreneurs and local agencies and officers. Since the characteristics and dynamics of border town industries differ from those of the national industrial development policies, it requires local perspectives to manage and develop them. However, as for other Thai provinces, border provinces are subjected to a highly centralised system of decision-making. Local and provincial agencies and institutions have informally and formally rejected and resisted the national policies, especially the prosecution of Myanmar migrant labour (Provincial Office of Commerce of Chiang Rai et al, 1995; Provincial Chamber of Commerce of Tak, 2000; Provincial Chamber of Commerce of Tak, 2000). Unfortunately, with limited resources and authorisation, these local agencies cannot respond to or support entrepreneurs even though they recognise the business people’s problems and constraints.

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10.3.3 Recommendations for improving the industrial decentralisation scheme To increase the efficiency and effectiveness of industrial decentralisation, this thesis strongly recommends adopting policies for border town planning that would be appropriate to the role of local small and medium sized enterprises and the social networks of entrepreneurs. The rationale and requirements of programmes should suit the needs and conditions of industry in border towns. Local private sector and educational institutions should also get involved in designing, instigating and evaluating programmes. The role and function of entrepreneurs’ networks should be reinforced and supported. Investigation of the feasibility of the following recommendations, though beyond the scope of this thesis, is a task worthy of further study. Specific recommendations are listed below: (a) Taking advantages of the inter-relationship of economic and social factors The interrelationship of economic and social factors as contributors to industrial establishment and growth in border towns should be promoted. Apart from outside investors, government and financial agencies should also encourage locally born people to enter industry, especially the children of entrepreneurs who can inherit not only their parents’ business but also their networks of information, suppliers and customers. The regional comparison indicates the significance of this issue in the northeast region (Sections 1 and 2 in Appendix C); (Tambunlertchai, 1990; International Development Centre of Japan et al, 2001). Graduate students from regional universities should also be made a potential target group because they tend to have social networks with local people and business people while they are studying (Tambunlertchai, 1990; Ministry of Industry et al, 1997). Encouragement and training programmes should focus on young entrepreneurs and entrepreneur clinics. It is more efficient to organise these programmes at the regional level for several border towns. These programmes also provide a good opportunity to exchange views and for business networking. Educational institutes and local private sectors should participate to share experiences and show their support. (b) Strengthening social networks of entrepreneurs Social networks of entrepreneurs should be supported, especially those operating between similar industries. These networks directly support business operations and potential opportunities for new businesses. The formal private organisations such as the provincial Chamber of Commerce and the provincial Federation of Industry should also offer to channel information and business activities

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through informal and social networks of entrepreneurs. Government agencies should also communicate with and provide technical support for informal groups of entrepreneurs. However, the disadvantages of horizontal industrial relationships need to be minimised. In particular, either expanding markets or market segments should resolve the fierce competition among homogeneous industries, as discussed in the following sub-section. To revitalise existing networks, a wider network should be supported; for example, with business visits and hosting from or to other regional cities, Bangkok and the neighbouring countries, by establishing regular gatherings with local, provincial and regional educational, government and financial institutions, and by participation in business training and workshops. Annual regional meetings of entrepreneurs from border towns should be regularly organised to allow them to share views and strengthen business connections. (C) Supporting small and medium sized manufacturing industries in border towns The criteria for and design of government programmes and measures should also facilitate the setting up of small and medium sized industries. Apart from government agencies, other stakeholders such as local, provincial and regional institutes should be involved in industrial development in border towns to contribute local knowledge and to strengthen their capacity for industrial development. Some suggestions are as follows: • To increase financial access for small and medium sized manufacturing industries, especially for revolving capital, the criteria for selecting loan applicants should focus on current business performance, not only on assets and financial status. Linkages between local, provincial and regional financial institutions, production technology, and marketing agencies should be promoted to increase information flow and to encourage the sharing of similar goal and target groups. Local financial institutions should form a strong policy to provide loans for local entrepreneurs in support of local industrial development. Priority should also be given to agricultural, handicraft and household products. As well, information about adjusted criteria and new loan schemes should be distributed to local entrepreneurs directly and via the provincial chambers of commerce and the provincial federations of industry (Na Ranong, 1990; Tambunlertchai, 1990). • To reduce transport costs the central government should consider providing a reasonable service to border towns. This could be set up by a state

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enterprise company. Alternatively, such a transportation that would service a group of factories could organise a system through the provincial federations of industry, among entrepreneurs, or by the provincial chambers of commerce. • To provide more technological support to small and medium sized manufacturing industries, technological assistance should be made available and affordable, and not just for new products. Such assistance should also be extended to diversifying existing niche and customised products, for example, to increase current market segments because it is more difficult for small and medium sized manufacturing industries to seek new markets than to expand their current ones. Other important supporting strategies should include upgrading product quality, design and packaging. Local, provincial and regional educational institutes should seek support to join these technological assistance projects. Local entrepreneurs should also support local and provincial educational institutes by providing on-the-job training for students, and information that are vital to local technological development (Tumbenlertchai, 1990; Dilokpreechakul, 1992). • To solve the problem of the high cost of raw material supplies, government agencies should aim to increase sources of local raw materials. A significant step would be to establish a database of existing raw materials. This would be useful for upgrading the quality and increasing the quantity of local raw materials, especially agricultural products. A suppliers’ database should operate at provincial and regional levels and for Bangkok, especially via the provincial chambers of commerce and the provincial federations of industry. • To serve existing demand and attract new factories, labour-training schemes should target local industries, especially indigenous ones. However, the training schemes should be limited only to the semi-skilled level because enterprises are in a better position to provide specific skill training for their own workers. Local entrepreneurs should be involved in designing, training and evaluating such training schemes to ensure that the needs and requirements of local industries are met (Dilokpreechakul, 1992). Labour training courses should focus not only on skill development but also on industrial discipline to mitigate the severe problems of high labour turnover and long stoppages during Thai traditional festivals. (d) Expanding markets Marketing for industry in border towns should target local, regional and the neighbouring countries. In particular, local souvenirs, handicrafts and brand names should be promoted in local tourist places such as bazaar, since local marketplaces

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mainly serve local grocery and agricultural wholesalers (International Development Centre of Japan et al, 2001). Provincial offices should encourage entrepreneurs to promote site visits to factories or production displays to increase tourist activities and business opportunities. Increasing local consumption, especially for consumer goods such as noodles, bread and biscuits, ice cream, meatballs, drinking water, plastic bags and rice should be promoted to increase the size of the border economy and encourage the creation of local brand names. Provincial government offices, chambers of commerce and federations of industry should all consider promoting and publishing information about local products and the profile of each type of industry to regional and Bangkok enterprises, for business opportunities and markets, directly and indirectly via media and websites. Local information must be updated and include social factors such as entrepreneur networks and local endowments including local material, workers and educational and training institutions. Study tours to factories and other economic activities should target regional enterprises and the private sectors of the neighbouring countries. Marketing strategies should also focus on different segments of current markets and specific customer groups. The Department of Export Promotion should provide more accessible information and services for small and medium sized manufacturing industries, such as how to begin exporting. China (especially, southern China) and Vietnam should be considered as potential markets for industry in border towns. To successfully gain access to these neighbouring countries markets, a micro study on the marketing and potential goods of each country and border town should be conducted, and it should cover the socio-economic situation, customers’ behaviour, government policies and the competition situation in that country. Local entrepreneurs need to participate in this study to contribute their local knowledge and experience, and to link up with local entrepreneurs in the neighbouring countries. For example, a small rice-milling factory in Nakhon Phanom that is an assembly factory annually promotes local brand name products in the Khummouan region of Laos by showing movie for free as well as factory promotions and after-sale services. Marketing promotion such as border fairs and study tours in the neighbouring countries should be regularly organised. (e) Expanding vertical and horizontal industrial linkages Apart from subcontracting operations, vertical industrial border town linkages have the potential to benefit large and medium sized manufacturing industries, as well as the local economy of border towns. A micro study on potential industries, market

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areas and development guidelines is needed. The case studies of three current industries should provide significant guidelines for an in-depth study.49 As well, horizontal industrial linkages described in these four case studies have significantly contributed to the social networks of entrepreneurs, but these linkages only concern raw material, transportation and information exchange. An in-depth study of other linkage areas and development guidelines such as supply sources and marketing should reveal other significant strategies, factors and conditions that might expand these linkages. (f) Devolving authority and resources for industrial development in border towns The devolution of government and financial institutes to border towns should be considered because border issues are specific and complicated and need local knowledge and networks. Delegating authority and resources is crucial, as follows. • The headquarters of financial institutes should strongly support loan schemes for industrial development in border towns. The assessment process should allow local institutes to participate, to contribute local knowledge and insights. • Migrant labour issues should be considered in terms of each border region’s needs and conditions to ensure that deregulation will support industrial competitiveness yet still encourage local employment. Therefore, local government agencies, in conjunction with the local private sector, should be put in charge of setting up deregulation details such as the period of employment and the proportion of migrant and Thai workers. For example, in the northeast region it seems that the need for migrant labour from Laos is only for certain employment sectors such as the agriculture sector, and for only a short-term. On the other hand, in the Myanmar border regions migrant workers are needed in both the agricultural and industrial sectors. The wages and welfare of migrant workers must be equal to those of Thai workers. This is vital, because Thai and international entrepreneurs should reward these hard-working workers fairly, even though there is no law requirement. In this way the Myanmar government could support more Thai developments in border towns. Since the ‘A’ apparel industry in Mae Sot was granted investment privileges from the BOI, it has already successfully shifted employment from hundreds of Myanmar migrant workers to local Thai workers from five nearby villages to comply with the

49 A barbeque charcoal industry in Mae Sot obtains value-added sawdust from local and Myanmar saw mills. Traditional brick-making factories in Nakhon Phanom and Mukdahan use chaff from rice mills in their production process. A box packaging factory in Mae Sot supplies packages to other local production factories.

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central government’s ban on migrant labour (Interview with the private sector, 2001). Several rubber industries and other food-processing industries in Sadao, in the south, bordering Malaysia, have also attracted thousands of migrant workers from the northeast of Thailand (Maneepong et al, 1999). (g) Increasing government investments in infrastructure Government investment in infrastructure urgently needs to cover the quantity, quality and stability of electricity, water supply, environmental protection and health services, especially in sponsored towns because the absorptive capacity and resources of local and provincial government agencies are inadequate. Resource conflicts and adverse environmental and social impacts are significant issues in border towns, and must be solved for a better quality of life.

10.4 Implications for cross border development This thesis contributes to the debate about the significance of border locations as mentioned in Chapters 3 and 4. The differences in prices, wages, quality and quantity of goods and services between two countries, along with social connections established via similar cultures, traditions, dialects and religion in border towns, are all assumed to provide extra advantages for border economies (van Grunsven et al, 1995; Clement, 1997). This rationale is based on the locational advantages approach. However, research from the Stockholm School of Economics indicates that exchanges between small and medium sized enterprises through network embeddedness drive cross border economic linkages (Granvoetter, 1985; Johanson et al, 1994). Nevertheless, other factors including negative images and regulatory barriers to border crossing can limit the economic and social advantages of border locations (van Houtum, 1997; Kolossov, 1998). The opinion surveys of entrepreneurs and stakeholders presented by this thesis show that current linkages with the neighbouring countries are limited, so it confirms that these factors prevail in Thai border towns, as mentioned in sub-section 10.2.3. Due to the shortage of industrial and skilled labour in border provinces, as in other Thai provinces, the demand for migrant labour is high. In particular, in Mae Sot, bordering Myanmar, several labour-intensive industries, especially garment industries, employ migrant workers. Furthermore, Thai workers prefer less physically hard work and can choose alternative employment in border trade, border tourism and other countries. The daily wage of Myanmar labour is only half that of local Thai workers. It seems that according to the international division of labour theory and the comparative

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advantage theory, the differential cost of production, and especially the wage factor, explain the exodus of Myanmar migrant workers and the agglomeration of labour- intensive industries in Mae Sot. This thesis disputes these theories on the basis of conclusions drawn from its northeast case studies. In fact, Laotian labour in northeast border towns is in high demand, especially in the agricultural sector (Interviews with the private sector and stakeholders in 2001). Laotian labour costs are even lower than those of Myanmar labour (ADB Study Team, 2000). However, Laotian workers work only temporarily and return to Laos after short periods of employment (Interviews with the stakeholders in 2001 and the observation in the surveyed factories). In 2001, the Ministry of Labour and Social Welfare registered only 59,358 migrant Laotian workers, compared to 451,335 migrant Myanmar workers. The Police Immigration Bureau also arrested and deported only 13,325 Laotians, but 165,497 Myanmar workers (Kanwanich, 2002). Due to better job opportunities, these Laotians mainly work in Bangkok and other regional cities. As the Laotian situation becomes more stable, Laotian border centres such as Savannakhet, bordering Mukdahan and Khummouan, neighbouring Nakhon Phanom, can attract significant foreign direct investments by their investment incentives and the Generalised System of Preferences (GSP) trade privileges offered by the European Union (International Development Centre of Japan et al, 2001). The detail is in Appendix E. Therefore, Laotian workers do not need to work in Thai border towns but have the alternative of working in these foreign factories in their own border regions. In addition, the marginal size of these northeast border provinces’ economy and less industrialisation has attracted limited number of foreign direct investment and medium to large-scale industries so these investments generate no significant demand of labour. Until 1999, in Mukdahan, five Thai service-oriented and industrial projects and one Japanese private hospital investment granted tax and duty privileges from the BOI have employed only 393 workers (BOI; the Northeast Office, 1999). As well, in Nakhon Phanom, four Thai service-oriented and manufacturing projects and three international investment projects granted tax and duty privileges from the BOI have provided only 717 jobs (BOI; the Northeast Office, 1999). As a result, the cost factors, such as wages and living standards that vary between two countries are not always highly relevant to cross border movement. Other significant factors such as the micro economy of industrial development and the

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socio-economic situation of border towns in the neighbouring countries can also explain the success and failure of cross border development. This thesis thus concludes that border location is not necessary and does not represent a major advantage for border towns, even though social and economic relationships exist. The regulatory barriers to border crossing and the negative perception of the neighbouring countries have to be mitigated. Suggestions worth investigating include: (a) Change of practices The central government should acknowledge that border relationships, practices and interests are different from international practices such as those of APEC and ASEAN. Therefore, the bureaucratic operations and practices should have different frameworks and expectations. Mutual benefit and technical support for the neighbouring countries are crucial for promoting trust and cooperation (Sriwanthana, 1990; Waiyaratpanich, 1995). Activities should include short-term training, study tours and scholarships for studying in technical colleges and government and private agencies in border towns. These activities will also promote understanding between the two countries’ systems and mitigate the differences in rules and regulations. As well, the central government should regularly promote international relationships with the neighbouring countries to support the role of border towns — by making official visits, for example. (b) Role of local private and government agencies Local private and government sectors that deal daily with the neighbouring countries should take a leading role in business and investment cooperation with them. The central government should promote, technically and financially, the role of local private and government agencies such as the local committee for the Quadrangle Economic Cooperation Project of the Upper Mekong River and the local committee involving provinces and regions on Route No. 8. (c) Local officers’ attitudes and capacity To strengthen officers’ attitude to and capacity to deal with border issues, the central government should provide specific training and workshops for local, provincial and regional officers who are working or plan to work in border areas. The rules and regulations of the neighbouring countries should be available in Thai for officers to fully understand and promote cooperation. Formal and informal cooperation activities should be regularly organised to exchange information and views and to promote better understanding between the two countries.

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10.5 Implications for an assessment of government impact A comparative assessment between non-sponsored towns and sponsored towns is an effective method to investigate the impact of government investments and measures. In sub-section 10.2.5, a survey of the similarities and differences between the industrial dynamics of sponsored and non-sponsored towns indicates that government support and impact is marginal because most entrepreneurs reply on their own assets and social networks. Minor differences are found in the dominant types of industries, operations, market areas, and regional embeddedness. The comparison of the dynamics of industrial development in the case study towns of the north region and those of the northeast region (in Appendix C) indicates its similarity to the comparison made between sponsored and non-sponsored towns. It demonstrates the appropriateness of the comparative assessment and implies that the regional comparison may not be the best way to identify the differences that occur in industrial development in border towns. The comparison between sponsored and non-sponsored towns identifies a discrepancy between government programmes assumptions and the dynamics of industrial development in border towns. This kind of survey reveals the kinds of improvement needed and what recommendations could be made for government action. An internal assessment of government programmes as such would reveal less about such impacts. This thesis strongly urges government and international agencies to adopt comparative assessments in future, to evaluate border town development, other decentralisation schemes and other government programmes. In addition, an assessment of industrial decentralisation should not only focus on the immediate output and be based on national interest but should also consider the local benefits and long-term growth of border towns industry. Therefore, measurements for assessment should cover the benefit to be gained by the local economy, such as sources of products, market areas, sources of contracting and subcontracting work, competition areas, industrial relationships in the border economy, and the advantages and disadvantages of local linkages (Markusen, 1994; Stryjakiewicz, 1998; Krätke, 1999; Reinhardt, 2000; Yeung et al, 2000).

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10.6 Recommendations for future research Apart from the above suggestions, the next step in the study of the dynamics of industrial development in border towns should consider both theoretical and methodological studies: (a) Multi-case studies in different regions and the neighbouring countries A multi-case study approach should be applied to other regions such as the south, bordering Malaysia and the east, neighbouring Cambodia, to obtain a comprehensive picture. In particular, the southern border towns neighbouring Malaysia may provide a different aspect of the dynamics of industrial development in border towns because Malaysia’s purchasing power and level of development are much higher than those of Thai border towns. Entrepreneurship, social networks of entrepreneurs and horizontal industrial relationships in these four case studies could assist researchers to understand a range of dynamics in border town industrial development and to identify more of the key factors that contribute to its success. A comparison between sponsored and non- sponsored towns will reveal more about the impact of government investments and measures. A comparative study of the industrial dynamics that occurs in the neighbouring countries should be also encouraged, to discover what helps or hinders industrial linkages with Thai industries, and to identify promotion measures. (b) Qualitative methodology Apart from quantitative analyses, the qualitative method of surveying entrepreneurs’ opinions and behaviour, and the case study method are recommended to gain an in-depth understanding of entrepreneurship, social networks of business people and industrial linkages (Wilson, 1995; Austrian, 2000; Yeung et al, 2000). Field surveys of entrepreneurs and stakeholders should be carefully conducted to ensure acceptance for interviews. Local contact people and institutions, especially the local private sector, are key channels for requesting interview appointments and for clarifying the status and purpose of the interview on the behalf of researchers. To increase the reliability of interview data from a single source, such as an entrepreneur, the triangulation method is strongly recommended. In particular, multiple interviews of similar types, sizes and ownership of enterprises as well as different border towns, combined with secondary data from various sources, is necessary to cross-check data reliability. Establishing the attitudes of other groups such as stakeholders is also important to confirm the reliability of data. The observation of industrial development in each town and site visits to some respondents’ factories are

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recommended for reinforcing interview and secondary data. Participation in formal and informal local gatherings of entrepreneurs also gives researchers better opportunities for observation. (c) Intra-firm relationships This research has emphasised the dynamics of border town industrial development. It does not, however, include close analysis of intra-firm relationships, or tries to establish whether intra-firm relationships support industrial development and encourage industrial relationships with neighbouring countries. This is because some micro sized manufacturing industries do not have outside employees; they manage their business family-style, and have connections with other similar industries in border towns. One example is a group of timber factories in Nakhon Phanom that consists of one primary timber-processing factory and one secondary timber-processing factory. This group is controlled by a single entrepreneur’s management and investment. Due to the size of business and export processes, he separates it into two factories. (d) The impact of government policies on traditional industries, social networks of entrepreneurs and industrial clusters The impact of government policies on traditional industries, social networks of entrepreneurs and industrial clusters should be investigated. Government policies tend to increase non-indigenous industries and business-driven operations in border towns. On the other hand, many social networks of entrepreneurs and industrial clusters in both sponsored and non-sponsored towns were established before the introduction of border town development policies, such as the network of timber enterprises in Mukdahan (a sponsored town) and the cluster of jade carvers in Mae Sai (a non- sponsored town). It is beyond the scope of this thesis to investigate how these networks and clusters benefit from the government policies. The traditional industries, especially agricultural and food and beverage industries have a low level of economic performance, and government policy promotes non-indigenous and secondary industries. However, traditional industry has strong backward linkages with the local agricultural sector and foreword linkages with local border town consumption. Thus it is appropriate for further research to examine how government policies affect this traditional industry and the local economy of border towns. (e) Devolution of power to local agencies There is an open question about delegating power to local government agencies and to financial or educational institutions. It is also unknown how these

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agencies influence entrepreneurship and social networks of entrepreneurs. We also get to discover how the devolution of power to local agencies affects horizontal industrial linkages and supports economic linkages with neighbouring countries. Some entrepreneurs suggest taking the special economic zone development approach to border town industrial development. It may be useful to study whether this approach may support industrial dynamics in border towns and industrial linkages with neighbouring countries.

10.7 Final remarks This thesis argues the applicability of the locational advantages approach for studying industrial developments in Thai border towns. Most government reports and previous studies have made an internal assessment of those projects and assessed the success of these projects on the basis of their short-term outcomes (TDRI, 1991; ADB Study Team, 2000). This thesis uses a different method of assessment in comparing sponsored and non-sponsored towns and applies the contemporary production network approach to investigate the dynamics of industrial development in four case studies. The research summary is shown in Table 10.3.

• Findings Due to the dynamics of industrial development in border towns driven by small and medium sized industries, the locational advantages approach to Thai border towns has a limited applicability. The production network approach, however, is appropriate. The comparison between sponsored and non-sponsored towns pinpoints the role and influence of two key factors: (a) entrepreneurship and the social networks of entrepreneurs and (b) horizontal industrial relationships. These two factors also prevail similar in other Thai cities. The social and economic factors influencing border business people are intertwined. Therefore, government investments and policy measures have made only a minor impact because the assumptions and policy attitudes prevent most small and medium sized manufacturing industries from applying for most government investments and assistance. The research finding also shows that government incentives tend to induce non-indigenous large scale industries in sponsored towns that have market-driven and business-operated operations and limited embeddedness in the local economy. In addition, a border location does not necessarily play a major part in promoting industrial linkages with the neighbouring

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Table 10.3: Summary of the dynamics of industrial development in border towns: Case studies of Thailand

Conventional theories Contemporary theories Research questions Research findings Research and policy implications

Locational advantages approach Production network approach Implications for industrial development in border towns (1) What theory best explains the dynamics of industrial * Marginal applicability of * Regional growth poles *International network development in border towns? locational advantages * The locational advantages approach Government intervention Entrepreneurship approach. This approach aim to has limited applicability to Thai border towns Multiplier effect of large Social networks of *To what extent is the locational attract non-indigenous industries. Therefore, the planning for industrial development in and multinational enterprises entrepreneurs, mutual support advantages approach applicable It demands resources for development border towns needs to be diverse and to take Vertical (hierarchical) industrial based on trust to Thai border towns? but is vulnerable to change. into account other approaches such as linkage the production network approach. * To what extent is the * High applicability of * Locational advantages *Flexible specialization production network approach production network Implications for cross border development Low cost of production Cluster of small and medium applicable to Thai border towns? approach. It focuses * Border location is not neccessary a Strategic transport network producers (Industrial district) small and medium sized local major advantage for border towns even where Flexible operation industries. This is similar there are social and economic connections. * International division of labour with high tech (2) To what extent do the border to other Thai small towns. and comparative advantages Specialised production town industries benefit from Therefore, the planning for cross border development Massive production and rigid management Horizontal industrial government investments and *Major characteristics and dynamics needs to consider other factors hindering the Vertical industrial linkage (subcontracting) relationship policy measures? between industrial development advantage of border location, especially regulatory Availability of varied resources in sponsored and non-sponsored barriers to border crossing. (3) What and how do other towns are similar. factors contribute to border The local government and private sectors should industrial establishment and * Other factors contributing participate actively because of their local growth? to the success of border knowledge and connections. industrial development include social factors and Implications for assessment of government impact horizontal linkages * Internal assessment of government programmes on the basis of national interest *Factors hindering industrial is not suitable . development in border towns Therefore, a comparative assessment is suggested. include regulatory barriers Assessment criteria should also cover the benefits to to border crossing, negative the local economy. perceptions, discrepancy of government programme assumptions and the dynamics of industrial development in border towns.

Source: Maneepong, 2002

Chapter 10: Policy and research implications 238

countries because negative perceptions and regulatory barriers to cross borders are main obstacles.

• Contributions The thesis shows that the locational advantages approach is not the most appropriate approach: In Thai border towns the production network approach is more appropriate. Planning for industrial development need to be diverse and alternatives such as the production network approach must be considered. The suggestions made here for improving industrial decentralisation schemes are: changing planning and implementation perspectives by basing them on the role of small and medium sized manufacturing industries; focusing on the social networks of entrepreneurs; and responding to the needs and conditions of industry in border towns. The thesis also confirms that border locations do not inevitably contribute to the success of industrial linkages with the neighbouring country even when social and economic connections exist. Any planning for cross border development should encompass other factors hindering the advantages of border location, especially regulatory barriers to cross borders and the negative perceptions of entrepreneurs in both countries. Recommendations include changing the practices of government officers, promoting the role of local private and government agencies and reorienting local officers’ attitudes and building their capacity to deal with border issues. This thesis has shifted away from an assessment of government impact by using an internal evaluation of government programmes and conducting on basis of the national interest. A comparative assessment between non-sponsored and sponsored towns is valuable because it provides a better understanding of the impact of government investments and policy measures, and clarifies the main improvements needed for the planning and implementation of industrial development in border towns. As well, assessment criteria should include the benefits to be gained by the local economy.

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