South East Asia Journal of Contemporary Business, Economics and Law, Vol. 2, Issue 2 (June)
ISSN 2289-1560
2013
IMPACTS OF THE ASEAN (ASSOCIATION OF SOUTH EAST ASIAN NATIONS)
ECONOMIC COMMUNITY ON LABOUR MARKET AND HUMAN RESOURCE
MANAGEMENT IN THAILAND
Dr Natenapha Wailerdsak (Yabushita)
Thammasat Business School
Thammasat University, 10200 Bangkok, Thailand
Email: [email protected], [email protected] Tel: (+66)- 85 808 2344
ABSTRACT
The development of human resources has been the first topic to be argued when Thailand has to prepare for entering as part of
ASEAN Economic Community (AEC) in 2015. All relevant parties were aware that human resources would be one of Thailand's
major weaknesses. This article is divided into four parts. The first analyzes the characteristics of labour market and labour
productivity (or output per workers) of the ASEAN countirs. The second part of the article illustrates the impacts and trade-offs
of the AEC on the cross-border mobility of both skilled and unskilled labours. Forever more, the AEC is expected to make
possible the free movement of workers in the region, especially in the seven professional fields that are under the mutual
recognition arrangements (MRAs), as well as unskilled labors, along with the higher market opportunities and greater business
investment that comes with borderless international trades. The third part examines the international human resource
management (IHRM) of Thai-born multinational enterprises. In the future, they must accept a diversity of human resources
owing to the inflow of ASEAN workers, the sending of executives to work abroad, and strategically managing local staffs. The
final part summarizes the significant opportunities and challenges to the country.
Keywords: ASEAN Economic Community (AEC), labour market, international human resource management (IHRM),
multinational enterprises (MNEs), Thailand
1. Introduction
The ASEAN Economic Community (AEC) will be established in 2015, the year that all ASEAN members have agreed to enact
zero tariff rates on virtually all imports (by 2010 for the original signatories and by 2015 for the CLMV countries – Cambodia,
Laos, Myanmar, and Vietnam). The AEC aims to eliminate tariff barriers and solidifies the ASEAN’s commercial negotiating
power through the community’s functioning as a ‘single market’ and the world’s ‘production base’. Not only will there be free
movement of goods and investments, but one of the goals set in the AEC Blueprint is the free flow of skilled labour, allowing for
the managed mobility of or facilitated entry for the movement of natural persons engaged in cross-border trade and investmentrelated activities. Therefore, all relevant parties are aware that ‘human resources’ may be one of Thailand’s major weaknesses.
This article is divided into four parts. The first elucidates the characteristics of the labour market and labour productivity (or
output per worker) of the ASEAN countries. Currently (2012), the ASEAN commands a combined GDP (gross domestic
product) of US$ 2.3 trillion, with a total trade value of US$ 2.1 trillion, a combined market of 600 million consumers, rising
purchasing power, an expanded middle class, and a large market for highly-productive labour forces.
The second part of the article illustrates the impacts and trade-offs of the AEC on the cross-border mobility of both skilled and
unskilled labour. Forever more, the AEC is expected to make possible the free movement of skilled workers in the region,
especially in the seven professional fields that are under the mutual recognition arrangements (MRAs) – medical practitioners,
dentists, nurses, engineers, architects, accountants, and surveyors – along with the higher market opportunities and greater
business investment that comes with borderless international trade. However, the ASEAN Blueprint is silent on flows of
unskilled labour. In fact, Thailand has hosted an estimated three million migrant workers, mainly from the neighbouring
countries with the greatest number coming from Myanmar, followed by the Lao People’s Democratic Republic and Cambodia.
The third part of the article examines the international human resource management of Thai-born multinational enterprises
(MNEs). Following the realization of the AEC, the Office of the Board of Investment of Thailand began to focus on encouraging
Thais to invest more outside the country, especially in other ASEAN countries, instead of placing an emphasis on encouraging
foreign investors to invest in the country. In the future, Thai MNEs must accept a diversity of human resources owing to the
inflow of ASEAN workers, the sending of Thai executives to work abroad and strategically managing local staff. They need to
urgently produce global human resources for the ASEAN market so as to enhance their competitiveness.
The final part summarizes the significant opportunities and challenges to the country.
2. ASEAN and Labour Markets
The ASEAN was established on 8 August 1967 by the leaders of five countries, Thailand, Indonesia, Philippines, Malaysia and
Singapore, primarily to promote peace and stability in the South East Asian region. Over 40 years later, following the signing of
the ASEAN Charter in 2007, the ASEAN has morphed into a ten-member organization with a legal personality.
The ASEAN has several naturally-endowed advantages in building prosperity. With land of 4.46 million square kilometres, it has
a relatively large combined market of 598 million people with a combined GDP of US$2.3 trillion in 2012 at current market
prices. Put in perspective, the ASEAN’s population is half that of China or India (the world’s two most populous nations)
representing 8.8 per cent of the total population in the world. Its GDP is about one-fifth of that of the United States (the world’s
largest economy), or equal to the world’s ninth-largest country (if the ASEAN is considered as one country). The region is
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strategically located at the crossroads of world shipping and air routes, within an economically vibrant Asian region, and has
abundant natural resources.
2.1. Overview of the AEC
The search for greater competitiveness has driven ASEAN member countries towards closer regional integration. In 2003, the
ASEAN members adopted the Declaration of ASEAN Concord II (Bali Concord II), which aimed to realize the ASEAN
Community based on three pillars: the ASEAN Security Community (ASC), the AEC, and the ASEAN Socio-Cultural
Community (ASCC). In the November 2007 Singapore Summit, this commitment was given further impetus when the ASEAN
leaders agreed to advance the establishment of the ASEAN Community from 2020 to 2015 and adopted a comprehensive action
plan, the AEC Blueprint, which had clear timelines and targets.
The region has been faced with a large and increasingly powerful Chinese economy in the north and a huge Indian economy in
the west, also making rapid progress. After the 1997 Asian financial crisis, the ASEAN had lost its competitive edge in terms of
labour costs and foreign direct investments in China. Hence, the regional integration objective is to create a competitive market
at the crossroads of these two emerging economic giants. In addition, the ASEAN has attempted to reduce its reliance on the
Western-oriented export-led model as the main driver of its economic growth. The ASEAN needs to move towards a new growth
model that is driven by intra-ASEAN and intra-Asia demand, as well as domestic demand.
As spelled out in the AEC Blueprint, the ASEAN shall become a single market and production base, characterized by free flow
of goods (zero tariffs within the region), services (no restriction on the trade in services), investment (with only a few restricted
areas), skilled labour, and freer flow of capital. Many businesses have begun preparing themselves three years ahead of time to
meet the challenges and opportunities of the AEC. The ASEAN also plans to remain engaged with the global economy through
regional-level free trade agreements. The ASEAN has such agreements with China, Japan, Korea, India, Australia and New
Zealand (the so-called ASEAN+6).
While the ten ASEAN nations account for about 8.3 per cent of Asia’s total GDP, in recent years, the ASEAN has produced
around 22 per cent of Asia’s total exports. Exports from the ASEAN totalled US$1,070 billion in 2010, placing the region behind
China, Asia’s largest exporter, but ahead of Japan (ASEAN Secretariat, 2012). The strong export orientation means that the
ASEAN nations must maintain highly efficient production systems, given that their economic growth and development prospects
rely heavily on competitiveness in the global marketplace. At the same time, the ASEAN represents a large consumer market,
with some 598 million consumers spending more than US$400 billion every year. This is more than the total for India, despite
the fact that India has twice the ASEAN’s population.
2.2. Population and Labour Forces
Between 2000 and 2010, driven by high population growth and a modest increase in labour force participation, the region’s
labour force grew at an average annual rate of 2.2 per cent. This has brought almost 36 million more people into the ASEAN
labour force, putting pressure on those member countries with significant labour force increases. Cambodia stands out among
these, with explosive growth of 52.8 per cent over the period. The Philippines and the Lao People’s Democratic Republic saw
their labour forces expand by 20.0 per cent and 24.5 per cent, respectively. At the other end of the scale, the labour force in
Singapore and Thailand increased by less than 9 per cent.
The projected increase in the relative share of the ASEAN’s prime-age population from 39.9 per cent in 2005 to 42.1 per cent in
2015, together with the expected decline in the proportion of economic dependents in the region, may result in a ‘demographic
dividend’. A larger potential labour force presents a window of opportunity, and the demographic dividend could be translated
into higher rates of saving and greater investment. Rising investment, in turn, can lead to capital deepening, an increase in
economic growth potential and productivity growth in terms of output per worker. Compared with China, where the share of
prime-age people should remain stable between 2005 and 2015, demographic trends in the ASEAN will be more favourable to
economic growth, a potentially important advantage over the ASEAN’s giant neighbour (ILO, 2007).
However, once the window of opportunity is closed, since the prime-age share of their total populations will stop growing, the
ASEAN countries have to face the new problems of an aging society. Countries such as Singapore and Thailand have already
benefited in terms of rapid growth in investment, productivity, health, education, and employment. Favourable demographic
trends in earlier decades in these countries accounted for between one-quarter and one-third of the total growth in per capital
income. However, since 2010, both Singapore and Thailand have started to age relatively rapidly (Wongboonsin, 2011). In line
with demographic trends, labour supply in these countries will decline while demand for services and products for older workers
may increase, creating labour shortages in institutional, social, and home health-care services catering for the elderly.
2.3. Labour Productivity
Given the region’s strong export orientation, productivity growth is critical to the ASEAN. Productivity growth is a vital
determining factor in the competitiveness of both national economies and individual enterprises. Other things being equal, higher
labour productivity increases competitiveness which in turn attracts investment and fuels economic growth and employment
generation. It is productivity growth that determines whether economic growth translates into improvements in living standards
and sustainable poverty reduction.
Prior to the global crisis in 2008, the ASEAN experienced a tremendous increase in labour productivity. This was driven by
buoyant investment and structural shifts in employment and production, with workers moving from relatively low-productivity
agriculture to higher value-added industrial and service sector activities and in movement up the value chain in some economies,
with ASEAN firms entering and competing successfully in higher value markets. The effect of this shift on aggregate
productivity depended on inter-sectoral differences in productivity levels and the scale and speed of the employment shift from
agriculture to industry and services. Figure 1 provides evidence of the sectoral composition of employment in selected
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economies. The share of agricultural employment declined everywhere, although agriculture remained the largest sector in terms
of employment, except in Malaysia, the Philippines, and Singapore.
Figure 1: Employment by Major Economic Sectors
Source: ILO 2010.
The challenge to the ASEAN is not just that both China and India are growing faster. More importantly, their labour productivity
levels are increasing more rapidly. Figure 2 presents labour productivity trends in China, India, and the ASEAN (excluding
Brunei Darussalam, the Lao People’s Democratic Republic, and Myanmar for which comparable data are unavailable). China
recently overtook the ASEAN in terms of output per worker and, between 2005 and 2015, the China–ASEAN productivity gap is
expected to widen. Labour productivity in the ASEAN region is still about one-third higher than it is in India, but if current
trends persist, the gap is likely to narrow to less than 20 per cent by 2015.
Figure 2: Output Per Worker, in the ASEAN, China and India, 2000–2009, US$
Source: ILO 2010
Significant disparities among the ASEAN member countries are also evident. Figure 3 provides country-level productivity data
for the ASEAN member countries. Singapore, at US$47,975 in 2008, showed, by far, the highest level of labour productivity
within the ASEAN – a level even higher than that of Japan. The difference between Singapore and the other ASEAN members
was stark: its productivity level was nearly 17 times that in Cambodia, 10.6 times that in Myanmar, and ten times that in
Vietnam.
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Figure 3: Output Per Worker, Selected Countries and the ASEAN, 2008, US$
Source: ILO 2010
Until now, the ASEAN economies have relied heavily on cheap labour to ensure their competitiveness. However, competition
based on ‘low-road’ strategy alone is rarely a winning long-term strategy, as this often occurs alongside poor working conditions,
including lack of trade union representation and collective bargaining power, and scant opportunity to upgrade their skills and
knowledge.
Finding an effective ‘high road’ is the key competitive challenge currently facing many of the ASEAN’s labour markers. Policies
are needed to encourage companies to enhance workers’ skills, improve workplace conditions, increase access to new
technologies, and improve production efficiency. Increased public investment in education, particularly in primary and secondary
education, in the lower-income ASEAN economies, and tertiary education in the higher-income ASEAN economies, could be an
important driver of enhanced productivity.
3. International Movement of Skilled and Unskilled Labour
3.1. International Migration
Apart from trade, fast-growing intra-regional movements of workers probably present the clearest evidence of growing
integration among the ASEAN member countries. Labour mobility is an important element of the AEC and the ASCC. The
variation in development and wealth among the ASEAN member countries presents a unique challenge to regional integration.
Such differentials are a major driving force for intra-regional labour migration, which represents both a source of comparative
advantage and a challenge to manage (ILO, 2007).
Historically, the growth in overseas employment was triggered initially by the oil-price shocks in the 1970s, which created fiscal
surpluses in the oil-producing countries in the Middle East. Partly to dispose of the surplus, the countries with excess
petrodollars engaged in massive infrastructure projects, resulting in an upsurge of demand for construction workers. The
Philippines and Thailand, for example, have since emerged as two of the major supplier-countries for construction and other
types of workers in the Middle East.
Another force of overseas employment is the change in the global demographic. It stems from the aging of the population in the
mature industrial countries. The latter need care givers and health workers, resulting in an excess demand for such workers, a
need to which the Philippines and Indonesia are able to respond positively. Filipino and Indonesian nurses, for example, have
been in great demand in countries such as the United States and the UK since the 1990s (Wailerdsak, 2008).
Moreover, in the past, the West was a major migration destination for Asian professional workers but, over the past decade, cities
in Asian countries have become popular. Fast-growing intra-regional movements of workers are evidence of increasing labour
market integration among the ASEAN member countries. In 2007, the total number of migrants originating from the ASEAN
was estimated at about 13.5 million. Of these, 39 per cent, or 5.3 million people, were in other ASEAN member countries;
26 per cent worked in the United States; 9 per cent in the European Union (EU); and 26 per cent in other regions, primarily the
Middle East (ILO, 2010).
Figure 4 provides an overview of migrant stock in the region, with immigrants representing foreigners working in a country and
emigrants representing workers of that country working overseas. Singapore and Brunei Darussalam are primarily labour
receiving countries. Cambodia, Malaysia and Thailand i are both labour receiving and labour sending countries, while Indonesia,
Lao People’s Democratic Republic, Myanmar, the Philippines and Vietnam are labour sending countries. (Chalamwong, 2011)
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Figure 4: Immigration and Emigration in the ASEAN, 2008
Source: ILO 2010
The growing cross-border mobility of labour has benefited sending and receiving countries as well as the migrants themselves.
But the large and growing numbers of irregular migrants mean that questions related to managing migration and ensuring
migrants’ protection are become pressing.
The main host countries for intra-ASEAN migration are Thailand and Malaysia, with each hosting about 35 per cent of the
region’s migrants. Of Myanmar’s estimated total workforce abroad of 1.6 million, 90 per cent are in Thailand, which has eight
times Myanmar’s per capita income. The majority of migrants from Cambodia and the Lao People’s Democratic Republic are
also in Thailand. Of Indonesia’s 2.3 million workers abroad, 59 per cent are in the ASEAN, mainly in Malaysia, which has three
times Indonesia’s per capita income. Other host countries include Singapore (with 21 per cent) and Cambodia (6 per cent),
receiving from the neighbouring countries of Vietnam and Thailand. The main source countries for intra-regional migration are
Myanmar and Indonesia, accounting for 27 per cent and 23 per cent, respectively, of the total intra-regional migrants (ILO,
2010).
3.2. Movement of Skilled Labour
The ASEAN Blueprint covers only the free flow of ‘skilled labour’ engaged in cross-border trade and investment-related
activities, obviously as supplementary support to the expansion of intra-ASEAN trade and investment under the ASEAN
Framework Agreement on Services (AFAS) and the ASEAN Investment Agreement (AIA). It is silent on flows of unskilled
labour.
Cross-border mobility of skilled labour is covered under two parts. Firstly, Mode 4 of Agreement on Trade in Services (GATS)
on the movement of natural persons (MNPs) refers to cross-border mobility of professionals and skilled individuals on a
temporary basis, either as self-employed individual service providers or as employees of foreign companies supplying services.
MNPs cover business visitors who engage in business without seeking employment, traders and investors, intra-corporate
transferees, who are the employees of MNEs that move their staff across borders, and professionals.
Secondly, the ASEAN agreed to mutual recognition of professional accreditation to facilitate labour mobility. The ASEAN has
already concluded mutual recognition arrangements (MRAs) for seven occupations – medical practitioners, dental practitioners,
nursing services, engineering services, architectural services, surveying services, and accountancy services. Professionals who
are accredited as agreed in the MRAs will be recognized in all member countries, enabling them to work more easily in any
member country. The MRAs have taken in two more professions, hotel services and tourism, which consist of 32 positions.
Labour mobility under the ASEAN Community would strengthen the capability of Thai workers with more job opportunities
overseas. Higher compensation will draw quality Thai workers to other countries, while the local workforce will have more
competition from migrant workers from other ASEAN countries. Thai businesses need to be mindful of a possible flight of Thai
skilled workers as well as medical staff and engineers to earn more lucrative incomes elsewhere. Naturally, labour will opt to
flow to countries that pay better. Under the talent war, Thai companies may have to offer attractive opportunities and wages to
convince skilled workers to stay in Thailand.
Thai businesses are also expected to have more choice of skilled workers from the ASEAN to ease the shortage of workers in
mid-level management. Many sectors lacked skilled labour, such as the IT sector, and also the automotive technician sector.
Thailand now focuses only on bringing in unskilled labour with little focus on skilled labour. The creation of a regional labour
market will introduce more flexibility in national labour markets and could allow for further specialization of human resources.
Countries receiving skilled labour are generally regarded as enjoying ‘brain gain’, as the influx has augmented and supplemented
domestic supplies, removing domestic shortages, improving economic competitiveness and productivity and facilitating
industrial upgrading; while ‘brain drain’ occurs when professionals and skilled workers emigrate because some countries have
been unable to efficiently employ them due to sluggish economic growth and high unemployment. The developing countries
generally have a scarcity of skills and a sizeable brain drain would adversely affect the development potential of sending
countries (Wailerdsak, 2008).
On the other hand, it is said that despite mutual recognition, labour movement might not be so easy in practice. Many countries
still preserve rules and regulations that may prevent labour mobility from happening. For example, medical personnel who wish
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to work in Thailand will have to obtain a licence by passing an examination, some parts of which are in Thai. There are also
other obstacles such as differences in language, culture and social acceptance (Wongboonsin, 2011).
Also, language has become one of the key domains to which people in the AEC have been awakened. A major obstacle is that
many in the Thai workforce cannot speak English. Thailand needs talented people in the workplace with the ability to
communicate, not only in their mother tongue but also in English, Chinese and Bahasa. English is the working language of the
ASEAN, and the Thai educational system has to prepare the younger generation to be competitive in this area. There is no
translation, unlike the EU where everything has to be translated into 12 or 13 languages. The most expensive part of the EU is
interpretation/translation. It is useless if a dentist cannot communicate with his or her patients speaking another language in
another environment, no matter how skilful he or she is in the profession.
3.3. Movement of Unskilled Labour
Much anecdotal evidence suggests that migrant workers are largely absorbed into occupations (the so-called 3D jobs: dangerous,
dirty, difficult) such as domestic services, construction, farming, and labour-intensive manufacturing, but official statistics are
scare. Thailand and Malaysia each have large populations of migrant workers in irregular situations, and these remain a major
challenge of increasing concern for the respective national authorities. In 2011, Thailand hosted an estimated 3 million irregular
migrant workers, mainly from neighbouring countries, with the greatest number coming from Myanmar, followed by the Lao
People’s Democratic Republic and Cambodia. Malaysia had an estimated 700,000 irregular migrants, 70 per cent of whom were
Indonesians, while most of the rest were Chinese and Indian nationals who overstayed after entering the country legally as
tourists (International Organization for Migration, 2011).
The estimated regional demand for additional foreign labour is expected to remain strong in the medium term. In Thailand,
where the labour force is projected to grow by only about 1 per cent a year, GDP growth of around 4.5 per cent a year is
expected to create an excess demand for labour. More than 90 per cent of the workforce inflow consisted of unskilled labourers,
triggered by local demand from labour-intensive industries, such as agriculture, fisheries, construction, domestic housework and
restaurants.
Thailand could also encounter a ‘labour shortage’ because of the declining population, due to low fertility rates, accompanied by
a rapidly aging society, resulting in a less productive workforce. The size of the Thai working-age population will be constant
from 2015 to 2020 and will decrease after this period. A labour shortage looms large in Thailand because, over the past few
years, several industrial sectors, such as automotive and its components, electronics and food processing, have expanded to tap
global demand. It is estimated that the industrial sector needs more than 200,000 unskilled and skilled workers, notably for the
automotive and electronics industries. The labour shortage could grow more severe in the next few years as fewer graduates enter
the industrial sector while the level of staff retiring is the same. In the near future, Thailand must adopt a programme to stop the
sharp decline in population, principally by offering financial incentives, subsidies, paid maternity and maternity leave policies to
encourage women to have children.
In contrast, the working-age population in Indonesia, the Philippines and Vietnam is increasing. The Philippines and Indonesia
have promoted labour exports. Migrant labour laws and regulations should be amended and the social welfare system improved
to meet international standards.
4. International Human Resource Management (IHRM)
The following is a summary of the in-depth interviews conducted by the author with HR managers and top executives of some
large corporations in Thailand, such as the Siam Cement Group (SCG) ii, Charoen Pokhand (CP) iii, Banpuiv , and Thai Union
Frozen Products (TUF)v regarding the concerns on international human resource management.
4.1. Thai Expatriate Managers
Challenge to International Business
The next three years will be the era of the ASEAN enterprises. Increasingly, Thai companies that traditionally focused on
domestic markets are looking internationally. Executives are also becoming more international. It has been noted that stories in
the newspaper or on TV constantly concern Thai companies competing globally, including the takeover in October 2012 of
Singapore’s Fraser and Neave (F&N), the parent company of Asia-Pacific Breweries (APB), the maker of Tiger Beer and other
popular brands, by Thai Beverage, owned by Charoen Sirivadhanabhakdi, maker of Chang Beer and non-alcoholic drinks; the
acquisition in mid 2011of La Rinascente, which owns 13 department stores across Italy, by Thailand’s largest retailer the Central
Department Store Group; the acquisition in 2010 of MW Brands Holdings SAS, a leading European canned tuna company by
Thai Union Frozen Products, the world’s largest canned tuna exporter. Or they might highlight companies expanding into
international markets, such as CP (Charoen Pokphand) focusing on China, as well as those companies aiming at South East
Asian markets, such as SCG, Berli Jucker, Sahapat Group, and Black Canyon Coffee.
In fact, nearly three-quarters of HR professionals from large corporations in Thailand, in a wide range of industries, say that they
expect their companies’ international business to grow in the coming years. Corporate decisions are increasingly being driven by
the dictates of ASEAN competition, not national allegiance. The internationalization of Thai business has created ever-expanding
opportunities for more and more people to work overseas. To compete effectively in globalized environments, international
assignments and staffing foreign operations have become an integral part of any internationally minded organization. (Siengthai,
Dechawatanapaisal and Wailerdsak, 2009).
In past years, internationalization has grown at a faster pace than internationalization of the HRM profession, causing executives
in the very best of companies to lament that their HR policies have not kept pace with the demands of global competition. But
this is changing. Global HR management has become a front-and-centre issue for a wide variety of firms. Many larger
corporations, and even smaller ones doing business in key international markets, have full-time HR managers devoted solely to
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assisting with the globalization process. SCG, for example, has a team of HR directors who travel around the world to help
country managers stay updated on international concerns, policies, and programmes. CP provides support to its army of HR
professionals working around the world. A core HR group in the company’s Silom headquarters holds a two-week HR
orientation meeting once a year for the international HR staff. This programme helps international HR practitioners share
information about HR philosophies, programmes, and policies, established either in CP’s headquarters, or another part of the
world, that can be successfully adopted by others.
Expatriate Selection
Expatriates represent a potential competitive advantage for MNEs. Expatriate selection is much more difficult than domestic
selection. Even companies that believe they have selected the best candidates frequently experience high expatriate failure rates
(the percentage of expatriates who do not perform satisfactorily). Expatriates confront many new challenges, both in the
workplace and the community. Many criteria are used in selecting expatriate managers, but some of the most important include
family adaptability, technical skills, human relations skills, effective communication and listening skills, host-country culture and
language skills, stress tolerance, and empathy and flexibility in dealing with foreign cultures.
According to the interviews, the most important issue of international assignment in Thai MNEs is career planning and
repatriation – the return to one’s home base. Employees often lament that their organizations are vague about repatriation, their
new roles within the company, and their career progression. It is also not at all uncommon for employees to return home after a
few years to find that there is no position for them in the firm and that they no longer know anyone who can help them. Their
long-time colleagues have moved to different departments or even different companies. This frequently leaves the repatriated
employee feeling alienated.
As a result, companies must see overseas assignments as part of an extended career track rather than as one-off assignments.
They need to reassess their policies and improve their treatment of returning expatriates. Senior managers in the home office
should look after the expatriates and ensure that they are considered for promotions (and are not forgotten and put into a holding
position on repatriation). Repatriation programmes should be designed not only to smooth the employee’s return to the home
organization but also to ensure that the expatriate’s knowledge and experience are fully utilized. At SCG, the company’s senior
managers began to view the firm’s international business as a critical part of their operation. The company aims to increase the
number of executives having international assignments in their backgrounds. International experience is also considered a
prerequisite for one to advance into the top management ranks.
Up until this point, Thai HR managers have experienced difficulty finding qualified candidates for international assignments,
with candidates increasingly reluctant to accept an overseas posting. Many international assignments are rejected as a result of
partner career concerns (most companies still do not provide compensation for partner loss of income), family ties, schooling,
remoteness from corporate power centres, repatriation problems, career goals, and the personality of the candidate. As a result of
the reluctance of employees to move internationally, companies are exploring alternatives to long-term assignments, such as
shorter assignments, greater reliance on local hires, increased business travel and telecommuting, and more use of videoconferencing.
At TUF, after studying similar programmes at international financial institutions, such as HSBC, Standard Chartered Bank and
Citibank, it embarked on a ‘Management Associate’ scheme to scout for new graduates from leading universities as well as
young talent from around the world. Between five and ten candidates will be selected to become TUF management associates
during the initial phase. These successful candidates, who will eventually work at TUF’s overseas subsidiaries, will go through
an intensive executive development programme that includes a 16-month assignment in Thailand and a two-year assignment
abroad.
This young talent will be entitled to a fast-track career path, which means that by the age of 35 they could be promoted to the
position of general-manager position, and by 40, they could become managing director of one of the group’s subsidiaries. TUF
had to develop the management associate scheme to find fresh talent, as its existing staff are reluctant to work abroad. When
TUF acquired MW Brands Holdings, it had only one person taking care of the business in the United States. Since 2006, among
other moves, TUF has started to pay serious attention to human resource development (HRD), beginning with some
reorganization and the review of job descriptions, compensation and benefit programmes.
Under this management associate programme, TUF is striving to develop a new breed of young executives who possess an
adventurous spirit, multicultural awareness, sensitivity, adaptability, leadership, English skills, readiness to take up the challenge
of working abroad, and, most important, a ‘positive and constructive attitude’. As the world’s largest seafood company, it has
been growing over the years, largely through mergers with and acquisitions of foreign businesses, and developing its own pool of
global executives will help TUF maximize its potential. It will also heighten synergies among headquarters and the acquired
foreign subsidiaries, as each of them have their own staff and inherited corporate cultures.
Expatriate Assignment
There are a number of ways to improve the success of expatriate assignments. Many companies have taken a proactive approach
in supporting the expatriate managers, not only in work-related matters, but also the personal aspects of relocation or the
personal needs of partners and families to avoid family problems. Most companies provide some form of assistance for
expatriate managers and their spouses before departure, such as language training, cross-cultural training, orientation
programmes to facilitate adjustment, and counselling on children’s educational opportunities in the host location.
Also, an increasing number of companies are developing programmes specifically designed to facilitate repatriation – that is,
helping employees make the transition back home. Employees are given a general idea of what they can expect following a
foreign assignment, even before they leave home. Part of that strategy includes directly using the knowledge of the company’s
current and former expatriates.
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Expatriate Compensation
HR managers must be familiar with the fundamentals of international compensation and the special needs and requirements of
expatriates. To be effective, an expatriate compensation programme must provide an incentive to leave the home country,
maintain a home-country standard of living, facilitate re-entry into the home country, provide for the education of children, help
the expatriate family maintain its relationships with family, friends, and business associates, and be cost-effective. Thus,
designing and managing the compensation of employees working in a foreign location creates an entirely new set of issues for
the HR manager.
Expatriate packages (total compensation and benefits given to personnel on a foreign assignment) of Thai MNEs include (1) base
pay and bonuses, (2) cost of living adjustment (COLA), including housing allowance and medical care, (3) incentive premiums –
foreign service premium (compensation for being located outside Thailand, usually 10–15 per cent of base pay), and hardship
premiums (paid to compensate for hardship resulting from physical isolation, cultural and language differences, extremes of
climate, political instability, health and security fears, inadequate housing, education, medical assistance and shopping, and other
inconveniences, usually 0–35 per cent of base pay), and (4) assistance programmes which cover added costs, such as moving and
storage, motor vehicle expenses, education expenses, and benefits associated with a foreign assignment. SCG allows its
expatriate staff working in ASEAN countries to come back to Thailand temporarily eight times per year with all expense
supported by the firm.
4.2. Human Resource Management of Host-Country Employees
Hiring Host-Country Employees
At early stages of international expansion, companies often send home-country expatriates to establish activities and to work
with local governments. This is generally very costly. For Thai MNEs, there has been a trend to send expatriates on shorter,
project-based assignments (2 to 12 months versus 1 to 3 years) and to shift more quickly towards hiring host-country nationals
because hiring local citizens is generally less costly than relocating expatriates. Moreover, since local governments usually want
good jobs for their citizens, foreign employers may be required to hire locally. Most customers also want to do business with
companies they perceive to be local versus foreign. Virtually all countries have work permit or visa restrictions that apply to
foreigners.
Furthermore, because Thai companies want to be viewed as true ASEAN citizens, there has also been a trend away from hiring
expatriates to head up operations in the ASEAN countries. SCG and CP, which have strong regional organizations, tend to
replace their Thai expatriate managers with local managers as quickly as possible. However, throughout the interviews we found
that difficulty in attracting high-calibre local nationals to work for the firm was the most difficult local national personal issue.
Even though these Thai MNEs are well-known in Thailand, they face greater challenges in hiring high-calibre local employees
than do domestic firms due to lack of name recognition and fewer relationships with educators or others who might recommend
candidates. They have put much effort into company branding. SCG, for example, has attempted to engage with the local
communities in which they operate. It launched a corporate social responsibility programme called ‘Sharing the Dream’,
implemented in the Philippines and Vietnam. In the Philippines, as many as 500 students have been granted scholarships since
the programme was established in the country back in 2007.
Hiring Third-Country Nationals
In addition to hiring local managers to head their foreign divisions and plants, more companies are using third-county nationals
(TCN). A TCN is a citizen of a country different from the home or host country. TCNs are often multilingual and already
acclimatised to the host country’s culture – perhaps because they live in a nearby region. Thus, they are also less costly to
relocate and sometimes better able to cope culturally with the foreign environment. CP, for example, has used TCNs to staff its
offshore operations. It sent Filipino managers from a subsidiary in the Philippines to work for the company’s shrimp processing
subsidiary in India. Then, it sent Indian managers to work for the company’s shrimp processing subsidiary in Pakistan and
Bangladesh. These TCNs are English speaking.
IHRM
Beyond the economic and political-legal issues, a country’s cultural environment (communications, religion, values and
ideologies, education, and social structure) also has important implications when it comes to a company’s decision about when
and how to do business there. Different cultural environments require different approaches to HRM. Even in countries that have
close language or cultural links, HR practices can be dramatically different. In the Philippines, employers are expected to provide
employees with rice and transportation between Manila and their hometowns once a year. These are practices that would never
occur to Thai managers and HR practitioners.
Improved telecommunications and travel have made it easier to match employers and employees of all kinds worldwide. Most of
CP’s employees work outside Thailand. SCG, with headquarters in Thailand, hires 10 per cent of its 27,000 employees abroad.
HR departments must be particularly responsive to the cultural, political, and legal environments both domestically and abroad
when recruiting internationally. Companies such as Thai Union Frozen Products have made a special effort to create codes of
conduct for employees throughout the world to ensure that standards of ethical and legal behaviour are known and understood.
Banpu has taken a similar approach to ensuring that company values are reinforced. The company has corporate shared values,
known as the ‘Banpu Spirit’, that are viewed as essential in worldwide recruiting efforts: (1) innovation – continuous
improvement, (2) integrity – an ethical, honest and transparent manner, (3) care – open, humane, warm and friendly, and (4)
synergy – striving for win–win solutions, collaboration and teamwork.
One of the most complex areas of international HRM is compensation. Different countries have different norms for employee
compensation. Host-country employees are generally paid on the basis of productivity, time spent on the job, or a combination of
these factors. When Thai companies commence operations in ASEAN countries, they usually set their wage rates at or slightly
higher than the prevailing wage for local companies. Some managers believe that salaries are the most critical factor in
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2013
maintaining employees in ASEAN countries, and therefore a firm has to pay the highest salaries to attract and sustain the best
people; but others argue that there are other conditions which are assumed to be equally important in maintaining the best
employees. Management must reassure employees that the subsidiaries have a bright future and therefore they ought to have
confidence. Of course, career planning, good compensation policies, and a pleasant working atmosphere all contribute to
successful retention strategies.
Moreover, Thai MNEs are working to engage local staff by providing training and development programmes, as well as staff
internships at the headquarters in Thailand. Both Thai expatriates and local managers regard training as one of the most
important functions contributing to the success of international subsidiaries. Substantial demand for training is due to the fact
that a majority of local employees lack basic skills appropriate to operate the technology transferred from Thai MNEs. In
addition, they do not have basic skills in sales, marketing or even materials management. To upgrade locals’ skills, both
technical training and management training have been thought of as necessary and effective instruments to improve an
employee’s capability. English language training is also considered important, as it is believed to improve communication
between Thai managers and local staff.
Although expensive internship training at the headquarters in Thailand is perceived as important, because it helps staff acquire
knowledge and skills that are difficult to transfer by in-housing training, it also helps trainees capture the sense of organizational
culture and management style and thus change their behaviour. Moreover, most local employees view internship training as a
kind of reward that offers a designated staff member an opportunity to travel abroad. As a result, internship training is not only
for knowledge acquisition but becomes part of the retention strategy for the enhancement of loyalty to the organization.
5. Conclusion
This article has contributed to the discussion of the impacts of AEC on the labour markets and human resource management in
Thailand. The AEC is definitely a work in progress. Some efforts will move faster and bear quicker fruit than others; others will
face more challenges and may be less crisply implemented. Still, we believe the future is clearly in favour of the AEC and that it
offers clear opportunities and challenges that all businesses need to be thinking about and preparing for. We were able to derive
three main lessons from this research.
First, while export competitiveness is crucial for future growth and development in Thailand, this must be pursued not only
through low-cost labour, but also through productivity improvements, which are the source of sustainable competitiveness and
quality employment. Thus, policies that encourage companies to invest in skills and the human capital of workers, and improve
access to new technologies can improve productivity and strengthen competitiveness. At the same time, increased investment in
education can be important drivers of enhanced productivity and poverty reduction.
Second, an increasing flow of migrants to Thailand is likely. To make the migration mutually beneficial for all parties, there is a
need to assess the impact and effectiveness of measures taken to regulate admissions, and to ensure equal treatment, and to give
migrant workers legal status. If intra-regional migration is properly managed, the increasing mobility of the ASEAN’s human
resources, both skilled and unskilled, is likely to be a unique comparative advantage in an increasingly competitive global
environment.
Third, the AEC has become one of the motivations for Thai firms to ‘Go Abroad’. In 2012, the Thai Government launched the
Thai Overseas Investment Support Centre, encouraging strong Thai enterprises to invest more overseas, particularly in the
ASEAN countries in order to improve their competitiveness and solve labour shortage problems. It is estimated that Thai MNEs
will increasingly send expatriates abroad and hire local staff. They must find ways to provide incentives for Thai expatriates to
work abroad as most existing Thai staffs are still reluctant to do so. At the same time, they must create company branding to
attract and maintain high-calibre local staff. Moreover, they must develop an IHRM system that is cost-effective, fair, and
consistent with the organizations’ overall business objectives and cultures, under the ASEAN’s slogan ‘One Vision, One
Identity, One Community’.
Lastly, the analyis in this article limited to a few case studies and interviews. However, given this foundation, future research
would benefit from a grounded theory and approach to a larger pool of interview data or samples, in order to better capture the
complexity of the international human resource management of the Thai MNEs.
Acknowledgements
Funding to assist in this research project and conducting the in-depth interviews was provided by the Thammasat Business
School, Thammasat University, Thailand. The author would like to thank all Thai MNEs quoted in this article and also the HR
managers and top executives who gave generously of their time, knowledge and experiences.
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i
The outward flow of Thai workers in 2009 was 78,717, a drop of 15.9 per cent from 2008 due to the economic slowdown. The agency estimates
a rise in outgoing workers in 2010, in line with the economic recovery. Of the Thais working abroad in 2009, 47.27 per cent of them graduated
from primary schools. Asia was the preferred destination with 55.68 per cent, followed by 22.84 per cent to the Middle East, 11.6 per cent to
Europe and the United States, and the rest to Africa. They generated income of Baht 57.32 billion, down by 9 per cent from 2008.
ii
The Siam Cement Group (SCG) is the largest and most advanced industrial conglomerate in Thailand. Founded in 1913, under a royal decree
issued by His Majesty King Rama VI, as Thailand’s first cement manufacturer, the original purpose of the Siam Cement Company was to
eliminate Thailand’s dependence on imported cement and take fuller advantage of domestic natural resources. Since its founding, the company
has diversified, under the name of SCG, to meet the needs of Thailand’s growing economy, establishing and participating in new industries as
technology and market demand have required. Currently (2012), SCG has five core strategic business units, focused on chemicals, paper, cement,
building materials, and distribution. SCG comprises over 100 companies, employing approximately 27,000 employees, and handling more than
64,000 product items with total new sales of Baht 400 billion.
iii
Charoen Pokphand Group (CP) is one of Thailand’s largest companies and one of the first true Asian multinational enterprises. The group’s
operations span more than 250 companies in 20 countries – largely in Thailand and China but also in Indonesia, Malaysia, India, and Cambodia –
with more than 100,000 employees and sales of US$ 13 billion. Other key CP holdings include TRUE, a communication conglomerate
controlling Thailand’s largest cable TV provider True Visions, its largest ISP True Internet, and its third-largest mobile operator True Move;
Siam Makro, the group’s discount retail chain; Ek Chor China Motorcycle, the New York Stock Exchange-listed maker of motorcycles for the
Chinese market; and Vinythai, a maker of polyvinylchloride and other petrochemicals, developed in partnership with Belgium’s Solvay. Other
holdings comprise retail stores – including the 7-11 convenience store franchise for Thailand. Despite its diversified activities, the Asian
economic crisis of the late 1990s encouraged CP to restructure itself around a core focus of agribusiness and food operations through a new
flagship company, Charoen Pokphand Foods (CPF). As such, the group has adopted a new slogan ‘Kitchen of the World’. CP has long been led
by Dhanin Chearavanont, son of one of the company’s founding brothers.
iv
Banpu PLC is the largest coal producer and distributor in Thailand. Banpu produces typical sub-bituminous and lignite coals, which are
suitable for use as a base load fuel for domestic cement producers as well as utility generators. Banpu was established in 1983 as a coal-mining
venture. In the 1990s, the company diversified into power project development in Thailand, coal mining in Indonesia, port operations and
industrial minerals. Regional expansion has transformed Banpu into a genuinely pan Asia–Pacific group. In 2011, Banpu had over 6,000 staff in
four countries, with around a half based in Indonesia and over one-third in Australia, with the remainder in China and Thailand.
v
Thai Union Frozen Products PLC (TUF) is the world’s largest canned tuna producer. It offers canned, frozen, and pouched tuna and salmon;
canned and pouched sardines and mackerel; fish-based snacks; frozen and value-added shrimps; frozen cephalopods; canned and pouched
shellfish products, such as shrimp, crab, squid, and baby clams; canned pet foods for dogs and cats; bakery products, including pies, rotis,
brownies, sandwich tuna, and breaded items; and ready-to-eat frozen foods. It was founded in 1988 and has its headquarters in Amphoe Mueang
Samutsakhon, Thailand.
10