Thailand stands at a watershed. Earlier signs of recovery are fading, and government estimates for economic growth in 2001 have been lowered to just 2 to 3 percent. Exports are declining because of a slowing world economy, and foreign direct investment is stagnating as China, which offers cheaper labor and has a larger domestic market, attracts more and more investment traditionally channeled to Southeast Asia.
This recent news may be discouraging, but in the longer term Thailand can break out of its difficult position. A recent McKinsey Global Institute (MGI) study,1 undertaken in collaboration with two leading Thai institutes,2 found substantial opportunities for increasing economic growth by improving productivity in important Thai industries. Most of the needed policy reforms are ultimately free; they require no government spending on stimulus packages or industry subsidies. But to be effective, efforts to increase productivity must target the specific industries and issues that have the greatest impact on the national productivity.
The MGI research on Thailand, analyzing and benchmarking the productivity of companies and industries against global best practices, focused on seven important sectors: retail banking, telecommunications, retailing, cement, computers and electronics, beer, and chicken processing. In every sector, the study...