UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT
Measuring the impact
of ICT use in business
THE CASE OF MANUFACTURING IN THAILAND
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ICT Use in Thai Manufacturing Businesses: Computer Penetration and Intensity, Exams of Business Systems
Data on the use of computers and the Internet in Thai manufacturing businesses from 2002 to 2006. It includes industry-specific information on the proportion of businesses with computers, Internet access, and web presence, as well as the average number of computers and employees using computers per 100 employees. The document also discusses the importance of measuring both computer presence and intensity of use for estimating labor productivity.
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U N I T E D N A T I O N S C O N F E R E N C E O N T R A D E A N D D E V E L O P M E N T
Measuring the impact
of ICT use in business
THE CASE OF MANUFACTURING IN THAILAND
3UHSDUHGMRLQWO\E\WKH81&7$'VHFUHWDULDWDQGWKH7KDLODQG1DWLRQDO6WDWLVWLFDO2IÀFH
United Nations Conference on Trade and Development
Measuring the impact of ICT use in
business: the case of manufacturing in
Thailand
Prepared jointly by the UNCTAD secretariat and the
Thailand National Statistical Office
United Nations
New York and Geneva, 2008
the case of manufacturing in Thailand
iii
Acknowledgements
This report was prepared jointly by the UNCTAD secretariat, under the supervision of Susan Teltscher, Chief of the ICT Policy and Analysis Unit, ICT and E-Business Branch, and the Thailand National Statistical Office, under the supervision of Ruamporn Sirirattrakul, Chief of the Economic Statistics Analyzing and Forecasting Group, Statistical Forecasting Bureau. The main contributors were Diana Korka (UNCTAD) and Areerat Kittisomboonsuk (Thai NSO), who have worked closely together through 2007 to prepare the data sets, design the econometric model, carry out the analysis and draft the results. The UNCTAD secretariat greatly acknowledges the making available of statistical microdata by the Thai NSO. The work was carried out under the overall direction of Anh-Nga Tran-Nguyen, Director, the division for Services Infrastructure for Development and Trade Efficiency in UNCTAD and in Thailand under the direction of Jirawan Boonperm, Deputy Secretary General of NSO and Wilas Suwee, Director of the Statistical Forecasting Bureau.
During their internships with UNCTAD, Lidia Villalba contributed to the statistical analysis of the 2005 ICT enterprise survey and Sirirat Kiatichaipaibul made useful inputs to the interpretation of the Thai questionnaire.
Jose Luis Cervera Ferri delivered an econometric modelling training course to the staff of the Thailand NSO as part of the project and in preparation of the ICT data analysis, and provided helpful comments on the econometric analysis.
Useful comments were also received from Ugo Panizza, Marco Fugazza, Marcin Skrzypczyk, Albi Tola, Adam Gross, Oluwatobi Osobukola, Chengetai Masango and staff members of the ICT and E-Business Branch, in particular Angel Gonzalez-Sanz, Dimo Calovski, Scarlett Fondeur-Gill and Cécile Barayre El Shami.
vii
Executive summary
The report is the outcome of a joint project of UNCTAD with the National Statistical Office (NSO) of Thailand which builds upon the measurement of information economy statistics to enable the assessment of the economic impact of information and communication technology (ICT). This is one of the first studies to use official developing-country data to measure the productivity impact of ICT use in business. The project is part of UNCTAD’s capacity-building programme on measuring ICT to help developing countries to improve the production and quality of their ICT statistics at the level of firms through an international “Partnership on Measuring ICT for Development”. These data and the ensuing analysis on measuring the economic impact of ICT use aim to provide policymakers with better tools to design, monitor and evaluate their ICT strategies.
Information and communication technologies have received particular attention in Thailand as enablers of economic and social development. In the context of the national ICT plan, the NSO has collected a large amount of data on ICT use through its annual ICT surveys of the business sector, ICT household surveys and surveys of specific industries such as manufacturing and services.
This report shows a detailed analysis of trends in ICT use by the Thai business sector by looking in particular at the use of computers, the Internet and the web. This is done against the background of a continuous increase in the proportion of businesses using ICTs in Thailand. The study also reviews the specialized literature estimating the productivity impact of ICT use at the firm level in a number of developed countries. It then presents the results of the empirical analysis measuring the impact of ICT use on productivity in manufacturing firms, both at a general level and also by geographical region, industry branch, firm age and size.
The results indicate that the use of basic ICTs such as computers is important to firm productivity, particularly in countries where a significant proportion of businesses are still not using computers. The analysis also finds that, in addition to computer presence, Internet use and web presence are also reflected in higher labour productivity. The study shows that small and newly founded manufacturing businesses, especially the ones located in the north and north-east of the country, should receive more support both in terms of facilitating their access to ICTs and in terms of information campaigns on how ICTs can help to increase productivity, improve the quality of products and better respond to demand. Technical information on how businesses implement ICT solutions can provide additional guidance to set industry-specific ICT strategies.
1. Introduction
Thailand’s ICT strategy and policy
For more than a decade, the Government of Thailand has considered information and communication technology (ICT) an important enabler for economic and social development and for enhancing the competitiveness of domestic businesses. The establishment of the National Information Technology Committee in 1992 was one of the first high-level policy initiatives to promote ICT for development. The committee was chaired by the Prime Minister and had members from both the public and private sector (Thuvasethakul and Koanantakool, 2002).
Currently, Thailand’s national ICT policy is based on the ICT Master Plan 2002-2006, which is part of the broader National Information Technology Policy Framework 2001-2010 and the Ninth National Economics and Social Development Plan. Government agencies, representatives of the private sector, civil society and academia participated in the debate leading to the adoption of the ICT Master Plan. Since 2002, the Ministry of ICT has been in charge of pursuing and implementing the objectives and strategies set out in the Master Plan. The Master Plan had the general goal of fostering Thailand’s development through ICT and focused on four main objectives: to increase the country’s economic competitiveness; to develop a knowledge-based society; to foster sustainable development through equitable access for all; and to develop the ICT industry (NECTEC et al., 2003). Currently, the Ministry of ICT is in the process of preparing the second National ICT Master Plan for the next five years (2007-2011). 1
Measuring statistically the access to and use of ICTs has become an important element of the Thai national ICT policy. Producing ICT indicators is considered key to monitoring and assessing progress in the implementation of national ICT plans, to compare ICT developments in Thailand with those in other countries and to help in future policy making (Smutkupt and Pooparadai, 2005). As established in the national ICT plan, the National Statistical Office (NSO) of Thailand is responsible for producing the necessary ICT data, conducting surveys and carrying out relevant analysis. The first ICT household survey dates back to 2001. In its 2003 Manufacturing Industry and Business Services Surveys the NSO included a number of ICT indicators and since 2004, the NSO carries out an annual stand-alone ICT survey with businesses in Thailand’s municipal areas.
Background and objectives of the project
The collaboration between UNCTAD and the Government of Thailand on ICT-related matters dates back to 2002, when the Asia-Pacific Regional Conference on “E-commerce Strategies for Development” was held in Bangkok, under the auspices of the Thai Government. Since then, UNCTAD has been cooperating closely with the Government in the area of ICT for development, mainly through NECTEC (National Electronics and Computer Technology Center).
Cooperation on ICT statistics started in 2004, when UNCTAD began its annual data collection on ICT in business and the ICT sector. Since then, UNCTAD has been actively assisting developing countries to improve the production and quality of their ICT data. In the context of the Partnership on Measuring ICT for Development, 2 which was launched in 2004 at UNCTAD XI in Brazil, UNCTAD has developed a capacity-building programme on ICT measurement that
(^1) Policy Statement by Mr. Kraisorn Pornsutee, head of Thai delegation to the ITU Plenipotentiary Conference in Turkey, 2006, http://www.itu.int/plenipotentiary/2006/statements/thailand/index.html. (^2) For more information see http://measuring-ict.unctad.org.
Measuring the impact of ICT use in business:
includes the delivery of training, courses and workshops, advisory services to countries and the publishing of a methodological “Manual for the Production of Statistics on the Information Economy”.
Measuring the impact of ICT using firm-level data has received increasing attention recently, particularly by NSOs in OECD countries, which have carried out firm-level analyses on the impact of ICT use on labour productivity using microdata (see section five). Based on the research approach applied in such studies, UNCTAD in collaboration with the Thai NSO carried out a research project to measure the impact of ICT use on labour productivity in Thai manufacturing firms.
The objectives of the project were two-fold:
First, the project aimed to assist the NSO build capacity in the analysis of ICT statistics by applying econometric modelling techniques. To start the project, in January 2007, UNCTAD provided a one-week training in Bangkok to staff of the NSO, on applying econometric techniques to ICT data analysis. This was followed by a period of in-depth data analysis by the UNCTAD ICT Policy and Analysis Unit, in close cooperation with the Economic Statistics Analyzing and Forecasting group of the NSO, during which further technical assistance was provided via long distance. The objective was to allow the NSO staff to replicate the analysis carried out in UNCTAD with a view to enable the NSO to apply similar analytical methods when new data become available.
Second, from a substantive point of view, the project aimed to study the link between ICT use in firms and labour productivity in a developing country setting. While previous studies on the productivity impact of ICT use in firms have been carried out in developed countries, this is one of the first comparable analysis based on official statistics from a developing country.^3 Several recent studies^4 highlight the need to study the way in which ICT use by the business sector translates into greater economic efficiency. Businesses investing in ICTs do not necessarily acquire long-term competitive advantage positions, while those not investing in ICT are almost certain to find themselves at a disadvantage in the market. Ultimately, higher gains from ICT depend increasingly on identifying the efficient ways of using these technologies. Accordingly, the Partnership on Measuring ICT for Development encourages research on estimating the economic impact of ICT, and UNCTAD in particular has engaged in helping developing countries to use micro data for measuring the link between ICT use by businesses and their economic performance.
The report is structured as follows. First there is a short presentation of the main data sources and the methodology used for obtaining ICT statistics. Section three provides an overview of the use by Thai businesses of basic ICTs, such as computers, Internet and the web, comparing data from the 2004, 2005 and 2006 ICT Business Surveys. It also includes qualitative information on factors identified by businesses as barriers to ICT. Section four focuses on ICT use in manufacturing firms, the sector chosen for the productivity analysis. Section five presents the literature review and findings of studies on measuring the impact of ICT on labour productivity, followed by the theoretical framework for this study in section six. A verified empirical model (Cobb-Douglas production function) was used to quantify empirically the relationship between ICT uptake and productivity as well as to identify differences based on geographic location, industry sector, firm size and age in the Thai manufacturing sector. The Report concludes with a detailed presentation of estimation results and with the formulation of policy recommendations in sections seven and eight.
(^3) For example, the Information for Development Programme (InfoDev) has launched in 2006 a project for measuring the impact of ICT use in Poland, Russia and the Baltic States (www.insme.info/documenti/InfoDevGlobalNet-web.pdf). (^4) For example, Atrostic and Nguyen (2005), Bloom, Sadun and van Reenen (2005) and Farooqui (2005).
Measuring the impact of ICT use in business:
3. Overview of ICT use in business
The Thai economy has experienced positive growth since 2001, with increases in both real GDP and real per capita GDP of respectively 5.6 and 4.8 per cent (CAGR) annually.^7 In 2005, the structure of the Thai economy expressed in GDP shares is composed of 43 per cent services, 37 per cent manufacturing and 10 per cent agriculture (World Bank, 2006). According to the Thai 2005 ICT Business Survey, 68 per cent of the business sector is made up of manufacturing, wholesale & retail trade, hotels, restaurants and the food shop industry. After the contraction suffered in connection to the 1997-1998 regional financial crisis, the volume of sales in the manufacturing sector rebounded already in 1999, grew slowly in 2000-2001 and registered record growth rates of 7.5 per cent annually in 2002-2006 (Economist Intelligence Unit, 2007). Strong domestic demand and a competitive position in the export markets have been important factors of growth in Thailand. The main manufacturing products exported are vehicles, electronics, electrical goods and textiles. Output in the electronics sector in particular has recorded 30 per cent annual average growth rate between 2002 and 2006, with two main types of products: integrated circuits and hard disk drives (HDDs). Thanks to the success of foreign investment promotion strategies global producers contribute with a high share to the output in this sector (UNCTAD, 2005). The computer and related service sector, although increasingly important in terms of sales, represented in 2005 only 1 per cent of the total number of firms with more than 10 employees.
The use of ICT in Thailand has expanded rapidly. According to NECTEC, the Internet started being used in 1987. By 1994, all state universities were on-line, and commercial Internet Service Providers started to operate in 1995 (NECTEC, 2003). Since then, the growth of ICT has been astounding. The 2005 ICT Business Survey revealed that among Thai businesses with more than 10 employees, 79.7 per cent use computers, 55.4 per cent have access to the Internet and 26.2 per cent have web presence (table 1).
Despite significant progress over the past years, ICT adoption in Thailand is still behind levels achieved in some Asian economies with higher per capita income, such as the Republic of Korea, Singapore and Hong Kong (China). In fact, as shown in table 1, 90.2 to 96.6 per cent of the enterprises in the three above mentioned economies were using computers and 84.4 to 95.9 per cent had access to Internet in 2005. Similar to these economies, Thailand has carried out efforts to produce and disseminate on a regular basis statistics on the use of ICT by businesses. This is indicative of the relevance placed by Thailand on the implementation and monitoring of ICT policies.
Table 1. Proportion of businesses with computers, Internet and web presence in selected Asian economies, 2005
2005
Proportion of businesses using computers
Proportion of businesses with access to Internet
Proportion of businesses with web presence China .. 67.6 22. Hong Kong (China) 90.2 84.8 40. Republic of Korea 96.6 95.9 56. Singapore 92.8 91.0 68. Thailand 79.7 55.4 26. Note: Economies selected based on the availability of official statistics. Source: UNCTAD information economy database, 2007, and the 2005 ICT Business Survey, businesses with more than 10 employees.
This section presents detailed information on the use of basic ICTs such as computers, the Internet and the web by Thai businesses. It draws mainly on data from the 2004, 2005 and 2006 ICT Business Surveys and covers only municipal (urban) enterprises with more than 10 employees, engaged in manufacturing and services activities.
(^7) Data source UNDESA 2007.
the case of manufacturing in Thailand
Over the analysed period of time, the proportion of businesses with computers, access to Internet and web presence has increased slowly (chart 1). Improvements in the quality and price of Internet connections resulted in a considerably faster rise in the proportion of businesses with access to Internet than in the case of the other two technologies. The slightly smaller proportion of businesses with web presence in 2006 as compared to 2005 is related to a decline of 3 per cent in the number of large businesses with more than 200 employees present in the Thai market. The proportion of businesses with computers grew continuously over the three years by 1 per cent annually, thus increasing in three years by 3,346 the number of businesses with computers. The highest growth rate is found in the proportion of businesses with access to Internet.
Chart 1. Proportion of businesses with computers, Internet and web presence in Thailand, 2004-
0
10
20
30
40
50
60
70
80
90
Per cent
Proportion of businesses w ith computers 79.3^ 79.7^ 81. Proportion of businesses w ith access to Internet
46.8 55.4 55.
Proportion of businesses w ith w eb presence
23.0 26.2 25.
2004 2005 2006
Source: 2004, 2005 and 2006 ICT Business Survey in Thailand, businesses with more than 10 employees.
General characteristics of the business sector
Small companies (11 to 50 employees) make up for the lion’s share of the Thai market (chart 2), whereas middle-sized and larger firms represent the remaining one fifth of the businesses. From 2004 to 2006, the number of businesses in Thailand grew moderately from approximately 52, to 54,000. 2005 witnessed a significant pick up in the number of medium and large businesses with more than 50 employees. This tendency was reversed in the next year with a 4 per cent growth in the number of small businesses and a 3 per cent drop in that of large firms.
Chart 2. Thai businesses by size, 2004- 2004
83%
1 3%
4%
1 1to 50 51to 200 larger than 200
2006
81 %
1 4%
5%
1 1to 50 51to 200 larger than 200
Source: 2004 and 2006 ICT Business Survey in Thailand, businesses with more than 10 employees.
the case of manufacturing in Thailand
There are four industries, which combined account for more than two thirds of the total number of businesses in Thailand8:^ manufacturing (29 per cent), retail trade (16 per cent), hotels and restaurants including food shops (12 per cent), and wholesale and commission trade (11 per cent). Industries differ in terms of average employment size of enterprises. There are many more large firms (more than 200 employees) in manufacturing and hospital activities, whereas in retail trade, wholesale and commission trade, hotels and restaurants small businesses are more dominant (chart 4).
There has been little variation in the number of businesses by main activity over the three years considered. The number of small businesses in wholesale trade, commission trade and retail trade has dropped, along with that of large businesses in the real estate and recreational service sectors. The manufacturing sector has seen an increase in the number of large enterprises over the three years. The concentration of large firms in specialized sectors of activity remained the same over time unlike shown before in the case of the geographical concentration.
Besides employment size, there are also differences regarding employment by gender. Generally, the representation of female and male workers in services and manufacturing is balanced, with a ratio of 11 women to 10 men. As in other economies, female participation is larger in hospital activities (70 per cent) and considerably lower in sectors like construction (6 per cent).
Chart 4. Thai businesses by industry and size, 2004-
(^8) The agricultural sector has not been taken into account in the Survey.
Small businesses (11-50 employees)
0 2 000 4 000 6 000 8 000 10 000 12 000
Manufacturing
Retail trade
Hotels and restaurants, including food shops
Sale, maintenance and repair of motor vehicles and motorcycles etc.
Wholesale trade and commission trade
Renting of machinery and equipm ent etc.
Construction
Recreational and other service activities
Other land transport and activities of travel agents
Real estate
Com puter and related activities
Hospital activities
Medium businesses (51-200 employees)
0 500 1 000 1 500 2 000 2 500 3 000 3 500
Manufacturing
Retail trade
Hotels and restaurants, including food shops
Sale, maintenance and repair of motor vehicles and motorcycles etc.
Wholesale trade and commission trade
Renting of machinery and equipment etc.
Construction
Recreational and other service activities
Other land transport and activities of travel agents
Real estate
Computer and related activities
Hospital activities
Measuring the impact of ICT use in business:
Chart 4. Thai businesses by industry and size, 2004-2006 (continued)
Note: No data available for hospital activities in the 2004 Survey. Source : 2004 and 2006 ICT Business Survey in Thailand, businesses with more than 10 employees.
Based on the 2005 Survey, 9 per cent of the businesses have some level of foreign ownership, which - as shown later - is a factor linked to higher labour productivity. Foreign ownership also varies with the type of industry. Whereas hospital activities, recreational and other services firms are mainly based on domestic capital, the computer and the wholesale and commission trade sectors have a higher share of foreign capital, in 18 per cent and 12 per cent of the businesses respectively.
The following section presents detailed information on ICT use in the Thai business sector with respect to computer and Internet use, and web presence. When the data was available the results of the 2004 and 2006 ICT Business Surveys are compared.
Use of computers
Computers are an important pre-requisite for the development of the information economy. Only 1 per cent of the Thai businesses with access to Internet used computers located elsewhere than on their premises and all enterprises with web presence disposed of at least one computer. 9 The fact that mobile phone operators rely heavily on the GSM technology might explain the very low proportion of businesses accessing Internet from mobile phones (Economist Intelligence Unit, 2007). High speed Internet access through mobile technology may become available as soon as the National Telecommunications Commission starts issuing licences for more advanced third generation mobile telephony services. Results of the ICT Business Surveys indicate that only a very small number of businesses, mostly microenterprises, use Internet cafés or telecentre services. As long as alternative technology is not developed, computers will remain key for the use of Internet and for web presence in the business sector.
The 2006 ICT Business Survey shows that 81.4 per cent of the Thai businesses have at least one computer and each of those businesses has on average 14 computers available and 16 employees
(^9) Based on the 2005 ICT Business Survey.
Large businesses (more than 200 employees)
0 200 400 600 800 1 000 1 200 1 400 1 600
Manufacturing
Retail trade
Hotels and restaurants, including food shops
Sale, maintenance and repair of motor vehicles and motorcycles etc.
Wholesale trade and commission trade
Renting of machinery and equipment etc.
Construction
Recreational and other service activities
Other land transport and activities of travel agents
Real estate
Computer and related activities
Hospital activities
2006 2004
Measuring the impact of ICT use in business:
Source: 2005 and 2006 ICT Business Survey in Thailand, businesses with more than 10 employees.
Chart 6. Share of computers, number of employees using computers and number of multi-user computers by industry, 2005-
Industry share of businesses with computers
0 10 20 30 40 50
Manufacturing
Hospital activities
Retail trade
Wholesale trade and commission trade
Renting of machinery and equipment etc.
Sale, maintenance and repair of motor vehicles and motorcycles
Hotels and restaurants, including food shops
Construction
Other land transport and activities of travel agents
Real estate
Recreational and other service activities
Computer and related activities
Per cent
Industry share of businesses with employees using computers
0 5 10 15 20 25 30 35
Manufacturing
Hospital activities
Retail trade
Wholesale trade and commission trade
Renting of machinery and equipment etc.
Sale, maintenance and repair of motor vehicles and motorcycles
Hotels and restaurants, including food shops
Construction
Other land transport and activities of travel agents
Real estate
Recreational and other service activities
Computer and related activities
Per cent
If looking at the relative use of computers (chart 7), the computer and related activities together with the real estate and the wholesale trade and commission trade industry have the largest share of computers per employee, indicating a higher intensity of computer use in these industries.
Industry share of businesses with multi-user computers
0 5 10 15 20 25
Manufacturing
Hospital activities
Retail trade
Wholesale trade and commission trade
Renting of machinery and equipment etc.
Sale, maintenance and repair of motor vehicles and motorcycles etc.
Hotels and restaurants, including food shops
Construction
Other land transport and activities of travel agents
Real estate
Recreational and other service activities
Computer and related activities
Per cent
2005 2006
the case of manufacturing in Thailand
Chart 7. Intensity of computer use by industry, 2005
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.
Hotels and restaurants, including food shop
Manufacturing
Renting of machinery and equipment without operator, research and development etc.
Construction
Recreational and other service activities
Sale, maintenance and repair of motor vehicles and motorcycles etc.
Retail trade
Other land transport and activities of travel agencies
Hospital Activities
Wholesale trade and commission trade
Real estate activities
Computer and related activities
Number of personal computers per employee Number of multi-user computers per employee
Source : 2005 ICT Business Survey in Thailand, businesses with more than 10 employees.
Use of Internet and web presence
Slightly more than half of the Thai manufacturing and services businesses with more than 10 employees are connected to Internet (55.9 per cent in 2006). Business size matters in terms of Internet access as it does in terms of computer and web presence use. Chart 8 shows how computer, Internet and web presence penetration increases with employment size. Whereas 48 per cent of the small businesses have access to Internet, this is true of 79 per cent and respectively 92 per cent of the medium and large businesses.
As shown before, in an overwhelming majority of cases (99 per cent), businesses access the Internet from computers located on their premises rather than in Internet cafés or telecentres. Only 385 businesses access Internet from outside their premises, despite the fact that more than 10,000 firms do not have computers and 23,530 do not have in-house Internet access. The lack of computers, in small firms in particular, goes hand in hand with the lack of Internet access for business purposes. For example all the large firms with more than 500 employees have computers and only 3 per cent of them do not have Internet access. On the other hand, among small firms with 11 to 15 employees only three quarters have computers, corresponding to 60 per cent with no Internet access (chart 8). A positive development from 2004 to 2006 has been the spectacular growth of around 10 per cent in the proportion of small and middle-sized businesses (11 to 100 employees) with access to Internet. The increase is mainly due to small firms with computers deciding to connect to the Internet.
Web presence as compared to Internet access is considerably less widespread in the business sector in Thailand. Little more than a quarter of all businesses have web presence, whether on their own websites or on sites belonging to other legal entities. Often businesses prefer to host their own website (in 89 per cent of the cases) rather than having it hosted by a different agent. Web presence is also more frequent among larger firms. The particularity is that even among the largest establishments with almost full coverage in terms of computers and Internet access more than a third remains without web presence. Whereas only a quarter of the small firms are present on the web, this is true of 42 per cent of the medium and 62 per cent of the large businesses. The proportion of businesses present on the web has grown mostly among those having 26 to 200 employees - by 5 per cent between 2004 and 2006.