PUBLIC-PRIVATE EFFORTS BUILD NORTH'S CREATIVE ECONOMY AND

UNCLAS SECTION 01 OF 04 CHIANG MAI 000078

SIPDIS

E.O. 12958: N/A
TAGS: ELAB EINV ETRD ECON BTIO TH
SUBJECT: PUBLIC-PRIVATE EFFORTS BUILD NORTH'S CREATIVE ECONOMY AND
FILL SKILLS GAP

REF: A. 08 CHIANG MAI 160 (LAMPHUN)

B. BANGKOK 1319 (FIGHTING UNEMPLOYMENT)

C. 08 CHIANG MAI 58 (SKILLED LABOR SHORTAGE)

D. CHIANG MAI 74 (INVESTORS COMPLAIN)

E. CHIANG MAI 39 (CNX-WOOD)

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Summary and Comment

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1. A wave of public and private sponsored initiatives is seeking
to empower the northern Thailand labor market with the skills
needed to support and develop high-tech and creative industries
in the region. This strategy aims not only to address
complaints by foreign and domestic firms about a skilled labor
shortage in the north, but also to diversify the land-locked
region away from over-reliance on agriculture and tourism, both
of which are vulnerable to seasonal fluctuations. Local
universities are expanding options for students who wish to
specialize in technology-related fields, including computer
design, graphic design, animation, and software development.
Government and private initiatives are providing post-graduate
training in the north to make new entrants to the labor market
more attractive to U.S. and European firms seeking to outsource
such work overseas. While support is strong in the north to
develop what Prime Minister Abhisit Vejjajiva has labeled "the
creative economy," the challenges of expanding domestic demand
for skills-intensive products and improving widespread respect
for intellectual property rights (IPR) remain obstacles to the
policy's success in the north.




2. Comment: Current initiatives to develop the creative and
high-tech sectors of the northern Thai economy have the
potential for a real public policy success story, with Thai
public institutions recognizing a significant need - solving the
skilled labor shortage, especially in the north - and seeking to
address it directly. However, adding these skills to the
northern labor market will only contribute partly to the broader
effort to build up the north's "creative economy." Broader
challenges, including low domestic demand for goods produced
with higher skills and low public awareness about respect for
intellectual property, must also be met in order to maximize the
expansion of new investment (both foreign and domestic) in these
sectors in the north. End Summary and Comment.



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A Public and Private Push to Build IT Skills

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3. Government and industry efforts to build a northern Thai
labor force equipped with IT skills have been impressive. On
the government-side, the Software Industry Promotion Agency
(SIPA) has established a Chiang Mai-based center whose main
purpose is to develop the creative and high-tech aspects of the
local economy through IT training. SIPA in Chiang Mai trains
local workers in the IT and creative sectors with the objective
of its graduates starting their own firms. For the graduates
themselves, entrepreneurial endeavors may be too risky, but
SIPA's training is useful to make them more marketable to
foreign firms seeking to outsource parts of their production
processes to Thailand.




4. The unique element of SIPA's Chiang Mai office is the
Northern Animation Studio (NAS),which equips IT professionals
with the software skills necessary to produce high quality
films. Thus far, the animation program has provided training to
over 500 hopeful IT professionals. While the program provides
training to workers on how to use in-demand software to produce
animated films (skills which workers know pay off thanks to
outsourcing),the NAS encourages them to use their skills to
produce their own original films. Unfortunately, according to
SIPA's animation director, the NAS has only produced one
original short animated film. Moreover, SIPA's animation
director said that despite the agency's training courses,
private firms still have to provide additional training before
the Agency's graduates are ready to work independently.
Ultimately, the training that SIPA provides equips workers with
specialized skills to do a specific task (such as reproduce an
animated character in various positions),but does very little

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in terms of developing creativity and original thought.




5. Recognizing the limits to public sector support of IT skills,
the software industry in the north has organized itself to build
skills that are most in demand. One industry-sponsored project
is called the IT Application and Service Cluster and aims to
expand the software development industry in the Upper North
provinces of Chiang Mai, Chiang Rai, Mae Hong Son, Phrae, Nan,
Lampang and Lamphun by providing in-kind support (volunteer
programmers) to provide training and mentorship for
up-and-coming IT professionals. Additionally, individual
Thai-based firms are partnering with universities to expand the
number of skilled laborers in the market. The Thai software
development firm Soft Square 1999, for example, is partnering
with North-Chiang Mai University and Mae Fah Luang University in
Chiang Rai to educate computer science majors about
entrepreneurship. Similarly, software development company Mfec
is partnering with Chiang Rai Rajabhat University and Mae Fah
Luang University to provide job guarantees to interested
graduates at the firm's newly established Chiang Rai location.



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Universities Try to Fill the Skills Gap Up North

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6. In addition to partnering with private firms, northern Thai
universities are also acting independently to try to supply the
market with the high-tech skills needed to develop a northern
Thai creative economy. The recent establishment of the Computer
Network Operation Centre (CNOC) at Chiang Mai University is one
example of a university effort to develop IT skills among locals
in the labor market. According to the center's director, CNOC
hopes to turn Chiang Mai University into a technology training
hub for the northern region. CNOC is intended to serve as a
technology laboratory that can provide final-year undergraduates
from the university's Faculty of Engineering with specific skill
sets, such as a training program that results in a networking
engineer certification. Presently, the CNOC can only
accommodate 5,000 students for laboratory study and only 30
students achieve the network certification per year, which does
not come close to meeting the demand for such educational
services in the north, according to the CNOC director.




7. Curricula in university computer science and technology
programs are also trying to adapt to the region's demand for
greater IT and "creative" skills. In 2006, Chiang Mai
University established a College of Art, Media and Technology
(CAMT) which is growing in popularity with 392 students
declaring majors in the college last year. The most popular
major in that program is Modern Management and Information
Technology (MMIT),while Animation is the second most popular.
The MMIT program also established a campus in Lamphun province,
where several foreign firms produce high-tech products for
export (ref a). According to the Dean of the CAMT, the
increasing number of students each year in the college is a good
sign for Chiang Mai because it is developing the core skilled
labor force the city needs to develop a creative economy. The
dean was confident that northern Thailand's skilled labor force
can compete with other countries', including China's and India's.




8. Of the fifteen universities across the north of Thailand, all
reported having some departments and majors related to the
concept of the creative economy, including fine arts,
architecture, computer design, graphic design, animation, and
technology management. In Chiang Mai specifically, it is
estimated that, per year, about 900 Chiang Mai University
graduates, 265 Rajamangala University graduates, and 140 Mae Jo
University graduates receive degrees in fields related to the
creative economy. Accounting for smaller programs at other
Chiang Mai area universities, we estimate about 1,500 graduates
per year in these fields in Chiang Mai city.



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A Thai Silicon Valley?

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9. A longer term project, which also aims to expand the creative
economy of northern Thailand, is the Northern Science Park
(NSP). The NSP remains in the planning stages and was envisaged
about four years ago by the central government under the idea
that regional science parks should be established outside of
Bangkok to encourage such economic development elsewhere in the
country, including the northern provinces of Chiang Mai, Chiang
Rai, and Phitsanulok. According to representatives of the NSP
office in Chiang Mai, which is currently located at Chiang Mai
University, the park is expected to have a variety of functions,
the main one being to serve as a center for scientific research
and development in the north.




10. The NSP hopes to achieve that goal by hosting domestic and
foreign university research institutes and pilot high-tech
manufacturing programs at a R&D park to be located near the
currently established Lamphun Northern Regional Industrial
Estate. The NSP planners hope that the park will specialize in
food and agribusiness, biotechnology, and renewable energy
research, pulling from Chiang Mai and Lamphun's agricultural
environment. The NSP representatives said that they are moving
closer to the construction phase of the program, which they hope
will begin sometime within the next two years. (Note: The NSP
invited post to encourage U.S. universities, research
institutes, and businesses to learn about and consider
opportunities for investing in the park.)



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Skilled Labor Shortage Fuels Creative Economy Development

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11. Despite high unemployment in Thailand throughout this
economic crisis (ref b),firms operating in the northern
region's high-tech and creative sectors (including software
development, animation, graphic design, etc.) continue to
complain about a shortage of skilled labor, which is partly the
motivation for this joint governmental, private sector, and
academic push to build IT skills. The CEO of Mycos
Technologies, a U.S. investment-based software development
company which provides outsourcing services in Chiang Mai for
U.S. and European clients, said that while local universities
provide seemingly advanced technology curricula in computer
software design, the resulting skill sets are inadequate for new
hires to begin work right way. The CEO said that to measure
applicants' basic understanding of the mathematics foundation
required for more advanced computer science work, he asks each
applicant a basic math problem (what is the square root of
100?). He disappointedly reported that only about 40% of the
applicants could answer the question immediately. In addition
to a lack of sufficient math and technical skills, the CEO said
that poor English skills (or a lack of confidence in speaking
English) are another challenge because workers must be able to
communicate with foreign clients. Both U.S. and other foreign
firms operating in northern Thailand have also complained to us
about this lack of skills in the region (see ref c and d).




12. The result of the skills shortage has been an added cost
burden to northern-based firms. Mycos Technologies told us that
each new software developer that the firm hires requires an
additional six months (at least) of training before he or she
can work independently. The additional training is needed
despite the fact that each new employee graduated (usually) from
Chiang Mai University's (CMU) Faculty of Computer Science or
Faculty of Engineering and has completed two to five years of
relevant work experience. Creative Kingdom International, a
U.S.-based graphic animation and architecture design firm
investing in Chiang Mai, also reported that it has to spend
significant training time with new employees, despite their
educational background (see ref e).



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Despite Skills Shortage, North Remains Competitive

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13. Many high-tech and creative sector investors see northern
Thailand as a promising investment destination despite the
skilled labor shortage described above. According to Mycos
Technologies, the firm chose to establish itself in Chiang Mai
because of two reasons: reasonable costs and high quality of
life. According to Mycos' CEO, the cost of rented space,
high-speed internet access, and other operating expenses is so
much lower in Chiang Mai compared to Bangkok that he can pay his
software developers salaries between $800 and $850 per month,
which he said is higher than average salaries for similar work
in Bangkok. The higher salaries - combined with the fact that
the firm seeks locally born and raised staff who wish to
continue living in Chiang Mai - keep the employees loyal to the
firm; the CEO reported that in the last seven years, Mycos had
only one programmer resign from its staff of 30. By keeping the
employees loyal to the firm (a relative rarity in the Bangkok
market, Mycos says),the firm is able to save on training costs
in the long-run.




14. The reasonable climate, friendly atmosphere, and low cost of
living is also an attractive characteristic of northern Thailand
for investors. According to the CEO of Creative Kingdom
International, Chiang Mai's variety of luxury hotels,
restaurants, and spas makes hosting clients much easier here
versus competing outsourcing destinations such as China and
India. The CEO of Mycos echoed those comments saying that his
clients enjoy coming to Chiang Mai and often choose to do
business with the firm as an excuse to travel to Thailand for
tourism. Both of these firms said that the low cost of
operating combined with the high quality of life make the extra
costs of training new staff, due to the skills shortage,
worthwhile.



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Challenges: Domestic Demand and IPR

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15. While the skills shortage is the most imminent challenge to
developing the northern Thai creative economy in the short-run,
two longer term challenges remain: (1) boosting the low level of
domestic demand for goods produced in a creative economy and (2)
establishing a strong intellectual property rights (IPR) regime
that is the foundation of such an economy. The first problem is
linked to Thailand's appetite for imported goods (or, at least,
imported brands) that are skills-intensive, such as movies,
video games, and software. According to a representative of
Creative Kingdom, "Thai people don't like to consume their own
creative products," and it is only once a Thai brand becomes
well-known overseas that it becomes popular domestically in
Thailand. This low domestic demand for Thai-created goods
limits domestic investment in such goods. According to SIPA's
animation director, the cost of producing an animated film is
about $8,000 per minute; he said that no Thai entrepreneur finds
that cost worthwhile given the small size of the Thai market.




16. Invariably linked to the problem of low domestic demand for
Thai creative goods is the second problem of weak IPR protection
in Thailand. On the one hand, piracy keeps the price of foreign
creative goods low such that there is even less of a market for
Thai-created products. While piracy keeps domestic demand for
legitimate goods (foreign or domestic) low, it also lessens the
incentives for Thai entrepreneurs to invest in designing and
producing such goods domestically. The result is a widespread
lack of understanding about the benefits of a strong legal
framework for intellectual property and, consequently, a lack of
non-governmental actors in the region fighting for those rights.
While IT firms and SIPA told us that foreign clients are not
very concerned about IPR in Thailand because they export only
part of their production process to the country, they did
believe piracy will remain an obstacle to developing the Thai
creative economy beyond its current level.
MORROW