Two years ago, BusinessWeek published a special edition that was entitled “The China Price.” Inside the magazine, a special report unveiled the ugly reality that companies in the US and Europe were unable to match the incredibly low prices of Chinese companies.

How about Thai companies? Are they able to compete with China on price? Taking into account the lower labor costs — and the damnably poor working conditions for Chinese workers — bearing in mind the higher economies of scale that many Chinese companies can reach, and considering the vast and rising oversupply of goods in most industrial sectors in China, most Thai companies that honestly confront the reality will likely answer: “Not anymore.”

But how can Thai companies compete with Chinese companies? Abandon your low cost strategy and “me too” copycat mentality. Realize that cost leadership is an unrealistic strategy in the era of the China price. Instead, better consider Prahalad & Hamel’s core competency concept. A core competency is something that a firm can do well and that meets the following three conditions: (1) It provides meaningful value to customers. (2) It is hard for competitors to imitate. (3) It can be leveraged widely to many products and markets. So focus on first creating new meaningful value to gain or further your core competencies; differentiate yourself through innovation and meaningful value creation. Then, in line with Kim & Mauborgne’s recommendation to break the cost-value trade-off decision, aim to realize your meaningful, unique value at a reasonable cost.

Let’s take our discussion to the macro-level: What can Thailand do as a country to position itself best against the competitive pressures from China? What are core competencies of Thailand? What are areas where Thailand can provide significant customer benefits? Areas where Thais shine, that are difficult for others to imitate, and that can be globally leveraged?

Thailand has a global reputation for hospitality and friendliness — after all, the country is known as the Land of Smiles. This circumstance explains Thailand’s huge success in the tourism sector and in the health & wellness industry. Both service industries will be global growth markets for the foreseeable future, so we are on a winning avenue here.

I believe that there is another area where Thailand can do extremely well: The creative industries. A world-class cuisine, the unique Thai architecture, widely appreciated interior design elements, or the global successes of Thai advertisers at international competitions — all these indicators are expressions of the fine Thai taste and the Thai talent for design and creativity. Conclusion: To succeed in our competitive global village of today and tomorrow, putting a strong emphasis on creativity and innovation seems to be a winning formula — both for Thai companies and for Thailand as a country.

Now IBM’s CEO Sam Palmisano describes the innovation world of the early 21st century as follows: “The nature of innovation — the inherent definition of innovation — has changed today from what it was in the past. It’s no longer individuals toiling in a laboratory, coming up with some great invention. It’s not an individual. It’s individuals. It’s multidisciplinary. It’s global. It’s collaborative.” This is an important lesson: modern innovation is open, not closed. If we are serious about meaningful progress and value creation, it’s time for politicians and lobbyists to say farewell to a “closed system paradigm” and to protectionist policies that are designed to prevent local companies or professions from healthy global competition.

A company, a city or a country that wants to turn into a leader for creation and innovation needs to open up to external global collaborations, and to find ways to attract and keep global creative and scientific talent. US economist Richard Florida provides evidence in his book “The Flight of the Creative Class” that creative talents vote with their feet, and move to open countries and cities that offer the most attractive competitive environment for their creative capital. “Openness is the real motor force of economic growth,” argues Florida.

In addition, the Global Competitiveness Report 2007–08 of the World Economic Forum indicates that there is some homework to be done for Thailand to prevent falling into the China price trap. Although Thailand achieved a good 28th rank overall of 131 countries covered in the report, the World Economic Forum lists a number of notable competitive disadvantages that are relevant for improving the innovation-readiness of a country.

Thailand needs to further develop areas such as higher education, intellectual property protection, the technological ICT infrastructure, and factors that are considered direct indicators for the innovation-readiness of a country: the number of patents filed, the quality of scientific research institutions, company spending on R&D, and the availability of scientists and engineers, among others. Other Asian peers such as Singapore, South Korea, Taiwan and China invest heavily to deliver on innovation-related factors and are preparing for an open, global and collaborative innovation future. These countries set the benchmarks for Thailand, not laggard countries such as Myanmar or North Korea that subscribe to a closed system view of the world.

Fortunately, a new democratically elected government took the helm a few days ago. Every new start is a chance to proactively prepare for a better future. As an optimist, I am hopeful that the new Thai leaders understand the challenges imposed by the China price, and set Thailand and its people up for future success and prosperity. Start creating your creative future now!

© Dr. Detlef Reis 2008. This article was published in parallel in the Bangkok Post under the same title on 14 February 2008.