The Practices of Thai Contractors in Cross Border Procurement

During the end of the 20th century, many accomplishments of multilateral trade diplomacy were established. The effect of globalization has brought a new trend in trading and has much changed the world economy. Presently, the share of services in the world-wide economy has expanded greatly. Since the establishment of the GATT (General Agreement on Tariffs and Trade) in 1947, it has generally been considered a success in reducing tariffs and increasing trade volumes around the world. The finalization of the Uruguay round of the General Agreement on Tariffs and Trade (GATT) 1994 and the establishment of the World Trade Organization (WTO) has further enhance the movement to trade liberalization. Since then many trade agreements consisting of bilateral and multilateral have been formed until today. As an emerging country, Thailand is not far behind. Until the year 2006, Thailand has formed many FTA’s with other countries.

FTA offers not only opportunity but also threat especially to those local construction companies. For those companies who understand the importance of integrating FTA and the supply chain, they strive in aligning their strategies towards that direction. They will then partake the benefits and gain competitive advantage. As FTA is unavoidable, companies that fail to evolve will loose their competitive edge. This has made it difficult for construction companies to align their strategies for the future.

Another problem faced by Thai contractors these days is the fear of going global. Most contractors fear the risk and do not understand the procedures involved in global procurement which put them to a disadvantage situation.

Mr. Arasavindiran Mariappan made a research which aimed to find out how construction companies can improve their strategies and competitiveness with relations to globalization especially FTA. The focal point of his research was large scale contractors. His objectives were to (1) develop a supply chain framework showing different participants in construction service; (2) survey the perception of large scale contractors in terms of their procurement practices and flow of materials, equipment and labor globally; (3) identify the mechanisms affecting the global procurement practices and analyze the relationship affecting the parties of the supply chain; and (4) propose guidelines for construction companies to align their strategies towards competing in international trade and gain benefit from the FTA phenomenon.

Based on the analysis of cases, several trade mechanisms were identified that allowed free flow of materials, equipment and labor. Although the general FTA parameters were initially identified from literatures, a detailed screening was done to get an in depth information of all the existing mechanisms. After a thorough analysis of each case, the impact of each mechanism on the cases was identified. Analysis shows some mechanism giving benefit and some not. He found out that each mechanism can contribute to the benefit of the contractor or otherwise give disadvantage to them. This is because in order for the mechanism to function depends on the country of project being undertaken and also other parties in the supply chain such as the supplier, the bank and the freight company. In order to conclude this study, a proposed guideline was constructed to help Thai contractors with global procuring in their mind. This guideline is meant to assist them in assessing all the possible impact from each participating party so that a strategic for procuring international project can be created.

The Road towards Globalization

The road toward globalization is never a smooth path. Most contractors learned the hard way in order to grasp the true benefit or FTA and the use of each mechanism. One of the interview respondent stated that 5 years ago, the Letter of Credit (L/C) was not know by contractors. Today it has become an important mechanism for transaction and a driving mechanism for easier flow of materials and better finance. Many contractors before fear of exploring the global market because of the many risk involved. Those who dare are mainly large scale contractors. Times are changing, contractors nowadays are slowly moving towards globalization due to tight competition and untapped advantages in the global market.

Another driving force for contractors is the recent trade agreements between Thailand and other countries. For the years to come, many more trade agreements will exist and Thai contractors will be force to join the global market or lose competitiveness.

His thesis abstract is copied and posted.

ABSTRACT

The shift of procurement methods in the construction industry is inevitable as Thailand moves towards globalization. Many contractors are slowly shifting their mindset towards the global market. Nevertheless, some contractors are still keeping their legs crossed because of fear and the risk involved in global procurement. This study aims to identify and analyze the mechanism that affects the free flow of materials, labor and equipment into other countries. The result of this study proposed useful guidelines for contractor in procuring oversea projects in terms of material, labor and equipment. In the analysis, the researcher found out that effect of each mechanism on the parties can be different according to case. This is because in order for the mechanism to function depends on the country of project being undertaken and also other parties in the supply chain such as the supplier, the bank and the freight company. The study is concluded by proposing some guidelines for contractors to check and measure when procuring international project. This model is done based on free trade mechanisms of the analyzed cases. To make a sound decision, the contractor should also consider other important factors such as cost, time, distance, political conditions and others.