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Potential winners and losers from the trend in data center
investment in Thailand
Highlight
 Thailand’s data center sector has been developing progressively owing to the mounting
demand from both private and public sectors. The private businesses views the data center
as a significant factor determining the steadiness of their business operation meanwhile the
public sector are somewhat driven by the efforts to improve productivity of mutual data
processing across state organizations. This leads to a series of investment to establish
conventional data center and cloud-based data center.
 The ongoing trend in aforementioned ICT sector presents a noteworthy opportunities for
electronics industry as well as those of technology and telecommunication service
providers. Enterprise hard drive and integrated circuits sections of Thai electronics industry
are likely to be positively affected by the advent of data center, this is due to the relatively
close association of their final goods with the construction and subsequent operation of data
centers. Even so, the presence of alternatives made by lower cost foreign suppliers could
constitute the waning of competitiveness of Thai electronics industry unless there would
be efforts to bolster the proficiency of local businesses and the moving into the higher level
of the value chain. Information technology solution firms, namely those in data center
service and ICT consultancy, could utilize their existing technological expertise to
potentially capture the benefit stemming from data center’s trend by addressing issues of
cost-effectiveness, relative sophistication of the system and environment awareness.
The sector relating to data center in Thailand is still nascent but have been
growing steadily over the years. Fundamental factors driving such growth are the
substantial demand for mobile devices and the dependency of the internet economy upon
the cloud computing. As of 2013, the data center section underwent unprecedented growth of
about 23% upward from the preceding year and generating nearly 2,000 million baht in
revenue. Data center is defined as a facility to house computer systems and associated
components, such as telecommunications and storage systems. More specifically, a data center
comprises of networked computer servers which are used to remotely store information,
processing as well as distribution of abundant data. Besides, the data center can exist as the
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physical office or can present predominantly online in form of the cloud-based data center
(CDC). For transnational technology corporations, Thailand is strategically important as a base
for pushing into other ASEAN markets such as Laos and Myanmar. The attractiveness of
Thailand data center is partly facilitated by the geographical proximity to potential Asia-pacific
markets. Besides, there is adequately developed IT and telecommunication infrastructure
crucial for data dissemination and network connectivity, this is evident by the considerable
level of internet hosts and usage as well as the relatively reliable electricity supply. Likewise,
the development of data center in Thailand has been highlighted and promoted by Thailand
board of investment with objective to strengthen the nation’s position as an ICT regional hub.
There is consistently growing enthusiasm on data center among both public and
private sectors. In this respect, a series of investment has been made on the establishment of
data centers in recent years. On the government level, data center has been regarded as
fundamental for enhancing the effectiveness of information sharing and processing between
state agencies. An objective of state owned data center is to remedy the overlapping issue which
often occurs when processing documents cross-agencies. To this end, the Provincial
Administration Department and the Electronic Government Agency of the Information and
Communication Technology Ministry jointly set up a data center meant for storing citizen
identification information. This data center has been mainly used by the Royal Thai Police, the
Land Transport Department and Revenue Department. The government currently expects the
continuing increase in number of state agencies linked up to the data center and projects about
1,000 agencies using such system in 2015.
In the private businesses’ perspective, the data center is essential for ensuring their
business continuity, particularly in the event of natural disasters or man-made issues i.e.
political unrests. To mitigate those of unpredictable risks, various businesses, ranging from
financial and manufacturing sectors to telecommunication sectors, have increasingly
recognized the importance of having back-up databases or a second data center back up site. A
further point, the demand for data center is substantiated by the linkage between data center
and cloud computing services. Data center is used by cloud service providers to house cloud
services and cloud-based resources. With regards to cloud-hosting, venders also operate
multiple data centers to safeguard data availability in the wake of potential outrages and other
data centers’ system failure.
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The consistent development of data centers in Thailand might constitute positive
effect to the sub-categories of electronics industry that manufacture parts and
components related to data center, especially data storage and semiconductor derivatives.
Within the manufacturing sector, the electronics industry has thrived and become a prominent
manufacturing industry of Thailand. The electronics sector have had pivotal role in the national
economy as an export earner while also paving the way for Thailand to be the leader in the
South-east Asia region. Key electronics products are harddisk drive (HDD) and integrated
circuits (IC), both account for more than half of total electronics exports. The similarly
significant reputation has been noted in IC and semiconductor manufacturing. Thailand has
been regarded as the front-runner in the HDD and component production, commanding around
40% of the global production. The hitherto competitiveness of Thai electronics industry arises
from the competitive and affordable work force, good logistics system and the development
of clusters which are characterized by extensive networks of supporting industries producing
majority of parts required in the assembly of final products.
A data center utilizes an ample amount of data storage devices and microelectronic chips. Enterprise or datacenter capacity hard drives have been already
manufactured in Thailand. Consequently, the rising domestic investment in data centers
could bolster the demand and production of enterprise type of HDDs, generally benefiting
firms along the value chain of HDD production (Figure 1). Considering that a data center
also makes use of various electrical apparatuses in their operation to rigidly control
environmental factors and continuously supply power, the overall chip industry should
certainly proliferate as well. It should be noted that other electronics sectors such as automotive
electronics and agritronic would not be beneficial from the growing data center investment
given their clear irrelevance to the essence of data center. Similarly, the consumer electronics,
with the exception of computer and telecommunication equipment, is more or less unaffected
by the ongoing trend in data center investment.
Nevertheless, a fundamental challenge for local electronics businesses is to
improve and reinforce the position in the value chain in order to stay abreast of costefficient producers in other Asian countries and to reap benefit from the ascension of
Thai data center sector. Currently, the prominent role of local firms is as original equipment
manufacturers or subcontractors to assembly final products while the role in research and
design of critical components and electronics products are still lacking. Being in the lower
stream of value chain (Figure 2), the threat of capital flight is not entirely distant scenario since
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many raw materials and semi-finished products are imported from aboard rather than locally
produced. In the long run, this disadvantage could eventually lead to the importation of data
center’s parts and components from cheaper foreign sources in the region namely China and
India.
Others directly benefited from data center development are data center services
providers who could accommodate their growing number of local, regional clients, of
different sizes. Some are technology firms that already have foothold in the data center sector.
These include both global technology firms such as Fujitsu and those of domestic players
namely Siam IDC, TCC Technology and Siam Inet. As an actual fact, investing in own data
centers necessitates remarkable funds to procure related software, hardware, construction of
the data center’s premise, upkeeps as well as hiring and training skilled personnel to operate
the system. Hence, the role of data center service provider is likely to be intensified given their
expertise in managing such information network and their clients’ cost minimization incentive.
In the light of uptake in cloud adoption, there might be business opportunities for
telecommunication and network firms. Cloud data centers particularly relies upon the access
to internet, thus speed and connectivity of the network are significant issues. Alongside the
proficiency and experiences in technology industry, telecommunication and networks
companies would be able to effectively combine the data center management with connectivity
services so that they can leverage to create cloud-based infrastructure services.
Additionally, the growing presence of data centers might be advantageous for
professional services companies specializing in information technology advisory. For data
center service providers and private businesses aiming to establish own data centers, those of
IT consulting firms are mainly asked for data center strategies and data center model. It is an
actual fact that a data center could utilize extensive electricity to operate redundant data
communications connections, various security devices and air conditioning used to control the
temperature and humidity. It could be noted that the operations of a data center might contribute
to high carbon footprint, exacerbating the issue of greenhouse gas emission. In this regard, a
potential prospect is the consultation on energy efficiency implementation, particularly for data
center with physical presence.
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Implication
In order to promote the favorable interconnection between the ongoing creation of data
centers across economic sectors and electronics industry, a series of policy implementation is
vital to foster competitive advantage held by Thai electronics industry. The state should
encourage the creation of value within the electronics industry. This could be achieved via the
successful expansion into upper steams of value chain, particularly the integrated circuit design
and the wafer fabrication. Given both financial and technical knowledge constraints facing
local electronics businesses, policies aiming at foster their access to financial means and their
organizational capabilities are essential. With reference to the advancement of data center, the
government may wish to further uphold the attractiveness of information technology businesses
as a whole through investment incentives such as limited-term income tax break and an
exemption from import duty on machinery and other capital goods.
Figure 1: Value chain of HDD production
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Figure 2: Value chain of Thai electronics industry
System
design
IC
Design
Wafer
Fabrication
IC
Packaging
PCB
Assembly
Hardware
Software
Applications
Product
Assembly
White goods
Consumer electronics
Harddisk Drive
Industry applications
Automotive electronics
Agritronics
represents the main electronics industry that Thailand presently has
Source: NECTEC
By: Nattachai Charusilawong ([email protected], [email protected])