Beyond Bangkok, urbanisation is stalling in Thailand

Jane Jacobs, a well-known urban studies expert, once wrote, "A metropolitan economy, if it is working well, is constantly transforming many poor people into middle class people, many greenhorns into competent citizens. Cities don't lure the middle class. They create it."

The urban middle class is a good thing. They are a key constituency for improved governance, for greater transparency and accountability from politics and government.
They are also an essential ingredient for driving domestic demand. Consumption is a particularly urban-tinged story. Urban residents want to live the urban lifestyle.
In Thailand, urban residents have about twice as much income as non-urban residents on average. They also spend significantly more than their non-urban counterparts that earn the same income. Higher income consumers in urban areas are twice as likely to own a passenger car as their rural counterparts, and are about 50% more likely to own an air-conditioner, a microwave and a computer. Countries which will see rapid growth in the urban middle class - like China - are most likely to see sustained growth in domestic demand.
In Thailand, unfortunately, urbanisation is low and is stalling.
Thailand's urbanisation rate (its urban population as a percentage of the total population) is 31%, significantly below peers such as Indonesia (53%), Malaysia (71%) and South Korea (82%). More worrisome is that urbanisation has stalled, increasing by less than one percentage point between 2002 and 2009, compared to increases of over 7 and 8 percentage points in Malaysia and Indonesia, respectively.
Why? The short answer is that Bangkok really dominates the urban landscape, but is not growing. The second largest city in Thailand is only about 6% the size of Bangkok. In South Korea and Malaysia, by contrast, the second largest cities are 36% and 49% the size of their largest cities, respectively. While it may be hard for those of us mired in the congestion of Bangkok to believe, Bangkok also appears to have stopped growing since 2007. People had previously attributed this to the growth of (peri-urban) cities around Bangkok, i.e. people were just moving from Bangkok to its vicinity to take advantage of lower costs and the like. But what the latest available survey data indicate is that even the overall population in Bangkok and its vicinity (cities like Nonthaburi, Samut Prakan and Pathum Thani) appears to have shrunk by about 1% between 2007 and 2009. The above is in contrast with the top 10 cities outside Bangkok and its vicinity, which collectively grew by 17% during the same period.
The momentum of urbanisation is shifting towards cities outside Bangkok. Provinces which have seen particularly rapid growth in their urban populations include Songkhla, Nakhon Si Thammarat, Surat Thani, Ubon Ratchathani, Chon Buri and Nakhon Ratchasima.



There are only about 4 million members of the urban consumer class in Thailand, which we define as those residing in municipal (tesaban) areas and earning more than 15,000 baht per month. Nearly half (45%) are located outside Bangkok and the vicinity, with more to come. Between 2002 and 2009, a full 75% of the increase in the number of urban consumers occurred outside Bangkok and its vicinity. Our projections indicate that this is likely to continue in the near future.
What are the implications for business? Adapt. Slowing urbanisation in Bangkok would seem to suggest a strategy of focusing increasingly outside Bangkok. But this is not as straightforward as it sounds. While the majority of the absolute increase in the urban consumer class has been occurring outside Bangkok, the problem is they are spread out all over the place. The average number of urban consumers even among the top 10 provinces outside of Bangkok and its vicinity is only 67,000. That is not a whole lot of potential customers. It is difficult to find a place with a sufficient critical mass of consumers, suggesting the need for a different approach when going outside Bangkok, e.g. by perhaps relying less on bricks-and-mortar and more on online channels.
But ultimately, we need to get urbanisation going again. The 2009 World Bank's World Development Report notes that "an urban system tends to be made up of a few large, diversified cities and many smaller, more specialised, cities".
The problem in Thailand is that Bangkok is so overwhelmingly dominant while its smaller cities are not specialised. Contrast that with South Korea, which has a well developed "portfolio of places" in its urban system led by Seoul (capital, 9.8 million people) and followed by Pusan (seaport, 3.7 million), Daegu (textile and automotive manufacturing, 2.5 million) and Ansan (electrical machinery and computers, 679,000).
Governments - both central and local - obviously have a critical role to play in fostering such an urban system, especially by providing the requisite infrastructure. But they need to tread carefully. Dramatic initiatives that do not reflect market realities - like the fashion for creating "new cities" - are likely to fail.
There is also much that businesses themselves can do to help cities beyond Bangkok to develop. Cities do not have to be that large to benefit from industry clusters, and it may not take that many firms working together to form such clusters, especially in partnership with local universities (e.g. to develop the needed pool of skills) and local governments. The key is coordination, something never easy to do here. But the opportunities are there, while the alternative is to continue "as is", with our urbanisation stalled and our development below its true potential.