Thailand’s small and medium-sized enterprises (SMEs), the backbone of the nation’s economy, are grappling with an escalating crisis driven by a stark innovation deficit and mounting pressures from global trade wars. As of early 2025, the closure of nearly 24,000 SMEs and over 1,200 factories has left more than 35,000 workers jobless, signaling a deepening structural challenge. With SMEs employing over 12.9 million people across the country, the ripple effects of this downturn threaten not only livelihoods but also Thailand’s broader economic stability.

A Perfect Storm of Challenges

The Thai labour market, particularly among SMEs, faces a confluence of domestic and international headwinds. Global trade wars have disrupted sales and production continuity, exacerbating existing vulnerabilities in a sector already struggling to adapt to modern demands. According to the National Economic and Social Development Council (NESDC), the lack of innovation and technological adoption is a critical barrier to SME survival. Secretary-General Danucha Pichayanan emphasized that without significant advancements, many businesses risk further decline in an increasingly volatile market.

The impact is evident in the wave of closures throughout 2024 and into 2025. The manufacturing sector, a key driver of employment, has been hit hardest, with competitiveness emerging as a persistent concern. Factories, mostly small and medium-sized, have shuttered at an alarming rate, unable to keep pace with regional peers who are rapidly modernizing their operations.

Innovation Gap: Thailand Lags Behind

A recent report from the World Bank’s Thailand Economic Monitor for February 2025 paints a sobering picture of Thailand’s innovation landscape. Only 11.9% of Thai firms incorporate innovation into their production processes, a figure that pales in comparison to regional counterparts like the Philippines (40.9%), Vietnam (37.9%), and Malaysia (37.3%). Thailand also ranks lowest in the adoption of foreign technology (5.6%) and investment in research and development (R&D), with a mere 1.1% of businesses allocating resources to such efforts.

In contrast, the Philippines leads the ASEAN region with 32.9% of firms introducing new products or services, followed by Vietnam at 23.2%. Even Indonesia, which lags in process innovation, surpasses Thailand in foreign technology adoption at 23.7%. These disparities highlight a significant structural barrier for Thai businesses, limiting their ability to compete in both regional and global markets.

The consequences of this innovation gap are stark. Declining sales and reduced production output have directly contributed to the widespread business closures, with SMEs bearing the brunt of the fallout. The World Bank report suggests that low investment in R&D is a key factor, creating a vicious cycle where firms cannot afford to innovate, further eroding their competitiveness.

The closure of thousands of SMEs and factories has had a profound impact on Thailand’s workforce. Over 35,000 workers, primarily in manufacturing, have lost their jobs, a trend that could worsen if current conditions persist. SMEs, which account for a significant share of employment, are critical to sustaining incomes for millions of Thai families. A continued decline in this sector risks exacerbating income inequality and dampening consumer spending, a key driver of economic growth.

Beyond the immediate economic toll, the crisis carries social implications. Job losses in manufacturing-heavy regions have strained local communities, with many workers struggling to find alternative employment in a market that increasingly demands technological proficiency. If unaddressed, this could fuel broader discontent and place additional pressure on government resources for social support.

A Call for Urgent Action

In response to the mounting crisis, the NESDC has proposed several measures to bolster SME resilience. Chief among them is expanding access to financing, which would enable businesses to invest in technology and innovation. By streamlining production processes and reducing costs, SMEs could regain a competitive edge in a market defined by rapid change. Danucha Pichayanan underscored the urgency of such interventions, noting that strengthening SMEs would stabilize employment and boost incomes for millions.

The World Bank echoes this sentiment, advocating for increased public and private sector collaboration to prioritize innovation. The report highlights the untapped potential for R&D investment in Thailand, suggesting that targeted policies could help close the gap with regional leaders like Vietnam and the Philippines. Examples from these countries, where innovation engagement is significantly higher, offer a roadmap for Thailand to follow.

Regional Context: Learning from Neighbors

Thailand’s lag in innovation stands in sharp contrast to the progress made by other ASEAN nations. Vietnam, for instance, has seen 37.9% of its businesses adopt process innovation, supported by a growing focus on R&D (15.7% of business activity). Similarly, Malaysia’s adoption of foreign technology (23%) has helped its firms remain competitive despite lower rates of new product introduction. These examples illustrate the transformative potential of innovation, even in economies facing similar global pressures.

Indonesia, while behind in some metrics, demonstrates strength in foreign technology adoption, a strategy that could offer lessons for Thailand. By leveraging external expertise and tools, Indonesian firms have managed to offset some of their innovation deficits. For Thai policymakers, these regional success stories underscore the importance of tailored interventions that address specific gaps in the SME ecosystem.

Financial Support as a Lifeline

One of the most immediate barriers for Thai SMEs is access to capital. Many lack the resources to invest in new technologies or training, perpetuating their reliance on outdated production methods. The NESDC’s recommendation to expand financing options could serve as a lifeline, particularly for smaller enterprises hardest hit by the closures. Government-backed loans, subsidies, or partnerships with private lenders could provide the necessary funds to kickstart innovation.

Additionally, incentives for R&D investment—such as tax breaks or grants—could encourage businesses to prioritize long-term growth over short-term survival. While the upfront costs of such policies may be significant, the potential returns in terms of job creation and economic stability are substantial. For an economy as dependent on SMEs as Thailand’s, these measures are not just beneficial but essential.

The Road Ahead

As Thailand navigates this critical juncture, the stakes for its SME sector could not be higher. The innovation gap, compounded by external pressures like global trade wars, poses a formidable challenge to economic recovery. Yet, with nearly 13 million workers relying on SMEs for their livelihoods, inaction is not an option. Targeted investments in technology and R&D, coupled with accessible financing, could chart a path forward, enabling Thai businesses to compete on a global stage.

Regional examples offer hope, but adapting these strategies to Thailand’s unique context will require coordinated efforts from both government and industry. Public sentiment, as gauged through social media platforms like X, reflects growing concern over job losses and economic uncertainty, adding urgency to the need for reform. As policymakers weigh their options, the question remains: can Thailand bridge its innovation divide before the damage to its SME sector becomes irreversible?