ЕКОНОМІКА ТА УПРАВЛІННЯ ПІДПРИЄМСТВАМИ 93

Siriwan Saksiriruthai1
SUFFICIENCY ECONOMY AS THE CONCEPT FOR VALUE CHAIN
PROCESS IMPROVEMENT: EVIDENCES FROM THAILAND
This paper links sufficiency economy philosophy to value chain analysis. Firms could apply
this concept to each process in their value chain in order to create long-term and sustainable
growth. Our findings declare the existence of profitability for two large firms implementing suffi-
ciency economy. Though both experienced a huge loss during the Asian economic crisis, they not
only survived, but also generated substantial profits within few years later. The author proves that
in such a way businesses could sustain good image and long-term growth.
Keywords: sufficiency economy; value chain; Thailand; long-term growth.
Peer-reviewed, approved and placed: 9.02.2017.
Сіріван Саксірірутай
ЕКОНОМІКА ДОСТАТНОСТІ ЯК КОНЦЕПЦІЯ ПОКРАЩЕННЯ
ПРОЦЕСІВ У ЛАНЦЮЖКУ ФОРМУВАННЯ ВАРТОСТІ:
НА ПРИКЛАДІ ТАЇЛАНДУ
У статті показано, яким чином можна пов’язати філософію економіки достатно-
сті та аналіз ланцюжку формування вартості. Доведено, що фірми можуть успішно
застосовувати цю філософію до кожного етапу ланцюжку формування вартості, що
призводить до довготривалого та стійкого зростання. Результати аналізу даних по двох
фірмах доводять, що застосування ними принципів економіки достатності призвело до
підвищення прибутковості. Хоча обидві компанії мали суттєві збитки внаслідок
Азіатської кризи 1997 р., пізніше вони не лише вижили, але й змогли отримати суттєві
прибутки. На прикладі цих двох компаній доведено, що економіка достатності може
сприяти не тільки стійкості фірми, але й підвищенню її іміджу, а також довготерміно-
вому розвитку.
Ключові слова: економіка достатності; ланцюжок формування вартості; Таїланд; довго-
термінове зростання.
Рис. 1. Літ. 14.
Сириван Саксирирутаи
ЭКОНОМИКА ДОСТАТОЧНОСТИ КАК КОНЦЕПЦИЯ
УЛУЧШЕНИЯ ПРОЦЕССОВ В ЦЕПОЧКЕ СОЗДАНИЯ
СТОИМОСТИ: НА ПРИМЕРЕ ТАИЛАНДА
В статье показано, каким образом можно связать философию экономики доста-
точности и анализ цепочки добавленной стоимости. Доказано, что фирмы могут успеш-
но применять данную философию к каждому этапу цепочки создания стоимости, что
приведёт к долгосрочному и устойчивому росту. Результаты анализа данных по двум фир-
мам доказывают, что применение ими принципов экономики достаточности привело к
повышению прибыльности. Хотя обе компании потерпели значительные убытки во время
Азиатского кризиса 1997 г., позднее они не только выжили, но и смогли получить значи-
тельные прибыли. На примере этих двух компаний доказано, что экономика достаточно-
сти может способствовать не только устойчивости фирмы, но и повышению её имиджа,
а также долгсрочному развитию.
Ключевые слова: экономика достаточности; цепочка создания стоимости; Таиланд; дол-
госрочный рост.

1
Suan Sunandha Rajabhat University, Bangkok, Thailand.

© Siriwan Saksiriruthai, 2017

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Introduction. According to economic theory, any business’s ultimate goal is to

maximize profit. Profit could be calculated as the difference between income and
spending. In real situation, it might be hard to measure the quantity or volume that
gives maximum profit, each firm may expect a different form of success, some set the
highest profit, a number of firms may emphasize on the volume of sales or market
shares. In order to sustain in this highly competitive business environment, long-term
sustainable plan is a must.
To achieve long-term profit and growth, a firm has to apply business strategies
that promote long-term business development. Thailand is a country that experi-
enced a period of substantial economic growth during the 1990s, before the country’s
economic crisis in 1997. Collapse of the economy severely affected many firms in
Thailand, especially those relying on speculation and short-term loans from abroad.
During the economic crisis, King Bhumibol Adulyadej’s Sufficiency Economy
Philosophy became the way to sustain businesses. Two large-sized businesses,
Bangchak Petroleum (BCP) and Siam Cement Group (SCG) were also among the
firms facing huge losses during the crisis. These two firms decided to adapt and apply
Sufficiency Economy Philosophy. Thus, they not only survived through the crisis, but
also started to prosper increasing their profits.
This paper mainly aims to prove that Sufficiency Economy could be implement-
ed in large firms and also to analyze how those firms apply Sufficiency Economy to
generate profit through each value chain process. With the value chain creation
process using this philosophy, businesses could achieve sustainable growth and profit
under lower level of risk in the long run.
Sufficiency Economy as a theoretical framework for business development and
sustainable growth. Initiated by His Majesty King Bhumibol Adulyadej of Thailand,
Sufficiency Economy Philosophy emphasizes the appropriate conduct for all activi-
ties in life. There are three pillars with two conditions to achieve sustainable growth.
The first pillar is Moderation, which keeps all activities, including business related
ones, at a moderate level. Reasonableness enables people make their decisions more
rationally. Self-immunity minimizes the risk of loss in any unexpected situation. Two
conditions that shape sustainability are integrity condition and wisdom condition.
With true knowledge and integrity in every process, it certainly brings about long-
term achievement. Sufficiency Economy Philosophy also stresses the middle path as
an overriding principle for appropriate conduct at all levels (Chularee et al., 2005).
It was found that firms in the industrial sector applying Sufficiency Economy
into their business strengthened themselves by reducing risks (Puapongsakorn, 1999).
This proves that Sufficiency Economy could be applicable within contemporary eco-
nomic systems. Firms could their gain long-term profit and higher business perform-
ance.
A firm acquires compatibility by increasing value of business. A way to increase
profit is to change the value of input into a substantially greater value of output. An
organization that could increase the value of output is likely to obtain greater profit
and growth. M.E. Porter (1985) referred business system to value-generating activi-
ties, which lead to a profitable margin, the so-called Value Chain Concept. A value
chain is a set of activities that an organization carries out to create value for its cus-
tomers (Recklies, 2001). To achieve long-term profit and sustainable growth, firms

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could apply strategies to raise value of each activity in a value chain by using the suf-
ficiency economy concept.
Figure 1 depicts the conceptual framework for applying Sufficiency Economy to
a value chain. Each firm could obtain long-term and sustainable profit by operating
business employing the concept of Sufficiency Economy in each activity within a
value chain. To achieve long-term profit goal, each firm has to apply business strate-
gy for a long-run growth. Under the concept of Sufficiency Economy, a firm could
achieve long-term profit and minimize risks.
Middle Path

Logistics Moderation Marketing

Reasonablenes Self-Immunity
Infrastructure Services

Wisdom Condition Integrity Condition

(Prudent, Care, (Honesty, Integrity,
Appropriate Diligence, Wisdom,
Operation Knowledge) Sharing and R&D
Perseverance)

Procurement Human Resource

Sustainable Business Strategy

Leading to Long-Term Profit

Figure 1. Conceptual framework, author’s

Sufficiency Economy could be applicable to business in the following way (Sasin
Graduate School of Business Administration, 2010).
Moderation: Business has to aim at sustainability which could be acquired by
prudent use of available resources. Firm’s resources have to be used moderately; not
too much to increase costs and not too little so that a firm could capture business
opportunities.
Reasonableness: Corporate governance could be the way to maintain reasonable-
ness. Firm should rely on careful considerations in its decision-making. All decisions
must be made with rationality.
Self-Immunity: In order to minimize risks, the risk management concept has to
be applied. Each firm must be well prepared to cope with unexpected situations or
changes that may impact organization in the future.

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Business operations relying on these three components must stand on the fol-
lowing two conditions.
Wisdom Condition: At every stage of business, from planning to operation and
evaluation, knowledge has to be applied carefully and attentively. To achieve the
increase in knowledge totally, knowledge management, a way to develop and share
knowledge, is the process of capturing, distributing, and effectively using knowledge
(Koenig, 2012). Knowledge could be obtained from R&D, marketing research, staff
training, knowledge management etc. If a business can effectively use knowledge in
its strategic planning for each process in a value chain, the firm could be successful in
not only gaining value, but also in achieving sustainable growth.
Integrity Condition: For every movement and business strategy, a firm needs to
apply business integrity for making every step in its decisions. Integrity covers those
characteristics that are consistently considerate, compassionate, transparent, honest,
and ethical (Duggar, 2011). Operating business with integrity helps keeping long-
term relationship with customers and other stakeholders, thus leading to long-term
growth and sustainability.
So far, some firms have proved already that sufficiency economy concept could
be applicable for sustainable growth of business. Among those firms, some even
recovered from the crisis and generated substantial profits. When value chain analysis
is applied together with sufficiency economy philosophy, further activities could lead
to long-term growth.
Practical application of Sufficiency Economy principles in value chain formation
(Thai businesses). Sufficiency Economy could be applied in various ways, from indi-
viduals in everyday life to large organizations. Individuals could implement this phi-
losophy in their daily life by optimizing utility and their own environmental concerns
(Saksiriruthai, 2016). The concept has been also widely adapted in many sectors: in
agriculture – to recover from poverty and improve long-term efficiency; in services
sector, e.g., education, tourism, medical and wellness groups and also in manufactur-
ing (Mongsawad, 2010; Alexander, 2012; Chartrungruang, 2013; Ministry of
Finance, 2016).
To combine the concepts of value chain and sufficiency economy for sustainable
business success, a firm has to apply sufficiency economy in its both primary and se-
condary activities within the value chain. Two quite successful firms applying
Sufficiency Economy are BCP and SCG. After suffering huge losses in Asian eco-
nomic crisis of 1997, both adapted Sufficiency Economy. After the loss during the
economic crisis in 1997, BCP became a profit-making firm, what is confirmed by
more than 22 mln USD of its profit, today it belongs to the top-ten highest sales.
SCG was among the businesses in Thailand severely affected by the Asian eco-
nomic crisis 1997. Because of Thai baht depreciation, the firm’s foreign debt soared
to 200 bln baht in 1997. Taking Sufficiency Economy as the mean to operate the firm,
SCG restructured its businesses and chose to operate only those business in which
they were specializing. Following Sufficiency Economy Philosophy, SCG sustained
its business through risk minimization to avoid losses. The firm turned to get positive
profit within a few years. In 2015, SCG earned 45 bln baht, or more than 12 bln USD,
becoming one of the most successful firms in applying Sufficiency Economy, gaining
substantial profits every further year.

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A. Logistics. In Porter’s value chain, there are two relevant logistics activities,
inbound logistics and outbound one. Inbound logistics involves internal processes
related to receiving, storing, and distributing inputs. Outbound logistics includes col-
lection, storage, and distribution systems. These activities could be both internal and
external. While inbound logistics is directly related to value creation for suppliers,
outbound logistics involves value creation for customers.
Since BCP purchases crude oil abroad, the firm strictly manages importing and
inbound logistics under the concept of risk management. In order to prevent marine
pollution, the firm chooses to use only double hull tanker for product shipment.
Sufficiency Economy encourages innovation and technology leading to more effi-
cient use of resources. After the crisis, BCP developed its own transport management
system (TMS), which enables more accurate outbound logistics. This smart manage-
ment system reduces both time and transportation costs. Moreover, the system helps
minimize risks and losses via GPS tracking. This efficient system could decrease costs
of sale from 3.0 bln to 2.8 bln baht, that is by around 7%.
To reduce the costs of logistics and increase competitiveness, SCG founded its
own subsidiary to facilitate logistics operations. Also, it emphasizes on applying inno-
vations and technology to all of its processes. Moreover, SCG minimizes the use to
energy and natural resources. The strategy enables the firm reduce expenditure and
raise more profit by more than 300 mln USD annually, thus inducing SCG profits to
more than 1,500 mln USD.
B. Operation. Operation is the process of transformation of input into outputs
that are called products and services at a market. At the stage of operation, some firms
already experienced applying sufficiency economy to manufacturing so that to
acquire sustainable growth.
Before SCG was affected by the crisis, is had more than 10 types of businesses.
The firm found some losses from the businesses they were not specialized in. After the
crisis, the firm reduced its operating business to 5 types only, in which the firm is
indeed specialized. In addition, the firm has taken Sufficiency Economy as the way
to sustain by focusing on environmental-friendly products. With the same manufac-
turing base and technologically developed operation, its production shifted to new
products emphasizing more on green technologies.
Likewise, BCP relied mostly on production technology and capital from abroad.
After crisis, the firm tried to reduce costs and looked for long-term stability. BCP
stopped crude benzene refinement and offered only fuel made from biomass ethanol,
gasohol. The firm also launched new design of packages using less plastics with
unchanged durability. Furthermore, eco-friendly operation is implemented in all of
BCP products. More efficient operation decreases cost and induced more than 15%
of the average annual profit. The success of SCG innovations in products is evident
due to increasing revenue from sales up to 5 bln USD and greater than 590 mln USD
of profit.
C. Marketing and Services. Marketing and sales include activities aimed to
inform and attract buyers to purchase products & services, a firm usually applies mar-
keting in order to facilitate purchases. After the crisis, both SCG and BCP created
more sustained relationship at their target markets. BCP supports cooperatives and
community by providing business management system for community-owned busi-

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nesses, e.g., community gas station and also through giving lower-priced fuel for this
community. The firm also helps community products by using them as promotion
gifts. With that project, the firm could build a long-term relationship with more than
500 communities nationwide as well as increase sales in the long term. Moreover,
BCP targets at service improvement by providing a restaurant, a minimart, and clean
toilets in each of its gas stations. SCG started to promote new products by supporting
innovations and environmental-friendly product development.
D. Human Resources Development. Human resources is the most valuable factor
for every business. Each firm is responsible for its HR-related issues; this includes
legal issues, tax payment and moral responsibilities (Woodman, 2015). Ways to
increase work efficiency include facilitating factors that raise motivation to work and
loyalty to organization. As morality is included into integrity, a firm with sustainable
development of its own human resources needs integrity in its work environment.
Ultimately, HR development; e.g., training, in both integrity and wisdom, must be
included in firm’s long-term plan. A. Puntasen et al. (2003) found that skilled
workers play a critical role in firm’s innovations, which later created exceptionally
high value for business.
In the view of both already mentioned firms, human resources is one of the most
important key success factors. BCP has promoted learning and innovation by estab-
lishing Innovation and Business Development Division, developing life-long learning
culture in order to increase employees’ capabilities. Also, there is at least an innova-
tion facilitator in every department. SCG emphasizes high-quality recruitment.
Selected prospective graduates are invited to participate SCG Career Choice, in this
way the firm attracts more qualified people.
These firms also improve their work environments and provide training programs
as the ways to raise employees’ productivity. With more productive staff, these firms
could develop further their goods and services to gain more profit.
E. Research and Development (R&D). R&D is the "heart" of sustainable business
growth. It is also a way to increase knowledge, one of the necessary conditions
within Sufficiency Economy Philosophy. With risk minimization under quality and
safety control, as according to the integrity condition, firms could be sustainable even
in a rapidly changing business environment.
Because of R&D focusing strategy, both SCG and BCP experience great profits
even after huge debts and losses several years earlier. BCP has spent budgets on deve-
loping renewable energy for sustainability. Biodiesel has become BCP’s product made
from used cooking oil. In 2016, the firm was producing 810 ths liters per day in
response to increasing demand and active sales. Innovation technology is also applied
to marketing and distribution. To reduce cost and time, BCP developed the applica-
tion integrating fuel transportation and communication technology. Therefore,
BCP’s R&D does not only create new products, but also reduce costs for greater pro-
fit.
Another profit-generating firm, SCG, applied innovations to products and ser-
vices, processes and business model so that to stimulate its substantial growth. With
the goal of creating innovation culture, the firm spends more than 6 mln USD on
researching energy use and for creating both market-oriented and environment-
friendly products and services.

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F. Procurement. As a process of buying goods, procurement substantially con-

tributes to cost minimization. Sufficiency economy concept could be applied to is its
very from start. Both BCP and SCG are among the most interesting cases of using
sufficiency economy in procurement. To stimulate the use of domestic materials and
products, BCP applies the strategy for cost reduction and sustainability using "green
procurement". The procurement process emphasizes the criteria of cost effectiveness,
high quality and "green sourcing". The firm also promotes "green culture" to other
firms in its supply chain. Likewise, "green procurement" is applied by encompassing
the entire supply chain, from raw material procurement material to its final stage.
Additionally, local procurement has become the policy of this firm to support local
suppliers. The way to improve efficiency turns to be sustainable when they apply suf-
ficiency economy’s reasonableness in material use.
Conclusion and discussions. This paper links Thailand’s Sufficiency Economy
Philosophy to value chain analysis. For long-term growth under minimal risks, firms
can apply sufficiency economy in each activities within the value chain. Sufficiency
economy includes, inter alia, moderation, which sustains the rate of business growth
and help business be more stable. Reasonableness induces effectiveness of use and
resources allocation. With the concept of self-immunity, firms could minimize risks
and raise the expected profit. All of these actions must be taken under integrity and
wisdom conditions. The findings show that large businesses, like BCP and SCG
passed through the crisis and even gained profit a few years after it because they have
implemented Sufficiency Economy in each of their value chain process. The firms
reduced the costs of inbound and outbound logistics by reducing overalls costs and
maximizing logistics efficiency. The firms chose to operate the businesses in which
they are specialized. Moreover, green and environmental product & services were the
key for sustainability, creating good image and supporting marketing and sales. Both
firms continually promote CSR, e.g., community business development, to maintain
long-term relationship with local communities. These two firms also focus on R&D
in order to stimulate product & service innovation, especially environment-friendly
products and more efficient services. Not only cost maximization was implemented
in their procurement, but also "green culture" was applied to other firms in their sup-
ply chains. Ultimately, both of these large businesses have developed morality in their
culture as well as improved work environment enhancing their work efficiency.
The factor leading to success of these two firms is that they have implemented
Sufficiency Economy in staff improvement and in work culture. Thus we proved here
that Sufficiency Economy could be applied for large-sized businesses, as BCP and
SCG indeed achieve success by inducing profits. It helps each firm keep long-term
relationship with customers and other stakeholders. Additionally, these firms still
keep on their positive sustainable growth within changing business environment.
Their business success proves that Sufficiency Economy is applicable in real eco-
nomic situations and thus is able to generate profits in the long run.
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