Middle-Income Trap - should companies be worried?

Abstract: The term Middle-income Trap (MIT) is relatively new, originating thirteen years ago, but has since generated significant debate. It is used by politicians to channel national reforms and has given rise to a vast amount of research about growth slowdowns in middle-income countries (MICs). The term describes the higher prevalence of economic growth slowdowns in MICs, which impedes their transition into high-income countries. Three quarters of the world lives today in MICs, many of which are dependent on the presence of foreign firms for continued growth and development. This master thesis has therefore explored the phenomenon from a new perspective - studying its effects on international companies. We conducted the study with an exploratory purpose and an abductive approach. The phenomenon MIT was investigated through five factors identified in previous research by Eichengreen, Park and Shin (2013). These factors can be summarised as Human capital, Political Regime Changes, External Factors, High-technology and Financial Instability. Combined with the theory of internationalisation, a theoretical framework was developed. We applied the framework on Sweden-related companies established in Thailand. Quantitative and qualitative data was collected through 18 interviews on-site in Bangkok with Sweden-related companies. It was found that even though all the five factors had an effect on companies, there was one MIT aspect that affected almost all companies regardless of their internalisation strategy: Human capital. More specifically, companies were affected by lack of certain competencies in the labour market. Many companies struggled to find good engineering skills, leadership skills and the combination of English knowledge and a specific skill. Today, this problem is solvable through higher salaries and by providing educations for employees. However, this issue could eventually lead to more serious consequences as it impedes the transition into a technologically advanced economy. It was concluded that MIT creates a peculiar labour market with effects reaching most companies, regardless of their field of work or strategy.