The Advantages of Operating Business in Thailand - Case Study Example

Institution : xxxxxxxxxxx Title : xxxxxxxxxxx Tutor : xxxxxxxxxxx Course : xxxxxxxxxxx @2014 Introduction According to Lecler (2010), the strategic position of Thailand accords it a comparative advantage in comparison with other Asian countries.With its advantageous geographical position as the gateway to south East Asia markets which is acknowledged as a wider accumulative market because of its large population approximated to be between 500-600 million which basically translate into a larger market in business terms, this investment advantage provokes the business potential of Thailand which should be properly utilized. Moreover, the formation of association of East Asian nations (ASEAN) as a trading block with Thailand as one of the founding members, and the further formulation of Asean Free Trade Area (AFTA) as an addition, coupled with the recent emergence of new markets such as the Mekong region, is a great booster for investment in the region. Other broad notable factors that have played and still continue to play a substantial role in facilitating investment in Thailand such as its political climate, its infrastructure, the labor force, raw materials endowment and other factors has provided an extensive drive for investment especially for foreign investors. This particular report intends to expound on the advantages of operating business in Thailand with a particular emphasis on Aussie Textiles, a Queensland medium-sized manufacturer of quality garments. Policies and Regulations Numerous political decisions can have a devastating consequence to foreign investment in any country, this reality has been factored in by the Thailand government with a view to curtail such consequences. The government has introduced policies and regulations to motivate foreign investment prospects in order to boost the countries growth and development. This has been achieved after the realization that high risk environments tend to elongate the time frame needed by companies to start a business especially after observing the effects of the Asian financial crisis of 1997-1998 which forced Thailand to embark on an economic reform program sponsored by the international monetary fund (IMF) which was designed to foster transparent and competitive climate for foreign investment (Lecler, 2010). The further need to libe4ralize the formerly existing restrictions on land ownership by non- native Thais saw the introduction of reforms on the property laws in Thailand, most notably the amendments of the land code to allow foreigners to own land for construction of property and real estate accommodation which significantly reduced the skyrocketing accommodation expenses which initially demoralized potential foreign investors. Moreover, Lecler (2010) asserts that the amendments of the property leasing act and the condominium act opened new avenues to encourage and motivate foreign investment by giving them non- discriminative access to property. For example the new land code amended in 1999 allows a foreigner to buy land up to 1600 square meters in area provided the foreigner is investing 1.3 million U.S dollars in the country; this greatly reduces the problems earlier experienced by foreign investors who were legally barred from land ownership. Non-tax Initiatives In a further effort to motivate and encourage foreign investment, the Thai government has introduced incentives not related to tax. These initiatives serve a direct gesture by the government to the investor to symbolize mutual partnership and investment collaboration. The most remarkable initiative is the granting of foreign investors the permission to enter the kingdom to study and research on the available investment opportunities existing within the country prior to making the decision to invest in the country (Mackenzie, 2014).This serves to limit the problems and consequences attributable to investing without the necessary market knowledge and possible failure to foresee the events likely to affect that particular market either positively or negatively. Secondly, the Thai government has assented to the bringing of foreign workers into the kingdom by the foreign investor provided they are skilled in their arts or trade, to work in the investment activities. Despite the negative connotation of this initiative such as the employment threats to domestic labor force, the foreign investor is spared the costs involved in training Thai natives with the required skills needed to accomplish the industries goals and objectives; this is aside from wastage of time incurred from the additional training. Unlike other governments with massive restrictions on matters of foreign currency, the Thai government has allowed free permission to foreign investors to remit money abroad. As highlighted by Mackenzie (2014),this permission is instrumental in coping up with the volatility of currencies especially fluctuation in rates which can adversely affect the growth and progress of industries such as Queensway textiles in the context of its infancy stages in a foreign country for the fact that payment of native employees, purchase of equipment, machines and other facilities found in other countries with different currencies will require appropriate conversion of currencies to meet the necessary expenses. Protection To shield foreign investors from obstacles related to carrying out its activities, the Thai board of investments which is a branch of the trade oversight body will through the powers endowed to its chairman take measures to render appropriate assistance to the investor to counter any resulting problems or obstacles, in addition, the board will ban the importation of products similar to those produced by the investor in the event that the board is convinced or is of the opinion that the trade protection accorded to the investor is inadequate by charging additional import fees products similar to those manufactured by the foreign investor under the investment promotion act (Investment Promotion Act B.E. 2520). Transport Infrastructure Transport is a major factor in any business environment. Its importance arises from the fact that the need to transport movable goods, services and personnel can never be ignored. A textile company like Aussie will need to transport its products and personnel within and without the internal and external borders of Thailand (Pomlaktong & Ongkittiku, 2008). The importation and exportation of its products will need good road transport and railway lines which will facilitate their reach to the sea port for exportation, equally, imported goods will need rail ad road transport to reach the company premises, moreover, the transportation of personnel within and without the country will require the intervention of air transport. Thailand has ensured that its transport infrastructure remain upgraded through such measures as transforming the old ones by introducing a 75 billion dollar master plan which was initiated by the country’s military junta after the overthrow of the former leader. Perrot (2010) . According to World Bank reports, Thailand is served by five international airports in addition to more than 100 others servicing the domestic market. This in essence means increased volume of goods being imported and e4xported which is estimated by the World Bank report to be ranging 34 million and above without mentioning the passenger traffic estimated to range 17,800 passengers per hour on international flights and 10,330 domestic passengers arriving and departing within the same time span. As for continuously occurring wear and tear within the transport industry, the Thai government through its department of highways, has put in place measures to counter such occurrences in order to limit road carnage through potholes and road destruction by trucks and other heavy vehicles. According to Monjay (2013), this has been achieved through maintenance programs designed to ensure sustainability by insisting on and preferring contracts based on long term performance, improved transparency and competition among road contractors through the use of digital procurement known as e-procurement intended to solve the problems of corruption and kickbacks common among contractors and government officials. Moreover, the commercialization of the road sector through the increased participation of the private sector in management of roads and advanced technologies and computerization within the roads has reduced dilapidation of Thailand roads through potholes, slipperiness and vandalism of road equipment. According to Pomlaktong & Ongkittikul (2008), the importance of such moves have extended beyond Thailand to reach the greater part of Asia like Singapore, Yangon and ho chi minh which largely form the great Asian highway network. To sum it up, this transformation of its road networks has made Thailand to stand out as a significant player in the Asian markets which will enable company’s like Queensway to access markets beyond Thailand for its products not to mention other necessities like additional labor and raw materials from adjacent countries. Raw Materials Since the textile industry entails extensive requirement of raw materials on continuous basis to sustain its production, the availability of the raw materials and the costs involved in their acquisition must be considered by Aussie company and the factors that may affect supply of the raw materials such as weather and climatic conditions (Lecler, 2010). On the same note Thailand has a competitive advantage of weather necessary for the cultivation of cotton which is the basic raw material for textile industry; this is because of the existence of good amount of rainfall throughout the year in addition to robust soil type necessary for cotton cultivation. Moreover, there exists domestic production of cotton within the country targeting the domestic industry and not entirely for export with the northern Thailand producing the largest volume, followed by north east and then central part according to reports by the International Trade Centre. The adjacent countries surrounding Thailand also have climatic conditions favorable to cotton production; this can serve as a contingency measure in the event that Thailand’s climatic conditions decline to extreme levels making it difficult for the production and availability of cotton (Ingram, 2011). Promotion As argued by Patricia (2008), the improvement in technology within Thailand has enabled the promotion of goods and products relatively easy. This has been realized by the reduced cost of advertising and accessibility to the internet and ownership of modern phones and computers to the large population regarded as the direct market for the textiles products. This has been realized by the presence of high speed internet broadband attributed to the low costs of internet installation and the Thai governments grant of operation certificates to several; internet service providers such as pacific internet, CAT telecom, Samart connect jasmine internet, CS Loxinfo and KSC internet (Ingram, 2011).This is in addition to the availability of fiber glass and satellite connections through its six satellites positioned in the orbit thus making e-commerce relatively easy. The addition of modern touch to the Thai telecommunication through the official launch of 3G network in 2013 on a 2.1 GHZ spectrum has resulted in a better quality of network compared to the previously existing one and this has accelerated network expansion in addition to increasing marketing and advertising activities. On a further note, Patricia (2009) asserts that the increase in data usage and voice limits has remarkably reduced the average price of communication by 15% per unit, which is lower than the previously popular 2G package, this has made advertisement in the easily accessible and common smart phones owned by the large section of the population to be cheap and easy which is a significant contribution to industries such as Aussies products to access large segments of the market through advertisements. Conclusion In conclusion, it is apparent that in comparison to other countries relevant to the textile industry, Thailand exhibits a comparative advantage due to the government interventions to promote and encourage foreign investment through the introduction and implementation of its initiatives geared towards the realization of these goals. The role of the government is further boosted by the presence of raw materials and appropriate weather conditions necessary for the growth of the textile industry. References Ingram, J. 2011. Economic Change in Thailand since 1850, Stanford University Press Lecler, Y. 2010. Sustainability of Thailand's Competitiveness: The Policy Challenges, Institute of South East Asia. Monjay, G. 2013. Business and Investments in Asia: New Challenges, New Opportunities, New York Mackenzie, B. 2014. Investment Initiatives. New York: Routledge. Patricia, B. 2009. Digital review of Asia-pacific 2009-2010, IDRC, Canada Perrot, M, (2010),Private Sector Participation in Light Rail-Light Metro Transit Initiatives. World Bank Publications. Pomlaktong, N. & Ongkittikul, S. 2008. ‘Infrastructure Development in Thailand’, in Kumar, N. (ed.), International Infrastructure Development in East Asia – Towards Balanced Regional Development and Integration, ERIA Research Project Report 2007-2, Chiba: IDE-JETRO, pp.263-291. Read More