Analysis Of Thailand Economy
Thailand’s economy sustains stable and relatively fast growth among the world. When cooperating with a local company, it is necessary to analyse the economic factors, political and legal factors, environment factors and social factors so that our company can have an insight into the Thailand society as well as our business partner. As a country with a totally different culture, we use Kluckhohn-Strodtbeck and Hofstede Framework to investigate the culture difference to avoid business conflicts. The main objective of this report is to provide an illustration on the issues that may arise during the cooperation.
Thailand’s economy has been developing at an outstanding speed these years since the financial crisis broke out in 1997. It is considered that Thailand has huge potential for marketing demands. Analysis has been made on the business environment, cultural issues and government’s policies of Thailand.
National Business Environment
1.1 Economic factors
The following studies have been collected from the Kingdom of Thailand website:
GDP (2010 prelim.): $317 billion.
Annual GDP growth rate (2010 prelim.): 7.8%.
Inflation rates (2010): 3.3% and 0.9% (excluding energy and food prices).
Per capital income (2010 prelim.): $4,716.
Unemployment rate (2010 prelim.): 1.0% of total labour force.
Natural resources: Tin, rubber, natural gas, tungsten, tantalum, timber, lead, fish, gypsum, lignite, fluorite.
Australia’s GDP in 2009 was $924.843 billion AUD and grew only 0.4% in 2010 and the inflation rate in 2010 was 2.6459%
These economical factors make our business opportunity seem to be a positive outcome in making our business more successful. Thailand’s economy is expanding and business opportunities are at higher demand. Cheaper labour costs and natural resources will make business more efficient and easier to begin business.
1.2 Political and Legal factors
Joint ventures are permitted under Thai law however some restrictions apply in doing business in Thailand. Some of these restrictions follow:
– “All nationalities may travel to and throughout Thailand. Some nationalities must obtain a visa prior to visiting Thailand. Tourists from 43 countries (including Australia) may enter without a visa for 30 days” (Tilleke and Gibbins, 2009, page 7)
-“In cases where it is necessary for economic stability, public interest, public health, national security, peace and order, or good morals of the people, or for any other interests of the Kingdom, the Importation and Exportation Act empowers the Ministry of Commerce to issue ministerial regulations or notifications requiring that certain goods be subject to restrictions for export. Depending on the goods, restrictions vary, from strict prohibition, requirement of licenses, specifications control, special fees, to quality control. Restrictions are generally limited to indigenous agricultural products, cultural and religious items, rare species of native flora and fauna, endangered wildlife, fruits, and seafood. This is generally limited to the requirement that the domestic market must be served first before any surplus goods are exported” (Tilleke and Gibbins, 2009, page 26)
-“A foreigner wishing to conduct business in Thailand is subject to the Foreign Business Act. Export of all types of goods is permitted to be conducted by a foreigner. A foreigner cannot import goods for sale, either retail or wholesale, as a trading company unless the company has been granted permission by the Ministry of Commerce or its capitalization is not less than THB 100 million. However, a foreigner may import raw materials and machinery to manufacture products which are not covered under the Foreign Business Act” (Tilleke and Gibbins, 2009, page 26)
-“The Thai government might seek to participate in the ownership or operation of a business entity. It depends on the nature of the business Under the Foreign Business Act, the Minister of Commerce can regulate the operation of certain aspects of a permit holder’s business such as the ratio of capital to loans, funds brought in from overseas, the ratio of capital of Thais to that of aliens in the business, and the ratio of Thais to alien persons responsible for the management of the business” (Tilleke and Gibbins, 2009, page 34)
The current government officials are:
Chief of State- King Bhumibol Adulyadej
Prime Minister- Abhisit Vejjajiva
Minister of Foreign Affairs- Kasit Piromya
1.3 Environmental factors
“Environment current issues include: air pollution from vehicle emissions; water pollution from organic and factory wastes; deforestation; soil erosion; wildlife populations threatened by illegal hunting” (Thailand Environment issues).
Air pollution from vehicle emissions are mainly caused from motorcycles, which make up between 70- 80% of vehicles on the roads in Thailand. Also diesel trucks and buses contribute towards the air pollution. Other sources such as industries, power plants, agricultural burning, garbage burning, open cooking and forest fires all contribute towards air pollution.
Thailand’s wildlife is threatened by illegal hunting, habitat loss, and industries that sell wild animals as pets to the Thai public.
The elephant is Thailand’s national symbol. The population of elephants in the wild has dropped to an estimated 2,000. Illegal hunters have long hunted elephants for ivory, meat and hides. Younger elephants are often caught for use in tourist attractions and also are used as work animals. Sadly there are more elephants in custody than in the wild, and environmental activists claim that elephants in custody are often mistreated and abused.
While doing business in Thailand, we have to respect the environment and not damage it. Proper safety regulations and factory waste regulations are going to be taken in order to protect the environment.
1.4 Social factors
The following studies have been collected from the Kingdom of Thailand website:
There are 67.0 million people on record in Thailand
Languages: Thai (official language); English is the second language of the elite; Malay and regional languages and dialects.
Thailand is a major attraction around the world. Many tourists holiday in Thailand because of its lovely and relaxing icons such as beaches, island and markets. Thai people are friendly and have strong religions such as Buddhism. “Buddhists believe that life does not begin with birth and end with death, but rather that every person has several lives based upon the lessons of life not yet learned and acts committed (karma) in previous lives” (Thailand – Thai Language, Culture, Customs and Etiquette).
There are around 67 million people that live in Thailand that are on record. The main language spoken is Thai however other languages are spoken in different parts of Thailand. Mainly schools teach Thai and Thai language is used in the government.
Whist doing business in Thailand, due to culture issues and differences, we have to learn about the culture and the Thai people. We have to learn to respect the many things they treasure and respect such as sacred temples and animals.
The basic appeals about Thailand that are good reasons to do business with the country include:
- Property prices are low
- Well known import and export country
- Cheap labour costs
- Thailand is the largest growth market in Asia
- Thailand has recently attracted significant foreign investment
- Thailand is a fast growing region
- Thailand has cheapest airfares within Asia
- Thailand has strong business links with China
- The country has exceptional infrastructure
- Thailand is a large tourist attraction
- No capital gains tax, stamp duty or transfer fees for private investors.
- Low ongoing taxes
- “Today foreigners are regarded by the government as a big investment opportunity in Thailand” (Economic factors in Thailand).
Cultural issues in doing business in Thailand
3.1 Kluckhohn-Strodtbek Framework
In this part of report, Kluckhohn-Strodtbeck and the Hofstede Framework will be used in investigating the effects of cultural issues on doing business in Thailand. The Kluckhohn-Strodtbeck framework emphasises relationship to nature, time orientation, trust and control, material or spiritual, responsibility to others and view of personal space.
As Buddhism is the state of religion of Thailand, it has not only played a critically role in the development of the country but also remains today one of the pillars of Thai society.(Kislenko,2004) Buddhism believes in Animism-the belief that non-human entities are spiritual beings, or at least embody some kind of life-principle.
Relation to nature
Thai people respect everything that exists in the nature such as animals, plants and even a rock. They think what they have got is due to the natural gifts and they should be grateful for that. As a result, Thai people prefer to live in harmony with nature. The situation is same in social environment. However, western people including Australians, think they are able to control the environment and want to take measures to avoid unwilling conditions.
Tai people do not typically plan for the long term project for the future. But there are some evidences that show that foreign ownership may heavily influence time orientation in specific organisations in Thailand. (McLean, 2008) Culture in the Toyota Company in Thailand is strongly influenced by the Japanese, which has a strong future and long term orientation. So when doing business in Thailand, our company can influence our joint venture like view time as a scare resource and focus on the present and near future.
Trust and control
Thailand people think others are trustworthy and that it is easy to tolerate others’ mistakes. Perhaps it has relation to Buddhist teachings as Buddhism teaches followers to be tolerated, to be trusty and to be kind. It is quite similar with an Australian company as people trust each other and value the strength of contracts. Fourthly, according to Thailand Society & Culture Complete Report, long time’s agricultural backwater makes no difference for Thai people in wealth and poverty. Its people seldom participate in the highly competitive global commercial environment. As a result, people do not care about the accomplishment in work and they just see life as a source of joy rather than ceaseless toil. If they have time, Thai prefer to play and talk to other people instead of hard work. When doing business in Thailand, the company should not give staffs too much stress and establish a reward system to motivate them to work.
Responsibility to others
Thai people do not get used to being responsible to others in the group, in other words, they may feel uncomfortable to participate in a team. If we use the model of Australia in implementing a task, it creates barriers. Thai people, “are expected to be told what to do” (Hofstede, 1991, p. 35) and traditional Thai pattern has been more authoritarian or autocratic. It is an important difference in operating the business.
View of personal space
Thai prefer to do the work in private as they feel embarrassed when working in the public. They also emphasis “face” that is to say they do not want to lose face when doing something wrong.
3.2 Hofstede Framework
Hofstede Framework is a framework for studying cultural differences along four dimensions such as Individualism versus Collectivism, Power distance, Uncertainty avoidance and Masculinity versus Femininity. (Wild et al. 2007)
Individualism versus Collectivism
Thai people advocate collectivism like many other Asian countries. It can be reflected in all aspects of social life. For example, strangers are to be treated like friends; people value family much and decision making is focused in the group. All of these probably have close relationship with the long time’s agricultural tradition that is: collective farming. However, Australia emphasis the power of individual, so if dealing with the business issues in Thailand, our company should respect the opinions of the majority and pay attention to sales service to ensure the generation of positive word-of-mouth, which also reinforces future sales.
High power distance is a symbol of Thailand society. It is rooted in the Buddhism belief and autocratic monarchy in Thailand history. King has the supreme status and people all over the country respect their Royal Family. The elderly and Monks have high social status and women even cannot sit by the Monks in the public transportations. (Kislenko, 2004) High power distance causes inequity, special recognition and prestige in society.
Thai value tradition and they always stress ‘the past orientation’ when doing business. They have strong faith in the rules and procedures which mainly come from the religious doctrine. And the low unemployment and low turnover rate also reflect the high uncertainty avoidance. People in Thailand seem not to open to the new things and fear of changes. All of those are quite different in Australia as Australia has low uncertainty avoidance. As a result, when communicating with the company in Thailand, we need to respect their traditions and give them more time to accept the changes and new opinions.
Masculinity versus Femininity
Thailand is a feminine-like country. People value altruism and strangers are welcomed with hospitality. The life is leisurely and though men still play a dominated role in the society, we can see many fathers do the housework and take care of children and women work in the many social spheres from a saleswoman to a university professor.
Besides, there are still some customs the company needs to consider when doing a business. For the greetings, wai is a common gesture among Thai people instead of shaking hands and kissing. (Kislenko, 2004) Wai consists of a slight bow, with the palms pressed together in a prayer-like fashion. Business person is better to master this way of greeting to be successfully assimilated into the community. For the langue, as Thailand society is very hierarchical, so businessman should use honorific when speaking with elderly people or person with a high social status. The next is body language. Thai people follow the Buddhism teachings and think the head is sacred and closest to heaven. So it is rude to touch one’s head according to Thailand Society & Culture Complete Report. And the feet are the lowest parts; it is regarded as impolite to stick out the feet. Crossing one’s legs is common in Australia but it is not allowed in Thailand. For the time and punctuality, though punctuality is a sign of respect, it is not ingrained in people’s opinions. Another reason is the bad traffic which leads to the late for the appointment or meetings. In the business communication, gifting usually a business card or special local products is welcomed.
Government’s policy about Foreign Direct Investment in Thailand
Over the past two decades, Thailand government has made much effort to attract Foreign Direct Investment to improve its technology skills and help to achieve modernization goals by providing guarantees for the investments and projects and controlling the taxation rate in an ideal range. Foreign Direct Investment has taken up a large part on economic growth. What is more, Thailand government has increasingly taken measures to increase foreign direct investment by reducing tax rate and providing special privilege by the Board of Investment (BQI).
Thailand government mainly promotes FDI by focusing on taxation control. According to the taxation data presented by the government in 2002, we can see that the standard tax rate in Thailand is 30%. Nevertheless, the tax rate is 16% for Hong Kong, 22% for Singapore, 25% for South Korea, 28% for Vietnam and Malaysia (Chadin 2006).
There is also a series of taxation privileges that the government presented to the enterprises in the less developed areas. For instance, the privileges in Zone 1 contain a corporate income tax exemption for years, providing the project locates its factories in industrial estates or promoted industry zones, a 50% reduction in import duty on the machinery to be used in the project and Exemption from import duty on raw materials used in the export products for 1 year (Chadin 2006). During the past twenty years, the Thailand government has benefited a lot from Foreign Direct Investment. Meanwhile, the Thailand economy has enjoyed great growth due to its large scale of import. Singapore and Japan are the main resources of foreign direct investments mainly focusing on the finance, petroleum and estate sectors (Yale Global Online 2004).
The Thailand government is so glad facing large scale of FDI bursting into their country which brings about enormous profits that the Board of Investment has set up incentives in certain conditions. The foreign enterprises can enjoy corporate income tax exemption for 8 years regardless of location and import duty exemption on machinery regardless of location when they locate their project on basic transportation system, public utilities, environment protection, and technological development. The Thailand government takes this measure to encourage development on the basic society construction.
It is not only the economy factors that make the Thailand government greatly support on foreign direct investment, the government also plans to get full knowledge of the high technology, management skills and gain excellent talents in the long term run. Since the financial crisis erupted in 1997, large amount of foreign investments have broken into Thailand, because of 38% depreciation of baht. For example: The steam of FDI into Thailand was made up of Japan 28%, U.S. 18%, Singapore 18%, Hong Kong 12%, the E.U. 12% and Taiwan 5% (Chadin 2006). The economy growth keeps a favorable trend. From 2002 to 2008, the flow of foreign direct investment has been consistently increasing by the average of 7.5 billion trading volume a year.
To sum up, the Thailand government has definitely put a positive attitude towards the foreign direct investment since its economic development has benefited so much from it. The Thailand government mainly encourages foreign enterprises on taxation and certain incentives. As a whole, the trend of Thailand economy presents to increase by a large margin in the future.
In conclusion, as a developing country, Thailand maintains a rapid economic growth. It appeals more and more foreign investors to seek business opportunities based on its cheap labour cost, vast market, geographical advantage, natural resources and agricultural foundation. In addition, the government also carries out preferential policies to attract foreign investment. However, to our company, when doing business in Thailand, it is necessary to be aware of the culture difference to reduce conflict and make sure the operation of the business is smooth. We have reasons to believe if we actually know this country, we can get a lot from our cooperation.
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