Doing Business in Thailand

Danuvasin Charoen, Ph.D., PMPAssociate Professor and Associate Dean

NIDA Business School National Institute of Development Administration

Bangkok, Thailanddanuvasin@gmail.com

NIDA Business School• NIDA Business School has

• 6 MBA Programs ranging from junior management to executive management and has double degree with Kelley School of Business, Indiana University Bloomington

• 1 MS in Finance (CFA Partner)• 1 Ph.D. Program.

NIDA Business School• NIDA Business School has two excellence centers

• Center for Business Innovation

• Center for Enhancing Competitiveness (Affiliate with Prof. Michael E. Porter at Institute for Strategy and Competitiveness Harvard Business School)

Consulting and training service NIDA-Wharton ELS for corporations 2013 have more than 50 millions baht or 2 million dollars

provides

Center for Business Innovation offers consulting and training service for business community. CBI products are• Executive Education Program

• NIDA-Wharton Executive Leadership Program

• Consulting Service• Revenue over 50 million baht (about 2 million US dollars)

Center for Enhancing Competitiveness make analysis on Thailand Competitive Ranking

5

Facts about Thailand

• THAILAND is the world’s 17th

largest manufacturer output• 28rd largest exporter• 24th largest economy by

purchasing power• And the 2nd largest economy in

ASEAN

Fast Facts

GDP US$365 Billion (2014)US$6,703 per capita

8.6% Agriculture

39% Industry

38% Services

Population 67 MillionLabor Force 40.2 million

Sources: MOC, NESDB, Pocket World in Figures 2013 Edition

Thai Economic Structure

Source: MOC.go.th

Top 10 Exports

2011 20122012

(Jan-Feb)2013

(Jan-Feb)

Motor cars, parts and accessories 16.98 22.91 3.02 3.82Automatic data processing machines and parts thereof 17.06 19.06 2.41 2.71

Refine fuels 10.09 12.90 2.10 1.85

Iron and steel and their products 4.99 7.05 0.76 1.68Rubber 12.70 8.75 1.73 1.61Polymers of ethylene, propylene, etc in primary forms 8.80 8.53 1.30 1.50

Chemical products 8.29 8.52 1.27 1.48Rubber products 8.39 8.41 1.37 1.37Precious stones and jewellery 12.30 13.15 2.68 1.05Machinery and parts thereof 6.11 6.24 0.96 1.03Others 116.85 114.00 17.18 18.09Total 222.58 229.52 34.78 36.20

Unit: US$ Billion

Source: www.moc.go.th as of April 4, 2013

Top 10 Imports

2011 20122012

(Jan-Feb)2013

(Jan-Feb)

Jewellery including silver bars and gold 19.92 13.03 2.21 5.59

Crude oil 32.90 35.84 4.73 5.10Machinery and parts 19.97 26.18 3.86 4.12

Electrical machinery and parts 13.35 17.01 2.37 2.66

Iron, steel and products 13.91 15.17 2.28 2.55

Parts and accessories of vehicles 6.53 12.61 1.54 2.34

Chemicals 14.82 14.77 2.18 2.23Computers, parts and accessories 8.61 9.83 1.42 1.59Other metal ores, metal waste scrap, and products 8.95 8.13 1.24 1.45

Electronic integrated circuits 10.11 9.18 1.28 1.38Others 79.72 85.86 12.23 14.24Total 228.78 247.59 35.37 43.24

Unit: US$ Billion

Source: www.moc.go.th as of April 4, 2013

Thailand: Highly Ranked#10 World Economic Freedom in Asia Pacific (2013)

#4 in Asia for Corporate Governance

#8 World’s Most Attractive FDI Destination (UNCTAD 2012-2014)

#18 worldwide for Ease of Doing Business#4 Easiest Place in Asia to Do Business

Global Top 20 Destination Cities by International Visitors (2015)

Rank City Visitor (Million) Rank City Visitor

(Million)

1 London 18.82 11 Tokyo 8.08

2 Bangkok 18.24 12 Barcelona 7.63

3 Paris 16.06 13 Amsterdam 7.44

4 Dubai 14.26 14 Rome 7.41

5 Istanbul 12.56 15 Milan 7.17

6 New York 12.27 16 Taipei 6.55

7 Singapore 11.88 17 Shanghai 5.85

8 Kuala Lumpur 11.12 18 Vienna 5.81

9 Seoul 10.35 19 Prague 5.47

10 Hong Kong 8.66 20 Los Angeles 5.20

Source: MasterCard Global Destination Cities Index 2012 as of June 22, 2015

IMD Competitiveness Ranking

Source : IMD 2015

ASIA – PACIFIC REGION

Country ScoreChina Hong Kong 96.04

Singapore 94.95

Taiwan 85.41

Malaysia 84.11

New Zealand 81.81

Australia 80.45

China Mainland 76.99

Korea Rep. 73.92

Japan 72.83

Thailand 69.79

Philippines 60.15

Indonesia 59.91

India 59.48

Competitiveness Factor 2011 2012 2013 2014 2015

Economic Performance 10 15 9 12 13

Government Efficiency 23 26 22 28 27

Business Efficiency 19 23 18 25 24

Infrastructure 47 49 48 48 48

THAILAND’S OVERALL RANKING 2009 - 201460 COUNTRIES

Source : IMD 2009

IMD Competitiveness Ranking

6

10

15

9

12

18

23

26

22

28

20 19

23

18

25

46 4749 48 48

-

10

20

30

40

50

60

2010 2011 2012 2013 2014

Economic Performance

Government Efficiency

Business Efficiency

Infrastructure

Thailand Brazil China India Korea Russia

OVERALL 30 56 22 44 25 45

Economic Performance

13 51 4 16 15 43

Government Efficiency

27 60 35 47 28 44

Business Efficiency

24 51 27 33 37 54

Infrastructure 46 53 25 58 21 36

Source : IMD 2015

BENCHMARKING BRICs + 2

The Global Competitiveness Index

144 ECONOMIESOver 100 INDICATORS 160 PARTNER INSTITUTES

The Global Competitiveness Index Framework

The Global Competitiveness IndexThailand 2009 - 2014

3638 39 38 37

31 32

0

5

10

15

20

25

30

35

40

45

2009 2010 2011 2012 2013 2014 2015

Thailand GCI Ranking 2009 - 2014

2010 2011 2012 2013 2014 2015

Global Competitiveness Index 38 39 38 37 31 32

Basic requirements 48 46 45 49 40 42

Efficiency enhancers 39 43 47 40 39 38

Innovation and sophistication factors 49 51 55 52 54 48

Thailand GCI Ranking

38 39 38 37

31 32

4846 45

49

4042

39

43

47

40 39 38

4951

5552

54

48

0

10

20

30

40

50

60

2010 2011 2012 2013 2014 2015

GlobalCompetitivenessIndexBasic requirements

Efficiency enhancers

Innovation andsophistication factors

Basic requirements (40.0%)Rank 40 (Out of 144) Score 5.0 (1-7)

Efficiency enhancers (50.0%)Rank 39 (Out of 144) Score 4.5 (1-7)

Innovation and sophistication factors (10.0%)Rank 54 (Out of 144) Score 3.8 (1-7)

Thailand and AsiaGlobal

Competitiveness Index

Basic Requirements

Efficiency Enhancers

Innovation and Sophistication

FactorsSingapore 2 1 2 11

Japan 6 24 8 2

Malaysia 18 22 22 17

Korea, Rep. 26 18 25 22

China 28 28 32 34

Thailand 32 42 38 48

Indonesia 37 49 46 33

Philippines 47 66 51 47

Vietnam 56 72 70 88

India 55 80 58 46

Lao PDR 83 86 106 103

Cambodia 90 93 101 121

Myanmar 131 128 131 134

Doing BusinessCOMPARING BUSINESS REGULATIONS FOR DOMESTIC FIRMS IN 189 ECONOMIES

What Doing Business Measure

Doing Business Rank

Doing Business 2015 Rank

Doing Business 2014 Rank Change in Rank

26 28 2

The linked image cannot be displayed. The file may have been moved, renamed, or deleted. Verify that the link points to the correct file and location.

The linked image cannot be displayed. The file may have been moved, renamed, or deleted. Verify that the link points to the correct file and location.

Topics DB 2015 Rank DB 2014 Rank Change in Rank

Starting a Business 75 68 -7

Dealing with Construction Permits 6 11 5

Getting Electricity 12 12 No change

Registering Property 28 28 No change

Getting Credit 89 86 -3

Protecting Minority Investors 25 21 -4

Paying Taxes 62 63 1

Trading Across Borders 36 33 -3

Enforcing Contracts 25 25 No change

Resolving Insolvency 45 44 -1

Top 5 problem factors for doing business in Thailand

Thailand and Asia PacificEconomy Ease of Doing Business Rank

Singapore 1

Hong Kong SAR, China 3

Malaysia 18

Taiwan, China 19

Thailand 26

Vietnam 78

China * 90

Philippines 95

Brunei Darussalam 101

Indonesia * 114

Cambodia 135

Lao PDR 148

Myanmar 177

Infrastructure• 7 International Airports In 2009, 53.9 million passengers, 1.1 million tons

of cargoes Suvarnabhumi Airport – Capacity: 45 million

passengers and 3 million tons if cargo per year• Over 70,000 km Highway Systems• 6 Deep Sea Ports & 2 International River Ports Capacity over 10 million TEUs Laem Chabang Sea Port – Capacity: 10.8

million TEUs, with additional 8 million TEUs expansion

e-Customs facilities• 4,346 km Rail links to Malaysia & Singapore• 60 Industrial Estates

Investment Budget Plan for Transportation, 2013-2020

ROAD (33.9%)US$21.78 billion

RAIL(60.8%)US$39.07 billion

MARINE(3.3%)US$2.13 billion

AIR(1.93%)US$1.24 billion

Total budget: US$64.2 billion

Source: The Office of Transport and Traffic Policy and Planning (BOI’s Overseas Office Meeting) as of Oct 31, 2012 US$1=Bt29.80 in Q1, 2013

“Logistics Shortcut”- Dawei & Laem Chabang Ports

The linkage between Thailand’s Eastern Seaboard and

Myanmar’s Dawei will provide immense business opportunities

as the emerging Economic Driver in the region.

With high potential to open the Western gateway for the

existing production bases in East Asia, the new trade and

transportation route will create “Logistics Shortcut” for the

region and the supersized co-production base will be an important Growth Nodes

linking the GMS region to global market.

Source: NESDB, as of July 10,2012

No restrictions on foreign currency

100% foreign ownership

No export requirements

No local content requirements

LIBERAL INVESTMENT REGIME

Thailand and the BOI offer:

Activities Eligible for BOI Promotion Agriculture and Agro-Industries Mining and Mineral Processing Light Industries e.g. jewelry, shoe, garments Metal-Working Industries, including automotive Electrical and Electronics Chemicals and Petrochemicals Services and Public Utilities

(39)

Tax IncentivesCorporate income tax holidays up

to 8 yrs•Additional 50% reductions of corporate income tax for 5 yrsmay apply in zone 3

Import duty reductions or exemptions on machinery and raw materialsDouble deduction of public utility

costsDeductions for infrastructure

construction/installation costs

Non-Tax Incentives Land ownership rights for

foreign investors Permission to bring in

foreign experts and technicians

Work permit/visa facilitationOne-Stop-Shop Visas & Work Permits

are issued in 3 hours

Basic BOI privileges and Measures

CLUSTER INITIATIVE

What is a Cluster?A geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities (external economies)

Clusters and CompetitivenessClusters Increase Productivity / Operational Efficiency

Efficient access to specialized inputs, services, employees, information, institutions, training programs, and other “public goods” (local outsourcing) Ease of coordination and transactions across firms Rapid diffusion of best practices Ongoing, visible performance comparisons and strong incentives to improve vs. local rivals Proximity of rivals encourages strategic differentiation

Clusters and Competitiveness

Clusters Stimulate and Enable Innovations Density enables recognition of innovation opportunities (e.g., unmet needs, sophisticated customers, new combinations of services, or better technologies) Presence of multiple suppliers and institutions to assist in knowledge creation Ease of experimentation given locally available resources

Clusters and Competitiveness

Clusters Facilitate Commercialization and New Business Formation

Opportunities for new companies and new lines of established business are apparent Spinoffs and startups are encouraged by the presence of other companies, commercial relationships, and concentrated demand Commercializing new products and starting new companies is easier because of available skills, suppliers, etc.

Clusters and Competitiveness

Clusters reflect the fundamental influence of linkages and spill-overs across firms and associated institutions in competition

Cluster Mapping in Thailand

BOI Zoning and Incentives

Zone: 1 2 3Incentives: Lower Higher

Import Duty Privileges Outside I.E Inside I.E

Zone 1 50% Reduction 50% ReductionZone 2 50% Reduction ExemptZone 3 Exempt Exempt

Corporate Income Tax Outside I.E Inside I.E

Zone 1 No Privilege 3 years

Zone 2 3 years 7 years

Zone 3 8 years 8 years

Objective: Decentralization

Sectors of Opportunity

Target Industries

Agriculture and food processing

Automotive

Machinery

Mold & Die

Target Industries

Biotechnology

Alternative energy

E&E

Chiang Mai Tourism Cluster

Bangkok Digital Content Cluster

Chantaburi Gem Cluster

Southern Marine Food Cluster

Past Competitiveness

• Low Cost Input• Tax Incentive • Large Market• Location • Foreign Direct Investment • Industrial/Exporting Zones

Challenges

• Minimum wage has been increasing • Many foreign firms have started to move out • No Global/local Linkages• Lack of Regional Integration• Politics

Opportunities

• Skill and Innovation Upgrade• Regional Integration (GMS or AEC)• Institutions that create linkages between foreign and local firms• Developing local suppliers• Move from local cost and commodity input to high value added

products/services • Cluster Policy

Conclusions

• Search for stability under “Thai road to democracy” • “Business as usual” attitude traditional in Thailand: we

have seen it all before• We need to upgrade skills and innovations. We can no

longer rely on “low cost”. • In order to compete globally, there must be a linkage

between local and global firms.

Mba.nida.ac.th