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Doing business in Thailand

At a glance

  • One of wealthiest and best places to do business in south-east Asia
  • Main industries: textiles, tourism, jewellery, furniture, computer equipment, automotive components, food and beverages
  • Thai business has three decades of experience supplying western vendors and understands quality control standards
  • Corporate tax comparatively high, but wages and other costs low
Move to Thailand

Over the past 15 years, successive governments have sought to make Thailand's business climate more agreeable to foreign investors.

Although reforms have not fully overhauled Thailand's protectionist approach to domestic industry, it is still easier to conduct business in Thailand than most of south-east Asia. The country once known as Siam is structurally, technologically and administratively ahead of many of its neighbours.

One of the most popular destinations in the region, Thailand attracts not just backpackers, but increasingly package-holiday tourists as well

Thailand, which has a population of 64.1 million, has recovered well since its nadir - the south-east Asian financial crisis of 1997. Growth is averaging around 6% at present, a healthy growth rate aided by the dramatic economic growth of its neighbour China.

High technology

Once an agricultural economy, Thailand industrialised rapidly during the 1980s, during which time the emphasis was placed on labour-intensive industries such as textiles. Since the 1990s, however, growth has centred on high technology areas like computer equipment and automotive components. Other major industries include hospitality, food and beverages, jewellery and furniture.

Tourism is a significant component of GDP - about 5%. One of the most popular destinations in the region, Thailand attracts not just backpackers, but increasingly package-holiday tourists as well.

Agriculture, though diminished as a proportion of economic output, is still central to the economy.

Winning favour, recognition or contracts in Thailand is often contingent on the payment of bribes. And despite a high-profile campaign by former Prime Minister Thaksin Shinawatra to rid the country of corruption, government officials seem to be among the worst offenders - companies with links to government officials tend to have an edge in winning public works contracts, for instance.

Historically, Thailand has been politically unstable. Between 1947 and 1992 the military intermittently ran the country, a time punctuated by coups and periods of martial law.

After an uncharacteristically lengthy period of stability the military mounted a bloodless coup in 2006. After fresh elections the following year a new party with links to Shinawatra was voted into office.

Separatist Islamic violence flares up in the south of the country periodically, and fundamentalist factions have even scared retailers into closing on Fridays, the Muslim holy day. Aside from this stark exception, however, Thailand is a relatively safe place to do business.

The country's economic hub, Bangkok, is blighted by more prosaic problems: congestion and poor air quality. The addition of overhead and underground rail systems has eased the problem slightly, but Bangkok remains a difficult place to drive around.

 

Transport

On a national level Thailand is served well by its road network and has 33 civilian airports. Goods are often moved by train, and Thailand's rail network has a commendable punctuality record. International trains run to Malaysia and Singapore.

The rapid growth of the Thai economy - the most rapidly expanding in the world between 1984 and 1994 - placed demands on the country's infrastructure that the government failed to adequately address. Projects have often been characterised by indecision and cost overruns.

Thailand's telecommunications infrastructure still does not befit a country at its level of development, despite recent improvements. The sector is being gradually deregulated, and private companies are being allowed more participation.

Like most of Asia, Thailand poses less of a red tape burden than European countries. This was the view of respondents to a Grant Thornton survey of international business, in which Thailand came near the foot of the table of obstructive bureaucracy.

Instead, the lack of a skilled workforce was cited as the main restraint on business growth. Problem-solving is an undeveloped skill in Thai business culture, partly because the education is systemically flawed, insofar that it is almost exclusively conducted through rote learning.

This is a particular problem given that you can legally only hire one foreigner for every four Thais and 2m baht of capital. So you might end up with a larger staff than you really needed just to get that extra German engineer in.

UK visitors can remain in the country for 30 days before a visa becomes a necessity. Business owners can secure a work permit or one-year, renewable non-immigrant B visa - a popular option. Processing the paperwork to obtain a permit and visa for 'farang' employees, as foreigners are called, can be impenetrable - so get yourself a good accountant.

Foreigner restrictions

Generally, foreigners enjoy the same legal rights as Thai nationals, but there are restrictions - for example, on owning land. Regulations vary between regions, and tend to be more relaxed if the land is in a remote location.

The Board of Investment tends to grant greater subsidies and other incentives to business that locates itself in provincial areas. It also gives preference to agriculture, projects related to technological and human resource development, projects that develop public utilities and basic infrastructure, conserve natural resources and mitigate environmental problems, and certain other industries.

 

There is a 50% cap on foreign ownership in certain industries. In the media, farming, forestry and the trade of land, participation is wholly prohibited. A full list of the restricted industries and details of how to apply for exemptions can be found can be found at the Board of Investment website.

It is common for foreign investors to form joint ventures with trusted local business people, sometimes through necessity, and sometimes because of the local knowledge which they provide. Sleeping Thai partners can be arranged, but as well as being illegal, this leaves you open to being ripped off.

Local knowledge is of course vital, but beware cultural and linguistic barriers. For example, Thai, being a tonal language, is a formidable language to learn for westerners.

Having said all that, Thais are more used to dealing with westerners and adept at speaking English than any other country in the region, bar Singapore.

Western business is falling over itself to get involved with Chinese and Indian business. Yet these countries are still relatively inexperienced in supplying western vendors, while many Thai businesses have as much as 30 years' experience of this - so they are well schooled in the quality and punctuality standards required by western business.

Wages in Thailand are similar to those in India and China, although they are higher at the low end. In international terms, labour is cheap. In the construction industry, for example, the average monthly wage is around 4,700 baht (£66).

Even at the higher end of the scale wages are low - in financial intermediation, for instance, the average monthly wage is about 19,300 baht (£272).

Office space, electric rates and petrol - around 30 baht per litre - are very cheap.

The headline corporate tax rate in Thailand is relatively high, at 30%. But small and medium businesses with less than 5m baht paid-up capital pay a 15% rate on their first 1m baht of net taxable profits, and 25% on the next 2m baht.

Asset managements companies, venture capital companies, and companies promoted by the Board of Investment are also entitled to exemptions.

'Land of Smiles'

The character of many Thais reflects the philosophy of the country's majority religion, Buddhism. Friendly, humble and rarely angry (at least outwardly), they use the expression mai-pen-rai - meaning 'never mind' - in a variety of contexts.

This laid-back approach to life extend means punctuality is not assigned the importance that it is in Western culture. And it is not unusual for this disregard for punctuality to extend to the payment of fees.

Swathes of bureaucracy can delay payment of invoices interminably, so it is probably advisable to ask for a letter of credit if you ask for a transfer of money overseas.

Expressing anger in public is not seemly in Thailand; it is perfectly possible for a Thai to be angry with you and maintain a smiling exterior.

Thais are reserved, not particularly tactile people. They do not greet each other with kisses or hugs. Instead, the standard greeting is a 'wai' - click here to find out how to do it.

Thais enjoy a plethora of public holidays - 15 in all - and most offices will be closed on these days. The first half of April is the busiest time for holidays, as it covers Chari Day, which falls on 6 April, and the Thai New year - Songkram - runs from 13 to 15 April.

Many city-dwelling Thais disperse to the provinces during this time so Bangkok is very quiet - meaning it can be hard to get hold of contacts and partners during this period.


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