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Thailands Macro Environment in 2016-2017
Executive Summary
The report delves into the peculiarities of the current macro environment in Thailand. The rapid economic growth of the state that can be observed in the last several decades preconditions the increased level of investors attention and numerous attempts to enter the local market. However, the peculiarities of its economy, political regulations, laws, and culture could introduce barriers to the improved functioning of organizations.
Regarding the current companys intention to run globally and expand its foreign operations, the report provides an in-depth analysis of the most important factors that should be considered to create the ground for successful expansion. The paper includes the description of the political situation, economic conditions, cultural peculiarities, business opportunities, Thailands participation in international organizations, and legislation factors. These are analyzed to attain an improved comprehension of the current situation. At the end of the report, recommendations related to the companys potential expansion are suggested.
Introduction
The modern globalized world provides numerous opportunities for corporations that look for new outlets. Elimination of traditional barriers that slowed down the evolution of international trade and improved means of communication preconditioned the appearance of new vectors for the development. They are focused on promising areas characterized by beneficial conditions. Therefore, the rapid growth of economies of particular countries contributes to their increased attractiveness for investors and global corporations.
Finally, the high level of rivalry preconditions the need for constant evolution to preserve the leading position and compete with opponents. In this regard, international expansion becomes fundamental for companies that look for new outlets and opportunities for their growth. However, the success of the new entry depends on the comprehensive investigation of the new business environment, its main components, and risk factors. That is why the given report is crucial regarding the companys further rise and its entry into the Thai market.
Background
The last several decades could be characterized by the gradually increasing role of Thailand in the international economy. The country has turned into one of the leading states and has numerous perspectives for further development. At the moment, Thailand experiences the most blistering economic rise among other newly industrialized countries. Its manufacturing industry generates 40% of the overall states income and continues to evolve (Hill and McKaig, 2014).
Additionally, there are other developed industries. The combination of these factors along with the high potential makes the state a perfect candidate for investments. This fact is evidenced by the substantial foreign equity and global corporations participation in the countrys economic rise. For this reason, the companys expansion to Thailand could be justified by numerous opportunities for further economic growth. At the same time, multiple aspects should be considered to guarantee the success of a new venture.
Countrys Macro Environment
As stated above, Thailand preserves leading positions among the newly industrialized countries (Hill and McKaig, 2014) The level of wealth gradually increases. For instance, the number of people living in poverty decreased from 10% to 7% of the overall population (FITA, n.d.). However, the unfair distribution of wealth can still be observed in the state as the minority owns the more significant part of the capital (FITA, n.d.).
At the moment, Thailands economy demonstrates tendencies for further growth because of its developed industry and increased importance for numerous investors. The country has a robust agricultural sector that can support the rise of its manufacturing industry. Thailand is the worlds third-largest sea-food explorer (Nations Encyclopedia. n.d.). However, agriculture comprises only 9% of the states GDP (see Figure 2). The manufacturing industry and its IT sector remain the most important source of income for the state. For instance, in 2014 the average income from electrical and electronics export comprised $55 billion (ITC, n.d.).
Regarding the current tendencies in the sphere, the further growth of export could be predicted. Therefore, the sector provides numerous workplaces for citizens. In 2012 about 13% of employees belonged to it (ITC, n.d.). Due to its significant role in the global market and attempts to foster cooperation with its international partners, Thailand cultivates its economic ties with other countries. The USA, the UAE, the European Union, China, and Japan are the most important partners (see Figure 4) and have the highest FDI showings (STP, n.d.b). Additionally, the state is an active member of the World Trade Organization (WTO) and the Association of Southeast Asian Nations (ASEAN).
Participation in these organizations provides numerous opportunities for further rise as new contracts could be made. However, the country also suffers from a high level of corruption and shadow economy (Nations Encyclopedia. n.d.). According to several investigations, it could be 41% of real GDP (Nations Encyclopedia. n.d.). A significant part of produced goods and services are concealed from the local authorities to obtain super-profits. Thus, it does not distract foreign investors who are still attracted by numerous opportunities that are available for global companies that want to run globally and use Thailands beneficial market environment. The country has a long history of foreign investments as its newest history attracts numerous agents.
As for the political situation in the state, at the moment it seems stable. However, the comprehensive investigation of the given aspect demonstrates that there is a high complexity of the relations between different branches of power. The country has already experienced two military coups that were aimed at the reconsideration of power patterns and replacement of prime-ministers who were not able to satisfy all factions. Moreover, the 2013-2014 Thai political crisis promoted the increase of tension between the representatives of different parties within the government and triggered numerous protests (Nations Encyclopedia. n.d.).
These resulted in a significant loss of income. For instance, the tourist sector reported $125 million decreases, whereas other industries also suffered from the deterioration of the political situation (FITA, n.d.). For this reason, the government tries to provide foreign investors with guarantees related to their functioning in the state. Correctly realizing the fundamental role of investments, the parliament introduced laws that protect the foreign capital and create a beneficial environment for the companies that are interested in the Thai market. In this regard, this factor becomes significant to determine the expansion strategy and enter a new market.
As stated above, the government of the country is interested in foreign investments as they are one of the primary moving forces that promote the blistering rise of different spheres of Thailands industry (see Figure 5). For this reason, there are several incentives aimed at the improvement of the climate in the state and the provision of advantageous positions for investors. For instance, all foreign nationals are permitted to enter the country to study its environment and investment opportunities (ASEAN Briefing, 2015).
Moreover, there are radical alterations in the taxation policy to attract new actors: reduction of one-half of import duties for machinery; exemption of import duties; permission to take out or remit foreign money, etc. (ASEAN Briefing, 2015). These regulations are introduced to demonstrate partners Thailands readiness to cooperate and its beneficial character. Moreover, there is a particular governmental seven-year strategy plan which is accepted to stimulate investment and trade (FITA, n.d.).
The introduction of these approaches contributes to the high percentage of foreign capital in the economy of Thailand. However, the first signs of decline could also be observed as Asian countries experience a decrease in their FDIs to Thailand in 2017 (see Figure 3). It could be preconditioned by the development of the shadow economy and political crises.
Therefore, the economic conditions of Thailand remain at a high level. (see Figure 1). For instance, the gradual growth of the GDP could be observed. At the moment it comprises $439 billion which is 30 billion bigger than in 2016 (see Figure 1). Moreover, its inflation rate also remains at the appropriate level (1,4%) (FITA, n.d.). This fact evidences the currency stability (Thai Baht). The definite tendencies related to the development of the Thai industrial sector could be considered the guaranty of its financial firmness and further development. The level of salaries also increases across the state (STP, n.d.a).
Furthermore, the country managed to overcome the negative impact of the 2008 financial and 2013-2014 political crises that deteriorated Thailands main financial showings and preconditioned the decrease in the level of GDP. However, modern economic conditions remain stable and promote the states further rise. The tendency toward the increased number of foreign investors revitalizes the economy and creates a supportive environment for its rapid growth.
Continuing the analysis, culture is another factor that should be mentioned. The local population has a unique mentality which differs from the Western one significantly. The majority of workers can be described as patient and diligent employees who perform diverse tasks. The rapid rise of the electronic industry preconditioned the high demand for a skilled workforce that would be able to produce high-precision instruments and digital devices (Nations Encyclopedia, n.d.).
That is why local employees could be used in different industries to acquire positive outcomes and attain improved results. However, there is a significant lack of high-educated specialists as the majority of individuals work at the assembling line (Nations Encyclopedia, n.d.). The peculiarities of the local culture and religion that cultivate patience and obedience could be considered beneficial for a company that wants to enter the market.
Factor Endowments
Traditionally, the given area is considered one of the most promising regions for the development of different industries. The country possesses an appropriate amount of labor and capital to support new projects and attract investors. Additionally, the last several decades could be considered fundamental for the state as it managed to cultivate a modern industrialized society and shift priorities from the agricultural to the manufacturing industry (Hill and McKaig, 2014).
Regarding the current speed of the countrys development, peculiarities of its workforce, and its sources, Thailand can be described as an advantageous region that offers limitless opportunities for businesses. Finally, its focus on foreign investments and the introduction of regulations that create a unique environment result in the appearance of numerous perspectives in different spheres. For this reason, Thailand becomes an ideal candidate for further expansion.
Analysis
Regarding the information mentioned above, risks related to operating in Thailand should be considered minimal. There are several factors to prove this statement. First, the existing legislation supports foreign companies in their attempts to enter the local market and provides advantageous conditions for them. Second, the state has good economic showings and tendencies related to the development of the primary industries. It means that there is no threat to the market crash. Third, despite the political instability peculiar to the area, Thailand tries to protect foreign companies and their capitals by giving them security guarantees. Fourth, the country possesses a large amount of land, labor, and capital resources to meet the requirements of different global corporations and provide them with the needed conditions.
Finally, the cultural peculiarities of the local people make them competent employees. In this regard, the risks related to doing business in the country could be considered minimal, and the company could be recommended to choose Thailand as one of the potential regions for expansion.
Recommendation and Conclusion
Altogether, Thailand is one of the most fast-growing states of the modern world. It demonstrates excellent economic showings and preserves the high speed of its industrial sectors development. Moreover, the government is interested in new foreign investments as the primary source to support the developing economy. For this reason, any international company that wants to enter the local market could benefit from sustainable support and advantageous position. Considering all these facts, Thailand could be considered a good choice for investors and organizations that try to run globally or look for new outlets.
References
ASEAN Briefing. 2015. Thailands New Investment Promotion Policies Open a New Door to Foreign Investors.
FITA. n.d. Thailand: Introduction. Web.
Hill, C. and McKaig, T. 2014. Global Business Today, 4rd Canadian edition. Toronto: McGraw-Hill Ryerson Ltd.
International Trade Centre. n.d. Thailand. Web.
Nations Encyclopedia. n.d. Thailand International Trade.
Santander Trade Portal. n.d.a. Thailand: Economic and Political Outline. Web.
Santander Trade Portal. n.d.b. Thailand: Foreign Investment. Web.
Appendix
Figure 1. Main Economic Indicators.
Figure 3. FDI.
Figure 4. Main Partners.
Figure 5. Main Invested Sectors.
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