With all that has been happening with China lately on trade, Thailand is emerging as a very attractive investment destination. Thailand has consistent and well-defined investment policies, increasing regional connections, and a government committed to improving its transportation infrastructure. It also (for the most part) has had long-term political and economic stability.
Thailand is emerging as a very attractive investment destination.
Thailand is Southeast Asia’s second-largest economy with a well-established market system. In addition to being an attractive production base, its 70 million people make for a dynamic consumer market. Thailand’s business environment for foreign companies has become increasingly welcoming to foreign investment. Thailand has made big investments in infrastructure (new roads, ports, trains, airports, etc.) and much of this has been geared towards improving upon its export-driven economy.
Thailand is well located between India and China and it shares maritime boundaries with Vietnam, Indonesia, and India. Thailand is the anchor economy for the neighboring developing countries of Laos, Myanmar and Cambodia and it is strategically located to serve markets in and beyond Southeast Asia.
The business climate in Thailand is welcoming to foreign investment and further deregulation and trade liberalization are taking place on many fronts, largely driven by Thailand’s participation in the Association of Southeast Nations (ASEAN) Economic Community (AEC). According to a recent World Bank study Thailand’s business climate has improved considerably since 2013 and it now ranks as the second most promising economy in East Asia. The World Bank rightly describes Thailand as “one of the great development success stories. Due to smart economic policies it has become an upper middle income economy and is making progress towards meeting the Sustainable Development Goals.” The World Bank Group’s 2017 Doing Business report “ranks Thailand in 26th place among 190 economies in the ease of doing business for small and medium enterprises around the world, up from 48th place when applying the same methodology to last year’s and this year’s data. The report also recognizes Thailand as one of top 10 economies that have improved most in the ease of doing business in the last year worldwide.” China came in at number 78.
Thailand is already a major destination for foreign direct investment
Thailand is already a major destination for foreign direct investment and China’s trade problems have put that into hyperdrive. I moved to Thailand to live and work in 2007 and this is the best I’ve ever seen it.
1. Thailand 4.0
Thailand’s industrial sector is looking to move up the value chain and expand its capabilities to produce greater value-added products in a variety of modern industries. These include the fields of Robotics, Medicine, Aviation, Advanced Manufacturing, Biotechnology, Nanotechnology, Advanced Material Technology, and Digital Technology. These efforts are known as Thailand 4.0, a master plan to move the country from one of an abundance of cheap unskilled labor to an innovation-based value economy. This strategy seeks to spur industries to progress up the technology ladder. Thailand 4.0 mandates broad reforms that address economic stability, ease of doing business, human capital, equal economic opportunities, environmental sustainability, competitiveness, and effective government bureaucracies.
2. Thailand Incentives
In the current competitive global marketplace, simply possessing a favorable geographic location, efficient infrastructure, stable government and stable access to natural resources is often not enough to attract interest from multinational businesses searching for the optimal placement of their next factory. To stay ahead of regional rivals in competing for finite investment dollars, Thailand offers several financial and other incentives for companies keen to set up shop there. These incentives can vary by product and location but include the following:
a. Thailand Tax Incentives:
- Exemption of up to 15 years on corporate income tax for certain industries
- ASEAN’s second-lowest corporate tax rate (20%)
- Double deductions for transportation, electricity and water supply costs
- An additional 25% deduction for the cost of installing or constructing facilities
- Exemptions on import duties for some essential materials and machinery
- Tax deductions of up to 300% for qualified R&D expenditures
- Tax deductions of 200% for qualified expenditures made in intellectual property acquisition and licensing fees for commercializing technology, technology training; donations to specific research and training institutions, and sourcing support
b. Non-Tax Incentives:
- Special four-year visas for skilled workers and high-level executives
- The right to lease state land for up to 99 years.
- Permission to bring in foreign workers, own land, and take or remit foreign currency abroad.
- Subsidies for energy conservation programs
c. Industrial and Special Economic Zones:
- infrastructure and logistical advantages, such as electrical power, water supply, transportation, communications and waste treatment
- Some of these infrastructure expenses are tax-deductible.
- Easing restrictions on cross-border traffic of goods and labor to establish cross-border supply chains.
3. Trade Agreements.
Thailand is a WTO member and has free trade agreements with China, Japan, South Korea, India, Australia and New Zealand.
US Treaty of Amity.
U.S. owned businesses enjoy investment benefits through the U.S.-Thailand Treaty of Amity, originally signed in 1833 (This is the United States’ second oldest treaty!). The Treaty allows U.S. citizens and businesses incorporated in the United States or in Thailand that are majority-owned by U.S. citizens to engage in business on the same basis as Thai companies (national treatment) and exempts them from most restrictions on foreign investment imposed by the Foreign Business Act.
Thailand’s membership in the Association of Southeast Asian Nations (ASEAN) provides businesses in Thailand the advantages of the ASEAN Economic Community, a single market of more than 600 million people covering 10 countries in the region. This enables the free flow of goods, investments, labor and capital within the community.
A China-ASEAN free trade deal also helps mitigate the trade-war risk for companies trading with both the United States and China.
Is the time right for your business in Thailand?
That depends on a variety of factors specific to your business, your industry and, most importantly, your goals. But is the time right for doing business in Thailand? Yes, it is.
As more companies look to diversify their Asian supplier base, Thailand often wins out as the best-fit destination. Vietnam has been flooded with the early movers. As a result, their factories are at capacity, their costs are rising, and they are less willing to compete for new business (i.e. – give our clients good deals). See Sourcing in Vietnam: a Good Alternative to China? Taiwan and South Korea are great for certain products, but too expensive for most. For many products, Thailand just works.
Thailand’s government is constantly talking about the increasing opportunities for Thailand stemming from the US-China trade war and it has made clear that it intends to compete aggressively for that business. One of my good contacts at the Thailand Board of Investment recently told me that the mantra in Thailand these days is to make investing by foreign companies easy. Just last month the Thai government announced an additional package of incentives to encourage foreign companies to relocate their production from Thailand to China. See Thailand Offers 50% Tax Break to Entice Manufacturers Fleeing China.
One of the things that often surprises our clients is how seriously Thai companies typically take the contracts they sign. Industry Week highlighted this in Finding a Fit in Thailand:
- Once you sign a contract [in Thailand], it is upheld. . . . We don’t need to worry about the quality of the products or whether it was built to the correct specifications. I can’t say that about other countries.
The World Bank ranks Thailand 35 out of 190 countries in terms of its enforcing contracts, tied with Portugal and only three slots behind the United Kingdom.
Thailand also has a good history with protecting intellectual property. Per Industry Week, “IP protection isn’t a problem in Thailand [because] unlike China, the people in Thailand are not looking to open their own businesses. . . . And the turnover rate for employers is extremely low compared with other Asian countries.”
Of course, the most important question for any company wanting to use Thailand as its supplier-base is whether it is equipped to make your specific product.
Is there a company/factory with the skills, equipment, level of automation, and capacity required? Does this Thai company/factory have the access to needed raw materials and components and can it make my product at a competitive cost and at the level of quality we require?
Our usual answer to the first question is a quick yes. Thailand has a large and diverse manufacturing base with a focus on exporting. In its most recent Global Manufacturing Competitive Index, Delloite ranked Thailand 14th in the world, ahead of every other country in Southeast Asia except Singapore, which is a much higher cost country. Thailand has factories making just about everything these days, but no country does everything well and no country (except maybe China) has “automatic” capacity at every level of quality. This means our answer to the second question is usually a “yes” or a “maybe” but with the proviso that we need to talk with our government and factory contacts to find out whether there is a factory that can make your specific product at the costings and the quality you require.
For more information on moving your manufacturing from China, check out Moving Your Manufacturing Out of China: The Initial Decisions and Moving Manufacturing from China: Where you Gonna Run?