Doing Business in Thailand : How difficult can it be?

January 11 2012 Categories: Doing Business In Thailand, Thailand Business No comments yet

Is Thailand a competitive place to do business?

Never underestimates the locals, Thai businessmen are competitive and good especially at running service businesses.

I remember one time reading that Thai Airways only lost money two times in its existence (one of which was in 1997 when the THB lost half of its value). This year will be the second time only.

Now Thai airways have lost a bit of its glimmer the last few years due mostly to aging planes than to the quality of its services. But it still does well by my reckoning. By comparison Air France spent half of its existence in a quasi bankruptcy state (seems to be going better now) and Belgium and Switzerland have lost their national airlines.

I don’t care how good they are but Swiss will never be Swissair (there are few companies that reach institutional status if you see what I mean, and once they are lost, they are lost), and our American cousins have been flying under Chapter 11 for the past 10 years.

Think about it for a minute, citizens of the world’s power are flying with bankrupt airlines.

Thai Airway is one example but they are others. Look at the former Shinawatra group, CP Charoen or True. And Thai conglomerates are only the tip of the icebergs. Thai businessmen [especially Thai Chinese) are good at what they do. This is why I have a problem with the fact that there are still so many activities controlled under FBA List3 under the definition of activities that Thais are not ready to compete with Foreigners when many foreigners who tried to compete with Thai businessmen failed.

If one could make a study on foreign investment that include foreign businesses operating through Thai owned companies with Thai shareholders that might be deemed to be nominee’s, such study (based on 10 years of experience of helping foreigners investing here) would in my opinion show that 30% of foreigners starting a List 3 business in Thailand failed within 6 months and barely 35% are still in business after 3 years. There are few activities or sectors where Thais are not ready to compete with foreigners.

How difficult is it to start a business in Thailand?

In business as in sport, the home team always has an advantage over the visitors, especially in services businesses where the knowledge of the local market is a definite advantage.

Secondly, Thai tastes are not the same than those of their neighbors, which make me say that Thai market is atypical and products or services that will do well in other countries will tank in Thailand without anyone having a clue why. French food and restaurants are a good example of something that works in Singapore, Hong Kong or Japan but fail in Thailand.

I mean, besides five-star hotel restaurants, there are few French restaurants that survived over the years. For one, Chez Philippe or another, Le Bouchon, which have become local institutions, how many have failed? I mean I have seen 100 millions THB go into smokes trying to open French restaurants.

The best example is a French restaurant that was opened by clients a few years ago. Cost of investment 450,000 USD. The result was fabulous. Despite a good location, a beautiful setting the place never worked. Average daily income was around 1,000 USD only.

By comparison a well-known mom & pop rice with chicken restaurant that have cost its owner 5,000 USD to open is making close to 2,000 USD of income per day. A friend of my girl friend which is selling nom chin (noodle with a sort of curry sauce) on a 5 meters sidewalk corner is doing an average income of 200 USD per day or 6,000 USD per month (this girl has a bachelor’s degree but she wakes up every morning at 04.00 and stay on her street corner up to 21.00 in the evening).

Of course not all the street food sellers are doing as well but overall they make has much money as if they were working in offices. Six years ago a bank made a publicity ad were you could see a man on a motorbike pushing a soup cart and the legend was something like “I’m the president, employee and driver of my business this is why I need Hong Kong Bank to assist me with my finances”.

That was one of the coolest ads for a bank and it says a lot. Now back to the French restaurant business. Why do Japanese and Italian Restaurants far better than French restaurant?

I would say that Japanese and Italian foods are more convivial. You can share a plate of pasta or a plate of sushi or a pizza and so on. French food is less convivial in this sense. And even successful French restaurants have a 30/70 average ratio between Thai/Foreign customers while successful Japanese or Italian will have on the contrary a ratio of 60/40 Thai/foreign customers.

If you want to open a restaurant in Thailand you better be careful and to chose the right concept. Sometimes you will also see Food & Beverage franchises that do well in other Asian countries barely surviving in Thailand.

What are the most common mistake of foreign investors?

The colonial state of mind: Assuming that you are smarter than the locals and have an edge because you are a foreigner is one of the most common mistake. Never forget Thai businessmen will forget more about doing business in Thailand that you will never learn.

The proven business model: Assuming that a business model that was successful in other Asian countries will be a success in Thailand is another common mistake that may be costly. Never forget Thailand is an atypical market.

Being headstrong: If your lawyer and your friends (Thai and foreign) tell you that your business model is wrong listen to them they might have a point.

Doing Business in Thailand is cheap: Because you benefit of a favorable exchange rate does not mean that investing in Thailand is cheap and easy. Never forget, if you want to do a business you have to give you the mean to success.

5. Read the fine print: Before to take over an existing business read the lease of the tenant that sell you the business. I should not even have to tell you this. I have seen guys purchasing a bar for 5,000,000 THB having the owner knocking at their door 3 months later because their lease was up for renewal. They had to pay a key money of 6,000,000 THB to renew their lease. That was why the rent was so cheap in the first place.

6. Trusting other foreigners: Because a guy is a foreigner and a long time resident and seems successful does not mean he is trustable and the right partner for you.

Know How: Don’t start a business if you don’t know what you are about. Successful restaurants in Thailand are all managed by professional. You don’t improvise yourself a businessmen in a day.

Location, Location, Location: If you have the choice between a cheap lease premise in a bad location and an expensive one in a good location go for the expensive one. It is easier to catch customers in a good location than to have them follow you in a bad one. I know it is common sens but the point is a lot of foreign investors in Thailand lose their common sens.

Saving on lawyer fees: Yes lawyer are expensive, but they are a reason for this, they provide valuable advice.

Note: This page is an excerpt of Rene Philippe Dubout next book: “How to Invest Safely Into Thailand” to be published in January 2010

About the Author:

The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.

http//:www.renephilippe.com

Originally posted 2009-07-24 05:05:40.

Doing Business in Thailand