Business opportunities in Thailand for US investors

Business opportunities in Thailand for US investors

Business opportunities in Thailand for US investors
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To have relevant business opportunities in Thailand is a matter of interest for any US investor. In this article I want to share what I learned in my last business trip to Thailand.

During my visit to Thailand I visited different companies and Institutions like US Embassy, Central Pattana Public Company Limited CPN, Surapon Food PLC, The Thai Freedom House and others.

Also visit many touristic places as Wat Pra Kaew, Grand Palace Complex, Bangkok River Cruise, Tour with elephants and Phi Phi islands. I got the opportunity to stay in 5 stars tourist complex and hotels.

However, in this article I want to focus on business opportunities in Thailand.

With that approach, I will mention a summary to describe the current scenario of this country. Then I will focus on one of the companies, Central Pattana Public Company Limited CPN, and what I observed there from the managerial point of view.

I will describe its value chain and do an analysis of the Porter’s 5 Forces.

An overview of the complexities to be taken into account when undertaking international business ventures in Thailand.

As an oversight of Thailand, an important aspect to take into account is that now is a year of transition, not just for US but also to Thailand because the dead of the King.

The king Rama IX passed away October 2016. An important aspect to keep in mind regarding Thailand and it people is the monarchy; they have a tremendous respect for the King.

This King led the country through a sustainable development. This is a constitutionally monarchy, so the monarchy do not run alone, like England or Japan (Embassy, 2017).

Thailand is the heart of ASEAN (Association of Southeast Asian Nations) and the hub for turism, world class healthcare service, medical turism, automobile manufacturing, fashion and jewelry, computer electronics and components, also food processing (Embassy, 2017).

When undertaking international business ventures in Thailand is important to weigh the characteristics of the population, economy aspects, also the market strengths, as well as the challenges (Embassy, 2017).

From the point of view as an American company or investors search the treaties between the two countries, the key areas for investment and export in Thailand (Embassy, 2017).

Thailand at a Glance:

  • Population with an average age of 38 years old
  • Bangkok 8 to 10 Million Population
  • 95% of the habitants are Buddhist
  • 96% Literacy in the country
  • The current global scenario with the Brexit and also Russia would impact in Thailand economy. For example in the tourism area where French, British and Russian are very frequent and affluent group visiting Thailand.
  • 2017 GDP growth forecast at 3.2-3.6%
  • Inflation rate of -0.9%
  • Highly Developed infrastructure with Airports (10 around the country), ports and industrial zone.
  • The business are distributed with 52.7% in the service sector, 36.8% industry and 10.5% in agriculture. (Embassy, 2017)

External environment by looking at political, economic, socio cultural, legal, and technological forces

Political stability:

Contrary to what can be thought, the death of the King Bhumibol Adulyadej, and the accession of his son, who is now titled King Maha Vajiralongkorn Bodindradebayavarangkun, in late 2016 is expected to have a minimal impact on political stability in 2017-21.

The affirmation have base on the continuity of the National Council for Peace and Order which will continue to control the legislature until elections are held, which The Economist Intelligence Unit expects to take place in 2018 at the earliest.

The new constitution, approved in a public referendum in August 2016, cements the military’s continued influence over government even after the next ballot (Unit, 2017).

The election of a new government in or after 2018 is expected to be accepted with little resistance in the light of the 2016 constitution referendum result.

But challenges to the next government cannot be ruled out if the public objects to the military’s continuing, overtly central role in the political system.

The Senate is likely to be dominated by figures linked to the military (Unit, 2017).

Monetary policy

What is seems in the horizon is Bank of Thailand to raise its main policy rate, the one-day repurchase rate, once in 2017.

Firming consumer price inflation, continued monetary policy tightening in the US and stronger domestic economic growth will allow the BOT to step up from its current, low rate of 1.5%, in part to give itself greater room for future loosening of policy.

The lessening of inflationary pressures and stalling external demand in 2018 will motivate it to revert to an accommodative stance in that year, and it will remain so until 2020 (Unit, 2017).

The exhibit number 3 provides a glace of International assumptions like a comparison to Thailand information.

Economic growth

The private consumption is expected to growth, which accounts for a significant proportion of GDP, accelerated from 2.2% in 2015 to 3.2% in 2016 owing not only to the junta’s stimulatory efforts but also robust inflows of tourists.

It will remain supported by these factors in 2017 but is likely to experience a pronounced dip in the middle of the forecast period as weakening external demand in 2018-19 undermines domestic economic activity.

It will pick up again after the economy experiences a broader (Unit, 2017). Exhibit number 4 shows the expected Economic growth for Thailand.

Thailand market Strengths:

  • Strategic location in the heart of Southeast Asia
  • Educated Skilled workforce
  • Inexpensive property for investment & rental (compare to Tokyo, Singapore, Hong Kong)
  • Well-developed infrastructure and logistics
  • Excellent healthcare & international Schools
  • Friendly local people (avoid conflicts) (Embassy, 2017)

US Thai Treaty of Amity:

As mentioned before, as an American company or investors it is important to consider the treaties between the two countries and the Treaty of amity is a key one.

This treaty was signed in 1833 and amended in 1966. It allows American citizens and business incorporated in USA, to engage in business as would a Thai national with the following characteristics:

  • Maintain a majority shareholding
  • Exempt from most of the restrictions on foreign investment

Only restriction to communications, transport, fiduciary, functions, banking with depository functions exploitation of natural resources and domestic trade in agricultural products (Embassy, 2017).

US investment in Thailand

USA is the 3rd largest investor in Thailand, after japan and China with total bilateral trade valued at more than USD 50 billion. US Companies in Thailand provide more than 200,000 local jobs.

Key areas for US investment:

  • Petroleum and Chemicals
  • Financial services
  • Consumer products
  • Automotive industry
  • Computer components
  • Food processing (Embassy, 2017)

US exports to Thailand

The following are areas or business very attractive to invest in Thailand because of the market landscape:

  • Defense and aviation
  • Safety and security technology
  • Construction
  • High education abroad (US and UK)
  • Thai Franchises
  • Medical equipment
  • Cosmetics and beauty products (Embassy, 2017)

The challenges face by domestic firms doing business in Thailand. Is the cost of doing business high in Thailand?

Challenges in Thailand:

  • Regarding trademark, counterfeiting and falsification are very common
  • Frequently high and unexpected customs and fees can negative affects a business
  • Aging population in the future
  • People come to Bangkok from the North Country to work during the week and leave the city in weekends
  • Language barriers, the majority of the population, including prospect employees do not speak English.
  • Integration of the different cultures coexisting in the country
  • Political transition, the new King spend one whole year assuming the throne. This is because of the tradition.
  • Thailand has a military government, with a strong power for deal with certain issues, specially related with the monarchy. (Embassy, 2017)

Exhibit 1: Use of Internet in Thailand

Total Population68.22 Millions
Internet Users46.00 Millions
Active Social Media Users46.00 Millions
Mobile Subscriptions90.94 Millions
Active Mobil Social Users42.00 Millions

Exhibit 2: International Assumptions

Exhibit 2 International Assumptions

Exhibit 2 International Assumptions

Exhibit 3: Economic Growth

Exhibit 3 Economical Growth

Exhibit 3 Economical Growth


The industry dynamics that affects the performance of the firm within the industry by analyzing Porter’s 5 Forces

Porter’s five forces model is a framework that bring into consideration factors that could affect the profitability and the attractiveness of a business.

This model identify and analyze five competitive forces that shape every industry and contribute to weight the industry weaknesses and strengths. (Porter, 1985)

Following one by one of these forces will be analyzed to reach a conclusion as to whether the competitive forces are low, medium or high:

Competitive Rivalry

This one seems to be medium to high. There is many players, and as showing in exhibit 2 at least 4 of them are representative.

CPN have an important market share of 21% which is the largest, but still leave an short distance from its closest competitor which has 8% of the market and has in plans 4 new projects with which it could achieve to reach CPN in a time pocket not so long. (CPN, Companny Overview and present standing of the business, 2017)

Threat of New Entrants

This one seems to be relatively low or at best medium. It is not so easy for someone to just go out and build a super mall or service facility in Bangkok City.

There are many regulations and other obligations to be dealt with. Plus the reputation of the party building super malls has a great deal to do with a project’s success, which is a further barrier to a new entrant.

Accordingly, a new player will have a great deal of trouble just moving into this industry. (CPN, Companny Overview and present standing of the business, 2017)

Threat of Substitutes:

This one seems to be medium. The fact that the population is so imbued with social networks and web content and also, as shown in exhibit 1, the majority of the population has access to mobile phones and the internet, although it is an advantage to achieve engagement with the people also can be a way for a possible substitute.

Older millennials with ages between 25 and 34 are more likely than any other generation to do the majority of their clothes shopping by online media.

There seems to no be the only ones because also people 35- to 44-year-olds have online spending habits (Gustafson, 2016). This can turn the act of going to a mall into a substitutable activity, at some levels, by shopping online.

However, it is not considered a high risk in this case when taking into account the Thai culture, characterized by socializing.

Also the strategies that the firm is carrying out in order to make the mall visit a whole experience more rewarding than just buying something. (CPN, Companny Overview and present standing of the business, 2017)

Bargaining Power of Buyers

This factor or force currently has a low impact. Being strategically located the number of people who visit the shopping centers and other facilities of the group are very numerous and as individuals do not have a powerful power.

However, the company has not dismissed its consumers and has already created plans for premium customers with tangible advantages for them.

When we look at these same visitors and end clients as a whole, instead of as individuals, although there are no current threats, the management of security and social networks directly influences the image of the firm and have a relevant impact, negative or positive, in the masses.

However, as shown below, the company has invested in security within the facilities and also in the management of social networks. (CPN, Companny Overview and present standing of the business, 2017)

Tenants are also “buyers” in this business model. Thailand in general, especially Bangkok, is a growing market where national and international brands and stores are eager to participate.

The company has among its mission to be a sustainable business and generate the highest value and possible profitability for its tenants.

For the aforementioned, this force is considered to have a low impact even when one speaks of the tenants. (CPN, Companny Overview and present standing of the business, 2017)

Bargaining Power of Suppliers

This factor is considered to be of medium impact. The reason for this was mentioned in the first section of this document, construction as such is a process involving a large amount of foreign or imported elements and therefore the cost is quite high.

Then, the bargaining power is lowered for the firm, in terms of prices and availabilities. To date there have been no major conflicts, but since it is not domestic solutions, the supply of these services and supplies is very precious. (CPN, Companny Overview and present standing of the business, 2017)

Value Chain Analysis to explain how the firm creates and captures value in Thailand and abroad.

A value chain is a tool developed by Michael Porter to evaluate the activities that a firm, operating in a specific industry, performs to design, produce, market, deliver and support its product.

Thought firms in the same industry may have similar changes, the value chains from competitors often differ (Porter, 1985).

Therefore, we will compile the elements of the value chain for the CPN signature, with the information available. As a starting point, a description of the nature of the business and the different areas is presented below.

The principals CPN’s businesses are development, management of large-scale shopping complexes, and the providing of retail areas for rent, complementing by other supportive activities that complete the business-mix.

These activities include office building and hotel. The optimization of the space is one driver that as a consequence diversify the income sources and also allow more and diverse customers to shopping centers.

Others related and complementary models, like food centers, multi-purpose convention halls, water parks and recreation parks in some shopping increase the portfolio and are a plus for customers (CPN, 2017).

Finding strategic locations is the first steep to a CPN’s project development. To achieve this they conduct feasibility studies, manage designs and construction, forecast the sales, and control the operation of the shopping mall after their opening.

When referring to the hotel business, CPN invest in hire management specialized to manage its hotels for the best results (CPN, 2017).

The groups of CPN’s business can be classified by the source of income. With that said there are six business groups, described as follows:

Shopping Complexes

These are the CPN’s main source of income and generates over 80% of the total revenue. The result income come from (CPN, 2017):

  • Rental of retail spaces
  • Utility and security services
  • Cleaning services
  • Convention hall rental and provided services
  • Onsite media services at 30 properties of which 25 projects are owned by CPN
  • Also, other sources are the management fee at four property projects under CPN Retail Growth Leasehold Property Fund and a share of profits from investment in it.

As is going to detailed further ahead, CPN is launching three new projects for new shopping centers and currently has 21% of the market share in this sector (CPN, 2017).

Office Buildings

This component of the business consist in the development of office buildings for rent, which is a complementary business for the shopping complex. Also adds value to the optimization of space and land use and enhances parking lot efficiency management.

Not all locations have an office building, the decision would depends fundamentally on the supply and demand for office space at each location.

The income for this particular business model come from rental office spaces, rental of retail shops spots within the office buildings and utility service fees (CPN, 2017).

Currently CPN has seven office towers projects: CentralPlaza Lardprao, CentralPlaza Pinklao, CentralPlaza Bangna, CentralWorld (The Offices at CentralWorld), CentralPlaza Chaengwattana, and CentralPlaza Grand Rama 9 (CPN, 2017).

When referring to office buildings, although CPN owns four projects, they just actually manages three projects of them.

Leaseholders of office buildings in CentralPlaza Lardprao, CentralPlaza Pinklao, CentralPlaza Bangna, CentralPlaza Chaengwattana, and CentralPlaza Grand Rama 9 projects are mostly operators of businesses benefiting from shopping mall environment.

This represent a competitive advantage when compared with others office buildings.

Some of these renters are tutorial schools, language and music schools, beauty parlors, and securities brokerage firms (CPN, 2017).

The Offices at CentralWorld, differs from the above description due it is a grade A office building, is located in the heart of the central business district, and as a consequence majority of the leaseholders are leading companies, local or multinational (CPN, 2017).

Hotels

When hotels are located in the same area of shopping centers the complements very well the retail business.

It is more convenient for tourist and make easy for them stay at the hotels and make the shopping, which increase the profit possibilities for investors and stakeholders.

This mix product also adds value by making the most use of properties for the maximum return on investment (CPN, 2017).

The most important aspects for consideration of hotel investment include project location, demand, supply, surrounding areas, and the project’s growth potential.

The hotel business includes guest room’s fees, foods and beverages, seminar rooms and convention centers (CPN, 2017).

CPN owns two hotels. One is the 259-room Centara Hotel Udonthani which was acquired by CPN in April 2009 and the other is Hilton Pattaya Hotel with 302 rooms, situated on top of CentralFestival Pattaya Beach and opened on November 2010.

Carefully CPN selected and hired expert hotel management companies Central Plaza Hotel Plc. and Hilton Hotel Corporation, to manage Centara Hotel Udonthani and Hilton Pattaya Hotel respectively for a maximum efficiency (CPN, 2017).

Residential Buildings

Seeing the advantages of mixed-use development of shopping complex projects, in September 2015 the Board of Directors approved the investment in condominium projects within the area of CPN shopping complexes in Chiangmai, Khonkaen and Rayong with the scope of maximize the benefit of the main CPN’s business which are shopping-complex.

A specialized team of executives, experienced personnel and experts was asked to conduct feasibility studies on the development of residential projects and execute other related activities.

These condominium projects construction started in the second quarter of 2016 and they will last two years of construction (CPN, 2017).

Currently CPN just manage one residential building project, the Central City Residence Condominium, a 11-unit condominium on the premises of CentralPlaza Bangna. (CPN, 2017)

Water Parks And Recreational Parks

Other Water supporting businesses are parks, ice rink and recreation parks in the shopping complexes, and those adding variety to features and services of shopping complexes.

This an strategy for attract more customers to shopping complexes, keep the customers excited and also population in the surrounding communities (CPN, 2017).

The physical space available in the shopping facility is a key factor to determinate if a mall could have this extra or not.

As an example the water park on the sixth floor of CentralPlaza Bangna which was in suspension for renovation but was launched on November 17, 2015.

Designed under the theme of Pororo: The Little Penguin, a highly popular Korean animated character. To create new experiences and fun for customers and their families, the park was named “Pororo Aquapark Bangkok”.

Other example is, the recreation park “Central Park”, a large-scale recreational park on the premises of CentralPlaza Rama 2, is open to the public and consists of a health park, a children playground, an activity area, and renowned restaurants.

All this activities and mixed business generate profit for investors and loyalty from customers (CPN, 2017).

Food Centers

Food Centers providing customers with a wide variety of economical and fast food options and are considered essential to shopping complexes.

CPN earns sizeable income from the sale of food and beverage in food centers, especially because the Thai people love to go out and seat and eat food with friends and family (CPN, 2017).

Then, with all of the above, it can be said that the value chain of ANC counts in its primary activities with Shopping Complexes, Office Buildings, Hotels, Residential buildings, Water Parks And Recreational Parks and Food centers and this can be categorized as Service.

Of course, CON counts among its primary activities with Logistics, Operations and Marketing and Sales which were also mentioned above or will be explained later (Porter, 1985).

As Support activities CPN has accounting, legal, finance, control, public relations, quality assurance and general management which are classified as Infrastructure. Sometimes they do internally and sometimes the hire specials agencies.

Also, CPN has equipment, hardware, software, procedures and technical knowledge, specially related with the online customer experience in the stores and security applications, this is called Technological Development and is part of the value chain.

They have Human Resources Management, which is very dedicated to create value and be sustainable, all related with recruiting, hiring, training, developing, compensating and dismissing or laying off personnel also fall in this category.

And finally Procurement, which is the acquisition of goods, services or works from an outside external source is definitely an evident successful support activities for CPN.

Some additional aspects relevant to be mentioned as activities and projects the firm is using to create and captures value in Thailand and abroad are the following:

According to exhibit 1, 62% of the population are (Unit, 2017) active mobile social users, and there is a growth potential in this figure due to the number of cellular subscribers. Taking these facts in consideration they make an approach through the following 3:

  1. Trigger/offer: They offer the audience with experience rather than promotion and discount
  2. Channel and content: They connect with the customers in as many digital channels and convert to footfall
  3. In-store experience: Inject the digital activities or mechanic to create sharing and interaction. (CPN, Companny Overview and present standing of the business, 2017)

Whit those strategies they did achieve more than five millions of millions of digital reach on digital, also an average of 120,000 daily traffic with more than 1,500,000 million of total engagement. (CPN, Companny Overview and present standing of the business, 2017)

They also use Facebook and Instagram as their key digital touchpoints, they have a balanced mix of followers with 50% men and 49% women. The average users are 18 to 34 years old and right now they have almost half million of total followers.

The managers from CPN mentioned they actually have different kind of mall according different kind of targets.

They have from shipper malls, where the majority of the brands are locals, to the exclusive ones where there are available international designer’s brands. (CPN, Companny Overview and present standing of the business, 2017)

Central Group is evaluating a proposal to set to build mall in Cambodia where Shopping malls still have a chance to grow because the market has increased purchasing power and has only a limited number of shopping malls of international standard.

There is an expansion project and would mean for CPN group an international scale and also not be behind other players as Phnom Penh’s shopping centers comprise Aeon Mall, which is building a second outlet in the city, City Mall, Parkson and Soriya Mall (Asia, 2017).

The firms build sustainable competitive advantage through innovation and usage of human capital

CPN Property Development and Investment, a member of Central Group

Vision:

To be the most admired and dynamic regional retail property developer with world-class rewarding experience. The company is a mixed-use Project Development principally focused in retails proprieties malls.

Currently the firm manages 30 shopping centers under the brands CentralWorld, CentralPlaza, CentralFestival and Centralmarina. (CPN, Companny Overview and present standing of the business, 2017)

The company also have other related business in the residential, office buildings and hotel properties. (CPN, Companny Overview and present standing of the business, 2017)

CPN embrace sustainable development in economy, society and environment as the foundation of their operation to generate sustainable benefits for our stakeholders. (CPN, Companny Overview and present standing of the business, 2017)

Sustainable Development Mission:

The firm mission is “Create shared value and minimize negative impact” (CPN, Companny Overview and present standing of the business, 2017).

The firm aims to achieve this sustainable development through the following:

  1. Developing potential entrepreneur
  2. Strengthening tenant’s competitive advantage
  3. Creating a place of inspiration
  4. Delivering exceptional products and services while providing safety and convenience
  5. Offering career advantage and opportunities
  6. Engaging employees and enhancing wellbeing
  7. Co-creating social and community values
  8. Managing societal and environmental impacts efficiently and effectively
  9. Encouraging responsible supply chain
  10. Acting on a good governance and transparency (CPN, Companny Overview and present standing of the business, 2017)

The above mentioned objectives, below there are more detail of how CPN addresses the main ones and how they make it real.

Employees:

Basically the firm divides this aspect in terms of career advancement and Employee engagement.

The first they achieve it through develop training roadmap, talent programs and bootcamp.

The second they achieve it through special programs dedicated to improving the environment of the employee, their family, sport, organizational culture and work environment. (CPN, Companny Overview and present standing of the business, 2017)

Products and Services:

Through an initiative customer centric project, they attempt to service innovation. They had developed some projects for this.

One is the Customer Service, like free mobile chargers, rest areas, dog carts and dog parks. Another is the Family centers with kiddy cars and children restrooms.

Also, Security issues like Segway and security base. Safety and convenience are another innovating initiative such as lady parking, intelligence parking, hub transportation and mobile traffic management.

Finally, they provide a digital experience through free WiFi, mobile application and CPN life.

Environment:

They provide access to renewable resources and efficiency technology through solar rooftop, Leadership in Energy and Environmental Design buildings, utility efficiency, environmental tracking system and efficiency benchmarking. (CPN, Companny Overview and present standing of the business, 2017)

Central World Catchment

The location of the facilities is strategic and size covers a greater catchment of Bangkok. The target are individuals who are lifestyle focused, trendsetter, up-to date and sociable.

Customers normally are 30% tourist and 70% domestic. (CPN, Companny Overview and present standing of the business, 2017)

The international shoppers more frequently are Chinese, Hong Kong, Taiwanese, Malaysian, Japanese, Korean and Europeans. Regarding the domestic shoppers there are teens, 1st jobbers, mid management, executives and retirees. (CPN, Companny Overview and present standing of the business, 2017)

Although the Chinese are the most important tourist group in Thailand, they are not necessarily the ones that generate the most profit for the malls.

CPN managers mentioned that some Chinese investors have set up shopping malls, hotels and sell the complete tourist package including visits to shopping malls owned by Chinese investors.

The aim of this is to provide Chinese tourists with the experience of traveling to Thailand, with prices at Thai prices but the gain remains in the hands of Chinese investors.

CPN has tried to address this issue by creating value for Chinese tourists, with products and experiences that they may like and have them visit the CPN facilities. (CPN, Companny Overview and present standing of the business, 2017)

Premium Customer Services:

This program seeks clients who want to feel special, some of the benefits they offer are for example 4 Ambassadors and 27 concierges staff speaking over 5 languages, hands free shopping, prayer room and family lounge.

This program is very successful due to the average age of the population of Thailand, which is a contemporary adult. (CPN, Companny Overview and present standing of the business, 2017)

Strategic Shareholder:

CPNs strong synergy with the Central Group helps CPN to attract dynamic leaseholder, increase people traffic and demand higher rents. (CPN, Companny Overview and present standing of the business, 2017)

The Central Group held different firms with a varied percentage, as following:

  • Central Pattana Public Company Limitated (53%)
  • Central Department Store (100%)
  • Central Hotel & Resort Group (65%)
  • Central Food Retail Group (100%)
  • Central Restaurant Group (65%)
  • Central Hardiness Group (100%)
  • Central Marketing Group (100%)
  • Central Online (50%)

This varied portfolio of firms shows that for CPN to belong to this group is an excellent competitive advantage, since the portfolio firms are mostly related or complement each other. (CPN, Companny Overview and present standing of the business, 2017).

CPN Positioning and Marketing strategy

With 21% market share, CPN leads the market in Bangkok. The firm makes a constant evaluation of its competitors, including the number of projects, the size of the projects, the investment, the target year, and the strategy they intend to use. (CPN, Companny Overview and present standing of the business, 2017)

The key success factors for CPN are:

  • Central Group Synergy
  • The Prime locations
  • Financial Flexibility

References

Mary Lissy Padrón

Business, Projects and Competences Development and Management Expert.

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