Entering into foreign markets needs a strategic plan to ensure growth and increase profits. Since last decade, Southeast Asian region has been considered a new destination for investment instead of Europe. Among Southeast Asia countries, Thailand has been highly appreciated by foreign companies because of its openness to foreign investment. However, it had some issues that should be concerned before making investment decision, such as unstable political system. 

Thailand is the only Southeast Asian country and Association of South-east Asian Nations (ASEAN) member to have never been colonized by a European power. Additionally, it is today one of the most important trading nations within ASEAN. Its economy is the second largest and highly diversified with strong export industries as well. Moreover, it is the fourth-richest nation in ASEAN according to its gross domestic product (GDP) per capita after Singapore, Brunei, and Malaysia (according to 2012 World Bank data). In recent years, Thailand has a well-developed infrastructure, a free-enterprise economy, and is friendly to foreign corporations. It has made Thailand become one of most open market in Asian market. This report will provide a basic understanding about Thailand’s political economy, which is one of some key factors affecting investment environment. Then it will point out the advantages and disadvantages of political economy on business activities in Thailand. 

Advantages

With current advantages of well-developed infrastructures, free market economy and various positive policies to encourage business operations and foreign investment, Thailand is now one of the largest economies in ASEAN. It is because Thailand government has provided various trade liberalization policies to attract direct investment, which include reducing restrictions, tariff and non-tariff barriers on foreign investors. For instance, although some business areas such as newspaper or farming require at least 51% local ownership, foreign companies are required less restriction in some others, such as manufacturing and producing. Foreign enterprises, which operate in manufacturing, can possess 100% of their business operation in Thailand, while joint ventures are compulsory in China and other Asian countries. In addition, tax or non-tax incentives are also provided, such as tax exemptions on raw materials. These attractive incentives may have contributed to a large number of multinational enterprises placing their factories in Thailand, such as Sony, Intel and Honda.

Since the financial crisis in 1997, some new legislation has been issued to improve the business framework and push the economic recovery. The former foreign business law was replaced by a new legislation, namely The Alien Business Enterprise Act. The new law helps to reduce limitation on foreign participation in business and improve their business operation in various areas, such as accounting, advertising and construction. Besides The Alien Business Act, Thailand has different laws to encourage investment, such as Investment Promotion Act B.E. 2520 which was modified by Investment Promotion Act B.E. 2534 and Investment Promotion Act B.E. 2544 (Investment Incentives, 2014). With the reforming policies and investment incentives for foreign business, the business environment has improved in Thailand, which in turn helps to attract many multinational enterprises. According to World Bank in 2013, Thailand ranked 18th out of 189 nations on ease of doing business. In addition, starting a new business requires only 4 procedures, which take about 27.5 days.

Besides positive polices and legislations, Thailand has established many free trade agreements with different countries to encourage trade and investment. For example, the Japan-Thailand Economic Partnership Agreement (JTEPA) which covers investment agreement, good and service trade was enacted in 2006. This agreement was expected to keep a mutually beneficial relationship with Japanese investors. 

Disadvantages

Political system of Thailand is quite unstable. The causes of this uncertainty could be from the high number of major political players in Thailand, including the monarchy, the military and various political parties. Since 1939, more than 20 coups and counter coups have been conducted in this country. The situation has become more chaotic since former Prime Minister Thaksin Shinawatra’s government was overthrown by a military coup in 2006. After that, various protests and counter protests have happened from both Democrat Party and pro-Thaksin parties, which led to casualties, property damages and closure in some places in Bangkok. The political uncertainty can be explained by the wealthy gap between social classes. The belief that the government mainly supports the elite among middle class citizens also contributes to this separate in Thailand society.

This political uncertainty can also significantly impact the business operations and foreign investments. For example, due to the protests, a central store of Central Retail Corporation in Ladprao had to close for a long period and would lost six billion baht in sales. This enterprise’s CEO Tos Chirathivat blamed the protestors for decreasing consumer confidence (Thailand: Central beefs up security measure amid political uncertainty in 2010). In addition, investors and foreign business partners’ confidence may drop sharply. It is concerned that the enterprises in Thailand cannot ensure in-time product supplying for international market due to the disruption. Tourism can be one of the most negatively influenced industries. The closure of Suvarnabhumi international airport in 2008 has resulted in numerous travel cancelations and safety warnings from other countries.

The political uncertainties can lead to negative effects on the government. This inefficiency can also be explained by the government’s bureaucracy. Before the coup in 2006, a system of patronage politics were established by former Prime Minister Thaksin with aims to ensure his political power. After the coup, this patronage culture still continues and creates struggle between bureaucracy and executive. In turn, this struggle may lead to the confusing and conflicting policies. In addition, this patronage culture can create difficulties in cooperation between government departments, which can negatively affect the process of implementing investment policies. Business operations of foreign enterprises have been restricted by the ambiguity of many business regulations, which include new laws related to health and environmental problems.

The risks of losing intellectual property may also decrease the interests of foreign enterprises in doing business in Thailand. Since being criticized by America due to lack effort for protecting United States’ copyrighted works in 1991, Thailand has attempted to strengthen its legislation to prevent such problems. For instance, this country has around ten legislation that related to intellectual property, such as Copyright Law in 1978, Trademark Law in 1991 and Patent Act in 1992. However, Thailand is still considered as a notorious source of piracy.

In conclusion, this report has identified various advantages and disadvantages that a foreign enterprises may encounter when doing business in this country. Possessing well-developed infrastructure, various trading policies and free trade-agreements that encourage investment, Thailand is an attractive choice for multinational corporations to establish their business. However, the political instability, bureaucracy and ineffectiveness of the government can be the major obstacles that prevent MNCs’ business operation. Also, the risk of losing intellectual property due to inefficient laws should not be overlooked. In addition, the diversity among Asian countries can also create troubles for business activities. The differences in policies can create incentives or trade barriers which MNCs have to adapt with.