Recommendations for doing business in Thailand｜Basic knowledge and advantages/disadvantages that you should know before entering the Thai market

Many companies that are concerned about the recent situation in Japan or that feel limited future prospects may be considering expanding overseas.

Southeast Asia is an ideal place for Japanese companies to seize business opportunities. Thailand, in particular, is an ideal place for Japanese companies to expand their business.

What are the prospects for economic growth in Thailand?

What are the advantages for Japanese companies?

In this article, we will explain in detail why doing business in Thailand is recommended for those who are considering expanding their business in Thailand or in Asia. We will explain the growing Thai economy, the advantages of advancing for Japanese companies, and what you need to know before actually doing business in Thailand, so please take a look at this article.

Why Thailand is a Good Place to Do Business

Southeast Asia is a recommended destination for overseas business expansion due to its growing population and economy and expected growth rate. Thailand is the ideal location for Japanese companies to establish a base of operations from the following three perspectives.

1. Thailand is one of the top locations for Japanese companies to establish overseas operations.

2. Economic growth is expected due to the large number of middle class and wealthy people.

3. Low geographical hurdles and language barriers

First, let's take a closer look at the reasons why doing business in Thailand is recommended.

Top-class overseas bases for Japanese companies

The following is a country-by-country ranking of the number of overseas offices of Japanese companies as of 2022.

Reference: Ministry of Foreign Affairs of Japan, "Survey on the Number of Offices of Japanese Companies Operating Overseas, 2022," 2022 Survey

Thailand ranks third after China and the U.S., the world's top economies. This shows that Japanese companies are sensing business opportunities in Thailand.

Prospects for economic growth with a large middle class and wealthy population

One of the reasons for this is that there are many middle class and affluent people living in Thailand, especially in Bangkok, and the country has good prospects for economic growth. The wealthy and middle-upper class account for about 20% of the total population, and the middle class about 40%, or 60% of the total population.

Since the middle class can afford to spend money on items other than daily necessities, the consumption behavior of the population tends to be more active when this income class is large. The affluent class tends to invest aggressively, and their economic base tends to be more stable. This creates business opportunities for a wide range of businesses.

Furthermore, the Thai government has set forth a long-term growth strategy vision, "Thailand 4.0," which aims to "join the ranks of high-income earners by 2036. Although Thailand's economy tends to be relatively mature among ASEAN countries, it is expected to continue to grow in the future.

Reference: Manamina, "Market Experts Speak! Reasons for Recommending Thailand for Overseas Expansion and Unraveling the Characteristics of the Thai Economy <Part 1>".

Low geographical hurdles and language barriers

The geographical hurdles and low language barrier are also reasons for recommending Thailand to Japanese-affiliated companies looking to expand their business in the country. The travel time from Japan to Thailand is approximately 5 to 7 hours, and most of the business bases are concentrated in Bangkok, making it a low hurdle to travel.

Another important point is that many foreign companies have established operations in Thailand, so English is spoken on a daily basis. Although Thai is the main language in Thailand, most business people can communicate in English. As long as you have English language skills, you will be able to play an active role even if Japanese companies expand into the country.

Advantages of Doing Business in Thailand

From here, let's take a look at specific advantages for Japanese companies expanding their business to Thailand. The advantages of establishing a base in Thailand are as follows

1. Excellent transit point for Asian markets

2. High demand for Japanese products and services

3. Investment incentive programs for foreign companies

By establishing a base in Thailand, you can easily secure export routes not only within Thailand but also to Southeast Asian countries, the Middle East, and Europe. We will introduce each of these in detail, so please take a look at them for reference.

Excellent as a transit point for Asian markets

Thailand is a transit point that serves as a stepping stone to other Asian countries and global expansion.

First, it has the advantage of being located in the center of Southeast Asian countries such as Malaysia, Cambodia, and Laos. 2014's "Southern Economic Corridor" has improved the logistics environment to Southeast Asia, making it more attractive as a transit point to the Asian market.

In addition, the airport in Bangkok provides access to the Middle East, Europe, and Africa, and has the advantage of being a much-used export hub to the rest of the world. Thailand has "double tax avoidance agreements" with neighboring countries, allowing companies to import and export without paying taxes both in Thailand and in their home countries.

For this reason, an increasing number of Japanese companies are expanding into Thailand as a base for exporting to the rest of the world.

High demand for Japanese products and services

One of the advantages of expanding into Thailand is that Thailand is a pro-Japanese country with a good understanding of Japanese culture. Japanese brands are well known in Thailand, and the high demand for Japanese products and food is also encouraging Japanese companies to expand into Thailand.

Japanese culture is particularly popular among the younger generation in Thailand, and demand for Japanese products is high. In addition, Thailand is currently experiencing a "health boom" and interest in Japanese food is growing.

This environment is conducive to the acceptance of Japan's unique brands and culture, and thus offers a variety of business opportunities for Japanese companies.

Investment Incentives for Foreign Companies

Thailand has the advantage of having an investment incentive system for foreign companies. If you apply to the "Board of Investment (BOI)" or related government agencies and meet the applicable conditions, you will be eligible for the following benefits.

• Smoothly obtain a work visa

• Corporate tax exemption for up to 8 years

• Permission to own land for business use

If you are able to take advantage of the above systems, the hurdles to entering the Thai market will become much lower. Many of the leading companies that have already entered the market have been certified as "BOI companies. Please refer to the following for investment targets.

• Technological innovation

• Research and Development (R&D)

• Environmental protection technology

• Industries requiring advanced technology

• Businesses that contribute to narrowing economic disparities

Manufacturing industries are particularly likely to be certified, but not all companies are eligible for certification due to the detailed requirements. First of all, please be aware of the above-mentioned systems.

What you need to know before starting a business in Thailand

Finally, let's take a look at the precautions and disadvantages you should be aware of when starting a business in Thailand.

1. Disadvantages of doing business in Thailand

2. Business fields that are attracting attention when expanding into Thailand

3. Management that takes into account the temperament and culture of the local people

When considering expansion into Thailand, it is important to respect and accommodate the local people's temperament and culture. It is also a good idea to understand not only the advantages but also the disadvantages of the economic situation. We will also introduce some of the business areas that are attracting attention, so please check them out.

Disadvantages of Doing Business in Thailand

Japanese companies expanding their business to Thailand do not only have advantages. It is also necessary to understand the disadvantages of doing business in Thailand. Problems and disadvantages in the Thai economy are as follows

1. Population decline due to low birthrate and aging population

2. Economy is easily influenced by politics

3. Regional differences in income

In Thailand, as in Japan, the birthrate is declining and the aging of the population is accelerating, with the population over 65 years old about to exceed 14% of the total population. It is undeniable that in the near future, problems of shrinking labor force and consumer market will emerge, as in Japan.

In addition, the political situation is unstable and economic conditions tend to be influenced by politics. There is a possibility of a rebel coup d'etat, and security may deteriorate.

It should also be noted that the income gap between urban and rural areas is widening.

Although the Thai economy is growing at a dizzying pace, mainly in Bangkok and its suburbs, the benefits have not reached the provincial cities. For the middle and lower income classes, the current situation is that "Japanese goods and services are out of reach.

Business Fields Drawing Attention for Expansion into Thailand

The Thai economy is creating many new business opportunities. The following are business fields that are attracting particular attention.

Since the aforementioned "Thailand 4.0" encourages the development of a digital economy, businesses related to strengthening the country's digital infrastructure are growing rapidly.

There is also a growing awareness of environmental protection and sustainability, and investment in the eco-tourism industry is also active. Collaboration with local communities and sustainable business strategies will be important in this business sector.

In addition, the health boom is stimulating the bioscience industry. Governments are encouraging the development and research of products that comply with international standards and are willing to invest in the health industry.

Management that takes into account the temperament and culture of the local people

Following the attitude of Thailand, a pro-Japanese country, management should also pay attention to the Thai culture and the temperament of the local people.

Even if you can communicate in English, it is recommended to use Thai if possible. It is important not to give the impression of cultural or ethnic differences through an attitude of accepting local culture and a mindset of being approachable to others.

In addition, you need to treat Thai people with the understanding that they have a "prideful temperament. They do not like to have their reputation destroyed, so be considerate when pointing out their mistakes. Instead of pointing out mistakes in an open setting, it is important to talk about them only with the person in question in an individual meeting.

Conclusion

In the capital city of Bangkok, the center of the Thai economy, competition from Japanese companies is increasing. With the ever-growing market, the business scene in Thailand will continue to change at a dizzying pace.

Therefore, it is even more important to do preliminary research before entering the market, such as regular research on the business market, as well as an understanding of Thai culture and national characteristics. Many companies may find it difficult in terms of resources to complete the task on their own.

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