Country Analysis: Thailand - Essay Example

Country Analysis: Thailand Inserts His/Her Inserts Grade Inserts (28, August, Introduction It is essential to conduct a thorough country analysis before investing even a small amount in any country. In today’s globalized world countries are trying to produce good for which they have a competitive edge over other producers. The rest of the work is either outsourced or is being done in other countries. MNEs should have a detailed idea of the business environment of a country before shifting their production unit to that country. In this essay we will conduct an investment analysis of Thailand. We will discuss political risk, social risk and economy risk of Thailand. All the discussion will help an MNE that is trying to establish a 100 percent owned Greenfield factory in Thailand to manufacture compact sedans for Australian and South East Asian customers. There are many factors that can affect the decision of the MNE and all these factors will be discussed in great detail. Political Risk of Thailand Thailand is a country where political institutions are not as strong as in the developed world. The country has had many constitutions, 17 to be exact. This shows the political volatility of the country and this can be a problem for any MNE. Political stability is very important in order for any factory or production unit to work properly. MNE would have to employee local people and they will only be able to come to factories when there will be peace and stability in the country. Thailand has serious political risk and MNE should take this into account from starting its factory in the country. The country has seen many governments from 1997 to 2011. In 2006 there was a military coup in which military consumed power and dissolved government (MSNBC, 2006). Around a whole year the country was ran by military and politics was banned. This is the reality of the political risk of the country. The shift in politics impacts an MNE in many ways. New government usually comes with a new set of policies and this creates problems for a multinational company. The new policies may involve new tax policy and this can seriously affect the profits of the multinational company. Political risk of Thailand is also a threat for the MNE because it can affect the workers who will be working in the factories. Local employees will not be able to work properly if there will be political instability in the country. MNE will also have to plan for any major political change in the country. The multinational company should abide by the laws fully in the country so that it can continue its production without any major problem if government was to change in future. Thailand is also a country where political institution is not very developed therefore corruption exists and this can also affect the MNE. In Thailand there is a conflict between the poor and rich classes and this is conflict is not expected to end, and this conflict is creating problems for businesses in the country (Reuters, 2011). This leads to peace problem in the country and business find it difficult to function. This conflict also leads to violence in the country. All these are significant political risks are to be taken into account before a car factory is set in the country. A car factory involves a great amount of workers and these workers will be employed from local sources. Therefore any instability in the country is not good for the MNE. Social Risk of Thailand There are considerable social risks in Thailand for MNEs. The country is not a developed country and wages are not as high as in developed world. This makes the country attractive as the company will have to pay fewer wages and this will lower the costs for the factory. But at the same time lower wages will mean lower level of lifestyle and higher crime rate. This is a significant social risk of Thailand and it is likely to affect the company. Employees of the company can get affected by these social risks and their performance can be reduced. Also for a business to run efficiently social risks are important to take into account. Child labor is another major problem of the Thailand and the world is aware of it (National Statistics Office Thailand, 2003). This can affect the sales of the company. The gravity of this problem can have far reaching consequences for the MNE. Today the world is aware of social problems like child labor and people try to boycott things that are made in countries where child labor is prevalent. This is a social risk that can affect the company in the long run by lowering the sales of the company. Social risks like child labor and illiteracy can also affect the reputation of the company. Today companies spend loads of money on marketing the brand name of the company and giving positive name to their brands. All this is done just to create a positive brand image of the company. Now social issues like child labor and illiteracy can hurt MNEs. Local and international media may propagate that the company has means to make a difference but it is not doing anything for the people. This blame can hurt the company and therefore it can serve as significant risk for the MNE. Thailand is also a land where crime is prevalent. The situation of law and order can directly affect the company by hindering the business operations of the company. Any robbery or criminal activity can hurt the multinational enterprise financially. The company will have to get insurance in order to protect themselves from any criminal activity and this can have impact on the financials of the company. Social risks are significant when it comes to Thailand and the company will have to assess these risks independently. These social risks can affect the reputation of the company and can also affect the profits of the MNE. A car factory is a very large investment and the company should take child labor and criminal activity seriously before going ahead with the investment. Economic Risk The economy of Thailand can also affect the MNEs decision to invest in the country. The company is planning to manufacture compact sedans for Australian and South East Asian customers. So Thailand is a manufacturing base and also a target market for its product. This is why economy of Thailand will have a dual effect on the profits of the multinational enterprise. The country is facing moderate level of economic problems and the economy is mainly dependent upon agricultural goods (AMB Country Risk Report, 2010). The company will have to import all its products and machinery from foreign countries. The final product will also be sent to Australia and other South East Asian countries. This is why trade from Thailand should be considered very important by the company. Thailand is surrounded by sea and has many sea ports. This will help the company a lot as it will be able to send its products to other countries. The import export taxes will also be of great importance to the company. Thailand may increase or decrease import duties and this will hurt the company financially. Also local level inflation can have a significant effect on the MNE. There are many things which the company will need in order to produce cars on a regular basis. These things will be bought from local markets and here inflation will have an effect on the company. Inflationary trend will also have an upward pressure on wages and again this will increase the costs of production for the multinational enterprise. Inflation will therefore have a two pronged effect on the company therefore it is the most significant economic risk for the MNE. The interest rate prevalent in the economy will also have an effect on the policies of the company. The company may want to raise money locally and here local interest rates will have a direct effect. Therefore fiscal and monetary policy will have a direct effect on the company. Thailand usually runs into fiscal deficits and this is financed either by printing money or by increasing taxes. Both of these measures will have an economic impact on the production of compact sedans. Printing money will have a direct effect on inflation and real value of money will decrease. Increasing taxes will also lead to increase in costs. Conclusion Thailand is an important country in South East Asia. An MNE that is trying to invest in the country should be aware of the political risk, economic risk and social risk of the country. The political risk of Thailand is significant because the country is politically not stable. There have been military coup and this is not good news for any foreign company. The social risks of Thailand include child labor and high crime rates. The major economic risks include inflation, import export duty and increase in taxes. All these risks can have a significant effect on the multinational enterprise. Bibliography Factbox: Key political risks to watch in Thailand. 2011. Reuters. Accessed on August 28, 2011 from http://www.reuters.com/article/2011/02/07/us-thailand-risks-idUSTRE7161EE20110207 National Statistic Office Thailand. 2003. Labor Force Survey. Accessed on August 28, 2011 from http://web.nso.go.th/eng/stat/lfs_e/lfse.htm Thailand. 2010. AMB Country Risk Report. Accessed on August 28, 2011 from http://www3.ambest.com/ratings/cr/reports/Thailand.pdf Thai military launches coup against PM. 2006. MSNBC Asia- Pacific. . Accessed on August 28, 2011 from http://www.msnbc.msn.com/id/14906669/ns/world_news-asia_pacific/t/thai-military-launches-coup-against-pm/ Read More