FDI Policy of Thailand - Report Example

Preliminary Project Form: First Assessment Table of Contents Table of Contents 2 Introduction 3 FDI Policy of Thailand 3 Theoretical Aspect 4 Empirical Aspect 5 References 8 Bibliography 9 Introduction Twenty first century has been defined as the age of global competition. This century is characterised by the advent of globalisation which has dissolved geographical boundaries. Organizations are moving across borders to capture markets in an attempt to expand their business beyond borders. Foreign Direct Investment is one of the most popular modes of expansion being used by organizations to establish their foothold in different markets across the globe. The study attempts to study the issue of foreign direct investment in Thailand, specifically in the retail sector. More precisely, it endeavours to study its impact on the small market players operating mainly in the unorganised category. Thailand is a free enterprise economy which offers huge prospects to business organizations for enhancing their growth. The Thai Government has adopted highly proactive policies which seek to create a favourable business climate for organizations to pursue their business interests. The GDP of the nation in terms of purchasing power parity stands at $ 540.1billion as of 2009. The per capita GDP of the nation is approximately $ 8200 as of 2009. The nation showed an annual growth rate of approximately four percent from 2000 to 2008 (CIA, 2010). The macroeconomic indicators shown above represent numerous opportunities for business organizations across the world to set up a shop in the nation. FDI Policy of Thailand The intricacies of Foreign Direct investment is regulated by the Foreign Business act which was framed in 1999. The nation classifies ‘alien’ business units as business units whose total share capital is greater than 50 percent of the total number of shares outstanding. Foreign business units intending to set up their business in Thailand must seek a formal approval from department of Business Development or the Board of Investment. However, if the business capital exceeds 100 million Thai Pounds then no such permission is required. The total FDI inflow in Thailand is estimated to be about 1.05 billion in the year 2004 (Price Water House Coopers, 2006, p.224-226). Theoretical Aspect The role of FDI in the retail sector has been the subject of many research papers. The issue has assumed greater importance in the third world nations whose retail markets are quite fragmented in nature. Foreign players are generally known to be more aggressive and also have access to various resources including high expertise in the field of logistics and marketing. Rege (2010) conducted a study of the effects of FDI on the Indian retail market. The author pointed out numerous benefits like better customer services, increased employment options, better utilisation of resources, reduction of wastages etc (Rege, 2010, p.19-21). Organizations like Wal-Mart are known to have extremely high level of operational excellence especially in the area of supply chain management. Adoption of such high level of technology proves to be advantages for the customer as they get greater value for the products. Wal-Mart is also known for its inventory management techniques. These techniques lead to considerable saving of resources, benefits of which are passed on to the customers (Chiles & Dau, 2005, p.46). A study conducted by the Communist Part of India (Marxist) pointed out some ill effects of FDI. They opined that the rise in the volumes of FDI will lead to erosion of small and marginal players. They stated that multinationals having access to greater resources and advanced nature of operations would make it difficult for the small and marginal business to grow and flourish along with the multinational retail giants. The main reason for this is that in many developing nations the small and the marginal players do not have access to the resources that are available to the multinational business houses (Communist Party of India Marxist, 2005, p.1-8). Empirical Aspect The retail industry in Thailand consists of both organised and unorganised market players. Global retailers like Tesco, Big C and Carrefour have their presence in the Thai market. Thailand also has the concept of cash and carry in vogue. Netherlands based Siam Makro constitutes the lone firm having its cash and carry business in Thailand. The year 2004 saw a major reorientation of the retail industry in Thailand. Massive amount of resources were pumped in both by foreign and domestic players which redefined the retail structure of the nation. Figure 1: Growth of the retail industry in Thailand over three years. (Source: Price Water House Coopers, 2006, p.231) The growth of retail sector in Thailand is indebted to the increased Foreign Direct Investment in the nation. The inflow of FDI has enhanced the shopping experience of the customer. It has also created numerous job opportunities for the youths of the nation. In spite of the stated positive effects of FDI, a few notable demerits have also been observed. The Thai retail market was composed of a number of small and medium players. The opening up of the retail markets have led to the closure of many such retail outlets in the nation. A study in this regard states that the percentage of organised retailers in the market went up to about forty percent in a short span. The study also stated that the rise of supermarkets and hypermarkets in the nation have been accompanied with the fall in the number of small and marginal retail outlets. It is a serious cause for concern as it tends to take away the source of livelihood of many individuals associated with this industry (Communist Party of India Marxist, 2005, p.3). A study conducted by Guruswamy and Sharma (2006) stated the example of the Indonesian retail market where the traditional retailers were forced to close their shop after large multinationals entered the retail market. The Government had to step in with revised legislations after the nation witnessed widespread protests (Guruswamy & Sharma, 2006, p.15). FDI in itself has its own share of merits and demerits. On one hand, the inflow of FDI leads to the production of better quality services, greater employment options as well as better utilisation of resources. They also provide huge market opportunities for local indigenous manufactures as the large retail chains are known to export a large number of local goods and services to offshore locations where the demand for such kinds of goods are considered to be high. This has proved to be a boon for the small business houses which do not have elaborate markets for their products as they do not have the expertise to gain access to foreign markets. Large retail chains provide such local business houses with an opportunity to showcase their products in the developed markets of the globe (Bora, 2002, p.329-330). Smaller retail outlets must take steps to make their business processes more efficient in order to stay proficient in the wake of competition thrown up by the advent of FDI. Small business units must try to enhance their value proposition to the customers so as to ensure customer loyalty. Governments on their part must also formulate legislations so that the existence of these small and marginal players is not threatened. The issue also presents considerable importance in the context of Thailand where about sixty percent of the total market is dominated by the small and marginal retailers. The Government could follow the Chinese model wherein it allowed a step by step entry of the foreign players. The Chinese Government first allowed only 26 percent FDI which was later increased to hundred percent in a step by step process. This would provide ample time space for the domestic retailers to spruce up their business in order to shield themselves from the competition posed by the foreign players (Guruswamy & Sharma, 2006, p.16, 23). The advent of FDI poses for the nation both threats as well as opportunities. On one hand, it brings forth greater value addition and on the other hand, it seeks to destroy the small and marginal players. The key to success for the small players lies in utilising the opportunities available to them so as to gain competitive advantage. Governments on their part must also make polices so that the two sets of market players can co-exist in harmony. References Bora, B. 2002. Foreign direct investment: research issues. Routledge. Chiles, C.R & Dau, M.T. 2005. An Analysis of Current Supply Chain Best Practices in the Retail Industry with Case Studies of Wal-Mart and Amazon.com. [Pdf]. Available at: http://dspace.mit.edu/bitstream/handle/1721.1/33314/62312050.pdf?sequence=1 [Accessed on October 23, 2010]. CIA. 2010. The World Factbook. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/th.html [Accessed on October 23, 2010]. Communist Party of India Marxist. 2005. On FDI in Retail Trade. [Pdf]. Available at: http://cpim.org/upa/10272005_fdi_retail%20trade.pdf [Accessed on October 23, 2010]. Guruswamy, M & Sharma, K. 2006. FDI in Retail-II Inviting more trouble? [Pdf]. Available at: http://www.indiafdiwatch.org/fileadmin/India_site/CPAS_report_2.pdf [Accessed on October 23, 2010]. Price Water House Coopers. 2006. From Bejing to Budapest. Winning Brands, Winning Formats. [Pdf]. Available at: http://www.pwc.com/en_GX/gx/retail-consumer/pdf/thailand.pdf [Accessed on October 23, 2010]. Rege, S. 2010. FDI in Multi - Brand Retail - An Overview. [Pdf]. Available at: http://www.medcindia.org/Digest/SEPTEMBER/REGE-%20India%20Review.pdf [Accessed on October 23, 2010]. Bibliography Bhatia, S.C. 2008. Retail Management. Atlantic Publishers & Distributors. Peng, M.W. 2008. Global Strategy. Cengage Learning. Read More