Investing In Thailand

Market Entry Strategy

Obtaining a local partner, such as an agent or distributor, is still the preferred means of entering the Thailand market for the first time as it is one of the most efficient and effective ways to reach Thai buyers. The agent or distributor can facilitate and expedite the market entry with their market knowledge and established networks. With the business culture of Thailand, interpersonal relationships are a vital factor for successful business transactions. The Commercial Service in Bangkok provides a variety of services to assist U.S. firms with market entry.

Using an Agent or Distributor

Although Thai law does not require use of local agents and distributors, it is one of the most efficient and effective ways to enter the market in Thailand. The agent and distributor facilitate and expedite the market entry with their market knowledge and established network. Among many business cultures in Thailand, interpersonal relationships are a vital factor for successful business transactions. Local agents and distributors are accustomed to local business practices and requirements. They are in the market and can deliver what is required for a successful business arrangement that companies in the U.S. cannot conveniently provide from afar. In addition, local agents and distributors will take care of regulatory affairs and acquire import permits for U.S. exporters.

U.S. exporters must invest sufficient time and attention in selecting a qualified agent and provide training for marketing and technical support staff. Frequent contact with local representatives is essential in order to build a good relationship. Three of the best ways to locate an agent and/or distributor in Thailand are to:

1. Use the International Partner Search Service (IPS), Gold Key Service (GKS), or Video Gold Key Service available from the U.S. Commercial Service, U.S. Embassy Bangkok
2. Read the IPS report. This report provides a list of Thai companies that have been hand-selected by our Commercial Specialist responsible for your industry sector. These companies have examined your product literature and company profile, been interviewed by our Commercial Specialist, and have expressed strong interest in holding further discussions with you about representing your company. We provide you with a company profile and contact information for each Thai company. Following your receipt of the IPS report and your company’s initial follow-up, should you plan to visit Thailand, we recommend you use our Gold Key Service, whereby we will set up meetings with each potential Thai representative. We will arrange hotel and transportation, and provide the appropriate Commercial Specialist from our staff to accompany you to the meetings. Should you not be in a position to travel from the U.S. to Thailand but wish to have face-to-face discussions with the Thai candidates, we can arrange “virtual” meetings by videoconference under our Video Gold Key Service. If you do not have access to videoconferencing equipment, you would simply go to the nearest U.S. Department of Commerce Export Assistance Center for the video hookup in the United States. A searchable directory of these centers may be found at the following website www.export.gov/comm_svc/eac.html.
3. Participate in related trade exhibitions in Thailand. Trade exhibitions are a good means to test the market and locate serious agents and/or distributors in Thailand who visit the trade exhibitions to find new products and services.

Establishing an Office

The primary organizational forms for commercial enterprises are the sole proprietorship, partnership, limited liability company, joint venture and foreign branch. All are similar in nature to those found in the United States. Limited liability companies, however, are more often privately held rather than public corporations. The majority of foreign corporations operating in Thailand do so through private limited liability companies. There are 3 major forms of partnership in Thailand:

1. an unregistered ordinary partnership,
2. a registered ordinary partnership, and
3. a limited partnership.

As in the United States, each form of partnership has different levels of liability for partners and different tax consequences for the partners and partnership. If a firm chooses a more formal type of organization, it may decide to form a private limited company or a public limited company. Generally speaking, a private limited company is similar to a U.S. privately held corporation while the latter may offer shares to the public. Thailand also offers the possibility of establishing a representative or regional office for those companies engaged in non-revenue generating activities. These may be offices engaged in market research and assessment, providing quality control or purchasing services to a head foreign office, or providing warranty support services for products sold by its head office to the Thai market. In any process of establishing an office, individuals and firms are strongly advised to consult at an early stage with legal or other professional advisors to ensure compliance with all applicable laws and regulations and to ensure selection of the optimal business structure for their activities in Thailand.

Other considerations for American firms are to ensure there are no restrictions on foreign entity participation in a particular sector - whether there are import or other special licenses required and whether there are any special incentives available from Thai organizations such as the Board of Investment (BOI) and the Industrial Estate Authority (IEAT). The U.S.-Thai Treaty of Amity and Economic Relations of 1966 allows U.S. majorityowned businesses, incorporated either in the United States or in Thailand, to operate on a nearly equal footing with Thai corporate entities. As a result, U.S. corporations may establish wholly owned subsidiaries or branch offices in Thailand without the constraints that other foreign firms face from the Alien Business Law. However, there are still government restrictions in the communications, transport and banking sectors, the exploitation of land and natural resources and the trade of domestic agricultural products. To register under the Treaty of Amity, a U.S. company needs to obtain documents from the U.S. Commercial Service office and to file an application with the Department of Commercial Registration at the Thai Ministry of Commerce. The U.S. Commercial Service at the U.S. Embassy in Bangkok has further information available for interested firms or individuals. Information on the Treaty of Amity may also be found at www.buyusa.gov/thailand/en/treatyofamity.

Franchising

The franchise industry is still very popular among Thai investors because it is perceived as an attractive and relatively safe form of investment. According to the Thai Franchise Association, at the end of 2006, the total number of franchisers in Thailand was 375, with 325 of those being Thai-developed franchises, and 44 being international franchise systems. In 2005, the outlets were 20,735 units. 55 percent were in convenience stores and 35 percent in the food and restaurant business. The franchise industry is expected to continue to grow at an average of 30 percent over the next few years due to changing consumer buying patterns, urbanization, and improvements in Thailand’s transportation and communications network. International franchises control 70 percent of the total market. The U.S. dominates with 65 percent of the international franchising market. The quality, standards, brands, and innovations offered by U.S. franchises are well known to potential Thai investors. However, franchising fees required by U.S. companies are perceived as very high and start-ups require a huge capital investment. There is a 25 percent failure rate for local franchise operations, due to their poor standards and low quality. Nevertheless, local franchises have better growth potential than international franchises due to its lower initial investment and lower offer prices.

The number of local franchises is still growing very fast due to the flexibility of franchisers and their ability to know the tastes and purchasing influences of local consumers. Local sources mentioned that most Thai investors are willing to pay about US$2,500-25,000 for franchise fees and will consider their budget as the priority in making the decision on a franchise. Many of the U.S. famous franchises are already in Thailand, such as McDonalds, Burger King, Starbucks, KFC, Pizza Hut, Mrs. Fields, A&W, Post Net, Mail Boxes Etc., Subway, Radio Shack, Outback Steak, Sizzler, Dunkin Donuts, Gymboree, etc. The best prospects for U.S. franchise concepts are in the following areas: hotel management, education and computer schools, automotive after market, and health and beauty services.

Direct Marketing

Direct marketing is considered to be an effective means of marketing in Thailand and is expected to grow steadily. Since the onset of the Asian financial crisis in mid-1997, many of those made redundant joined the direct marketing workforce. Often, these people possess business experience and are highly motivated. Direct marketing is used widely in the sale of life insurance, cosmetics, health products, cleaning and household items, and electrical appliances. Major U.S. cosmetics brands that are sold via direct marketing are Amway, Nu Skin, Herbal Life, and Avon. Even though direct marketing has proved to be very successful in the Thai market, many problems still need to be solved such as poor product quality, loss during delivery, imitation, and poor enforcement of consumer protection laws by the government of Thailand. Direct marketing and mail order sales to some extent have benefited from use of individual credit cards in Thailand. Credit cards stretch the buying power of Thai consumers and facilitate retail sales through non-traditional means, such as mail order and electronic commerce. Leading the market in this sector are American Express (Amex) and Citibank (which issues both Visa and MasterCard). Most major department stores in Thailand conduct direct marketing via mail order campaigns through their own networks of discount cardholders. Installment plan sales of household consumer goods and electrical appliances are gaining popularity among consumers, especially in rural areas.

TV home shopping was introduced several years ago and had been moderately accepted. Within the last few years however, it has been gaining ground. Currently, it generates an annual turnover of over US$50 million. Still, the poor quality of some products has lessened consumer confidence in this channel. The Thai consumers’ buying pattern of seeing and touching products that they are buying is another limitation of the TV home shopping. In 2002, the CP Group’s 7-Eleven unit launched catalog sales and used over 2000 of their stores to receive orders and deliver products.

Joint Ventures & Licensing

Joint ventures (JVs) and licensing agreements are important market entry strategies for American exporters to Thailand. In many cases, the only way to overcome costly freight charges, high tariffs and competition from cheaper local goods is via local production. Thai firms need to become more technologically advanced to offset competition from lower cost producers. Thailand’s Civil and Commercial Code has a section on General Contracts, which broadly governs all contractual business relationships and transactions. Depending on the nature of the contract, the Public Companies Act and Alien Business Act include provisions pertaining to joint venture agreements which American firms should be aware of before signing with any local partners. Joint venture partnerships with funding support, technology transfer and training components are effective mechanisms to achieve this. Many Thai firms are actively seeking U.S. joint venture partners which, along with much needed capital, can also bring technical, marketing and management skills to a business relationship. In turn, Thai firms generally offer assets, valuable local vendor and government contacts, and established business relationships throughout the region. A number of aggressive U.S. companies have already entered into strategic joint-venture
relationships with Thai partners in Indochina and China. The U.S. Commercial Service at the U.S. Embassy in Bangkok can provide assistance to American firms seeking potential joint venture partners in Thailand through various marketing services. Visit their website at www.buyusa.gov/thailand/en or visit www.export.gov for more information.

Distribution & Sales Channels

Distribution and sales of industrial goods in Thailand are normally conducted through two channels: 1) from U.S. exporter to Thai importer, to Thai end-user, and 2) from U.S. exporter to Thai end-user. The selection of distribution and sales channels depends largely on the type of product and the end-user. Exporters of products that require aftersales service should have a Thai importer representing them locally. A local agent or distributor can respond more quickly to provide service and parts replacement. Accordingly, the end-user’s confidence will increase if there is a place where they can receive near-immediate assistance any time a machine breaks down. Also, the end-user normally feels more comfortable dealing with a local agent or distributor since there are no language or distance barriers. The agent or distributor also facilitates customs procedures for end-users. It should be noted that, in general, only local agents, distributors, or manufacturer’s branch offices in Thailand are eligible to enter day-to-day bidding for routine government tenders.  For consumer goods, there are generally three distribution and sales channels: 1) from U.S. exporter, to Thai importer, to Thai retailer, to Thai end-user; 2) from U.S. exporter, to Thai importer, to Thai wholesaler, retailer, and end-user; 3) from U.S. exporter, to Thai
retailer, to end-user. Perishable consumer goods tend to go through the first channel, which is the fastest. In this instance, importers tend to act as wholesalers at the same time. Non-perishable consumer goods normally go through the second or third channel. The second channel seems to be the most favored, especially with lower-priced items, since there are over 250,000 (mostly small) retail outlets in Thailand. Working through wholesalers will promote better market coverage.

Selling Factors & Techniques

To differentiate themselves from local and third country competitors, U.S. firms should emphasize their strengths in quality, innovation, technology enhancements and customer service. Thai customers have come to expect more, and better, styles and designs, regular product upgrades and updated technology from U.S. companies. They will often choose U.S. products and services on the basis of "value for money," not solely on cost factors. To gain a competitive advantage in the marketplace, U.S. firms should develop and maintain good customer relationships and be able to reference success with existing customers when seeking new clients. American companies should also choose strong local partners or distributors offering high service standards and capabilities. A competent marketing strategy is important for doing business in Thailand because the market structure is changing rapidly in several respects. Successful companies use the following techniques and strategies to maintain and expand their market shares in Thailand:

• Identify potential customers in the appropriate business community(ies);
• Understand end users’ behavior and their cultural environment in order to offer the most suitable products to them;
• Promote themselves in business communities by advertising through the media, participating in trade shows, and organizing seminars to launch new products;
• Educate buyers on new technologies, and provide high reliability and unbiased advice through direct sales to end users;
• Sell consulting services together with solutions;
• Identify the features and benefits of specific product or service solutions;
• Use training as an effective means to make potential customers aware of the quality of products and services, and 
• Create end user awareness in order to expand services.

Large U.S. firms have their own subsidiaries in Thailand to sell products and provide technical services. Opening a representative office and a company-owned support facility will also underscore the company's commitment to the market. Following the 1997-98 Asian financial crisis, most Thai buyers are requiring longer-term or more flexible and creative financing terms. Thai distributors prefer to deal directly with U.S. vendors over regional distributors and to be appointed as a sole distributor in most cases. Thai law permits all foreign companies, with or without a local representative, to submit bids on public sector tenders. A consortium of U.S. companies is acceptable for the supply of a wide range of products in large tenders. For example, when bidding was conducted for the New Bangkok International Airport, the U.S. bidders were able to submit without having a local agent but many had a joint venture partner in place even though this was not a condition of the tender. Direct international bids have also been accepted for major power plants. Conversely, day-to-day procurements by public sector agencies and ministries almost always make local representation a condition for bidders.

The U.S. Commercial Service can certify notarized documents presented by American firms and their local partners prior to bid submissions to meet the requirements of the agency or ministry tendering the bid. Most foreign firms have found it advantageous to appoint a local agent who can deal with problems related to communications, bureaucratic procedures, local business practices and marketing when competing and bidding on government projects.

U.S. firms should be aware that while the purchasing company may simply accept the lowest bid that meets specifications, it might also attempt to bargain with one or more of the lowest bidders to negotiate better terms. Therefore, U.S. firms should be prepared to empower their agents to take measures to increase competitiveness. On major contracts, it is advisable to have an American representative involved when such bargaining ensues. In addition, the public agencies may request credit in their procurement tenders. A supplier who offers credit will have a better chance of winning bids. Sales without credit are sometimes made if other factors such as price, quality, and delivery schedules are of greater importance. The most important requirements for new U.S. suppliers are: continuous upgrading and development of new products; suitable promotional activities; good service, and hiring qualified representatives in the local market. In addition, flexible sales policies are also important to attract potential long-term users. A Thai language manual for users is also important.

Electronic Commerce

E-commerce is expected to become more widely used in Thailand, but is currently only a fledgling sector. Globalization and the Internet have made E-commerce in Thailand more viable as a marketing channel because people can check product prices from everywhere in the world without adding transportation costs, and fees and taxes. When local companies add transportation costs, handling fees and taxes to their products, local consumers will become more conscious of competitive pricing. At present, though, most Thai consumers still prefer to see goods before purchasing.

Trade Promotion & Advertising

Advertising and trade promotion are important marketing tools in Thailand, especially for the sale of consumer goods. In particular, foodstuffs and consumer products should be promoted heavily via a full range of mass media. In 2006, advertising on television is the most popular and commands 60 percent, newspapers 18 percent, radio 6 percent, magazine 8 percent, outdoor billboards 5 percent. There are six free television channels and 30 user-fee based cable television channels. Although the Royal Thai Government does not permit commercial advertisement on the cable television network, at least three channels feature infomercials and home shopping-style programs twenty-four hours a day under the guise of “regular television programming”. This is a very successful medium for the promotion of a wide range of American consumer products. There are two popular English-language newspapers in Thailand, "The Bangkok Post" and "The Nation”. For advertising, U.S. companies should also consider Thai-language publications as other essential means to promote their products and services. The most popular daily business newspapers in Thai are "Krung Thep Thurakit" (Bangkok Business News) and "Manager.” Special promotional campaigns should be conducted at local shopping centers, hotels and convention halls. The most popular campaign is giving away free samples at major business and commercial buildings. The Internet has become a far more dynamic and effective marketing tool and can be developed much more as a selling medium in almost every industry for both durable and non-durable goods. Electronic advertisements serve as channels to reach a broader client
base, develop stronger customer relations, generate customer feedback, and enhance a company’s image.

Commercial promotions are an equally important marketing tool for both consumer and industrial products in Thailand. Consumer trade promotion in Thailand is frequently conducted by using gift premiums, discount coupons, or drawings for items such as package tours, cars, or electrical appliances. Consumer trade promotion events are frequently held in supermarkets and shopping malls. Exhibiting firms repeatedly take part in these events because the cost of attending is much lower than participating in a privately organized trade fair. That said, the Department of Export Promotion in Thailand has been actively holding sectoral exhibitions to promote Thai exports to international buyer audiences during “trade days” and increase domestic awareness by staging “public days” at such fairs. 

Industrial product promotion, on the other hand, varies from industry to industry. The two most efficient methods of promotion for industrial products are trade exhibitions and placement of advertisements in trade magazines. Trade fairs with a sectoral focus serve as a screening tool since exhibitors can be certain that they will have access to the appropriate group of customers. The U.S. Commercial Service in Bangkok includes a list of suggested industry events staged in Thailand a well as solo fairs, U.S. Pavilions at local events and trade missions in Chapter 13 of this Country Commercial Guide. It is advisable to translate all product literature and technical specifications into Thai when advertising in trade journals, participating in trade shows or organizing technical seminars. Successful firms also arrange for their agents to receive specialized training at offices or factories in the U.S. Major Newspapers.

Pricing

The market in Thailand is open and very competitive. Thai customers agree that price is a significant factor in selecting which products to purchase. U.S. firms need to study such factors as the channels of distribution, necessary sales and promotional techniques and the current pricing practices of key competitors. Standard credit payments, as in most international trade, apply in Thailand as well. Importers of large equipment or machinery charge a commission of 5-10 percent and allow their customers to open L/Cs themselves. Manufacturers or wholesalers normally receive a 5-10 percent profit margin. Retailers and distributors of local products require a 25-35 percent margin. There is a 7% V.A.T. charged on consumer goods as well. Thai consumers are very price conscious. In fact, less than half of Thai consumers report buying based on brand-name recognition and first time buyers often buy on price alone. Consumers are often offered free gifts or extra options with their purchases. In addition, midnight sales or occasional sales have proven to be quite successful.

Sales Service & Customer Support

Training, after sales service, reliable customer support, and the availability of spare parts are the most important factors cited by Thai customers in evaluating services related to their purchasing decisions. These factors are especially important when marketing industrial products. Buyers seek a quick turn around time on their requests for technical assistance and perceive such service as being provided by reliable suppliers. In case a local branch cannot provide the service, suppliers should be able to acquire support from overseas branches. Spare parts should also be available in a timely manner.

Better support and after-sales-service have placed U.S. suppliers in a much better position, compared with their European competitors selling products of equal quality or Asian competitors that provide lower priced products. Thai customers generally have greater confidence in U.S. suppliers’ service and support, due to their well-trained service and support teams, availability of concisely written manuals, and willingness to modify product offerings. Some Thai buyers would rather invest in higher-quality, more expensive products, in order to save expensive maintenance costs following warranty expirations.

Suppliers of products that have complicated technologies should hire and train a team of highly qualified and experienced technical people as well as provide technical training to their customers. It is also advisable to set up a customer help desk. High-end Thai customers usually consider quality, service and price respectively when purchasing products. A well-trained after-sales service team can increase the possibility of repeat orders from satisfied customers. In addition, Thai customers appreciate receiving periodic technical updates and information from their suppliers. Often, engineers or specialists are sent by the U.S. firm to stay for extended periods in Thailand to conduct larger scale training of big groups of employees who will operate new equipment. It is important for U.S. suppliers to appoint a qualified partner who can provide their customers with quality services in the Bangkok area and elsewhere. Major suppliers noted that competitive pressures and slim margins have forced them to place higher priority on service and support in order to retain old customers and gain new ones. Positive word of mouth recommendations from customers can increase the supplier’s reputation and sales volume. Conversely, bad service can severely hamper a company’s chance for increasing sales in this market.

Protecting Your Intellectual Property

Intellectual property rights-holders are concerned about high levels of piracy and counterfeiting in Thailand.  For more information see the Thai Commercial Guide.

Due Diligence

The 1997-98 financial crisis in Thailand was due, in part, to excessive risks taken in the financial sector that were not discovered or checked because of legal, regulatory, institutional and information deficiencies, and the nation’s weak supervisory system. American buyers/investors considering any ventures in Thailand should be cautious, and exercise extreme due diligence. A number of local companies still lack transparency in their accounting practices. Commercial Service Bangkok offers our International Company Profile (ICP) service that provides basic information on Thai firms such as: date founded; number of employees; officers; bank references; product lines, and foreign business contacts. More information on this service is available on the website .www.export.gov

For more in-depth information, U.S. buyers/investors are advised to hire professional accountancy companies, lawyers, asset appraisers/valuers, and other experts in due diligence work to check bona fides of the bank or company they want to buy, extend credit to, or with whom they want to form joint partnership or any type of licensing agreement. A number of leading American accounting and consulting companies with expertise in due diligence are active in Thailand.

American firms may also need to check with government agencies which have information on firms listed in the Stock Exchange of Thailand (SET) for their listing status. Organizations worth checking for this type of information are the Stock Exchange of Thailand and the Securities and Exchange Commission (SEC). Each has their own data bank which include mandatory information that all listed firms need to report on a quarterly and/or annual basis. For information related to other non-listed companies or private owned firms, the Department of Business Development at the Ministry of Commerce should be contacted.