When Thailand-based executives consider the risks and rewards of setting up businesses outside of Thailand, including the neighboring countries of the Mekong Region, I always like to remind them that the steps we fail to take can be as significant as the wrong steps we make. In law, we call this mistakes or "crimes" of omission. For Thai businesses, an emerging reality is that the Mekong region can no longer be ignored as a key destination for Thai business knowhow, technical expertise and investment funds.
The Mekong region is full of markets hungry for products, services and foreign direct investment. For Thailand, the Mekong region's most sophisticated market, outbound investment into neighboring countries will emerge as a key driver of business growth. This goes for both major Thai companies as well as small and medium sized businesses. As resources in Thailand become more expensive (natural resources, labor and money), the regions cheap and energetic labor supply, hungry consumers and availability of investment funds become more attractive.
Consider the evidence: Recently the Thai Board of Investment announced that it expects Thai overseas investments to almost double to US$20 billion by 2014. This reflects the truth that Thai companies cannot simply export their way to long-term prosperity. Instead, Thai companies need to seriously explore making foreign direct investments in neighboring countries as a means of expanding their markets, raising revenues and increasing their competitive advantage.
The issue is, in addition to great reward, outbound investment in developing countries also comes with risks and uncertainties for Thai investors. However, good investment and business practices can help to minimise risks. Following are a few legal insights into the do's and don'ts of outbound investment based on nearly 20 years of experience:
- Do seek to cultivate personal contacts among business and government leaders in the countries where your company invests. No matter where you are doing business, personal contacts can be useful in gaining insights into how the government works, how the market works and how your local partner works. But don't rely too much on personal contacts and never let personal relationships stand in the way of proper due diligence. Back up every handshake agreement with legal documents and accurate information. There are too many instances to count when a government official has fast-tracked investment documents and cut one too many corners resulting in licences and other government sanctioned approvals that do not hold up during a dispute.
- Don't underestimate the role and rule of law in countries where you invest. Some countries, like Vietnam, continuously create highly detailed law. Other countries, like Laos, are far less detailed in their regulation of foreign direct investment but heavily rely on their law and legal practice just the same. Don't let personal connections cloud the fact that law and procedure must be respected. Investors often think they can brush aside proper legal procedures in a developing country (like Laos, Cambodia or Burma) because of a less detailed legal framework and more direct access to people in power. But actually, the opposite is true. In countries where the law is less developed than the norm and personal contacts with high levels of government more easily obtained, investors need an even more secure legal documentation and procedure to protect their investments.
- Do seek the support of your bank in Thailand. Thai banks are at the forefront of outbound investments in the Mekong region. In addition to providing financing support, Thai banks can also help find partners that will be suitable and give your investment the best chances of success. The Exim Bank of Thailand also has good programmes to support Thai investors abroad.
- Don't feel as if your outbound investments will hamper economic progress in Thailand. Actually, the opposite is true. Thai companies that build businesses overseas create benefits for shareholders and the Thai economy. Expansion abroad tends to support employment and dynamic opportunities here in Thailand. For many, foreign affiliate activity has tended to complement, not substitute for, key activity in this country, lifting wages, high quality employment and capital investment. In fact, there are legal structures in Thailand specifically designed to give special privileges to investors (including Thai companies) who use Thailand as a hub for investment in the region.
- Don't feel that investors from larger, more developed countries (China, the United States, Singapore, or France for example) have an advantage over you. Actually the opposite is true. Thai business knows the regional culture better than others. However, as the dominant regional player for many years, Thai business must also be extra- sensitive to cultural issues in each country
Over the last decade, Thai companies in energy, property, resort development, banking and manufacturing sectors have found success with outbound investments in the Mekong Region. Yes, there have been challenges in doing business in new places. But there are also many great challenges for Thai companies at home. With a diligent approach, now may be the time for Thai companies to make the most of their competitive advantages by investing in the Mekong region.
