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Foreign direct investment, market forces & allocation of legal responsibility

  Boat Lagoon

Foreign Direct Investment
Thailand has a vivid commercial landscape with a wide variety of options for investors, especially due to promotion of industries, which Thailand’s government has pinpointed as a target for foreign direct investment. Thailand continues to make improvements to its systems, with the introduction of “SMART VISAs” through its Board of Investment organisation, and regular review and revision of the range of investment activities eligible for special incentives. It is well worth keeping a watchful eye out for changes, which can provide excellent opportunities for tax burden, import/export efficiency and foreign labour hiring benefits.

SMEs Welcome, Consider Macro Factors
When new entrants to Thailand’s market consider the opportunities and challenges before them, I believe that even with investments considered ‘small’ in the context of Thailand’s national economy, it is still worth being up to date with the macro-economic, socio-political position. This can truly assist with logical rational decisions when deciding who should do what in a contract with a domestic Thai company or business partner.

As with all developing countries caught between sophisticated development and elitist wealth at the high end of the spectrum, and the struggle to improve the position of poverty line, working and middle class segments at the lower end, there can be teething problems.

Thailand has a mixed bag of results on the various global indices and world reports. It is ranked 27th in the ‘Ease of Doing Business Index’ published by the World Bank, joint 99th on the ‘World Corruption Perception Index’ published by Transparency International alongside Albania, Bahrain, Columbia, Philippines and Tanzania. It is ranked 77th out of 126 countries for its rule of law in the ‘World Justice Project Index’ and reportedly has one of the most acute income inequality issues worldwide reported by various institutions, including a respected Credit Suisse report. The OECD has well regarded economic reports on development progress across industries, human rights infringements are reported on in depth by Amnesty International, and Thailand is currently ranked 52 in the world in the ‘World Happiness Report’.

Road Carnage
Thailand bleeds money and its citizens/visitors at an average rate of one dead person every 22 minutes due to its possession of one of the most dangerous and fatal road systems comprising horrific accidents through negligence, speeding, intoxicated driving, carelessness and non-compliance with basic rules such as adhering to red-lights, pedestrian crossing, lane discipline and slowing down in residential zones. This reportedly costs the economy a whopping 500 billion Thai baht per year. Why does this matter to me, an investor may ask?

Potential Risk Allocation in Investment
With a widely dispersed base of knowledge in hand, a commercial investment can allocate risk more efficiently, or at least on a decision theory ‘invest with knowledge, not under ignorance’ basis:

  • A domestic partner may be responsible for procuring licenses, assisting in application for investment incentives, but also with monitoring rights for the foreign investor and reporting obligations from the domestic partner on legal compliance, including anti-corruption measures.
  • A domestic trading or contracting counterparty may be required to assist with import licensing and operational procedures and take the risk on additional expenses and resource. This would unfortunately mean the Thai domestic parties suffer more from the weaknesses in their system than the foreign investor.
  • A domestic counterparty should be obligated to take out insurance to address some of the risks related to doing business in Thailand, including road accidents, health and safety issues and other clear and obvious systemic risks. This means the risk premium is passed through the transaction to one of the parties.
  • Disputes should, subject to case-by-case analysis of suitability, be better served through international arbitration than outright litigation in an unfamiliar domestic legal system. Thailand has recently developed its arbitration systems to better dispose of international arbitration proceedings which is designed to build investor confidence that issues may be resolved in a setting perceived as a balanced international system of judicial decision-making in the context of business, requiring knowledge of a particular industry or service.

Overall, knowledge of Thailand’s global and macro-position can equate to better information, a fairer balance of power in negotiations, and a better informed risk allocation process based on the realities of doing business. This can also assist with navigating a developing system, and with taking fair advantage of the economic and legal incentives available to those companies that care to conduct diligent research into the opportunities Thailand has to offer.


By Desmond Hughes, Senior Partner of Hughes Krupica.
Hughes Krupica is a law firm which specialises in Real Estate; Construction; Hospitality; Corporate; Commercial; Personal Injury; Dispute Resolution; and Litigation, operating in Bangkok and Phuket, servicing clients in relation to their business activities in Thailand and in other regions of Asia.

 Contact info:

Hughes Krupica Consulting (Bangkok) Co. Ltd

Phuket Office:
23/123-5 Moo 2, Kohkaew Plaza, 
The Phuket Boat Lagoon, Tambon Kohkaew, Amphoe Muang, Phuket 83000
Tel:+66 76 608 468 

Bangkok Office:
179 Bangkok City Tower, Fifth Floor,
South Sathorn Rd, Sathorn, Bangkok 10120
Tel: +66 2 872 173

[email protected]
www.hugheskrupica.com

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