When it comes to doing business in Thailand, it is crucial to manage risk rather than avoid it
by Simon Tay
TODAY Apr 16, 2010
The surge of violence in Bangkok this week concerns not only the Thai people, tourists and political pundits. Foreign investors, including Singaporeans, are looking at the situation.
But reactions tell us only so much about Thailand, where politics at this time is complex, arcane and quite unpredictable. They instead reveal more about companies and their underlying attitudes to risk when going regional.
Some investors, like those from Taiwan, have a reputation of being gung-ho. In contrast, some perceive Singaporeans to be cautious, bordering on kiasu. This might have had some truth, in the 1990s, when overseas expansion was first promoted.
But today there is an increasing sense that regionalism is an imperative and the appetite may need to be sharpened. The push out from a stable but small and expensive market is one factor. There is also the pull of opportunity and rapid growth towards emerging markets in Asia.
In the post-crisis period, the greatest opportunities seem nearer home, as compared to the United States and Europe where recovery remains fragile.
Can Singaporean companies recognise and seize the opportunities? What about the risks, when politics and the regulatory context differ considerably from Singapore? Will Singaporeans be bold and move fast enough?
A discussion among some 60 leading Singapore-based business leaders organised by the Singapore Institute of International Affairs last week underscored the trend to go regional. Many were bullish about China and also India. Indeed some warned that if Singapore companies did not seize the moment, the opportunities will not be open indefinitely.
One China business veteran feels that Singaporeans now have to run faster to enter a closing window, and might be better off in the western and less developed provinces of the country.
Looking at India, another emphasised the opportunities in infrastructure and in the smaller cities and rural areas that are rapidly changing.
The difficulties of doing business in these two countries were not discounted. Many had corporate war stories and scars. Luck was often cited as a factor for success in a deal, just as much as persistence and due diligence. But the large potential rewards make the equation positive in China and India right now.
Looking nearer, some are giving Indonesia renewed attention. But other business leaders urged all 10 member states of Asean to integrate economically or risk becoming largely irrelevant.
So, what about Thailand and the Red Shirts?
More than half of the 60 business leaders surveyed at the discussion are involved in Thailand, with another 15 per cent showing interest for future involvement. Almost everyone was watching the demonstrations by the Red Shirts in Bangkok even before the tragic violence last Saturday.
Yet despite the largely adverse media coverage, almost 80 per cent of those with existing investments indicated that the political problems did not have any effect on their current operations.
Those who were looking at Thailand with interest have not been put off. Maybe Singaporeans are not so averse to risk after all.
Some CEOs believe that those already entrenched there have learned to navigate the system and work with local partners to hedge risk. Risk is a fact of business life, one said. A low-risk environment, like Singapore's, will generally give low returns.
The watchwords in looking at the region are to assess, price and manage risk, rather than trying to avoid it. The risk/reward ratio seems the critical calculation, giving commercial meaning to the old adage "nothing ventured, nothing gained".
As such, when the media play up sensational news, this creates some disjuncture. Bad news from Asean neighbours grab media attention, even while Singapore-based businesses seek opportunity and the Singaporean Government urges economic integration.
It should not surprise too much that many businesses continue to look at Thailand despite the current conflict and Red Shirts. The Thai economy is the second largest in South-east Asia and, recent years notwithstanding, has grown rapidly over the last three decades.
The country has been a longstanding favourite for many foreign investors, notably the Japanese, and Thai companies have also expanded internationally.
Markets will price in the risk of business there. For investors who can get the right price, with the right partners, and manage the risks, there is a considerable upside. The calculations will need to be robust if Singaporeans are really to look at other countries in Asia and venture outwards.
Some may still feel that it only makes sense to invest when the most stable, almost perfect conditions prevail. Other business leaders, however, will realise that not only will it make sense to invest in emerging markets in the face of risk, but that it also makes cents and many dollars.