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Summary ReportSummary Report

Office of the Board of InvestmentOffice of the Board of Investment

2009 2009 Foreign Investor Confidence Survey Report : Sum

mary Report

Foreign Investor Confidence Survey Report : Summ

ary Report

Office of the Board of InvestmentOffice of the Board of Investment555 555 Vibhavadi Rangsit Rd., Chatuchak, Bangkok 10900,

ThailandTel.Tel. 00--25372537--81118111, , 00--25372537--8555 8555 FaxFax. . 00--25372537--81778177

Website: www.boi.go.thWebsite: www.boi.go.th

555 555 Vibhavadi Rangsit Rd., Chatuchak, Bangkok 10900, Thailand

Tel.Tel. 00--25372537--81118111, , 00--25372537--8555 8555 FaxFax. . 00--25372537--81778177Website: www.boi.go.thWebsite: www.boi.go.th

Office of the Board of Investment i

Contents

Executive Summary 1

Major Types of Business of the Foreign Investors 1

Level of Confidence of Foreign Investors in Thailand 1

Business Plans for 2009-2010 1

Thailand’s Current Competitiveness 2

Thailand’s Competitiveness in Comparison with Competitors 2

Satisfaction for the Services Obtained from BOI 2

Current Problems and Obstacles Encountered 2

Recommendations from the Foreign Investors 3

Chapter 1 Overview 5

1.1 Objectives 5

1.2 Data Gathering 5

1.3 Company Status 5

1.4 Shareholding Structure 6

1.5 Companies’ 2008 Operating Results 6

Chapter 2 The 2009 Confidence Level of Foreign Investors in Thailand 8

2.1 Foreign Investors’ Confidence Toward the Situation in Thailand in 2008 at the Company,

Industry and Overall Business Environment Levels 8

2.2 Confidence toward Thailand’s Situation in 2009-2010 at the Company, Industry and Overall

Business Environment Levels 12

2.3 2009-2010 Investment Plans and Major Factors Affecting Implementation Decisions 19

Chapter 3 Influence and Levels of Importance of Factors Affecting Investors’ Confidence 22

Chapter 4 Thailand’s Competitiveness in Comparison with other Countries 25

4.1 Thailand’s Competitiveness in Terms of Factor Endowments in Comparison with Competitors 25

4.2 Thailand’s Competitiveness in Terms of Sources of Funds in Comparison with Competitors 25

4.3 Thailand’s Competitiveness in Terms of Economic Situation in Comparison with Competitors 26

Office of the Board of Investment ii

4.4 Thailand’s Competitiveness in Terms of Infrastructure in Comparison with Competitors 26

4.5 Thailand’s Competitiveness in Terms of Laws and Regulations in Comparison with Competitors 27

Chapter 5 Foreign Investors’ Satisfaction with Services Rendered by the Office of the Board of Investment

(BOI) and the Order of Services for which Provision or Improvement by the BOI Is Desired 28

Chapter 6 Analysis of In-Depth Interviews with Foreign Investors 29

6.1 Foreign Investor Confidence 29

6.2 Opinions Toward Operation Approaches of Government Agencies at the Local Level 29

6.3 Opinions Toward Investment Factors in Thailand 30

6.4 Views Toward BOI Investment Incentives 32

6.5 Current Problems and Obstacles Encountered 33

Chapter 7 Recommendations Derived from Comments Made by Foreign Investors 34

7.1 Order of Importance of the Services for Foreign Investors Recommended for Provision or

Improvement 34

7.2 Short-term Measures to Build Foreign Investors’ Confidence 35

7.3 Long-Term Measures to Build Foreign Investors’ Confidence 35

Office of the Board of Investment iii

List of Tables

Table 1 Foreign Investors Business Confidence at the Company Level 12

Table 2 Investors’ Confidence toward Market Demands and Completion, Factor Endowments and

Source of Funds 14

Table 3 Indices of Foreign Investor Confidence toward Law and Regulations, the Economic Situation

and Infrastructure 16

Table 4 Grouping of Factors Affecting Investors’ Confidence by Their Relationship 22

Office of the Board of Investment iv

List of Figures

Figure 1 Percentage of BOI–Promoted Businesses and Non-BOI-Promoted Companies 5

Figure 2 Percentage of Foreign Investor by Shareholding Structure 6

Figure 3 Value of Total Assets of Companies Owned by Foreign Investors Operating in Thailand 6

Figure 4 Sources of Sales Revenues of Foreign Investors Operating in Thailand 7

Figure 5 Thailand Situation in 2008 at the Company Level (Profit) 8

Figure 6 Foreign Investors’ Views toward Factor Endowments in Thailand and Current Operating Situations

(Comparison between 2008 and 2009) 9

Figure 7 Thailand’s Situation in Terms of Overall Business Environment (2008 vs 2009) 12

Figure 8 Investor Confidence Indices for Market Demands, Competition, Factor Endowments and

Thailand’s Production Costs for 2009-2010 and the Relationship with Thailand’s Current

Competitiveness 17

Figure 9 Investor Confidence Indices for Thailand’s Business Environment in 2009-2010 and

the Relationship with the Country’s Competitiveness 18

Figure 10 2009-2010 Investment Plans 19

Figure 11 Major Reasons for Business Operators to Make a Decision to Expand Investment in Thailand 20

Figure 12 Major Reasons for Expansion of Investment in other Countries/Reduction of Investment in

Thailand or Withdrawal from Thailand 21

Figure 13 Influence and Levels of Importance of Factors Affecting Investors’ Confidence 23

Figure 14 Thailand’s Competitiveness in Terms of Factor Endowments in Comparison with Competitors 25

Figure 15 Thailand’s Competitiveness in Terms of Source of Funds in Comparison with Competitors 26

Figure 16 Thailand’s Competitiveness in Terms of Economic Situation in Comparison with Competitors 26

Figure 17 Thailand’s Competitiveness in Terms of Infrastructure in Comparison with Competitors 27

Figure 18 Thailand’s Competitiveness in Terms of Laws and Regulations in Comparison with Competitors 27

Figure 19 Foreign Investor’s Satisfaction with Services Received from the BOI

(Comparison Between 2008 and 2009) 28

Figure 20 Services Recommended for Provision or Improvement by the BOI to Fulfill Foreign Investors’

Requirements 34

Office of the Board of Investment 1

Executive Summary

In conducting this 2009 Foreign Investor Confidence Survey, the consultants distributed questionnaires to 5,061 businesses with foreign investors holding not less than 20% of the shares; 2,540 of the companies received investment promotion privileges from the Office of the Board of Investment (BOI) and 2,521 that were not-BOI promoted. Of the total questionnaires sent, 576 were returned, representing an 11.4% response rate: 496 were from BOI promoted companies, 66 from non-promoted companies, and 14 questionnaires were not used in the analysis because they were incomplete.

In-depth interviews were conducted with foreign investors belonging to both groups (BOI promoted and non-promoted) that operated in seven sectors: agriculture and agricultural products; mining, ceramics and basic metals; light industry (e.g., textile, jewelry, leather, etc.); metal products, machinery and transport equipment; electronic industry and electrical appliances; chemicals, paper and plastics; and services and public utilities. In each sector, interviews with three companies were conducted, bringing the total number of foreign investors interviewed to 21. The nationalities of the foreign investors interviewed were distributed among all regions (e.g., Japan, USA and Germany). The interviews took place from late May to mid-June, 2009.

Major Types of Business of the Foreign Investors

The major types of business of the foreign investors who returned the questionnaires were in the following sectors: agriculture and agricultural products (40 firms or 7.1%); mining, ceramics and basic metals (34 firms or 6.0%); light industry (e.g., textile, jewelry, leather, etc.) (57 firms or 10.1%); machinery and transport equipment (148 firms or 26.3%); electronic industry and electrical appliances (115 firms or 20.5 %); chemicals, paper and plastics (75 firms or 13.3 %); and services and public utilities (93 firms or 16.5%).

Level of Confidence of Foreign Investors in Thailand

The overall confidence of foreign investors toward the situation in Thailand dropped from the previous year, both in terms of operating results and liquidity. The Confidence Index for Profit decreased from 49.1 in the previous year to 32.4, while the Confidence Index for Liquidity dropped from 52.8 to 37.5. Such decreasing confidence naturally had an effect on this year’s investment plans; however, foreign investors believe that the situation will improve next year for both revenues and profit.

Business Plans for 2009-2010

58.9% of the respondents indicated they intend to maintain their current level of investment in Thailand, while 24.7% planned a slight expansion and 5.2% contemplated a significant expansion. About 7.7% of the foreign investors expected to scale down their investment in Thailand and 3.6% were thinking about reducing the size of their investment significantly. No foreign investors surveyed this year intended to withdraw from Thailand.


Thailand’s Current Competitiveness

The fundamental factors of Thailand’s competitiveness that have bearing on investment decision making, such as land, labor and cost of labor, were found to remain at levels which could still build confidence among foreign investors. The investment incentives were also found to still be interesting and attractive. Nevertheless, negative sentiment was caused by the instability of government policy and the lack of transparency in government procedures, as well as fiscal and monetary policies.

Thailand’s Competitiveness in Comparison with Competitors

When comparing Thailand’s competitiveness with six competitors (Vietnam, the Philippines, Malaysia, Indonesia, India, and China), Thailand was considered more competitive than several countries in terms of factor endowments, particularly in the areas of land cost and the availability of raw materials. However, the country’s competitiveness in the areas of labor cost and availability of labor was decreasing, especially when compared to Vietnam and China.

With regard to accessibility to domestic source of funds, although foreign investors commented that terms and conditions stipulated by the Thai stock market and criteria for business loans implemented by Thai financial institutions had been made stricter to avoid non-performing loan problems, access to capital was still greater than in other countries.

When comparing economic conditions, it was found that market demands in Thailand were stronger than those of Vietnam, the Philippines, Malaysia and Indonesia, but not as strong as those of India and China. No significant difference was found between domestic interest rates and foreign exchange rates.

Foreign investors viewed Thailand as having better infrastructure than the competitors, while the country was inferior to Malaysia in terms of law and regulations, constancy of government policies and transparency of government procedures.

Satisfaction for the Services Obtained from BOI

59.0% of the foreign investors were highly satisfied and satisfied with the services rendered by the BOI, 35.1% were moderately satisfied and 5.9% were either dissatisfied or highly dissatisfied.

Current Problems and Obstacles Encountered

Political Uncertainty and Government Instability

Political instability was an important factor affecting the confidence of foreign investors. The turmoil recently experienced, especially the April 2009 event between ASEAN and its dialogue partners in Pattaya, had lowered their confidence and the foreign investors were worried about government stability. Although subsidiary companies had a better understanding and felt relieved after gaining a better understanding of how


the situation developed, their parent companies based overseas, as well as new investors, did not feel such improvement of the situation because the information received from the media did not provide them with clear details. This resulted in decisions to reduce investments in Thailand or to change the investment location to another country.

Unclear Government Policies

The various support policies announced by government agencies were viewed by the foreign investors as having the potential to help improve the current situation, if it was clearer. However, as it had happened, the information presented was still vague, and created doubts among the foreign investors on how effective such policies would be in improving the situation and solving problems.

Foreign Exchange Rate Fluctuation and the Global Economic Downturn

The wild fluctuation of foreign exchange rates over the past period had severely affected the foreign investors, particularly those relying on export sales. The impact, worsened by the global economic recession, caused several foreign investors to scale down their investment. Some, who had been considering expanding their investment this year, had decided to delay their plans while waiting to see how the situation was developing.

Strict Criteria Affecting Accessibility to Domestic Source of Funds

Strict credit extension criteria implemented by financial institutions resulted in liquidity shortages for business operators who relied on loans, particularly small and medium enterprises. Their problems had repercussions on the foreign investors whose main source of funds came from the domestic sales.

Inconsistent Quality of Raw Materials and Intermediate Goods

Despite the improved potential of Thai suppliers, domestically produced raw materials and intermediate goods were still not up to consistent and desired standards. The foreign investors had to turn to imports instead.

Recommendations from the Foreign Investors

Services Which Foreign Investors Suggested that the BOI Should Improve for Foreign Investors in Order of Importance

The first three services that foreign investors would like the BOI to provide or improve to best meet their needs were coordination with other Thai government agencies (e.g., the Customs Department and the Revenue Department) to help them resolve foreign investors’ problems (67.9%); post-promotion services (e.g., offering advice on amending projects, BOI incentives) (59.3%); and publicizing BOI’s new investment incentive packages (54.6%).

The foreign investors saw e-mails and newsletters as the most effective channels of communications.


It was also recommended that the BOI should improve its efficiency; that the consideration and approval of projects should be speedier; that the databases should be updated; and that ways be sought to streamline procedures and reduce paper requirements for project approval.

Short-term Policies to Build Foreign Investors’ Confidence

• Creating a Positive Image of Thailand

As news about Thailand was only partially reported overseas (without full details or without continuity of details), parent companies had concerns relating to the situation here. Although subsidiaries in Thailand had a full understanding of the situation, the parent companies still had concerns, which led to a reduced level of confidence. The disturbances also worried new investors and led them to delay investments. In coping with these problems, public relations efforts should be made to inform investors that the situation had started to return to normal, in order to restore confidence. Foreign investors suggested that such an action should be taken immediately after the occurrence of events that could disturb foreign investors’ confidence. The BOI was identified as an agency with good potential for bringing about a better understanding on the part of foreign investors.

Long-Term Policies to Build Foreign Investors’ Confidence

• Improvement of Government Administration

Transparency of government procedures and consistency of government policy were important factors affecting foreign investors’ decisions to choose an appropriate country for their investment, or to scale their investment level. While the current negative image in Thailand had lowered their confidence, improvement of Thai government procedures should, therefore, be actively considered and continually executed to build confidence among foreign investors and to enhance the country’s long-term competitiveness.

• Development of Thailand’s Education System

Thailand’s education system needs to be urgently reviewed and improved in order to maintain the comparative skilled labor advantage, which is an important factor endowments attracting and retaining foreign investment. Development of greater productivity in skilled labor to be commensurate with labor cost would enhance the confidence of foreign investors, particularly those in the process of selecting the country to invest in.


Chapter 1 Overview

1.1 Objectives

The Foreign Investor Confidence Survey has been conducted by the Board of Investment (BOI) since 1997. The objectives of the survey are to determine the current level of confidence of foreign investors towards Thailand current situation, to find information about their short-term investment plans and to identify needs for the various services rendered from the BOI. Information obtained will be used in the review of the BOI’s investment promotion policy and the relevant measures to enhance their attractiveness and to improve investment environment.

1.2 Data Gathering

For the 2009 Foreign Investor Confidence Survey, data was gathered from business enterprises in which foreign investors held not less than 20% of the stake. Of the 5,061 questionnaires sent, 576 were returned, representing a response rate of approximately 11.4%. In addition to the quantitative survey of the foreign investors’ opinions, in-depth interviews were conducted with the foreign investors in seven sections of business (three in-depth interviews in each section, totaling 21). Information gathering took place during April – mid of June, 2009.

1.3 Company Status

88.3% of the companies responding to the questionnaires were BOI–promoted and the rest (11.7%) were not. Percentage was shown by investment section in Figure 1.

Figure 1 Percentage of BOI–Promoted Businesses and Non-BOI-Promoted Companies

66.7 33.3

85.3 14.7

96.5 3.5

93.2 6.8

91.2 8.8

85.3 14.7

100.0

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Agriculture and Agricultural Products

Mining, Ceramics, and Basic Metals

Light Industry (Textiles, Jewelry, Leather, etc)

Metal Products, Machinery, and Transport Equipment

Electronic Industry and Electrical Appliances

Chemicals, Paper, and Plastics

Services and Public Utilities

BOI-promoted Non-BOI-promoted


1.4 Shareholding Structure

The top three shareholders responding were Japanese (45.2%), Taiwanese (8.0%), and German and American (both 5.0%). Other nationalities were as shown in Figure 2.

Figure 2 Percentage of Foreign Investor by Shareholding Structure

1.5 Companies’ 2008 Operating Results

1.5.1 Value of Firms’ Assets

Approximately 33.3% of companies in Thailand owned by foreign investors have assets with values exceeding 500 million Baht, 41.3% have assets of 51-500 million Baht and 25.4% have assets of less than 50 million Baht. (See Figure 3).

Figure 3 Value of Total Assets of Companies Owned by Foreign Investors Operating in Thailand

Japanese 45.2%

Hong Kong 2.8% German 5.0%

French 2.3%

American 5.0%

Korean1.8%

English 2.8%

Taiwanese 8.0%

Swiss 2.3%

Singaporean 4.8% Dutch 2.8%

Malaysian 1.6%

Non-BOI-promoted

More than500 million Baht

33.3% 0-50 million Baht

25.4%

2 51 - 500 million Baht 1 3.7%

101-250 million Baht 17.7%

51 - 100 million Baht 9 .8 %


1.5.2 Sources of Revenue

In 2008, 62.1% of the foreign investors in the study generated revenues from sales in both domestic and export markets. Approximately 19.0% sold their products solely to the domestic market, while approximately 18.9% sold solely to export markets. (See Figure 4).

Figure 4 Sources of Sales Revenues of Foreign Investors Operating in Thailand

Both domestic and export sales

62.1%

Domestic sales only 19.0%

Export sales only 18.9%


Chapter 2

The 2009 Confidence Level of Foreign Investors in Thailand

2.1 Foreign Investors’ Confidence Toward the Situation in Thailand in 2008 at the Company, Industry and Overall Business Environment Levels

2.1.1 Thailand’s Situation at the Company Level in 2008

As shown in Figure 5, when comparing the operating results of foreign investors in Thailand between

2007 and 2008, it was found that: 1.) 47.0% recorded a greater profit in 2008 than in 2007 (slight increases and

significant increases in profit). 2.) 10.6% showed more or less the same level of profit as in 2007, and 3.)

42.4% had less profit than in 2007 (slight decreases and significant decreases).

The group with greater profit in 2008 consisted of 35.2% of the firms having slight increases in profit and

11.8% with significant increases. The former consisted mainly of those in the metal products, machinery and

transport equipment and the electronic industry and electrical appliance sectors; the latter were mainly

operators in the metal products, machinery and transport equipment and the service and public utilities

sectors.

Figure 5 Thailand Situation in 2008 at the Company Level (Profit)

0.9

1.5

1.9

4.7

4.2

4.2

2.3

0.9 0.9

3.8

5.5

6.1

2.8

2.7

0.9

0.9 0.9

2.9

1.5 1.4

2.1

3.4

1.1

2.7

10.2

7.0

4.4

6.4

0.9

1.10.8

3.0

1.71.4

2.8

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Significant decrease Slight decrease No change Slight increase Significant increase

19.7%

22.7%

10.6%

35.2%

11.7%

Percentage

Light Industry

Section 1

Section 2

Section 4

Section 6

Electronic Industry and Electrical Appliance

Metal Products, Machinery, and Transport Equipment

Services and Public Utilities

Section 3

Section 5

Section 7

Chemicals, Paper, and Plastics

Agriculture and Agricultural Products

Mining, Ceramics, and Basic Metals


2.1.2 Thailand’s Situation at the Industry Level in 2009The Foreign Investor Confidence Survey at the industry level covered three main areas: market

demands and competition, factor endowments, and source of funds. The results of the survey are summarized

in Figure 6 below:Figure 6 Foreign Investors’ Views toward Factor Endowments in Thailand and Current Operating Situations

(Comparison between 2008 and 2009)

Market Demands and Competition

The global economic slump that started in late 2008 resulted in considerable shrinkage of foreign

demand, while competition became considerably more intense due largely to non-tariff trade barriers and the

influx of goods from countries with comparatively low costs.

As for the domestic market, the impact of the global depression, the series of political protests

and the spread of pandemic (H1N1) influenza caused people to be more cautious on their spending, which led

to a marked decrease from the previous year in demand for goods and services.

If one makes a comparison of the 2009 situations of the domestic and foreign markets, one would

find that after trade liberalization competition in foreign markets has become much more intense than in the

domestic market. However, trade liberalization has also resulted in stronger foreign demand than demand

coming from the domestic market. The support measures taken by the government in early 2009 did not show

clear evidence of having an effect on domestic demand stimulation.

Negative changeNo

change Positive change

Source of funds

Factor endowments

Market demands

Competition

-16 -12 -8 -4 0 4 8 12 16

Competition in the domestic market

Competition in the international market

Domestic market demands

Overseas market demands

Sufficiency of qualified suppliers

Sufficiency of good quality raw materials

Sufficiency of qualified skilled labor

Sufficiency of qualified engineers/technicians

Sufficiency of qualified managersAppropriateness of land prices/ land lease

Attractive cost of skilled laborAllowance for engineers and technicians

Manager allowance

Non-wage costs of investment in Thailand

Accessibility to domestic loansAccess to stock market

2008 survey result 2009 survey result


Factor Endowments

One of the strengths which Thailand has, qualitatively as well as quantitatively, over neighboring

countries in the eyes of the foreign investors is skilled labor. Although labor costs in some neighboring

countries are lower, foreign investors still see Thailand as an attractive production base because of the labor

inputs. Other strengths of Thai workers are their fast learning ability and hospitality.

Capacity utilization reduction resulted in decreased demand for skilled workers at the

engineer/technician level and thus alleviated the shortage of supply compared to the previous year. This

year’s wages and salaries are not overly high and there is an adequate supply of personnel at managerial

level, making it easier to recruit them.

In addition to decreased demands for labor at various levels, there were decreases noted in the

demand for raw materials during the study period, which eliminated the problem of shortage of quality raw

materials. Besides, quality suppliers could be more easily found.

Sources of Funds

The terms and conditions imposed by the Stock Exchange of Thailand and the criteria for credit

extension used by financial institutions in Thailand were seen by the foreign investors as still not so favorable

for capital mobilization both through the stock market and local sources of loans.

In terms of comparison between this year and the previous year, the economic recession resulted

in more caution on the part of the stock market and financial institutions. Credit limits were also more strictly

controlled to prevent a recurrence of non-performing loan problems. Sources of funds were therefore less

accessible this year.

2.1.3 Thailand’s Overall Business Environment in 2009

The survey on foreign investors’ views toward the overall business environment in Thailand as shown in

Figure 7 can be summarized as follows:

Public Policies and Government Procedures

Inconsistency and lack of transparency clearly characterized public policies and government

procedures, both in this and the previous year, causing some foreign investors to delay their investment or

business expansion projects. Concern over the effects of public policies and government procedures was

voiced more by foreign investors who operated in Thailand for a shorter period of time. Those investors having

been in business in Thailand longer than five years or having had experience in neighboring countries, such as

China or Indonesia, expressed less concern over this matter.


Relevant Law and Regulations

This study focused on laws relevant to the business operations of foreign investors. Emphasis

was placed on the Foreign Business Act and other laws related to the country’s tax system, including customs

procedures. It was found that existing laws relating to business operations did not constitute any concern to

the foreign investors. However, the study showed, as in the previous year, that foreign investors continue to

believe the Thai tax system is inefficient.

Foreign Direct Investment Policy

The foreign investors still perceived Thailand’s investment incentives as a favorable factor in their

investment decision making. However, other government support, such as promotion schemes for small and

medium enterprises, R&D and HRD, were seen as unattractive.

Monetary and Fiscal Policies

Implementation of monetary and fiscal policies in early 2009 somewhat relieved investors’

concern over interest and exchange rates, compared with the situation in the previous year. The current

inflation rate during the period of the study was much more pleasing to investors than that in the previous year.

Oil Prices

Despite the overall significant decline of oil prices from the previous year’s levels, their volatility

and the oil excise tax measure were negative factors causing the most serious concern.

Infrastructure

Thailand’s infrastructure for transportation, public utilities and communications has been

improved qualitatively, as well as quantitatively. The foreign investors expressed greater satisfaction with these

improvements than in previous years.

Suitability of the Living Environment for Expatriates and Thailand’s Geographical Location

The government’s continued attempt to promote Thailand as a regional trade hub has made

Thailand an important production base for several industries with linkages to other businesses. In addition, the

living environment in Thailand, particularly Thai culture and Thai people’s friendliness and hospitality, has

added to foreign investors’ pleasure and happiness when they are relocated to Thailand.


Figure 7 Thailand’s Situation in Terms of Overall Business Environment (2008 vs 2009)

2.2 Confidence toward Thailand’s Situation in 2009-2010 at the Company, Industry and Overall Business Environment Levels2.2.1 Foreign Investors’ Confidence in 2009-2010 at the Company Level

Overall, foreign investors’ confidence with regard to the current situation in Thailand dropped from the

previous year in terms of both revenues and profit to be generated during the year. This resulted in lower

liquidity and would probably lead to a delay of investment projects in 2009, as investors adopt a wait-and-see

position. However, foreign investors were confident that revenues and profits will improve in 2010.

Table 1 Foreign Investors Business Confidence at the Company Level

Item measuredOverall Foreign Investor Confidence Index

2008 2009 2010Total revenues 62.0 34.5 65.2

Domestic sales 59.4 34.1 61.4

Export sales 57.8 36.7 62.1

Profit 49.1 32.4 60.5

Liquidity 52.8 37.5 56.2

Total investment 55.6 41.4 53.5

-30 -20 -10 0 10 20 30

Stability of Thai government policies

Transparency of Thai government procedures

Appropriateness of the Foreign Business Act

Attractiveness of domestic interest rates

Stability of the foreign exchange rate

Effect of oil prices

Suitability of the geographical location for business operation

Sufficiency of transportation infrastructure

Sufficiency of public utilities

Sufficiency of communication services

Attractiveness of the living environment for expatriates

Overall investment factors

Effectiveness of Thailand’s tax system

Attractiveness of government policy in other areas

Appropriateness of domestic inflation rate

Attractiveness of BOI investment incentives

Law and regulations

Infrastructure

Economic situation

Negative change No change

Positive change


BSI =50 implies unchanged confidence BSI >50 implies higher confidence BSI <50 implies lower confidence


2.2.2 Foreign Investor Confidence Level in Terms of Market Demands, Factor Endowments and Source of Funds

The survey of foreign investors’ confidence in terms of market demands, factor endowments and source of funds yielded the results shown in Table 2 and summarized below:

Market Demand and Competition

With no sign of recovery in the global economy in sight, foreign investors’ confidence in 2009 dropped from the previous year, particularly in terms of domestic demand, which is subject to other risk factors such as the unsettled political situation, public disorder and the 2009 flu pandemic. The confidence index dropped from 61.1 in 2008 to 47.2.

Non-tariff trade barriers, as well as goods from countries which had lower cost bases, kept competition fierce in both domestic and foreign markets. The confidence index for foreign markets, in particular, dropped from 36.3 to 36.0.

Factor Endowments

Introduction of new production technologies as well as management techniques helped improve the confidence toward domestic supplies and raw materials. Additionally, human resources development measures taken by the government contributed to a slight improvement of confidence toward labor supplies.

Although wages in Thailand were higher than those in some neighboring countries, when labor skills were taken into consideration, foreign investors’ confidence toward Thai labor was still favorable.

Sources of Funds

The terms and conditions for listing on the Stock Exchange of Thailand and stricter criteria for extension of credit to business operators, particularly small and medium enterprises (resulting from the attempt of financial institutions to avoid non-performing loan problems) explained the drop in confidence toward accessibility to domestic sources of credit from the 2008 level.

Overall Confidence

Despite foreign investors’ concerns over events in 2009, their overall confidence was still positive.


Table 2 Investors’ Confidence toward Market Demands and Completion, Factor Endowments and Source of Funds

Foreign Investor Confidence Indices Issues 2007-2008

(1) 2008-2009

(2) 2009-2010

(3) Market Demands and Competition

Competition in the domestic market 50.3 42.4 47.1 Competition in international market 49.0 36.3 36.0 Domestic market demands 56.5 61.1 47.2 Overseas market demands 58.9 64.9 51.8 Factor Endowments Sufficiency of qualified suppliers 53.3 51.3 51.8 Sufficiency of good quality raw materials 52.1 48.8 50.1 Sufficiency of qualified skilled labor 46.7 55.2 60.1 Sufficiency of qualified engineers/technicians 48.4 51.0 54.8 Sufficiency of qualified managers 49.3 52.7 53.8 Appropriateness of land prices/ land lease n/a 56.4 56.2 Attractiveness cost of skilled labor n/a 52.3 60.5 Attractiveness of allowance for engineers/technicians n/a 51.3 58.3 Attractiveness of manager allowance n/a 52.2 56.4 Attractiveness of the cost of investment in Thailand n/a 54.6 57.9 Source of Funds

Access to stock market n/a 48.4 42.1 Accessibility to domestic loans n/a 48.7 47.8 Overall Business Confidence Index 52.1 51.7 52.0 BSI =50 implies unchanged confidence BSI >50 implies higher confidence BSI <50 implies lower confidence Sources: (1) From 2006-2007 Foreign Investor Confidence Survey Report (2) From 2008 Foreign Investor Confidence Survey Report (3) From the survey conducted this year

2.2.3 Foreign Investors’ Confidence in 2009-2010 at the Overall Business Environment Level

The Foreign Investor Confidence Survey in terms of overall business environment yielded results as shown in Table 3 and summarized below:

Government Policies and Thai Government Procedures Foreign investor confidence indices below 50 reflect views indicating unclear government policies

and the lack of transparency of Thai government procedures. The lower confidence level, however, did not


affect the operating results of current business operators, but affected the group contemplating business expansion or those in the process of choosing a country for their investment.

Laws and Regulations The confidence index for the Foreign Business Act was slightly over 50, indicating that the law did

not constitute significant concern or cause serious impact among the foreign investors. The confidence index for Thailand’s tax system remained below 50 and was not significantly different from that of the previous year, which still reflected inefficiency of Thai taxation measures.

Investment Promotion Policies The confidence index for the incentives granted by the Board of Investment (BOI) rose from 67.3 in

2008 to 67.8. The index was consistently on an increasing trend, indicating that the incentives offered, as well as other BOI’s supporting measures, were responsive to foreign investors’ requirements. On the other hand, measures taken by other government agencies saw a lower confidence score of 46.2 and showed a consistently decreasing trend. Such a low score indicated that the policies announced or support measures taken were not in line with the needs of foreign investors.

Monetary and Fiscal Policies The confidence index for the inflation rate in Thailand rose from the previous year, but was still not

over 50. This indicated that the monetary and fiscal policy measures taken had relieved foreign investors’ concerns to a certain extent and would enhance the competitiveness of the export sector, as the costs of production had not increased.

As for interest and foreign exchange rates, the confidence indices also rose from the previous year although they were still lower than 50. Such results indicated that the monetary policy implemented by the Bank of Thailand to assist business operators had been somewhat effective, although lower interest rates and a weaker Baht were preferred.

Oil Prices Although oil prices were lower than the levels in 2008, the volatility of the prices of oil in the world

market, coupled with the imposition of a two Baht per liter excise tax by the Thai government, resulted in a decline of the foreign investor confidence index from 36.2 in 2008 to 32.9.

Infrastructure The indices of confidence in infrastructure for transportation and public utilities in Thailand, which

stood over 50 and was consistently increasing, indicated satisfaction of the foreign investors in both quantitative and qualitative terms. As for communications services, the confidence index rose from 57.3 in 2008 to 59.0 in 2009, which showed the foreign investors’ satisfaction with the current situation in this area, although it was still lower than the 2007 level. New communications technologies, such as 3G mobile telecommunications and multimedia services, are expected to be available soon.


Living Environment and Thailand’s Geographical Location The fact that Thailand is the center of communication in Southeast Asia has induced investors to

choose the country as their investment site. Thai people’s friendliness and hospitality also ease foreign investors’ living in Thailand. Table 3 Indices of Foreign Investor Confidence toward Law and Regulations, the Economic Situation and Infrastructure

Foreign Investor Confidence Index Issues 2007-2008

(1) 2008-2009

(2) 2009-2010

(3)

Stability of government policies 42.3 39.7 38.4 Transparency of Thai government procedures 48.7 35.7 36.1 Foreign Business Act n/a 50.4 51.8 Effectiveness of Thailand’s tax system 47.5 47.8 48.0 Attractiveness of BOI investment incentives 51.3 67.3 67.8 Attractiveness of government policies in other areas 50.6 48.1 46.2 Appropriateness of domestic inflation rate 45.1 41.4 50.0 Attractiveness of domestic interest rates 46.7 44.8 46.9 Stability of the foreign exchange rates 39.4 39.5 42.6 Effect of oil prices 40.4 36.2 32.9 Suitability of the geographical location for business operation n/a 67.9 68.9 Sufficiency of transportation infrastructure 58.1 53.3 61.3 Sufficiency of public utilities 58.3 60.5 64.4 Sufficiency of communication services 62.0 57.3 59.0 Attractiveness of the living environment for expatriate n/a 67.0 69.1 Overall Investment factors 50.4 61.1 64.8 BSI =50 implies unchanged confidence BSI >50 implies higher confidence BSI <50 implies lower confidence Sources: (1) From 2006-2007 Foreign Investor Confidence Survey Report (2) From 2008 Foreign Investor Confidence Survey Report (3) From the survey conducted this year

2.2.4 2009-2010 Foreign Investor Confidence Indices and Current Competitiveness 2.2.4.1 Market Demands, Competition, Domestically Available Factor Endowments and Thailand’s Production

Costs and the Relationship with the Country’s Current Competitiveness

The global economic change in late 2008 and the political turmoil in Thailand affected investors’ confidence. Investors in this study were classified into four groups, according to their confidence toward market demands, competition, and factor endowments. As shown in Figure 8, these four groups were: those currently having high competitiveness and potentially having even higher competitiveness in the future; those currently having medium competitiveness and potentially having higher competitiveness in the future; those currently having medium competitiveness, but potentially having lower competitiveness in the future; and those currently having low competitiveness and potentially having even lower competitive in the future. Details of each group are summarized below:


Figure 8 Investor Confidence Indices for Market Demands, Competition, Factor Endowments and Thailand’s Production Costs for 2009-2010 and the Relationship with Thailand’s Current Competitiveness

A = Competition in the domestic market B = Competition in international market C = Domestic market demands D = Overseas market demands E = Sufficiency of qualified suppliers F = Sufficiency of good quality raw materials G = Sufficiency of good quality skilled labor H = Sufficiency of qualified engineers/technicians I = Sufficiency of qualified managers J = Appropriateness of land prices/land lease K = Attractiveness of cost of skilled labor L = Attractiveness of allowance for engineers/technicians M = Attractiveness of manager allowance N = Attractiveness of the cost of investment in Thailand O = Access to stock market P = Accessibility to domestic loans

Factors with Currently High Competitiveness and Potentially Higher Competitiveness in the Future

Factors in which Thailand currently had high competitiveness and potentially higher competitiveness in the future were allowance and sufficiency of labor supplies (skilled labor, engineers/ technicians and managers) as well as non-wage costs.

Factors with Current Medium Competitiveness and Potentially High Competitiveness in the Future Factors in which Thailand was currently seen by the foreign investors as having medium

competitiveness, but which potentially could have higher competitiveness in the future, were qualified suppliers and overseas market demand.

Confidence Index

Comp

etitiv

enes

s

Q2 Q1

Q4 Q3


Factors with Current Medium Competitiveness, but Potentially Lower Competitiveness in the Future Factors in which Thailand currently had medium competitiveness, but could potentially have lower competitiveness in the future, were domestic demand, domestic market competition and accessibility to domestic loans.

Factors with Current Low Competitiveness and Potentially Lower Competitiveness in the Future International market competition and ease of access to capital through the stock market were factors seen by the foreign investors as having low competitiveness with a tendency to become even lower in the future.

2.2.4.2 Thailand’s Business Environment in 2009-2010 and the Country’s Current Competitiveness

Thailand’s business environment and the relationship with its competitiveness in various areas are shown in Figure 9, in four groups:

Figure 9 Investor Confidence Indices for Thailand’s Business Environment in 2009-2010 and the Relationship with the Country’s Competitiveness

A = Stability of government policies B = Transparency of Thai government procedures C = Appropriateness of the Foreign Business Act D = Effectiveness of the Thai tax system E = Attractiveness of BOI investment incentives F =Attractiveness of other government policies G = Appropriateness of domestic inflation rate H = Attractiveness of domestic interest rates I = Stability of the foreign exchange rates J = Effect of oil prices K =Suitability of the geographical location for business operation L = Sufficiency of transportation infrastructure M = Sufficiency of public utilities N = Sufficiency of communication services O = Attractiveness of the living environment for expatriates P = Attractiveness of overall investment factors

Comp

etitiv

enes

s

Confidence Index

Q2 Q1

Q4 Q3


Factors with Currently High Competitiveness and Potentially Higher Competitiveness in the future Factors which were seen by the foreign investors as currently having high competitiveness and potentially even higher competitiveness in the future were BOI investment incentives; sufficiency of transportation infrastructure; sufficiency of public utilities and communication services, and attractiveness of the living environment for expatriates.

Factors with Current Medium Competitiveness and Potentially High Competitiveness in the Future Laws governing foreign businesses and domestic inflation rates were factors seen by the foreign

investors as having moderate competitiveness and potentially having higher competitiveness in the future. Factors with Current Medium Competitiveness but Potentially Lower Competitiveness in the Future

Thailand’s current tax system was the factor which, according to the foreign investors, placed the country in the medium position in terms of competitiveness, but that position tended to deteriorate.

Factors with Current Low Competitiveness and Potentially Lower Competitiveness in the Future Stability of government policies and transparency of Thai government procedures, as well as interest and exchange rates, were seen as factors causing Thailand’s currently low competitiveness, which were seen as likely to worsen in the future. 2.3 2009-2010 Investment Plans and Major Factors Affecting Implementation Decisions

2.3.1 Investment Plans for 2009-2010

58.9% of foreign investors would maintain the level of investment in Thailand, while 24.7% planned to expand their business slightly and 5.2% planned a significant expansion. 7.7% expected to slightly reduce their investment in Thailand and 3.6% expected a considerable reduction. The survey conducted this year did not come across any foreign investors planning to withdraw from Thailand.

Figure 10 2009-2010 Investment Plans

Slight expansion of investments inThailand/other countries

24.7%

Significant reduction of investment in Thailand

3.6%

Slight reduction of investment in Thailand

7.7% Maintenance of the present level of investment in Thailand

58.9%

.

Significant expansion of investment in Thailand/other

countries 5.2%


2.3.2 Major Reasons for Business Operators to Make a Decision to Expand Investment in Thailand

Three major reasons cited by foreign investors as reasons to expand their investments in Thailand were reasonable cost of labor (58.2%), BOI incentives and other government support measures (55.1%), and sufficiency of infrastructure (54.4%).

Figure 11 Major Reasons for Business Operators to Make a Decision to Expand Investment in Thailand

2.3.3 Reasons Cited by Business Operators in Deciding to Expand their Investment in Other Countries, Reduce their Investment in Thailand, or Withdraw from Thailand

Four reasons cited by business operators as reasons for expanding investments in other countries or reducing investments in Thailand were the global economic recession (79.2%), political instability in Thailand (43.1%), lack of transparency in Thai government procedures and instability of Thai economy (both 26.4%). When the investors were grouped into BOI-promoted and non-BOI-promoted categories, it was found that the same reasons were also cited by the foreign investors in the BOI-promoted category. The main reasons of those in the non-BOI-promoted category were the lack of transparency in Thai government procedures and political instability in Thailand.

8.9

8.2

8.9

3.2

7.03.2

55.1

25.3

36.7

40.5

58.250.0

54.4

44.3

0 10 20 30 40 50 60

Sufficient raw materials/parts

Sufficient infrastructureSufficient skilled labor

Reasonable cost of labor

Appropriate non-wage investment costs

Large domestic marketExpansion of global market

BOI incentives and other Thai government support

Political stability

Transparency in Thai government procedures

Stability of Thai economy

Effective tax system

Other reasons

Consistency of the Thai government policy towards investment

%


Figure 12 Major Reasons for Expansion of Investment in other Countries/Reduction of Investment in Thailand or

Withdrawal from Thailand

5.611.1

26.426.4

15.318.1

43.1 15.316.7

79.218.1

15.312.515.3

5.65.6

0 10 20 30 40 50 60 70 80

Insufficient supplies of raw materials/parts Insufficient infrastructureInsufficient skilled labor

High cost of laborHigh cost of investment (other than wages)

Small domestic marketGlobal economic downturn

Thai labor unrest

Political Instability in Thailand

Lack of transparency in Thai government proceduresInstability of Thai economy

Ineffective tax system in Thailand Other reasons

Lack of supportive government regulations

Limitation of BOI incentives and other Thai government support

Inconsistency of Thai government policy towards investment

%


Chapter 3 Influence and Levels of Importance of Factors Affecting Investors’ Confidence

17 factors affecting industry level of decision and 14 factors with influence at the business environment level were used in this analysis. The 31 factors were reclassified into 15 sub-groups as shown in Table 4. Analyses were then conducted to identify the relationships between the level of confidence and the level of importance of the factors which have bearing on investment decisions. The following is a summary of the study results:

Table 4 Grouping of Factors Affecting Investors’ Confidence by Their Relationship

Factors Affecting Investment Decisions Main Factor Group Elements of Factor Group

1. Land Location suitability Appropriateness of land prices/ land lease

2. Human resources Sufficiency of qualified skilled labor Sufficiency of qualified engineers/technicians Sufficiency of qualified managers

3. Cost of labor and competitive cost

Attractiveness of cost of skilled labor Attractiveness of allowance for engineers/technicians Attractiveness of manager allowance Investment cost (apart from cost of labor and office rents)

4. Suppliers and raw materials Sufficiency of qualified suppliers Sufficiency of good quality raw materials

1. Factor endowments

5. Stability of domestic oil prices Domestic oil prices 2. Thailand’s capital market 6. Accessibility to source of funds Access to stock market

Access to domestic loan 7. Market demands Domestic demands

Overseas demands 8. Competitors Competition in the domestic market

Competition in international markets 9. Government policy and

procedures Consistency of government policy Transparency in Thai government procedures

10. Inflation and interest rates Appropriateness of domestic inflation rate Attractiveness of domestic interest rates

3. Thai economy

11. International trade Stability of the foreign exchange rates 12. Infrastructure

Sufficiency of transportation infrastructure Sufficiency of public utilities Sufficiency of good quality communication services

4. Infrastructure in Thailand

13. Living environment for expatriates Attractiveness of the living environment for expatriates


Factors Affecting Investment Decisions Main Factor Group Elements of Factor Group

14. Investment support BOI investment incentives Other government policies

5. Law and regulations

15. Business law and regulations Foreign Business Act Efficiency of the Thai tax system

Figure 13 Influence and Levels of Importance of Factors Affecting Investors’ Confidence

Based on Figure 13, the key factors can be classified in terms of competitiveness into four groups, in accordance with the level of their importance to investment decision making and the level of confidence. The importance of each group and the respective approach which should be taken are summarized below:

Group 1 (Q1) The factors belonging to this group were seen as important and were expected to be better in the future. These factors were land, human resources, cost of labor and other costs that were competitive, suitability of location, infrastructure and investment support. Although foreign investors see a positive trend, as shown in this study, the government should take attractive promotion policies to increase competitiveness and sustainability.

Impo

rtanc

e Divid

ing Li

ne

Level of Importance

Level of Confidence

Q2

Q3

Q1

Q4

Business laws and regulations governing business

Land

Human resources

Cost of labor and other costs

Suppliers and raw materials

Stability of domestic oil prices

Accessibility to source of funds

Market demands

Competitors

Government policy and procedures Inflation and interest rates

International trade

Infrastructure

Living environment of expatriates

Investment support


Group 2 (Q2) While factors in this group were seen by the foreign investors as important, they were expected to deteriorate in the future. The factors were market demands, competitors and international trade. The study results indicate that the government should take urgent measures to improve their competitiveness.

Group 3 (Q3) Viewed by foreign investors as less important, the factors in this group were expected to be even more negative. They were accessibility to sources of funds, stability of domestic oil prices, government policies and procedures, inflation and interest rates and business law and regulations. The finding points out that it is necessary for the government to seek ways to improve these factors.

Group 4 (Q4) The factors in this group were seen as having less importance and were expected to be in a better position in the future. These factors were the living environment for expatriates, and supplies and raw materials. Although they are less important than the factors in the first group, their strengths should be maintained by the government, as they will also be taken into consideration when investment decisions are made by foreign investors.

The results of the survey indicated that Thailand’s competitiveness in terms of factors affecting investment decisions (such as land, labor and labor cost) could still build up confidence among foreign investors. BOI investment incentives, as well as other government policies, played an important role in investment decision making. However, government should seek ways to enhance the capabilities and competitiveness of business operators. Important factors to which importance should be attached are the efficiency of the tax system, clarity and constancy of the monetary and fiscal policies, and transparency in government procedures.


Chapter 4 Thailand’s Competitiveness in Comparison with other Countries

4.1 Thailand’s Competitiveness in Terms of Factor Endowments in Comparison with Competitors

In comparison with six competitors (Vietnam, the Philippines, Malaysia, Indonesia, India and China) as shown in Figure 14, Thailand’s competitiveness in terms of factor endowments was as follows: Land cost in Thailand was at appropriate levels, particularly when compared with Malaysia, although it was slightly higher than Vietnam. Foreign investors perceive that Thailand has a greater supply of desired skilled labor than the Philippines, Malaysia and Indonesia although the country’s competitiveness in this area was not significantly different from Vietnam, India and China. Cost of labor in Thailand was seen as being at levels more appropriate than those of Malaysia, but not different from costs in the Philippines and Indonesia and less than costs in Vietnam, India and China. Thailand’s competitiveness in terms of raw materials was higher than the competitors on the list, except China.

Figure 14 Thailand’s Competitiveness in Terms of Factor Endowments in Comparison with Competitors

4.2 Thailand’s Competitiveness in Terms of Sources of Funds in Comparison with Competitors

Figure 15 shows that accessibility to sources of funds, both through the stock market and domestic loan sources, was more convenient in Thailand than other countries, particularly Vietnam, the Philippines and Indonesia.

ChinaIndiaIndonesia MalaysiaThe PhilippinesVietnam

-6.0 -4.0 -2.0 - 2.0 4.0 6.0 8.0 10.0

Raw materials

Cost of labor

Labor

Land cost

Thailand being superior to competitors Thailand being inferior to competitors No significant difference

Malaysia

Indonesia

India

The Philippines

China

Vietnam


Figure 15 Thailand’s Competitiveness in Terms of Source of Funds in Comparison with Competitors

4.3 Thailand’s Competitiveness in Terms of Economic Situation in Comparison with Competitors

The study found that Thailand was at a better level than Vietnam, the Philippines, Malaysia, and Indonesia in terms of domestic demand for goods and services. In this regard, the country was not so different from India but was considerably less competitive than China. In terms of domestic interest rate, Thailand was slightly better than the Philippines and Indonesia, but not significantly different from the other countries. The foreign exchange rates of the Thai currency were better than Indonesia, but not so different from those of Vietnam, the Philippines and India, and slightly inferior to Malaysia and China.

Figure 16 Thailand’s Competitiveness in Terms of Economic Situation in Comparison with Competitors

4.4 Thailand’s Competitiveness in Terms of Infrastructure in Comparison with Competitors

Thailand was more or less at the same level as Malaysia in terms of infrastructure (transportation system, public utilities, communication services, and logistics management) and was better than the other five competitors in all the areas of infrastructure. (See Figure 17).

Malaysia

Indonesia

India

The Philippines

China

Vietnam

China India IndonesiaMalaysia The PhilippinesVietnam

-4.0 -2.0 - 2.0 4.0 6.0 8.0

Access to domestic loan

Access to stock market


China India IndonesiaVietnam

Malaysia The Philippines

-6.0 -4.0 -2.0 - 2.0 4.0 6.0 8.0

Foreign exchange rate

Domestic interest rate

Domestic demand


Malaysia

Indonesia

India

The Philippines

China

Vietnam


Figure 17 Thailand’s Competitiveness in Terms of Infrastructure in Comparison with Competitors

4.5 Thailand’s Competitiveness in Terms of Laws and Regulations in Comparison with Competitors As viewed by foreign investors, Thailand could compete with all the competitors listed above in terms of

BOI investment incentives and labor law. The country’s rate of income tax was at a more appropriate level than the competitors (but about the same level as Malaysia). However, Thai government policies were perceived as lacking constancy and government procedures were seen as lacking transparency - similar to Vietnam, the Philippines, Indonesia and India.

Figure 18 Thailand’s Competitiveness in Terms of Laws and Regulations in Comparison with Competitors


Malaysia

Indonesia

India

The Philippines

China

Vietnam

China IndiaMalaysia The PhilippinesVietnam

Indonesia

-4.0 -2.0 - 2.0 4.0 6.0 8.0 10.0 12.0

Logistics management

Communication services

Public utilities

Transportation system

Malaysia

Indonesia

India

The Philippines

China

Vietnam


ChinaIndiaIndonesiaMalaysiaVietnam The Philippines

-6.0 -4.0 -2.0 - 2.0 4.0 6.0 8.0 10.0

Transparency of government procedures

Stability of government policy

Labor law

Rate of corporate income tax

BOI investment incentives


Chapter 5 Foreign Investors’ Satisfaction with Services Rendered by the Office of the Board of Investment (BOI) and the

Order of Services for which Provision or Improvement by the BOI Is Desired

According to the results of this year’s survey, 58.8% of the foreign investors were satisfied and very satisfied with BOI services, 35.3% were moderately satisfied and 5.9% were dissatisfied and very dissatisfied.

The percentages of foreign investors who were satisfied and very satisfied were lower this year than last year. The decrease could have resulted from the change in survey methodology. Last year, the foreign investors were asked to rate their satisfaction with services received from 15 government agencies. This year, they were asked to rate only the services received from the BOI. It could have been that the rating results last year were based on the comparison of satisfaction with services received from a number of agencies and the foreign investors were more satisfied with services received from the BOI than what they received from the other agencies – thus the high rating for the BOI last year.

Figure 19 Foreign Investor’s Satisfaction with Services Received from the BOI

(Comparison Between 2008 and 2009)

3.50.5

2.4 1.5

35.330.0

54.355.9

4.5 12.1

0 10 20 30 40 50 60

Highest satisfaction

High satisfaction

Moderate satisfaction

Low satisfaction

Lowest satisfaction

%



Chapter 6

Analysis of In-Depth Interviews with Foreign Investors

6.1 Foreign Investor Confidence

Despite the absence of political protests during the time of the in-depth interviews, the turmoil which had occurred, particularly the event which took place in April during the summit between ASEAN and its dialogue partners in Pattaya, resulted in a reduction in the level of confidence among foreign investors from the previous year, both in terms of revenues and profits. The domestic and international impact of the economic recession resulted in reduced confidence in liquidity. This was due to the fact that the foreign investors’ business partners, particularly small enterprises, had suffered from financial difficulties, which caused inevitable repercussions. The government’s announced economic stimulus measures were seen by foreign investors as only partially effective in solving the current problems, as they still lacked clarity and did not present mechanisms designed for long-term economic recovery. However, foreign investors believed that the situation could improve in the future if the government made proper adjustments to the plans and measures for greater clarity.

In addition to political disturbances and the economic recession, labor protests were also a factor shaking the foreign investors’ confidence, although such protests had not taken place in their own businesses. Three out of the 21 foreign investors interviewed (14.3%) indicated that their overseas shareholders had expressed concern and might withdraw investment if such situation persisted.

Another factor affecting the confidence of foreign investors operating in Thailand was their own organization plans. If their parent company expanded investment in other countries, the market shares of the subsidiary companies in Thailand were expected to decline and the size of investments which might be made in Thailand could become smaller.

The types of products were also an important factor which could affect foreign investors’ confidence. Those operating in the agriculture and agricultural products sector, particularly dealing with basic living necessities and health products (e.g. food, medicines and condoms), were still fairly confident despite the recession during the time of the interviews. Those in other sectors, however, had significantly lower confidence although they hoped that the economy would recover toward the end of the year, which would result in better operating results next year.

6.2 Opinions Toward Operation Approaches of Government Agencies at the Local Level

Most of the foreign investors interviewed were satisfied with the way government agencies at the local level operated and did not encounter any problems in coordinating with such agencies during the past period. Some attributed the smooth coordination to having Thai partners or executives who were from the localities and, therefore, understood the way local level government agencies operated.


On the contrary, those foreign investors viewing the situation negatively complained that senior officials of government agencies at the local level lacked understanding of international standard management practices. Laws and regulations were executed without clarity and, in some cases, double standards were applied. In other cases, certain forms of demands were made. In the foreign investors’ opinion, solving such local level problems would not be easy, because of tough local politics. Although some groups of foreign investors encountered inconvenience caused by the operation of government agencies at the local level, the impact of such problems was still not a major factor in making decisions to reduce the size of their investment or to withdraw their business from Thailand.

6.3 Opinions Toward Investment Factors in Thailand

Factor Endowments

In conducting interviews with the foreign investors on factor endowments in Thailand, focus was placed on labor and raw materials. Information given by all the foreign investors was consistent, showing that skilled labor was the main strength attracting investment. Although cost of labor in Thailand was presently higher than in other countries, the quality of labor was better and Thai workers required shorter training time to acquire desired skills. However, such comparative advantage would eventually diminish if the current trends of minimum wages and labor skill development remained unchanged.

The foreign investors had mixed views toward labor at the engineer level. One group felt that although new graduates needed skill training before they could efficiently begin actual work; their compensation was still at an acceptable level in comparison to that of imported engineers. The group with a negative view on this issue felt that Thai engineers’ present skills and competencies did not justify their salaries.

The quality of Thai labor at the managerial level was a problem identified in several businesses, such as those in the automotive and electronics sector. The current weaknesses of Thai manager included their inability to analyze and solve problems at a macro level and their management and decision making approaches, which were aimed at tackling only immediate problems. These weaknesses resulted in the need for some foreign investors to bring managers from abroad.

The problem of impatience of Thai workers was not identified during the interviews conducted this year, although it was found during last year’s interviews. To minimize the problems of high turnover rates or frequent job changing among workers, foreign investors increased employee motivation by paying wages slightly higher than minimum wages or close to big city rates. Foreign investors also expressed the opinion that the economic recession and layoff measures taken by other companies had resulted in fewer demands by workers than in the past and had discouraged them from deciding to change their jobs too easily.

During the interview period, the quality of Thai raw materials and intermediate goods was seen as still not consistent or up to desired standards. Raw materials and intermediate goods therefore had to be imported.


Capital Market Almost all of the foreign investors interviewed did not have the necessity to mobilize capital by listing

their shares on the Stock Exchange or seeking loans from local financial institutions. However, strict credit extension criteria adopted by local financial institutions had hurt their customers, particularly small and medium enterprises, which could not secure loans and suffered from reduced liquidity. As a result, this had affected foreign investors’ operations in terms of order sizes and collections. Some foreign investors who had planned to mobilize capital through the stock market delayed their plans due to the unfavorable economic situation.

Economic Situation In interviewing foreign investors on the current economic situation in Thailand, importance was placed

on market demands and fiscal and monetary policies. Most of the foreign investors (except those in the agriculture and agricultural products sector) expressed the view that the global and domestic economic slump caused consumers to be more careful with their spending. This had resulted in a reduction of orders. Production plans, therefore, had to be adjusted to lower their operating costs (e.g. no overtime payments). However, none of the foreign investors interviewed had a layoff plan.

Foreign investors in the export-oriented group expressed the opinion that the current government’s measures had not been particularly supportive of the export sector. Several of them said this year’s production had resulted from purchase orders placed last year and the number of this year’s orders had been much smaller. Exporters would be hard hit if the government did not come up with effective support measures, particularly ones addressing the exchange rate problem.

Although Thailand’s interest rates had declined since the beginning of the year, foreign investors still saw the rates as inappropriate. Such rates had caused chain reactions in the business circle. As small and medium enterprises had to rely on credit from financial institutions and had to bear the burden of high interest rates, while their revenues had decreased, their liquidity had been reduced. This had led to lower frequency of order placing and limited the size of each order placed by small and medium enterprises.

In addition to the global economic crisis, political uncertainty in Thailand was another important factor affecting the country’s economy. During the time of the interviews, several foreign investors operating in Thailand had decided to delay their investment expansion and to wait to see how the political situation would resolve.

The country’s Infrastructure With regard to foreign investors’ views towards infrastructure for transportation, public utility systems

and communications services in Thailand, their perception could be divided into two groups. The first group, which has operations located in industrial estates or municipal areas felt that the country had adequate infrastructure with satisfactory quality; while the second group located elsewhere felt that the quality and services received were not satisfactory and the charges were too high.


Laws and Regulations As Thailand’s laws and regulations were in line with international standards, the foreign investors

interviewed found them acceptable. However, in their opinion the application of laws and regulations, particularly those related to the country’s tax system, was still inefficient. Such a weakness should be rectified. In addition, the knowledge and skills of tax officials should be enhanced, as they often provided inconsistent information and caused confusion.

Foreign investors felt that several articles of Thai labor law were overly favorable to employees. Besides, some groups of employees had used loopholes in the laws to make emotional demands to employers, which resulted in high administration costs.

In addition, the advice or interpretations of laws and regulations given by different government agencies on the same matter were inconsistent, or in some cases even conflicting. Such a confusing situation was another factor lowering the foreign investors’ confidence.

6.4 Views Toward BOI Investment Incentives

Views Toward BOI Investment Incentives

19 of the 21 foreign investors interviewed were satisfied with the investment incentives received from the BOI. Although they had been informed of interesting investment incentives granted by neighboring countries, after taking other factors affecting their investment decisions into consideration they were happy with investing in Thailand and had no plans to withdraw or relocate their production to another country.

Slow Operation

Three of the 21 foreign investors interviewed, who submitted documents during the change of BOI, the change of members of the Board of Investment, commented that the BOI’s efficiency during that period dropped from the past level. Consideration of the documents took a very long time and foreign investors had to wait longer than in the past. They made a suggestion that such a problem should be resolved urgently.*

Information Dissemination Still Not Carried Out Widely

11 of the 21 foreign investors interviewed mentioned that information received from the BOI through brochures and participation in seminars was interesting and useful for their operation planning. However, on many occasions they did not receive such information or the information reached them too late. They suggested that the BOI should improve the efficiency of its public relations activities.

* During the said period, there was a change of the government, which effectively terminated the Investment Promotion Sub-Committee and the Board of Investment. A new Sub-Committee and a new Board of Investment were not yet to be appointed. Documents submitted, which had been considered by the officials, could not be further processed while a new Sub-Committee and a new Board was not in place. This could have made the BOI seem less efficient during that period.


The Procedure for Investment Promotion Application Still Cumbersome Two of the 21 foreign investors interviewed who had been granted promotional incentives from the BOI

and had made an application for promotion for a new project felt that only documents pertinent to the new project should be required. Documents that had been submitted should not be required to be submitted again.

6.5 Current Problems and Obstacles Encountered

Political Uncertainty and Government Stability Political uncertainty was a major factor affecting foreign investors’ confidence. The political turmoil

that occurred, particularly the event which took place during the summit meeting between ASEAN and its dialogue partners in Pattaya, had caused foreign investors to lose confidence and to have concern over the government’s stability. Although subsidiary companies in Thailand were somewhat relieved after the situation developed positively, their parent companies overseas, having received partial information from the media without full details, still had worries. Political uncertainty and the unclear picture of the government’s stability also caused worries among new investors, resulting in their decision to delay their investment in Thailand or to choose another country for investment instead.

Unclear Government Support Measures

The various support measures announced by government agencies were viewed by the foreign investors as having potential to improve the present situation — but only if the information presented was clear enough. The prevailing vagueness had cast doubts among the foreign investors on whether such measures would have a positive impact or how effective they would be in solving the problems.

Fluctuation of Exchange Rates and the Global Economic Recession

The fluctuation of the exchange rates over the past period had severely affected the foreign investors, particularly those whose revenues were solely from exports. This problem, coupled with the global economic recession, caused several foreign investors to scale down their investment. Those planning to expand their investment this year decided to delay their expansion plan in order to observe the development of the situation.

Strict Criteria Limiting Accessibility to Domestic Source of Funds

Strict credit extension criteria adopted by financial institutions resulted in liquidity problems for business operators relying on loans, particularly small and medium enterprises. Their problems had repercussions on foreign investors whose major revenues were from the domestic market.

Inconsistency of the Quality of Raw Materials and Intermediate Goods

In spite of the improved potential of Thai suppliers, raw materials and intermediate goods produced were still not up to consistent, desired standards. Foreign investors had to turn to imports as a substitute in order to solve this problem.


52.8

67.9

46.8

30.4

54.6

59.3

0% 10% 20% 30% 40% 50% 60% 70%

Post-promotion services

Publicizing of new investment incentives granted by the BOI

Provision of information about sourcing of raw materials/pastsin Thailand

Provision of general information about law and regulationsgoverning doing business in Thailand, apart from BOI matters

Coordination with other government agencies; e.g. theCustoms Department and the Revenue Department

Revision of law and regulation governing investmentpromotion for easier practices

Chapter 7

Recommendations Derived from Comments Made by Foreign Investors

7.1 Order of Importance of the Services for Foreign Investors Recommended for Provision or Improvement

Based on the quantitative questionnaire survey (details as in the Appendix), the first three services that foreign investors would like the BOI to provide or improve to fulfill their requirements (Figure 20) were: 1.) coordination with other government agencies (e.g. the Customs Department and the Revenue Department) to help solving problems encountered by foreign firms (67.9%); 2.) the provision of post-promotion services (e.g. clarification regarding project revisions and procedures for exercising the various types of rights and benefits) (59.3%); and 3.) publicizing of new rights and benefits granted by the BOI (54.6%).

The channels of communications which foreign investors suggested as the most efficient were e-mails and newsletters.

Figure 20 Services Recommended for Provision or Improvement by the BOI to Fulfill Foreign Investors’ Requirements

Apart from the points listed above, foreign investors recommended that the BOI should improve its efficiency in processes related to project approval, revise the database to be up to date and reduce paper requirements for project approval.


7.2 Short-term Measures to Build Foreign Investors’ Confidence

• Creating a Positive Image of Thailand

As news about Thailand was only partially reported overseas (without full details or without continuity of details), the parent companies had concerned over the situation here. Although the subsidiary companies in Thailand had a full understanding of the situation, the worries which the parent companies had led to a reduction of their confidence. The disturbances also worried new investors and made them consider delaying their investment plans. In coping with these problems, public relations efforts should be made to inform investors that the situation had started to return to normalcy in order to restore confidence. Foreign investors suggested that this should take place immediately after the occurrence of events that could disturb foreign investors’ confidence. The BOI was identified as an agency with good potential for bringing about a correct understanding among foreign investors.

7.3 Long-Term Measures to Build Foreign Investors’ Confidence

• Improvement of Government Administration

Transparency of government administration and clarity of public policies were important factors affecting foreign investors’ decisions to choose the country for their investment or to scale their investment sizes. As the current negative image in Thailand had lowered foreign investor confidence, improvement of government administration should be actively considered and continually executed to build confidence among foreign investors and enhance the country’s long-term competitiveness.

• Development of Thailand’s Education System

Thailand’s education system needs to be urgently reviewed and improved in order to maintain the country’s comparative advantage in the area of labor, which is an important production input attracting and retaining foreign investment. Labor skill development for greater productivity commensurate with wages would enhance the confidence of foreign investors, particularly those in the process of selecting a country to invest in.

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