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Thailand is an easy place to do business

By Jon Fernquest

[Introduction|Vocabulary|Article]
[Reading Questions|Answers]

For ease of doing business, Thailand ranks 18th out of 175 countries in the world.

Thailand ranks fourth in the Asian region.

No matter what problems Thailand may face, it still ranks very high in the world as a business friendly environment.

Today's article gives us a chance to find out what "ease of doing business" really means.

The World Bank has just issued its annual report that compares the ease of doing business in different countries around the world.

An overview of the report can be downloaded and read for free. [Link to report]

The World Bank's Doing Business website is devoted to measuring and comparing (benchmarking) how government regulations impact businesses and make doing business more difficult for business people.

The website has an easy to use database that provides "measures of business regulations and their enforcement" for 175 countries. These measures "indicate the regulatory costs of business and can be used to analyze specific regulations that enhance or constrain investment."

This report a useful resource for determining what attracts foreign direct investment (FDI) to a developing country like Thailand.

Business is the most important sector in any economy providing income for most of the people in an economy and generating most of a country's national wealth. It's essential to know how government regulation impacts these important activities.

However, it's good to keep in mind that government regulations often protect consumers or society as a whole, like Environmental Impact Assessments (EIAs). If you build a beautiful new home, how would you feel if someone built a gigantic pig farm next to it?

Another good example is consumer safety regulations. For example, a regulation requiring fireproof pajamas for children might provide important but unappreciated protection . Most of us may not check pajamas when we buy them to see whether they can catch on fire easily, but we would probably be very upset if we caught on fire and burned to death. Sometimes regulations are wasteful, consisting mostly of bureaucratic inefficiencies and corruption. That's what this report seems to be getting at.

Some things in the report require more research to understand. The report says that Thailand still has infrastructure deficiencies. Cities in most LDCs (Least Developed Countries) like Myanmar lack basic infrastructure facilities and services that are necessary to run an export factory and business. For instance, infrastructure such as public electricity, water, roads, airports, fast and reliable internet connections, and container port facilities are essential.

Thailand's eastern seaboard stretching from Chonburi to Rayong is certainly not lacking in infrastructure, perhaps the report is referring to the remoter areas of provincial Thailand. There's only one way to tell for sure, we'll have to read the report. The full report will probably be available online soon like reports from previous years.

Reading Questions

Here are some questions to guide your reading (See answers at end):

1. What improvements in Thailand's business environment led to moving up one in the ease of doing business rankings this year? Give a specific example.

2. What were the ten criteria the world ease of doing business ranking was based on?

3. What the principal remaining problems make it difficult to do business in Thailand?

4. Why does lack of infrastructure make doing business in Thailand more difficult? What infrastructure
does Thailand lack? (Search for details at the Doing Business site or by reading the report)

5. What problems did the report find with Human Resources (HR) departments in Thai companies?

6. Has private investment in industry after 1997 increased slowly or quickly?

7. How do customs procedures for importing and exporting in Thailand compare with other Asian countries?

8. What advances in corporate governance have been made in Thailand recently?

9. Among the countries ranked in the top three which countries are smaller than Thailand?

10. Which are larger than Thailand?

11. In Thailand which countries ranked higher than Thailand?

12. Which Asian countries ranked lower than Thailand? (Use inference)

13. Thailand's rankings in various categories at the end of the are not really meaningful unless you compare Thailand's performance with other similar Asian countries.

Article

Thailand climbs one spot in WB survey

Import clearance still a big hurdle PARISTA YUTHAMANOP

Thailand has made steps towards easing the regulatory burden for businesses, moving up one step to 18th place out of 175 in the latest survey by the World Bank.

The survey, Doing Business 2007: How to Reform, was based on 10 criteria: starting a business; acquiring licences; employing workers; registering property; getting credit; protecting investors; paying taxes; trading across borders; enforcing contracts; and closing a business. It was based on information from 1,300 firms in Thailand.

Kazi Matin, the World Bank's lead economist for Asia, said the country's improvement this year partly reflected the merger of two credit bureaus to increase the efficiency of credit assessment.

''Thailand was fourth in the region in the ease of doing business. There is room for improvement, especially in terms of the time it takes to set up a business and customs procedures,'' he said.

''Our survey showed that there were three major constraints for businesses in the country: regulations, skilled labour shortage and infrastructure.''

Constraints in infrastructure have resulted in increased operating costs for many businesses.

The survey also found that firms had employed staff below their initial requirement and taken too long to fill vacancies.

The recovery in private investment since the 1997 economic crisis has also been relatively slow.

The survey suggested greater emphasis on reforming customs procedures, given that exports contributed significantly to economic growth.

The entire importing process for goods into Thailand takes an average of 22 days, on par with Malaysia and China. But for Singapore it takes around three days, and Hong Kong and Taiwan five days. The shorter the process is, the faster businesses can continue production.

The survey showed that the overall export procedure from Thailand took 24 days, compared with 18 in China and the Philippines, and 20 days in Malaysia.

Mr Matin said corporate governance in Thailand had moved forward at a greater pace recently, reflecting the extension of directors' liabilities, disclosure and better protection of retail shareholders.

The top performer in the survey was Singapore, followed by New Zealand and the United States. In Asia, three countries surpassed Thailand: Singapore, Hong Kong (fifth place) and Japan (11th).

Thailand came 28th for establishing a business, as it required an average of 33 days and eight procedures. It ranked third for dealing with licences, with nine procedures and 127 days.

In employing workers, the country came 46th, with the difficulty of hiring index at 33 out of 100. The country ranked 157th for ease of registering property, taking 123 days and 10 procedures.

In terms of getting credit, Thailand ranked 33rd, with strength of legal rights at five out of 10 and credit bureaus covering only 21.7% of adults.

For corporate governance, the country ranked 33rd, with directors' liability rated at two out of 10.

Complete data on the survey is available at http://www.doingbusiness.org

Vocabulary (in discussion above)

a business friendly environment - when government and the community support business (infrastructure, taxes, regulations are all relevant here)

benchmarking - comparing with a high standard (for example comparing your company's products against the best companies in your industry, comparing the students in your school against the best in the country; see Wikipedia on benchmarking)

consumer safety regulations - regulations that ensure that a product is safe to consume (See Wikipedia on consumer protection and Ralph Nader the most famous of all consumer advocates)

import clearance - when government officials allow imported goods to enter the country after they have met regulations and paid taxes

made steps towards x - did things to get closer to the goal x

a business license - official permission granted by the government to do a certain kind of business

credit - borrowed money, to be paid in the future, loans from banks

credit risk - the risk that a borrower does not repay a loan on time

credit assessment - checking credit risk, checking the history of a person or business to see whether they've failed to pay back loans or pay bills promptly in the past (See Wikipedia on credit risk and credit score)

a credit bureau - an organisation that checks credit risk

room for improvement - improvements can still be made, not perfect yet

infrastructure - The services and facilities that support basic needs in an economy such as roads, highways, water, electrical lines, power plants, telephones, internet connections, mass transportation, and schools. (See Wikipedia)

reforming - making changes to improve

on par with - at the same level as

corporate governance - the high level policy decisions about how a company is run made by the board of directors on behalf of shareholders and other stakeholders (See wikipedia and stakeholder theory)

at a greater pace - quicker

director's liabilities - the liability that a member of a board of directors of a company has for the decisions that they make (recent cases involving bad corporate governance in American corporations has led to board of directors members being help liable for their bad decisions; see article on World Com case)

disclosure - providing private information to the public, making the hidden visible

retail shareholders - not institutional shareholders, individuals who purchase stock

registering property - registering a purchase or long-term lease of land with the government land office

Answer Key:

1. What improvements in Thailand's business environment led to moving up one in the ease of doing business rankings this year? Give a specific example.

The Thai government eased the regulatory burden for businesses. Specifically, two credit bureaus were merged to "increase the efficiency of credit assessment."

2. What were the ten criteria the world ease of doing business ranking was based on?

a. starting a business
b. acquiring licences
c. employing workers
d. registering property
e. getting credit
f. protecting investors
g. paying taxes
h. trading across borders
i. enforcing contracts
j. closing a business

3. What the principal remaining problems make it difficult to do business in Thailand?

Government regulations, shortages in skilled labour, and lack of infrastructure are remaining problems that adding to the difficulty of doing business in Thailand.

4. Why does lack of infrastructure make doing business in Thailand more difficult? What infrastructure
does Thailand lack? (Search for details at the Doing Business site or by reading the report)

5. What problems did the report find with Human Resources (HR) departments in Thai companies?

Human resources departments in companies are in charge of hiring new employees.

According to the report, they have trouble doing this in a timely fashion. The report says that companies "had employed staff below their initial requirement and taken too long to fill vacancies."

6. Has private investment in industry after 1997 increased slowly or quickly?

Slowly. (Check the report to see how slowly compared to other countries such as South Korea that were affected by the 1997 crisis)

7. How do customs procedures for importing and exporting in Thailand compare with other Asian countries?

Thailand (22 days) is far behind Singapore (3) Taiwan, and Hong Kong (5) in eliminating import delays. At 22 days, import delays in Thailand are about the same as China and Malaysia.

Thailand's export delays, at 24 days, are even worse than Malaysia (20) or China and the Phllipines (18).

8. What advances in corporate governance have been made in Thailand recently?

Thailand has made advances in the areas of directors' liabilities, disclosure, and protection of retail shareholders.

9. Among the countries ranked in the top three which countries are smaller than Thailand?

Singapore and New Zealand.

10. Which are larger than Thailand?

The United States.

11. In Thailand which countries ranked higher than Thailand?

Singapore (1), Hong Kong (5), Japan (11).

12. Which Asian countries ranked lower than Thailand? (Use inference)

China, Malaysia, Myanmar, Cambodia, Vietnam, South Korea, North Korea, Mongolia, India, Indonesia, Bhutan, Laos, Taiwan, East Timor, Bangladesh, Pakistan,....