Wednesday, October 6, 2010

Strengthening of the Thai Baht & its consequences

With today’s news that the baht has reached a 13 year high, it is relevant to look at the effect of this appreciation on businesses here in Thailand.

Within the last 20 years, Thailand’s economy has become synonymous with the terms growth and expansion. With an ever increasing middle class becoming more important, investors from the west flock in the hope of exploiting the new market to yield promising returns and reap the benefits of the growth. Evidence of such an influx in capital in to Thailand is the recent strengthening of the baht threatening to reach 29 baht to the dollar before the year is out, a record low not seen since before the Asian financial crisis. The effect of this can be far reaching for overseas companies thinking of investing in Thailand.

Firstly, since Thailand relies heavily on exporting its products such as rice, computer parts, and clothing, these products would increase in price. This increase would cause them to be less attractive to financial weary consumers in the west.

Additionally, this may cause a ripple effect that could, in turn, cause various foreign investors to pull out of Thailand due to cheaper sources of labour elsewhere (ie Cambodia, Laos, China and Vietnam). This is, in fact, already happening in certain industries.

Therefore, establishing a company in Thailand may be more expensive than initially thought.

However, this appreciation in the Thai baht also brings with it its fair share of opportunities for foreign investors. The strengthening of the baht gives the average Thai consumer more spending power and therefore, a higher disposable income not seen previously. With more purchasing power, foreign investors can take advantage of untapped markets formerly thought of as ‘too niche’.

An attempt to capture this market by foreign investors has recently been seen in the opening of the first Krispy Kreme store in Thailand. This store, while selling more expensive donuts than its local counterparts, attempts to capture both Thai waists and wallets by offering a foreign taste of donuts never seen before.

All in all, the rising baht may, in the long run, signal the end of Thailand’s dominance in the primary and secondary sector but may bring about an emergence in the tertiary sector bringing with it a new breed of overseas investors.

Written by Ben Henderson, Support, Sutlet Group Co., Ltd.

Sutlet Group is a leading provider of business services in Thailand, including accounting, visa and work permit management, HR, marketing and other expatriate services. See for more information

No comments:

Post a Comment