Kiwi companies finding niche opportunities in Thailand
Thailand is a market of 66.4 million and was until recently one of New Zealand’s fastest growing export destinations. Two New Zealand companies, with the country firmly in their sights, passed on their insights to Mike Booker.
Mike Holt, Managing Director of Auckland design company gardyneHOLT advises New Zealand exporters not to overlook Thailand as a potential market.
“China and India are bigger, but Thailand is still a market of 66 million people with a growing urbanised middle class,” he says. It’s also home to the Southeast Asian regional headquarters of a large number of international companies requiring the services of companies like Mr Holt’s company. New Zealand’s perception of Thailand is coloured by its apparent political instability, but “reports make it out to be worse than it is. Bangkok carries on as usual,” says Holt who spends half his time in Thailand.
Following the Asian crisis in the late 1990s the economy took off again, with growth rates averaging 5.6 percent between 2002 and 2006. Estimates vary, but according to Global Demographics, Thailand’s per capita income of US$3,933, while still low compared to more affluent parts of Asia, has risen considerably in the last two decades, and is second only to Malaysia (US$7,212) in developing Asia. According to the World Bank; the number of people living in poverty fell from 18.4 million in 1990 to 6.1 million in 2006, largely due to government policies.
Twenty-four million Thais (39 percent of the total population) now live in urban centres, with Bangkok the center of development and the most prosperous part of the country. Economic activity in Bangkok and the surrounding areas, where 20 percent of the country’s population is located, accounts for 60 percent of the Thailand’s gross domestic product.
New Zealand exports to Thailand have doubled since a free trade agreement came into force in 2005 and in the 12 months to the end of June 2009, total exports were worth NZ$573 million. Dairy dominates New Zealand’s trade with Thailand, accounting for around 60 percent of exports. Other significant exports include baked goods, machinery, fruit, sawn timber and wood pulp.
The global financial crisis has had an impact on New Zealand’s export revenue from Thailand. After allowing for a one-off effect from oil exported to Thailand in 2008, export returns dropped by 26 percent in the six-month period to June 2009, compared with the same period last year. Discounting the effect of oil exports in 2008, the overall decline in the first half of 2009 was mainly due to a significant drop in demand for key export items, dairy (minus 33 percent), wood-related products (minus 32 percent), machinery (minus 55 percent) and baked goods (minus18 percent). By contrast, demand for products in all these categories, with the exception of wood, had been surging ahead in the first half of 2008.
New Zealand Trade and Enterprise (NZTE) says it is seeing an increasing number of New Zealand companies investigating opportunities to expand production in Thailand, either through joint ventures or by establishing new offshore manufacturing plants. NZTE has also identified opportunities in Thailand’s growing medical tourism sector. Foreign patient numbers in Thai private hospitals continue to rise, fuelling demand for a range of products and services including medical devices, health information technology solutions, natural wound remedies and other health products. Around 1.4 million foreign patients are expected to visit Thailand in 2009, a one percent increase on 2008.
Finding a distributor
One company exporting dairy products to Thailand is Canary Enterprises which has been supplying butter portions and butter sheets to airlines, five-star hotels and caterers for five years.
Canary has a distributor in Thailand which serves the food service sector while it also supplies direct to one major customer.
Director Derek Bartosh says they settled on a distributor after consulting with New Zealand Trade and Enterprise in market and their own networks to find out who people were working with.
He says finding the right distributor in Thailand is the same as for every other market – find someone keen and focused on selling your products, who you are happy to work with and trust.
When it comes to getting your product into Thailand, he says Thai customs authorities are “pretty strict – you need to get things right, otherwise products will be held up at the border”.
Bartosh says, because of the free trade agreement, New Zealand can many food and beverage products into Thailand at lower duties than other countries, but in the case of butter there are quotas, which place a volume restriction on how much can be exported.
He says Thailand, like all Asian markets, is a price sensitive one. “You make your first sale on price, then your product needs to justify its price and eventually it becomes less of an issue if the quality is there.”
Canary managers visit Thailand at least once a year. Thailand, Bartosh says in not a market New Zealand exporters should try to access remotely. “You need to get into the market to understand it. Visits are key.”
Bartosh, like Holt, says the effects of political uncertainty in Thailand are sometimes overstated, but he adds that when the main Bangkok airport is closed because of unrest, business suffers.
Service sector opportunities
“Thailand is not a market you can be in partially,” says Holt. “You need to be there, or have someone good there.”
Thailand leapt in front of China as the company’s first Asia base after Holt, during preliminary investigations into establishing in Thailand, bumped into a Bangkok-based design company that was keen to establish a partnership.
Holt’s focus, when in Thailand, is on driving relationships to get referrals rather than chasing specific projects.
“Our purpose is to serve international clients based in Thailand there are a lot of opportunities.”
For example, gardyneHOLT did work for Dusit International in Thailand. Bangkok is the hotel chain’s regional headquarters for Southeast Asia.
This work led to branding work for the chain in Dubai with the possibility of more for the chain. “This is the sort of reason why a lot of businesses set up in Thailand,” Holt says.
“We are in Thailand because we see the foreign community needs a stronger service base then they have.
“Once established we hope to sell to Thais as well. But that is a hard road – that is a cost market – and we are not willing to discount.”
The Ministry of Foreign Affairs and Trade is looking to hear from New Zealand businesses with an interest in the Thai services and government procurement markets, in particular those encountering barriers in these areas. The ministry is calling for public submissions on both sectors as part of a review.
The New Zealand-Thailand Closer Economic Partnership (CEP) came into force in 2005. The CEP primarily covers trade in goods. No commitments were made on services or government procurement at the time, but agreement was reached to enter into negotiations at a later stage, though it is not yet clear when that might be.
The Ministry seeks to gauge the level of business interest in obtaining further services commitments from the Thais and to identify any current barriers to trade in services. It is also interested in getting a better understanding of the views and interests of New Zealand businesses regarding Thailand’s government procurement market.
-By Mike Booker
Images of Bangkok sourced in Wikimedia Commons
