I have been warning foreign companies, in particular SMEs, about entering the Chinese market for a number of years now. Finally now, European entrepreneurs are beginning to realize that it is tough, for most even impossible, to make money in China. Even with substantial investment funds and a large dose of stamina, it is extremely difficult for a foreign enterprise to be succesful in China. Since the beginning of this century, there have been numerous examples of foreign companies, both multinationals and SMEs, that have withdrawn from the Chinese market and have taken their losses.
Foreign companies in China’s services sector hardly succeed in expanding beyond servicing óther foreign companies in China, whether financial services or otherwise. Although this phenomena, whereby it proves hard to build up a local client base, is not unique to China and forms an obstacle in many other Asian countries too, in China it is more prominently the case.
Foreign retail formulas in China are struggling with an increasing number of local competitors, unpredictable quality and pricing demands and changing labour laws.
In the last few years, foreign direct investment (FDI) in Southeast Asia (up 16% versus 2010) is outgrowing FDI growth (8%) into China. In 2011, China received US$124 billion of FDI, whereas Southeast Asia received US$209 billion of FDI. There’s a clear trend of foreign investors shifting their focus away from China to other markets in South and Southeast Asia.
Thailand’s “mature” economy
One of the most “mature” markets in Southeast Asia is Thailand. Although merely “emerging” again since the Asian Financial Crisis of 1997 (read also the article Asian economies “emerging” for decades), Thailand, along with Malaysia, has a far more “mature” economy than that of its Southeast Asian neighbours, Vietnam, Indonesia and the Philippines and, for that matter, China. Although countries like China, Vietnam and Indonesia may register higher economic growth, Thailand’s economic fundamentals are much more solid and comparable with those of a truly developed nation.
With a population of around 67 million people, with one-third living in the urban areas, Thailand offers an interesting marketplace. The capital city of Bangkok, but even moreso the country's secondary cities, such as Chonburi, Hat Yai, Khon Kean, Nakhon Ratchasima and Udon Thani, and smaller tertiary cities, boast thriving business communities and a vast consumer base.
Other characteristics of a "mature" economy" include a modern infrastructure and well-functioning government institutions with transparent and efficient procedures and regulations. In this respect, Thailand is again far ahead on ASEAN fellow members, Vietnam, Indonesia and the Philippines.
Thai middle-class
Although in the West, businessmen get excited about a so-called “upcoming middle-class” in emerging economies, it would be wise to determine first how to define this middle-class. A middle-class is only realistically measured by free-disposable income and purchasing power. In, for example, Indonesia, where salaries are low and the cost of living high, there is no middle-class to speak of, with enough free-disposable income and true purchasing power. In Thailand, on the other hand, there is a large middle-income group with a substantial percentage of its income freely available for purchases. (Read also BTA Report: Middle-class living conditions of 2008).
Thai politics
Politically, Thailand may seem unstable. However, this instability has hardly any effect on the activities of the foreign business community in the country. It may be uncomfortable at the most when the airport is shut down or certain parts of the city are no-go areas. Foreigners have no part in the internal political tensions whatsoever, nor have the general business conditions. On the surface it may seem chaotic and dangerous when these riots occur, but in reality they have hardly any impact on daily life and doing business.
This article appeared earlier in e-magazine Business Trends Asia
