Malaysia Vs Thailand

THAILAND v/s MALAYSIA

Group 4 – Nikesh Desai (23), Rohit Kumbhar (34), Vinayak Naik (56)

PGIB 2011-13

Group No 4 (PGDM- IB 2011-13) 2

Agenda

• History and evolution of the countries• Factor Conditions for both countries• Current macro economic scenario• Risk Analysis• Key sectors• Opportunities the countries offer • Implications for MNEs


• 1782 - Beginning of the Chakri dynasty under King Rama I, which rules to this day. The country is known as Siam. New capital of Bangkok founded.

• 1939 - Siam changes its name to Thailand ("Land of the Free"). • 1941 - Japanese forces land. After negotiations Thailand allows Japanese

to advance towards British-controlled Malay Peninsula, Singapore and Burma.

• 1945 - End of World War II. Thailand compelled to return territory it had seized from Laos, Cambodia and Malaya. Exiled King Ananda returns.

• 1946 - King Ananda assassinated. • 1947 - Military coup by the wartime, pro-Japanese leader Phibun

Songkhram. The military retain power until 1973. • 1973 - Student riots in Bangkok bring about the fall of the military

government. Free elections are held but the resulting governments lack stability.

• 1976 - Military takes over again. • 1978 - New constitution promulgated. • 1991 - Military coup, the 17th since 1932. A civilian, Anand Panyarachun,

is installed as prime minister.

ThailandHistory & Evolution


• 1997 - Asian financial crisis: The baht falls sharply against the dollar, leading to bankruptcies and unemployment. The IMF steps in. Chuan Leekpai becomes prime minister.

• 1998 - Chuan involves the opposition in his government in order to push through economic reforms.

• 1999 - Economy begins to pick up again. Thai media highlight high cost of drug treatments for Aids and HIV. Thailand begins to put pressure on drugs companies to find ways to make the drugs cheaper.

• 2001 - Leader Thaksin Shinawatra forms coalition government.• 2001 June - Burma-Thailand border crossing, which was closed after

clashes between the two countries' troops in February, re-opens after Thaksin visits Burma.

• 2002 May - Burma closes border with Thailand again after Thai army fires shells into Burma during battle between Burmese army and ethnic Shan rebels. Border reopens in October.

• 2006: Military leaders stage a bloodless coup while Prime Minister Thaksin Shinawatra is at the UN General Assembly.

ThailandHistory & Evolution


• 14th century - Conversion of Malays to Islam begins. • 1895 - Four Malay states combine to form the Federated Malay States. • 1942-45 - Japanese occupation. • 1948 - British-ruled Malayan territories unified under Federation of

Malaya. • 1948-60 - State of emergency to counter local communist insurgency. • 1971 - Government introduces minimum quotas for Malays in

business, education and the civil service.• 1990 - Sarawak communist insurgents sign peace accord with

government. • 1993 - Sultans lose legal immunity. • 1997 - Asian financial crisis spells end of decade of impressive

economic growth.• 2002 - Tough new laws against illegal immigrants come into effect,

Laws prompt exodus of foreign workers.• 2005 - Malaysia, Singapore settle a bitter dispute over land

reclamation work in border waters.

MalaysiaHistory & Evolution


• 2009 - Malaysia bans recruitment of foreign workers to protect its citizens from unemployment during the economic downturn.

• 2011 - Police use tear gas and water cannon to disperse thousands of people taking part in Kuala Lumpur rally calling for electoral reform.

MalaysiaHistory & Evolution


Malaysia Factor Conditions

• Physical Infrastructure– Valued at US$4.7bn in 2009– Under the Ninth Malaysia Plan (2006-2010), the state has set

aside funds to the tune of MYR220bn (US$60bn) for the infrastructure sector

– The waterways and shipping lanes that surround Malaysia continue to experience the threat of piracy and terrorism

• Labor Force– Malaysia's labor force numbers 12.6mn out of a population of

27.9mn– More than half of the workforce is employed in the burgeoning

service sector, just over one-third in industry, and around 13% in agriculture

– Shortage of skilled labor– Primary education is near universal but the quality of higher

education is considered to be relatively poor– The manufacturing and construction industries have

traditionally relied on imported unskilled labor from Indonesia and other South East Asian countries


Thailand Factor Conditions

• Physical Infrastructure– Thailand has 57,403km of roads, 4,071km of railways and 4,000km of

waterways– An extensive air transport network that encompasses 28 commercial

airports, meaning that all of Thailand's regions are about an hour's flight from Bangkok

– Thailand's infrastructure is considered to be well developed compared to some of its regional counterparts

• Labor Force– The labor force is estimated at 38.8mn, nearly 60% of the total

population– Unemployment is low at around 1% of the total labor force– Shortages of skilled labor in certain sectors, with poor levels of training

remaining a disincentive for investing in Thailand outside of Bangkok– Around half of Thailand's labor force is employed in agriculture, though

increasing numbers are shifting to find work in urban or industrialized regions

– Labor market is particularly short of engineers, technicians and experienced managers


Trade BlocASEAN

• ASEAN Free Trade Area (AFTA) is a trade bloc agreement by the Association of Southeast Asian Nations supporting local manufacturing in all ASEAN countries which includes both Malaysia and Thailand

• ASEAN itself is increasingly playing a large role in free trade negotiation on behalf of its members


Malaysia Macro Economic Outlook

• Malaysian economy is in the midst of rebalancing.

• Deteriorating global economic conditions have become a major drag on manufacturing exports.

• Meanwhile, increased public spending has helped to boost domestic demand.

• Economic growth is poised to remain relatively subdued at 3.8% for 2012 before witnessing a mild pickup towards 4.6% in 2013.


Malaysia Macro Economic Outlook


ThailandMacro Economic Outlook

• Thailand 's economy grew by a seasonally adjusted 3.3% quarter-on-quarter (q-o-q) in Q212

• The full-year growth will come in at 4.0% in 2012• Recent economic data across the region continue

to indicate a sustained slowdown in exports• The true extent of trade linkages between China

and economies in the South East Asian region, and the resulting implications of an economic slowdown in China on the Thai economy, has been underappreciated by Thai policymakers


ThailandMacro Economic Outlook


MalaysiaRisk Analysis

• Legal– Malaysian law is founded on English common law. The country has a

single-structured court system consisting of superior courts and subordinate courts.

– Transparency levels are fairly high, and the legal system is seen as relatively supportive of business, furnishing investors with sufficient powers of redress to feel comfortable

– Cases of disputes involving foreign investors are rare, and the legal system has tended to handle claims amiably

• Property Rights– Malaysian law ensures adequate protection of private property– The World Bank ranks Malaysia 60th among 183 countries for the ease

of registering property, which takes an average of 56 days, and 113th in starting a business, which involves five government-required procedures and takes an average of 17 days

• Intellectual Property Rights– The International Intellectual Property Association estimated that

business software piracy caused losses of US$192mn in 2009, increasing by 4.3% from US$184mn in 2008

– In 2003, Malaysia amended its laws to allow it to join the Patent Cooperation Treaty. It is also party to the WTO's Trade Related Intellectual Property agreement


• Corruption– Corruption is a key concern despite substantial efforts from the government

to crack down on bribery– Malaysia was ranked 60th among 182 countries in Transparency

International's Corruption Perceptions Index in 2012

• Operational Risk– There is a general threat from terrorism in Malaysia. The British Foreign and

Commonwealth Office warns that attacks could be indiscriminate, including in places frequented by expatriates and foreign travellers

– The overall crime rate in Malaysia is rated as medium by the US Overseas Security Advisory Council.

MalaysiaRisk Analysis


ThailandRisk Analysis• Legal

– Thailand operates a system of mixed common and civil law, based on European traditions

– Decisions of foreign courts are not accepted or enforceable in Thai courts

• Property Rights– According to the International Property Rights Index (IPRI) 2010,

Thailand ranked 59th out of 125 countries surveyed with regard to protection of overall property rights. As regards physical property rights, Thailand ranked 33rd

– Thailand has a relatively robust system of property rights protection

• Intellectual Property Rights– Thailand scored worst on the Intellectual Property Rights

subcategory of the IPRI survey, which gave it a rank of 79 out of the 125 rated countries

– Thailand has passed all Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)-mandated legislation

– According to the US State Department, US copyright industries reported an estimated annual trade loss of more than US$175mn from IPR infringement in 2004


• Corruption– Thailand is the 80th most corrupt country in the world out of 182 surveyed

in Transparency International's 2011 Corruption Perception Index– Corruption is an occupational hazard for companies operating in Thailand– According to some studies of Thailand, a cultural propensity to forgive

bribes as a normal part of doing business and to equate cash payments with finders' fees or consultants' charges, coupled with the low salaries of civil servants, encourages officials to accept illegal inducements

• Operational Risk– The UK Foreign and Commonwealth Office (FCO) considers that there is a

high risk of terrorism in Thailand and the country is ranked number 85 worldwide in the Global Terrorism Indicator index

– Apart from this risk of terrorism, there also exists a moderate security risk. Petty theft is common in crowded areas such as markets, airports and bus and railway stations

– The spectre of political unrest is very real and sometimes results in disruption to rail and airports.

ThailandRisk Analysis


MalaysiaKey Sectors

• Oil & Gas– Malaysia has a vibrant oil and gas industry. The national oil

company, Petronas, provides about 40% of the federal budget in taxes, dividends and royalties

– Petronas is also the custodian of oil and gas reserves for Malaysia. Hence, all oil and gas activities are regulated by Petronas. Malaysia encourages foreign oil company participation through production sharing contracts, in which significant amount of oil will be given away to the foreign oil company until it reaches a production milestone

– Malaysia's oil export revenues and gas export revenues are set to reach US$8.8bn and US$14.0bn by 2016

– Malaysia and Thailand has a wedge shaped area 150 km from Kota Bharu, Kelantan and 260 km from the shores of Songkhla, Thailand which is jointly developed by Petronas and its Thailand counterpart. The area, which is called Malaysia-Thailand Joint Development Area, has 4.5 trillion cubic feet (130 km3) of proven reserve


• Finance and banking– Finance and Banking sector in Malaysia is regulated by Bank

Negara Malaysia. The central bank limits foreign participation through licensing limits

– The threshold foreign equity ownership has been raised from 49% to 70% and allowed foreign banks to open up new branches and micro-credit facilities

• Tourism– Tourism has become Malaysia’s third largest source of

income from foreign exchange. The majority of Malaysia's tourists come from its bordering country, Singapore

MalaysiaKey Sectors


Thailand Key Sectors

• Agro-business– Thailand is among the top 5 food exporters in the world.

Not only is the country one of the world’s major suppliers of agriculture commodities, it has among the most advanced food processing industries in Southeast Asia

– Agro-industries which have elected to locate in Thailand have competitive advantage gaining easy access the country’s raw materials, and Thailand’s infrastructure and transportation networks are also key in timely delivery of products to the market via road, rail, sea and air ports

• Tourism– Thailand has long been a well-known travel destination with

tourist numbers reaching about 14.5 million in 2007– Thailand has been gaining a reputation for healthcare

creating a new sector in medical tourism. Thailand is a popular choice as medical costs are only a fraction of costs in the US, for excellent standard of care


• Healthcare– In 2011, Thailand's pharmaceutical market reached

THB130.95bn (US$4.10bn)– Annual per capita spending on medicines is calculated to

have stood at US$64.3 in 2011, a significant improvement on the 2003 figure of US$22. By 2016 and 2021, the average person in Thailand will spend US$81 and US$113, respectively on pharmaceuticals

• Telecommunications– The Thai market supported 77.605mn mobile subscribers at

the end of 2011, up by 8.2% from 71.726mn a year earlier. The penetration rate stood at 113.3% at the end of 2011

– According to the National Broadcasting and Telecommunications Commission (NBTC), there were 18.1mn internet users in Thailand at the end of 2009

Thailand Key Sectors


MalaysiaOpportunities

• The opportunity for private sector-led growth will improve as the government continues divestment of state shareholdings in order to raise funds to narrow the budget deficit.

• Rising consumption levels over the coming years will provide new growth avenues in industries such as retail.

• Malaysia's majority Muslim population and the government's ongoing efforts to boost Islamic finance could see Malaysia become a major financial hub over the medium term.


ThailandOpportunities

• The Puea Thai Party-led government is likely to maintain populist policies, including the rice price guarantee, large-scale infrastructure projects and welfare subsidies for lower income groups in Thailand.

• Investment, which has taken a serious knock over the past year owing to falling external and domestic demand, will very likely resume its recovery when political problems are resolved and the global economy stabilizes.


Addressing Risks in Malaysia and Thailand

• Before investing – Internal hedging:

• Minimization of local equity, Local borrowing, Management contract • International integration: Production integration, Marketing integration ,

International supply sourcing– External hedging:

• External hedging: Government insurance, Private insurance, Host government guarantees

• After investing– Internal hedging:

• Good citizen policy: Prompt response to both the letter and spirit of host government, Contribution to national goals, Contribution to national welfare, Developing a corporate image

• Increase in technical contribution• Negotiation and arbitration

– External hedging:• Private insurance• International investment codes• Divestment

Malaysia Vs Thailand

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