Reimagining Thailand : Reviewing the Foreign SME Investment Policies - TBB
SME in Thailand.
Reimagining Thailand : Reviewing the Foreign SME Investment Policies
Written By - Thai Business Box. 12-10-2020.
As we ready ourselves for a post pandemic world, it may be helpful to review some of our “old normal”policies such as the country’s protectionist view towards a 100% foreign ownership of small companies.
Technically, a 100% foreign owned small business is possible through Board of Investment ( BOI) approvals and through a US-Thailand Amity Treaty, whereby American citizens are allowed to own up to 100% of a Thai company but practically unless the foreigner is an American, its a time consuming process with strict regulations and rejections are the norm not the exception.
In most cases, a foreigner wishing to start a business in Thailand will need to partner with Thai majority shareholders, who will own a minimum of 51% of the company while a foreigner can not own more than 49% of the Thai company.
To maintain control of the business, a foreign company founder can become the sole Managing Director, granting shares with different preference rights where the Thai majority can have a reduced voting power of one voting right per 10 shares.
However, many foreign entrepreneurs will have reservations with the idea of not having majority ownership of their company.
The company structure policies were meant as a protectionist policy for Thai entrepreneurs but in actuality it has led to an unbalanced investment flow into the country’s oversaturated tourism and hospitality sector, giving Thai SMEs fierce competition, in the most vulnerable sector of the society.
Given the company legal structure, most foreigners prefer to invest in small hotels bars, pubs and restaurants because they can hold the commercial lease of the physical property which is the greatest asset for such businesses.
However, if a foreigner wants to invest in a SME with the intention of building a brand, developing technology, creating products with patented rights, intellectual property or even producing a unicorn one day, the existing company structure through which they can conduct their business in Thailand will leave most foreign investors cold.
As Thailand moves forward towards an uncertain post pandemic world where many “new normals” would be at play, relying heavily on tourism and our “old normal”exports may not be the way to go. We need a more broad-based SME growth with SMEs spearheading the way to ensure Thailand stays relevant in a fast changing world.
To do that SMEs need to pivot, reskill, restrategize, adopt new technologies, find new markets. With most SMEs operating with limited resources and access to liquidity, skills, technology, new products and market data even in normal times, how will Thai SMEs pivot efficiently in these times ?
If we could change the policies to allow the formation of a 100% foreign owned company or at least reverse the 51%-49% share ownership rule of a Thai company to allow foreigners to own the 51%, we would probably see an almost immediate inflow of foreign small business investments into the country in the very fields that would see Thailand grow in a sustainable way.
Foreign investors, with a 51% ownership, would feel more confident to partner with Thai firms, injecting much needed capital and know-how in technology, produce products and services that will compete effectively in the world and locate new markets. Continue reading Below.
In the case of a 100% owned foreign company, there may be apprehensions that they may end up competing with Thai SMEs, but in a post pandemic world, its highly unlikely that any foreign investor will wish to invest in a field that is already populated by Thais and more likely to invest in the next generation of product and services that is in demand globally and that will only serve to boost a faster growth in those segments.
Besides, an open and competitive ecosystem will increase the productivity, creativity and sustainability levels of SMes in all segments.
Opening Thailand to foreign small business owners will also alleviate our unemployment problem at a time that Thailand is looking at a 8 million figure.
In a bustling economy, SMEs are responsible for more than two-thirds of all jobs in the country and also for the creation of new jobs.
If we can revive our SME sector quickly, we could see a rapid decrease in our unemployment figures.