PESTEL Analysis of Thailand
Linfox Logistics is an Australian company that was founded in 1956. Headquartered in Melbourne, the company has continued to deliver adaptable and sophisticated supply chain solutions to most of the largest and most successful firms across a wide range of sectors. Its culture of continuous improvement enables it to ensure that its clients receive the competitive edge they require to be successful (Linfox, 2018). The company invests in the latest vehicles and regularly adopts and tests new technologies to enhance the safety of its customers, employees and the community in which it operates. Besides, the firm holds a pool of dedicated employees who continually explore opportunities to improve the organization’s safety, reduce fatigue and ensure the optimization of its customers’ supply chains. Linfox has remained competitive in the logistics industry because of its ability to offer three distinct services to its clients- logistics IT, warehousing and distribution and supply chain solutions. This report has provided an analysis of Linfox’s entry into Thailand.
Before, entering a particular market, firms should conduct a thorough environmental appraisal to identify the suitability of the desired market for entry. PESTEL is one of the models which can be used to evaluate the political, economic, legal, ecological, technological and socio-cultural factors prevailing in a particular business environment (Koumparoulis, 2013). This model can also be used to examine the macro-environmental factors that may impact on organizations operating in Thailand.
Political forces relate to the nature of the leadership of a particular country. Ideally, businesses tend to thrive in countries with political stability, low levels of corruption and favorable business policies (Kasim & Dzakiria, 2016). Thailand is a constitutional monarchy, and its politics are currently handled within the premises of a constitutional monarchy, in which the head of state is a hereditary monarch, and the prime minister is the head of government. According to Arghiros (2016), Thailand is presently ruled by a military-controlled government that assumed power after a coup in 2014. Besides, military coups are not new to the country, as there was a similar coup in 2006. Due to the series of political activities and military coups in the country, it is arguable that Thailand is currently only enjoying temporary stability. Its political environment is still filled with a lot of uncertainty, which may impact negatively on the growth and development of companies in different sectors.
The legal system in Thailand consists of a combination of the principles of Western and customary laws. The constitutional court is the highest appellate court. However, its jurisdiction is fixed to the precisely outlined constitutional issues (McCargo, 2014). Besides, Thailand’s business environment is controlled by different regulations like the Unfair Contract Act, the Consumer Protection Act (1979), Trade Competition Act (1999) and other intellectual property regulations like the Patent Act (1999). Companies must, therefore, comply with the provisions of these acts to be allowed to operate in Thailand.
Until 1995, Thailand was among the fastest growing economies in the world with a yearly growth rate of between 8% and 9%. Furthermore, the Thai government has been successful in executing poverty reduction strategies and improving social infrastructure. Despite the hardships experienced during the Asian crisis in of 1997-1998, the country has made notable progress in economic and social development (Marak, 2014). However, in 2008 and 2009, its economic growth dropped sharply mainly due to the persistent political instability and the global financial crisis which imparted fear in the investor confidence (Marak, 2014). Thailand’s economy is primarily driven by the manufacturing sector which accounts for 36.2% of its GDP. Despite the political instability, Thailand’s economy, according to IMF is expected to improve at a moderate pace.
Political
In 2017, Thailand experienced a mild economic recovery with its economic growth touching 3.7% of the GDP, since the 2014 military coup. Furthermore, the IMF has recorded that Thai’s inflation rate is between 2.5% and 1.5%. The main industries in Thailand include automotive, still and electronics (Al-Swidi & Shahzad, 2014). Besides, computers, electrical appliances, furniture, cement and plastic products are also vital sectors. Also, the country’s tertiary sector which encompasses financial services industry is fast growing and forms around 55.6% of the GDP. Thailand’s hospitality and tourism sector recorded a total of 35.3 million customers in 2017 making the nation to emerge as one of the top ten tourist destinations.
Technology has become a major source of competitive advantage among companies. Indeed, many companies today focus on establishing their operations in countries with advanced technology because of the ease of penetration through internet marketing and advertising (Gupta, 2013). Thailand has a long history of economic and technical cooperation. Originally, Thailand created the science society in 1948 to enhance improvement in science and technology. Currently, the society consists of almost 5000 members (Dobbs, Manyika & Woetzel, 2015). Besides, in 1950, Thailand developed the “Department of Technical and Economic Cooperation” to promote cooperation with different stakeholders and partners in establishing technical projects. Through its Science and Technology Ministry, the country has been able to foster the acquisition and improvement of different technologies throughout its operational sectors.
The demand for IT products in Thailand has been on the increase especially for its outsourcing services (Dobbs, Manyika & Woetzel, 2015). The popularity of Thailand’s outsourcing services is aided by the efforts made by the Thai government in enhancing a more innovative and smarter environment. The country also conducts a host of technology programmes in universities with the aim of producing 50000 graduates in business technology every year. Furthermore, Thailand offers a broad range of opportunities in the technology industry such as the adoption of mobile technologies. It has more than 19 million mobile subscribers, out of which 77% use their mobile phones mainly for social media activities.
Additionally, the Thai government concentrates on four areas to improve its digital economy- digital entrepreneurship, digital commerce and digital innovation. Such policies have made mobile and internet companies to continuously flourish with internet penetration increasing to 42% since 2000 (Dobbs, Manyika & Woetzel, 2015). Also, policymakers in Thailand have remained focused on evolving the non-digital technology areas in Thailand. For example, Arcelik, which is a Turkish manufacturer opened a 100 million dollar production plant with the aim of producing 800, 000 Beko refrigerator units. Interestingly, Arcelik is only one company in a list of electrical companies currently situated in Thailand.
Ecological variables relate to the impacts of the operations of different organizations in the environment (Ho, 2014). Industrial growth in Thailand has resulted in high levels of environmental pollution. Specifically, factories and vehicles have contributed to air pollution in Thailand. Other problems faced by Thailand relate to waste generation, intensive farming, resource depletion and water pollution. The level of environmental pollution can be quantified using The Environmental Performance Index (EPI). According to the EPI rank in 2012, Thailand was ranked 34th with a score of 59.98 as a strong performer.
Legal
It is worth noting that Thailand has used several strategies to reduce the level of environmental pollution in its cities. For instance, it designed its vehicular emission standards with the European standards Euro 1, 2 and three which entered into operation in 1995, 1997 and 2005 respectively (Guo, Li, Tawatsupa, Punnasiri, Jaakkola & Williams, 2014). For promoting the use of alternative fuels and improving the quality of fuel, vehicles operating in Thailand have been changed from using Benzene to using unleaded gasoline since 1996. Furthermore, the quality of diesel in Thailand has since been improved by reducing their sulfur content. Thailand has also collaborated with US- AEP, and CAI-Asia to enhance the use of alternative fuels.
Culture may be defined as a set of values, beliefs, norms, and ways of life of a particular community. In the Hofstede’s culture index, Thailand scores highest in power distance and uncertainty avoidance (64), but lowly on individualism (20). Therefore, it is arguable that inequalities and strict chains of command are accepted in Thailand (Harada, 2017). Furthermore, Thai people are very risk averse and do not readily accept change. Therefore, companies willing to operate in such a society must enforce strict policies to minimize uncertainties. The low score on individualism shows that Thai people enjoy working as a team. Besides Kanyaprasith, Finley & Phonphok (2015) explain that Thailand has turned to an aging society because of the changes in its population structure, which is characterized by the increase in the number of older people and the decrease in the size of the younger population and the workforce. Such a change has impacted negatively on Thailand’s workforce. Hence most companies may find it difficult to obtain qualified personnel to assume different duties in Thailand.
Geopolitical forces mainly relate to the impacts of geography (physical and human) on international relations and politics of a nation (Cohen, 2018). Thailand was never colonized by any foreign nation. On the surface, Thailand’s politics frequently fluctuate as successive governments strive to balance foreign and regional interests. The country’s cultural and economic core has remained relatively stable over time. However, there has been a division between Thailand’s center and the primary outlying region. Such a division has mainly existed between the north, northeast, and Bangkok. The controversial retired Prime Minister Thanksin Shinawatra has been blamed for the regional tensions. This is primarily because of his popularity and power in the northeast and northern regions, grip on the electoral process and close links with foreign firms, which struck a nerve in Bangkok fuelling the 2006 military coup.
Thailand has also been faced with external threats. There have been foreign adversaries in Thailand, most precisely, the Burmese and the Khmer. Burma has been the most dreaded rival by Thailand, especially to the west and north (Satidporn, & Thananithichot, 2016). However, Thailand has grown to maintain its geopolitical imperatives which include maintaining stability in Bangkok, preventing incursions from Laos to the East and Myanmar to the west and reaching out to foreign countries to derive economic and technological benefits from them.
Economic
After Thailand’s economic policy was shifted from import substitution to export-oriented growth in 1972, the country’s business policy has always been outward-oriented and liberal. Regarding the macro and international economic policies, the Royal Thailand Government actively formulate initiatives to advance diplomatic ties and cooperation with all states especially security, political, social and economic (Kohpaiboon, 2015). Thailand became a member of the World Trade Organization in 1995. As a WTO member, Thailand is bound by the WTO rules on free movement of capital goods, persons, and specified services.
In 2005, Thailand signed a free trade agreement with Australia (TFTA), which eliminated some Thai tariffs on products imported from Australia. Also, TAFTA permitted a majority of Australian ownership for enterprises in Thailand in different industries like mining, restaurants, and construction among others (Kohpaiboon, 2015). The agreement also aimed at facilitating business between the two states by simplifying the process of acquiring a visa and other statutory documents for the entry of Australian investors into Thailand, including the right to access to work permits and extension of stay periods under business visa policies.
The current business and trade policies provide an opportunity for foreign investors, especially those captured by the FTAs to export goods, establish and own businesses in Thailand. Also, Thailand’s signing of free trade agreements with different countries provides it with an opportunity to efficiently acquire and export products to those countries (Kohpaiboon, 2015). However, such policies may pose a significant threat to the local companies in Thailand, as they may experience unbearable competition from foreign companies conducting business in Thailand. Therefore, local companies may make loses and close down due to competition. Also, foreign companies like Linfox Logistics may find it difficult to successfully gain a competitive advantage in the Thai market because of competition from other local and foreign companies.
Conclusion
When entering an international market, an organization should consider some factors like barriers to entry, flexible policies and the possibility to operate profitably in the new market. The free trade agreement signed between Australia and Thailand in 2005, makes it easier and cheaper for Australian companies to conduct business in Thailand, as it has permitted ownership of companies in Thailand by Australian investors. Besides, it has enhanced favorable visa policies and eliminated major tariff barriers that initially existed between Thailand and Australia. Therefore, Linfox Logistics should expand its operations into the Thai market to enjoy the above benefits.
References
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Arghiros, D. (2016). Democracy, Development, and Decentralization in Provincial Thailand. Routledge.
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Linfox. (2018). Our History. Retrieved on August 21, 2018, from https://www.linfox.com/about/our-history/
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McCargo, D. (2014). Competing Notions of Judicialization in Thailand. Contemporary Southeast Asia, 417-441.
Satidporn, W., & Thananithichot, S. (2016). The Political Dynamics of Social Security Policy in Thailand before 1990. Journal of Social Research & Policy, 7(2).
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