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Thailand’s tech edge will attract South Korean firms

South Korean businesses are increasingly entering promising Southeast Asian markets, but the number of Korean companies operating in Thailand is still far lower than that in Vietnam.

Thailand currently has around 400 Korean companies operating within the region. It is Korea’s 18th-largest trade partner in the world and the third-largest market for Korean companies in Southeast Asia, after Vietnam and Indonesia.

Korean companies remain largely unaware of Thailand, seeing it mostly as a tourist destination instead of an investment destination. The industrial boom has not yet formed for Korean companies in Thailand.

As a result, Thailand’s business infrastructure for Korean companies is less available, which prompts them to seek safer places like Vietnam, where there are many legal and financial organizations for Korean companies.

However, the lack of Korean firms could be an opportunity. In particular, the cosmetics and food markets are fast-growing here, and Thai people are positive about Korean products. The electronics and steel industries have been traditional sectors for Korean companies here. Of about 400 companies, more than half are related to electronics and steel.

In recent years, more Korean internet, cosmetics and home-shopping firms are making inroads into the market thanks to the popularity of Korean culture, which has grown since a major Korean drama became a hit in Thailand in 2001.

In addition, Korean houseware sells well on home shopping channels. Korean firms that have entered Thailand include home-shopping firms as well as cosmetics firms.

Less labour-intensive, more high-tech

One Korean company doing business in Thailand is the first vendor to a major electronics firm.

It makes steel pipes for air conditioners and refrigerators, key parts that generate cold wind within the appliances. Half of sales come from the electronics firm. The rest comes from foreign electronics companies.

Thailand has better parts infrastructure than Vietnam because most parts can be sourced in the region. Thailand is quite stable in terms of policies for foreign companies. It does not change rules repeatedly. The Thai people are generous to foreigners and Thai workers efficient and work well.

Thailand has been a good place for manufacturing with its generous tax breaks and skilled but affordable labour force. However, the country’s policies and its labour force are changing.

The Thai government is changing the rules to benefit only those foreign companies with new, eco-friendly or advanced technologies. General manufacturing firms will no longer enjoy tax incentives.

This has prompted foreign companies to develop new technologies instead of relying on cheap labour.

One firm, after having paid corporate tax three years is now planning to develop new and high technologies for further tax incentives. Currently, corporate income tax is 20 per cent in Thailand.

Two years ago, the firm developed new pipeline technologies and got corporate tax benefits for the plants for three years.

In addition, labour-intensive work will no longer be attractive for foreign companies. The Thai government increased the minimum wage by 7 per cent in April last year, having previously raised it in 2017.

Labour costs are rising and Thai workers are now wary of difficult, dirty and dangerous work. If Korean companies seek this market only to deploy cheap labour.

Instead Korean companies can take advantage of the country’s technology-driven initiatives and environment and invest in better, more efficient technology while also paying their employees fairly and reaping the benefits of tech tax incentives.

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