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May, 01 2006

THAILAND: Thai govt backs SMEs; <br>Trades Barriers Absent;

With a well-developed infrastructure, a free-enterprise economy, and pro-investment policies, Thailand appears to have fully recovered from the 1997-98 Asian financial crisis.

THAILAND in the mid-14th century was established as a unified Thai kingdom. It was known as Siam until 1939, is the only south-east Asian country which was never taken over by an European power. A bloodless revolution in 1932 led to the establishment of a constitutional monarchy. Though an alliance of Japan during World War II, Thailand became a US ally after the end of the war.

Free-enterprise economy

With a well-developed infrastructure, a free-enterprise economy, and pro-investment policies, Thailand appears to have fully recovered from the 1997-98 Asian financial crisis. The country was one of east Asia's best performers in 2002-04. The country has pursued preferential trade agreements with a variety of partners in an effort to boost exports and to maintain high growth. In 2006, the economy should benefit from an influx of investment and a revived tourism sector; however, a possible avian flu epidemic could harm economic prospects throughout the region.

Variety of franchise systems

Franchise systems operating in Thailand run the gamut from gas stations and hotels to fast food outlets and convenience stores. Even in the midst of an economic crisis, there was interest in franchises because of its relatively fast, safe and easy way to launch a successful business. Although the already existing slow growth of 15 per cent to 20 per cent per year for international firms from 30 to 40 per cent throughout the last decade, the high growth rate for franchising even in weak economies demonstrates that the industry is still dynamic.

Because of the rapid development of franchising here, Thailand offers many opportunities for franchisors. The economy is expected to improve in the next few years with typical annual growth rates returning to pre-crisis levels of around 30 per cent.

Following are highlights of some of the opportunities:

Food

Food franchisees account for 30 per cent of the total franchise market. Most of the major US food franchisees are already operating successfully in the Thai market. Well-known brands include: Kentucky Fried Chicken (KFC), McDonald's, A&W, Pizza Hut, Burger King, Big Boy, Starbucks, Swensen's, Dairy Queen, Baskin Robbins, Sizzler, Mister Donut, Au Bon Pain, Mrs Fields and Auntie Anne's. Brand, quality, standards and acceptance by consumers were keys to the success of food franchisees.

The plans of many franchisees in Thailand are growth-oriented since they account for only 4 per cent of the whole food industry. This figure is comparatively small compared to neighbouring countries like Malaysia, Philippines and Singapore.

Thai people view fast food as unhealthy and expensive; therefore, most fast food restaurants have developed strategies to improve the quality, service and variety of their products. For sample, McDonald's offers more varieties on their menu and gets it to you faster, using a timer to measure the servers' speed. Fast food delivery is also a huge business and one can receive an order within 30 minutes.

Although food franchisees are quite popular, competition is very stiff because the market is nearly saturated. Fast food and restaurant opportunities are limited for newcomers unless a unique idea comes along or a failed franchise concept is revived.

Retail and convenience store

Retail and convenience store franchisees account for 50 per cent of all franchise operations in Thailand. Drug and healthcare franchisees have done well in the Thai market, particularly GNC, Body Shop, Boots and Watson's of Hong Kong. The Thai convenience store market has been dominated by 7-Eleven. The other major competitors, AM/PM and Family Mart of Japan pale in comparison. Retail and convenience stores are also the fastest growing sector among local franchisees.

Hotel chain

Tourism has been increasing dramatically over the past few years due to government promotional activities. According to the Tourism Authority of Thailand, Thailand earns approximately US$11 billion per year from its tourist industry. Tourism has created opportunities for Indian chain hotels to find local partners who are interested in instituting better management or marketing structures. Currently, five star hotels such as the Holiday Inn, Marriott, Hilton, Radisson and Sheraton chains are already in the Thai market. There is also potential for small and medium US hotel chains such as Days Inn, Best Western, Hotel 6, or Clarion if they consider offering financial and management support.

Automotive aftermarket service

Thailand has approximately 80 lakh vehicles in use that are serviced by three groups of after-market service providers; authorised service centres (50 per cent), family-owned service providers (40 per cent), and chain service centres (10 per cent). The size of the market is estimated about US$25 million. The market for automotive aftermarket service is strong, and there are many opportunities for US franchisees.

Current franchisees concentrate mainly on express maintenance service and light repairs such as servicing, tires, brakes, and suspension systems. Most of the new car sales in Thailand have automatic transmission and sophisticated, computerised features, which require special maintenance or equipment. Servicing newer cars is beyond the capability of local service stations and car owners are also dissatisfied with the quality and fees of local garage services. Thus, the market is open to franchisees supplying organised, standardised systems.

Aside from traditional automotive aftermarket services and repair facilities, most modern gas stations will soon be equipped with convenience stores, car washes, and restaurants to cater Thai and international travellers on the roads.

Cleaning and maintenance service

The Thai real estate industry was hurt by the economic crisis and many buildings have been left empty. As the economy recovers, the owners of many of these high-rise buildings will benefit from a return to pre-crisis occupancy levels. Given the possibility of a near-term recovery in the real estate market, opportunities exist for new management and maintenance services including cleaning, gardening and hospitality services. These services are new to Thailand, so there are few competitors. Furthermore, local competitors have yet to provide an adequate serrange of services or enough personnel to serve the market.

Domestic production

Thai franchisees represent only 30 per cent of total sales, but they are found in every subsector of the franchise market. However, local franchisees still lack experience and know-how. The Franchise Association reported that an average of 20 local franchisees join the market each year and about the same number leave.

Importing franchisees

Franchisees are usually open to all candidates but some franchisor organisations may show preference based on age, experience, financial capability, sex, and marital status. The key element for the successful development of the franchise system is the master franchisees. Many franchisees in Thailand that fail have operators who do not fully grasp the intricacies of the franchise system.

Market access

There are no trade barriers for foreign franchisees in Thailand; however, franchisors should be aware that what might have worked in India may not work in Thailand

Bangkok, a capital city that is home to over 1.2 crore people, is a prime area that all franchisees should target. The next locations should be major cities such as Pattaya, Phuket, Hadyai, Chiengmai, Nakorn Ratchasrima, and Khon Khen. The largest cost for franchise operators in Thailand is rental fees, which are relatively high. Another major cost is the royalty fee, which franchisees have to pay to franchisors.

Future of franchising

Future growth in franchising local concepts is expected due to the fact that the Thai government believes SMEs (small and medium enterprises) are going to help the Thai economy recover from the crisis.

Quality, name recognition, standards and innovation all play a big part of their success with Thai investors; however, they are also known for the large capital investments required. Approximately 20 per cent of all local and international franchisees fail each year; it is important that franchisors choose the best franchisee. Know-how and dedication to adapting the franchise concepts, proven operational and marketing methods and the financial resources to launch the franchise over the long term. All aid in a franchise's success.

Retail and convenience store franchisees are more popular than food franchisees. This is a significant reason why franchise outlets can succeed when independent retail operations may fail.

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