Thailand Risk Assessment

Executive Summary

This report assesses potential risks and benefits that will be used in establishing the organizational form in which the company will enter Thailand in. Based on the: economy, geography, politics, and socio-cultural risks. On the basis of our risk factors, our company will be entering this market in the form of a joint venture. Thailand has an reasonably risky economic environment due to the fact of low discretionary and disposable income, as a result the majority of the population may have difficulty in budgeting for our product; however not everyone is economically deprived, which can make it difficult to decipher between who can afford our product and who can’t, ultimately if our company gets this incorrect this can create a loss in sales. Geographically Thailand poses minimal risk besides huge transportation gaps; transportation may be costly, and timely, however our company will be shipping via overseas to reduce costs. There is a moderately risky political environment in Thailand since the government is slowly making the transition from monarchy to democracy, but minimal changes will occur because the democratic system is already in play. However since the corruption rate is high this may create future conflict and our organization might find itself paying bribes. Socio-cultural risk in Thailand are also sensibly low the only risks that may pose to our company are language differences in respect to product packaging, other than that literacy levels are exceptional, which can be quite beneficial for the business. In conclusion the most efficient form or organization would be the joint venture since our company is able to minimize risk, and is able to extensively analyze the market based on the host company’s knowledge and expertise; we are able to further decrease our risk. Also we are able to reduce cultural differences in respect to language because our host company is of ethnic decent. On the other hand if we’re unable to find a business partner, our company would take part in importing/exporting to enter Thailand.

Introduction / Problem Statement

The purpose of this report is to analyze potential risks involved with exporting soap to Thailand. By including economic, geographical, political, and socio-cultural risk factors, allowing us to provide sensible solutions to minimize potential problems/risks.

Background

Thailand became an absolute constitutional monarchy in 1932 as a result of a bloodless coup. Afterwards “was ruled by a series of military governments interspersed with brief periods of democracy” (US department of State 2007). During the 1970’s the first democratic prime minister was elected in more than a decade whose term was shortly ended by another bloodless coup. Thailand is a part of the World Trade Organization, and the Cairns Group of agricultural exporters.

Current Situation

Thailand is in the process of becoming a democracy, and its economy relies heavily on its exports. It is steadily recovering from its economic downfall from 1997 – 1998, elections are taking place on December 23, 2007. Thailand is still a part of the WTO, and Cairns Group of agricultural exporters, and it is in the process of becoming a part of the United Nations by 2011 (UNPAF 2007).

Discussion

Economic Risks

Thailand has a moderately risky economy that predominantly relies on exports of products. Bringing in a gross domestic product of $197 billion and 68 % (CIA World Factbook) of it consisting of exports, it is relatively doing a good job at recovering from its economic downfall in 1997 – 1998. Thailand’s GDP is relatively low compared to other countries, in turn having a lower GDP per Capita of $9200 (CIA World Factbook) which than has affect on the disposable and discretionary income of the country. The country approximately has a discretionary income of about 20,598 Baht ($480) and a disposable income of about 6916 Baht ($170) (Asian market 2005) per person however this is not the case for everyone in the country, “Even within Bangkok, disposable income varies widely, and attention to market segmentation and targeting should be rewarding.” (Asian market 2005) Essentially in order for Mankoo Manufacturing to be successful we carefully have to establish which target markets have the most disposable income in order to maximize our profits. However if our research is conducted incorrectly then it will economically make this investment risky. In combination with an unstable economy the inflation rate of 5.1% (CIA Factbook 2007) has a negative effect on Thailand but a positive effect on our company. As Thailand’s inflation rate increases it