Attracting regional headquarters

At the end of last year, Thailand launched its latest attempt to draw in overseas companies to establish regional operating headquarters (ROH) in the country, following previous attempts at ROH schemes initiated in 2002 and 2010.

An ROH in Thailand is a type of corporate entity established to provide managerial, administrative and technical support services for affiliated companies operating in the region.

The previous ROH schemes had attracted an unfavourable response, drawing in only 150 headquarters since 2002, compared to 1,379 in Hong Kong, over 1,600 in Singapore and even 600 in Malaysia as of the end of 2013.

Whilst the second ROH scheme launched in 2010 addressed issues that were previously highlighted as obstacles and was designed to improve tax incentives to directly compete and offer terms on a par with established ROH hubs such as Hong Kong and Singapore, Thailand has still failed to attract a notable inflow of ROHs.

Thailand must address considerations beyond taxation, such as the prerequisites companies consider before deciding where they wish to locate. Two key areas of weakness for Thailand are the ease of doing business and human resources.

The ease of doing business is a critical consideration for companies. According to the World Bank, Thailand is ranked 26th in terms of the ease of doing business, compared to first and third for Singapore and Hong Kong, respectively.

Singapore has been ranked the easiest place to conduct business in Asia where the official language is English.

In Thailand, businesses are often faced with bureaucracy and unclear systems and procedures in conducting business, which can cause frustrations to entities operating here.

Common issues flagged by overseas companies operating in the country include unnecessary bureaucracy in establishing and operating a company, inefficient procedures for obtaining work permits and visas such as the 90-day reporting process for expatriates, uncertainty about interpretation of laws and regulations, and difficulties in dealing with the revenue and customs departments, all of which hinder the ease of operation.

Even simple procedures such as property transfers or dealings with Thai government agencies can become a lengthy process due to unclear and constantly changing procedures, as well as a lack of clarity in documentation requirements.

For example, it takes nearly one working day for a Japanese expatriate to renew his work permit, for which his family and children are required to be present.

Although Thailand has made some headway in this area, it still has a long way to go to be able to compete effectively.

In terms of human resources, whilst Thai people are pleasant and welcoming, the sabai sabai culture can mean a complacent workforce, which lowers the efficiency and the ability to deliver the same level of productivity compared to other major regional hubs. Language skill is also a drawback.

Thailand is often criticised by the international community for the lack of English language in the educational system. This is a growing concern, particularly as Thailand will be part of the upcoming Asean Economic Community, where other countries are ahead in this aspect.

Thailand ticks many boxes for companies looking to set up ROHs, from low office rents, infrastructure, transport and connectivity within the capital and across borders, and a strategic location within Asean, which aids cross-border trade, to a good lifestyle and low cost of living.

If the country can address the factors working against it, its ROH policies can certainly be more effective.

Clear targets required

The country should also clearly identify a target group of countries and industries it wants to attract, instead of trying to compete head on with Hong Kong or Singapore, which are long-established hubs and not susceptible to competition.

Thailand has the potential to position itself as a hub to serve businesses catering to Asean countries, as well as to focus on industries where the country’s strengths lie, such as in services and exports.

A well-thought-out ROH policy combined with tackling issues which are the country’s weaknesses will not only have a compounded economic impact, but also a direct impact on Thailand’s property market from the office sector through to residential.