International businesses grow confidence in Thailand

HSBC Global Connection survey, a new research commissioned by HSBC Commercial Banking, shows that international businesses from nine major economies are increasingly optimistic about their growth prospects in Southeast Asia. They expect sales in the region to grow by 23.2% over the next 12 months – versus 20.1% from last year's survey, and 4-5% times the rate of GDP growth expected in Southeast Asia. This highlights growing confidence in the region on the part of international companies.

Thailand is the key market for international businesses in the survey, with 37% of the sample already operating in the country. Among the nine countries surveyed, German businesses lead the way, with 45% of German companies reporting their presence in Thailand.

Looking ahead to the next two years, Thailand secures the third position among Southeast Asian markets that international companies currently operating within the country plan to prioritise for growth, with 24%.

This ranking follows Singapore at 36% and Malaysia at 27%, which take up first and second positions respectively.

The HSBC Global Connections survey also found that businesses from the Middle East and countries closer to Southeast Asia have a more advanced presence in Asean and a greater degree of ambition when it comes to regional expansion than their peers from Europe and the United States.

"These findings confirm what we have seen from our own customers: that businesses around the world are increasingly confident about scaling up in Asean," said Krisda Phatcharoen, Head of Wholesale Banking, HSBC Thailand. "Geography matters in business, so firms from elsewhere in Asia Pacific and the Middle East have a natural advantage in Asean as near neighbours, but this research shows the significant scope for even deeper trade links with major economies around the world. We're as excited as our clients about Asean and focused on connecting international businesses from across our global network with opportunities in the region."

Asean: Growth Ambitions

The survey revealed a marked difference between the Asean M&A ambitions of Asia Pacific respondents and those from other regions. Twice as many respondents from China (40%) are likely to significantly increase inorganic growth in Asean by 2024 than those from Germany (20%), although respondents from all markets expected activity to increase over the next four years and the gap between Asian and other respondents narrows over time.

Asean Attractions

The survey suggests that international businesses continue to see Asean primarily in terms of its supply chain connectivity rather than as a consumer market, even though Gross Domestic Product (GDP) per Capita for Southeast Asia has grown from US$1,250 in 2000 to US$5,800 in 2023, according to the International Monetary Fund.

Thailand: Opportunities and Attractions

Thailand has been a major manufacturing hub in Asean, and it remains a critical component of many global supply chains. The international businesses in the survey rate Thailand's skilled workforce as the most attractive feature of the market, with 28% of them stating that it made further expansion there particularly attractive. The drivers of expansion plans, however, are shifting. For instance, competitive wage prices which ranked as the primary driver in 2022, have seen a decrease from 30% to 25% in the 2023 survey.

Thailand's growing digital economy is considered to be one of its most attractive features, with 27% of companies with Thai operations identifying this as supportive of their expansion. The same percentage are attracted by Thailand's young population and demographics.

35% of the businesses who joined our survey expect technology to drive a substantial increase in economic growth in Thailand over the next 10 years. AI (Artificial Intelligence) machine learning (38%) and digital payments (35%) are seen as the most transformative for companies operating in Thailand over the next 10 years. More than four in 10 (41%) respondents, however, say they lack skilled personnel to digitise their organisation.

Thailand's importance to European supply chains is reflected in the priorities of businesses operating in the country. Supply chain due diligence is a particular focus, with 44% saying they are reviewing the sustainability credentials of their suppliers. Three-quarters of international companies operating in Thailand are already spending at least 5% of their operating profits on sustainability initiatives.

However, there are challenges: nearly a third (29%) of international companies in Thailand worry that new regulations and rules on carbon reduction could harm their business. 28% also indicated a belief that Thailand lags behind other countries in regard to its green credentials.

The ability to hire employees with sustainability expertise remains the main barrier to action on sustainability for those operating in Thailand, with 36% of businesses citing this hurdle.

The top issue also noted by foreign companies operating in Thailand is one of culture; for 31% of foreign firms, the local language and ways of doing business are particularly challenging.

"Thailand is clearly an attractive manufacturing base, with increasingly advanced supply chains and a highly skilled workforce attracting global firms to the country," said Krisda Phatcharoen.

"Internationalism is HSBC's superpower. Connecting our clients to a world of opportunity is what we do best. As the best bank in Asia and Asia's best bank for sustainable finance, our global footprint and our market-leading cross-border banking solutions as well as our deep roots and rich expertise in Thailand for 134 years as Thailand's first commercial bank and best international bank make us the ideal partner to connect foreign companies to opportunities in Thailand and support Thai companies and HNW clients to access capital, invest, or trade with other countries across the world."