In the last few weeks, when people ask us about Thailand, the questions have usually been about the recent bombing. As horrible as that event was, it is but one piece of the turbulent times in Thailand today. We wanted to share a few thoughts on what we are seeing in that country. This is not an in-depth economic or political analysis, just some highlights that have emerged there.

ECONOMY
The economy there was slowing down even before the tourism sector took a small hit after the bombing. Much of that is due to uncertainty about the political situation as well as the military junta’s challenges when trying to manage an economy. Two things that will impact businesses operating there are the slowing GDP growth and the currency slide.

GDP growth has slowed in Thailand during the last 2 years, though it seems to have stabilized a bit following the low point after the coup last year. Still, annual GDP growth is still lower than other developing ASEAN economies such as the Philippines. Companies in Thailand are looking to cut costs, which for many means cutting workers; the unemployment rate has inched up from 0.8% to 1%, though admittedly that’s still just about the lowest official rate in the world. From a leadership perspective it could be useful to remember that improving workforce performance can decrease the number of employees needed, so if you are looking at cutting costs by cutting workers, you should take steps to improve the productivity of your remaining workforce so you can keep the business moving forward.

The other news is the weakening of the Thai baht. As recently as April it was trading around 32 baht to the US dollar, and now it’s at 35. Basically, anything bought in USD has gotten 10% more expensive. Something to keep in mind when pricing your products and services there.


POLITICS
The ongoing military government creates a lot of uncertainty for foreign businesses looking at investing there, and for local businesses hoping to grow. The government budget decisions will be tough to predict because the ministers do not respond to the same motivations that regular elected politicians do. That impacts a lot of things like infrastructure development, tax incentives for foreign firms to locate there, subsidies for industries such as tourism and agriculture, and so on. Random changes in the laws, and unpredictability in the enforcement of existing laws (like some immigration tightening in the last few days in response to some border control issues surrounding the bombing) make it hard for businesses to plan. This will not change any time soon — last week the government rejected the draft constitution, so the process has to start over again, which means the earliest they could possibly return to an elected government is sometime in 2017. Bottom line: political uncertainty may keep business growth slow for quite some time.

One sector that is moving forward with expansion is the hospitality industry. There are about 31,000 rooms at 78 4- and 5-star properties in the development pipeline, and the hotels don’t really have enough people now; with the low unemployment rate there, they are not sure where they will find the tens of thousands of new people they need (we wrote something about this last month). It may be that the focus needs to be more on workforce performance and less on expanding the workforce, but the industry still seems focused on quantity over quality (and admittedly, hospitality is a high-touch customer-focused sector that needs a certain amount of staff per customer). In any event, the hospitality is moving forward with growth and will need to find ways to address the staffing challenge.

None of this is to suggest that companies should avoid investment and expanded operations in Thailand. In fact, we suggested earlier this week that companies should look at difficult situations as opportunities to move ahead of their more nervous competitors. Perhaps this is the time for you to establish a stronger presence in Thailand, and advance your business interests while others take a “wait and see” attitude.