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Lennart Rudstrom SKEMA Business School March 2011 CLIENTS Etienne BIROT Antoine CAMELIO Geoffrey DUC Pierre-Olivier JARRIN Romain MONS Johann SEDIVY Jerome TRAN CONSULTANTS Cline BZZINA Marion CHAMPIGNY Barkan COHEN Anna MONTAUBAN Cdric MARTINEZ Laura MASERO Maxime WASSELIN How doing business in Asia ? Plant Manufacturing in Thailand

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CLIENTS Etienne BIROT Antoine CAMELIO Geoffrey DUC Pierre-Olivier JARRIN Romain MONS Johann SEDIVY Jerome TRAN

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3 Project definition Establish a manufacturing plant in Thailand Low-cost Workforce (as Vietnam, China) Manufacturing culture 8% Growth rate in 2010 Fastest growing economy in South East Asia 2 nd largest economy in South Asia after Indonesia Export industry is the 2 nd subsector to the economy Competitive in tourism, agroalimentation and electronicals activities Attract Foreign investments to local exports

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Company presentation Establish a manufacturing plant in Thailand Sector : Electronic Activity : Hard Disk Drive assembly company Country : Thailand Why Hard Disk Drive? Thailand: World leader in HDD production in the world (Seagate, Western Digital, Fujitsu, Nidec) Purchasing materials raw among suppliers Assembly them to sell to brands wellknown 4

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ff Problematic How to set up Hard Disk Drive assembly company in Thailand? Hard disk drive Market Business environment in Thailand

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Government : Imposes law taxations. Chambers of commerce: CCIFE, can help the creation of manufactures abroad Customers : B2B. A lot of potential customers: computers manufacturers, video games and playstations companies, etc. Global business Suppliers : Foxconn, Texas instrument, flextronics, Jabilcircuit, and all the famous electronic components manufacturers Employees and Trade Unions : Have been existing since december 24th 2010. Not very powerful for the moment Investors : Banks, GIE Stakeholders 6.a

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Political instability since 2006. High political tension in April and May 2010 (fear of civil war). Business climate plagued by the continuing links between business and political circle. According to the COFACE, Thailande is not a risky country but suffer from a large manufacturing concurrence with China. Country Risks 6.b

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_____________ PESTEL Political -Very strong political risks: military putsch, riots, and other tensions -Increases every year, very touchy since 2009 and the last ritos -Consequences: exportations blocking, strikes, losses => Bankruptcy Economical -Highest GDP growth in Asia in 2010 : 8 % -2 nd largest economy in Southeast Asia after Indonesia -4 th richest nation according GDP per Capita -Electronic industry is the first industry in Thailand with 15% of GDP -Thailands electronic industry faces competition from Malaysia and Singapore -Thailand: member fondator of ASEAN Environmental -Peripheral ITs very polluting => long recycling process but a key issue for air and water pollution (-95% and -97%) Ex: Recycling one hard drive saves enough energy to run your television for 102 hours Legal -Not possible to set up an individual society -> Limited company (7 associates max) -Maximum foreign share part: 49% For 1 foreign employee, 4 local workers Social -Working conditions and labour issues -Time: An average working week is 48 hours, from monday to Saturday -Salaries: average salary: 226 USD, overtime work paid *1,5 ->*3 -No retirement/pension system Technological -Easy access to new technologies: Asia many IT companies which provide new technologies and innovation. -Integration of new/existing technologies in hard disks, extensions of line products (Cloud computing (Iomega), Home Media, Smart experience/design/connections) 7

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_____________ 8.a PORTER ANALYSIS High Medium Low High

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_____________ 8.b PORTER ANALYSIS High Low Medium High competitive market Saturated market Many customers Development of servers, virtualization High

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CONSULTANTS Cline BZZINA Marion CHAMPIGNY Barkan COHEN Anna MONTAUBAN Cdric MARTINEZ Laura MASERO Maxime WASSELIN

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Constitutional monarchy Many political actors Demonstrations of Red skirts and Yellow skirts: - Material damages Religous confrontation No decrease of foreign investments Elections in 2011 Political background 11

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In Thailand, foreigners not permitted to own the land Foreigner shareholder: cant hold more than 49% => a lot of restrictions to investors But there are solutions: Purchase of land through a Thai spouse Long-term leasing in partnership with a Thai Becoming a resident in Thailand Interrogations : is Thailand the right place to create from scratch a hard-drive company? Legal environment 12

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Labor legislation The contracts employment is governed by The Labor Protection Act 1998 (LPA) Wages: around 7.730 THB (226 USD) The employment of foreigners is governed by regulars to protect the domestic labor market working hours : - limited at 8 hours per day or 48 hours per week Many unions are recognized and there are many labor organizations 13

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Import export business in Thailand Free trade agreement (AFTA) Member of the WTO For your activity, its important to obtain a license ; QUITE easy to get (countrys eco: 60% exportation, Thailand 12 th out 183 th about the ease of doing business) BUT: Thailand ranks 66 th out 179 th about Economic Freedom 14

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Foreign investment is welcome: Various incentives through the Board of Investment (BOI) and the Industrial Estate Authority of Thailand (IEAT) Investment incentives or guarantees : Value Added Tax (VAT) is applied at a rate of 0% to exported goods Import duty imposed can be refunded Import duty reduction/exemption on machinery and raw or essential materials corporate income tax exemption for one to eight years Double deduction from taxable income of transportation, electricity, and water costs Tax exemption for dividends paid out of the exempted profits during the tax exemption period Tax exemption for fees for goodwill, copyright, or other rights received from a promoted activity Investment regulations In Thailand : many opportunities ! As an Industrial operators : Facilities to obtain work permits for foreign technicians and Facilities to take or remit foreign currency abroad Concerning Investment Regulations, you will get lot of advantages in order to develop your activity 15

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T YPES OF BUSINESS FOR SETTING UP A PLANT Structures for setting up a plant Joint venture 2 kinds Unlimited Liability Company Partnerships 3 kinds Private Limited Company Sole proprieto rships Be careful about what kind of business you want set up. Always refer to the Foreign Business Act 1999. 16

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O UR ADVICE : P RIVATE L IMITED C OMPANY At least 3 promoters/shareholders At least 3 shareholders must be maintained all along the life of the company Be sure to have at least one Thai partner to help you in specific steps 5 steps to register to the Authority: 1.Corporate name reservation (find your name and wait for approval of Authority) 2.File a memorandum of association (name of the company, name of shareholders, location, amount of capital, signatures of all promoters) 3.Hold the statutory meeting of all shareholders (meeting to organize the shares repartition and the paid up capital by 25%) 4.Registration (maximum fees THB 250,000 and 0.5% of the capital ) 5.Corporate Income Tax registration & Value Added Tax registration

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L AST R EQUIREMENTS As a future high technology factory Refer to the Factory Act Be Careful ! Strong power of the government in manufacturing sectors (decides about the location, the size, the quantity of raw material, the origin of RM, the quality of the product you should produce, the type of energy you will use) Depending on your level of production, government may decide if it is destined to local use or export. Get your industrial licensing as earlier as possible As foreigners, you must have a Work Permit.

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GO / NOGO -Very Strong power of the government in manufacturing sectors. -Mature and saturated market. -Several international competitors. NOGO