This month’s news that Charoen Pokphand Group’s $9.4 billion investment in Ping An Insurance Group of China has pushed Thailand’s outbound Foreign Direct Investment (FDI) for 2012 up to a record US$25 billion, may have surprised some market watchers.
According to data from Bloomberg, FDI from Thailand this year was more than the whole previous 12 years, and Thailand’s overseas investments now lies behind only Japan and China in Asia Pacific. However, this strong growth news brings its own set of unique challenges for Thai’s major companies and their billionaire owners.
Richard Dailly, managing director of Kroll Advisory Solutions, South and Southeast Asia, cautioned that investments, mergers or partnerships outside of Thailand – particularly those into emerging markets, such as Myanmar and Indonesia - can bring unforeseen complications.
“Historically, Thai businesses, unlike those from China and India, do not have strong networks among C-Suites in other emerging markets in Asia, and this lack of connections can put their investment at risk," says Dailly.
Dailly further notes that as Thai investors continue to look overseas for growth, they need to be sure they are paying a fair price for their investment, against a wide range of issues including understanding cultural differences; ensuring that the company leadership conducts itself legally and ethically; being aware of local labor laws and legislative requirements; as well as having knowledge of their potential exposure to US and UK anti-corruption legislation.
“It is critical for Thai businesses to mitigate these risks with in-depth due diligence before entering into relationships in new markets – looking at both of the financial and human capital risks. The primary purpose of due diligence is to ensure that no material ‘surprises’ emerge once the deal has been signed. In many respects it can be regarded as the most crucial part of any transaction.”
According to Kroll, the intelligence obtained from due diligence can enable investors to make smarter investment decisions to ensure a successful deal. Investors can use this intelligence to add value by restructuring payment terms or management teams, or, as a result of the risks identified, even exit from a proposed bid.
Kroll has seen an increase in requests for due diligence and market entry support from Thai companies to help them map competitive landscape, review potential partners and transparency of contracts, and assess political, societal, economic and operational risks. In some markets, the influence of criminal elements or unethical practices can significantly hinder a company’s ambitions, causing long-term financial and reputational damage.
The need for both financial and HR-related due diligence is particularly evident in Myanmar, which is firmly on the radar for many expansionary companies in Thailand. Over the past 20 years, Thailand has been the second largest provider of FDI to Myanmar, behind China.
Cumulative FDI into Myanmar from Thailand since 1989 has now reached US$9,568, according to the International Monetary Fund (IMF). However, Thai companies should recognize that there are likely to be a number of significant challenges to face when moving into this geography – including a lack of functioning legal and banking systems; particularly relating to foreign investment; corruption; partner due diligence, and political and security risk.
Because of its international isolation, there has never been any international pressure for Myanmar to improve its reputation on corporate governance, in relation to corruption and fraud.
“Thai companies realise the need to mitigate their risks but do not have enough knowledge of the new markets they are moving into; they have limited awareness of how their new prospective partners really do business,” says Dailly.