Ikea Delays Thai Plans

[taxexile]

Ikea delays Thai plans as government moves to tighten foreign ownership laws

Sunday Telegraph

Last Updated: 12:51am BST 23/09/2007

WHAT price flatpack furniture in Bangkok? Ikea, the Swedish retail group, has put plans to expand into Thailand firmly on the shelf amid an increasingly uncertain environment for multinational investors.

The Daily Telegraph can reveal that the lingering after-effects of last year's military coup and a series of tougher laws on foreign ownership have prompted Ikea to postpone a move into one of south-east Asia's most important economies.

The delay reflects growing nervousness among overseas investors following Draconian revisions to Thailand's Foreign Business Act and the publication of draft legislation covering the retail sector which may have a serious impact on Tesco and Carrefour, the French supermarkets group.

Since the ousting of Thaksin Shinawatra, the former prime minister and current owner of Manchester City Football Club, a year ago this week, the Thai government has proposed changes to the definition of a "foreign" company to mean one which is not controlled or majority-owned by Thais. It has also vowed to stamp out the use of nominee shareholders for the subsidiaries of multinationals operating there, alarming the many overseas firms which have largely relied on the use of such structures.

"The foreign business ownership laws have always been complicated but there has always been a measure of understanding," said Alastair Henderson, managing partner of Herbert Smith, the law firm, in Bangkok.

"The latest proposals have meant great uncertainty for companies about the regulatory climate they are going to face and whether they will be able to retain control of their investments."

An Ikea spokesman said the Thai market "is still under evaluation" by Inter Ikea Systems, which owns the home improvement retailer's concept and trademark. An unnamed franchisee, which will further investigate the market, has been selected, she added.

The toughening of Thailand's foreign ownership laws could affect a string of Britain's biggest companies, including British American Tobacco, Alliance Boots and HSBC.

The south-east Asian country's interim government, which has said it is likely to hold democratic elections in December, has held numerous talks with officials from the European Commission and overseas chambers of commerce stationed in Bangkok.

One official said its actions were evidence of "a clear protectionist backlash" and could lead to Thailand being "cut out of the global economy".

"The government responded two weeks ago to a letter sent months ago [by the overseas chambers] which alleged that Thailand was in breach of its World Trade Organisation obligations," said the official.

"The government denied this, saying the amendments were 'not inconsistent' with its obligations."

Among the foreign investors with most at stake from a more hostile Thai regime is Tesco, which operates 400 stores and employs more than 28,000 people in Thailand.

"We continue to invest in the country, opening new stores and giving more Thai people the opportunity to benefit from our low prices and quality products," said a spokesman for Britain's biggest retailer. "However, we are concerned that the current uncertainty may deter new foreign investors."

According to a briefing document prepared by the trade section of the British embassy in Thailand, the number of British investment projects submitted to Thailand's Board of Investment has tailed off so far this year compared with 2006.

The new legal environment has been criticised by some Thai politicians worried that foreign investors might leave or, like Ikea, put investment decisions on hold. Assembling flatpack furniture might be a while off yet.

[technocracy]

It's pretty pitiful really ain't it!

They sound ditch the Thai plans and come to Laos, I know of a perfect plot of land they could purchase!

[lazeeboy]

It's pretty pitiful really ain't it!

They sound ditch the Thai plans and come to Laos, I know of a perfect plot of land they could purchase!

ikea is crap no one will miss them.........

[think_too_mut]

It took them 15 years to open a shop in Japan. People who have been there told me the goods are "Japanized" to fit small rooms, corners, window frames, low rise sofas and tables.

I guess, they would not just bring unmodified whatever they already have and start selling it in Thailand.

[kmart]

Sooo, there is a shortage of cheapo, tacky, chipboard furniture in Thailand then?

[tijnebijn]

Is it that bad ?

I thought with Ikea on the market , we could have some more choice for furniture .

But maybe it would be to pricy compared to what is available anyway .

[Jingthing]

I've never been but in the US, when Ikea comes to a new city, it is a major event, news stories, traffic jams for months, a real party! I have all the furniture I need and I can easily get Swedish meatballs if I need them, but the fact that a high profile company like Ikea is snubbing Thailand now says alot.

[UnknownPoster]

Jobs lost.

[TAWP]

I like IKEA-furnitute and they are the only one that have manufactured a proper computer-desk as of yet. Sadely they stopped selling the best models some years back...

And the ones found here in Thailand is an insult to anyone having to sit and work for hours.

[Cobalt60]

Is the point of this thread not about 'government' policy, rather than what wood furniture is made from?

I am still able to be suprised at decisions the authoritys make and the ability of some to miss the point completely.

Yes its a lovely country, yes it is mainly populated by good people, but it can be incredibly hard work trying to make sense of it all.

Too much time spent looking back and trying to fix the past, or is it trying to deliberatly go backwards ?

Edited September 23, 2007 by Cobalt60

[think_too_mut]

If Ikea are so crap why are they so successful in every single country they have opened in? Not to mention popular.

When I was living and working in Norway, my friends, recent graduates (as me) who were just about to marry told me: "You know, it's a start, Ikea furniture for the beginning, then save 30K US$ and have a baby, then we advance".

Nevertheless, I think Ikea would set a benchmark for other suppliers in Bangkok or other bigger places. That is good for the consumers who would not set for Lotus, side soi shops or classy ones at the Emporium.

I don't see Ikea's armchairs being massively sold to Isaan houses where everyone wants to experience a chair.

[Briggsy]

Protectionism, pure and simple.

Only here it is not protecting an industry, it is protecting the interests of the one or two families whose businesses dominate that particular sector. Nothing particularly wrong with that as long as all the citizens understand it is not for their benefit but only for the benefit of some taipan families. In fact it is very much to their detriment as a monopoly or a cartel will always have higher prices and worse products than a competitive market.

[mrtoad]

Protectionism, pure and simple.

Only here it is not protecting an industry, it is protecting the interests of the one or two families whose businesses dominate that particular sector. Nothing particularly wrong with that as long as all the citizens understand it is not for their benefit but only for the benefit of some taipan families. In fact it is very much to their detriment as a monopoly or a cartel will always have higher prices and worse products than a competitive market.

Summed up perfectly.

[think_too_mut]

Protectionism, pure and simple.

Only here it is not protecting an industry, it is protecting the interests of the one or two families whose businesses dominate that particular sector. Nothing particularly wrong with that as long as all the citizens understand it is not for their benefit but only for the benefit of some taipan families. In fact it is very much to their detriment as a monopoly or a cartel will always have higher prices and worse products than a competitive market.

Ikea is a veteran in tax dodging exercises.

Their "charity operations", on paper, are much bigger than Bil Gates's and nobody has ever seen any penny coming out of it. Most of their profits go around into intangible circles. How they made it into Japan, i don't know.

Thai now, makes it a hard nut to crack. IMO, that's what made them wait and see.

Could be a good sign.

[ColPyat]

It's strange how many people jump to bash an incredibly popular, successful, innovative, forward thinking company like Ikea when they have made a perfectly sensible decision to avoid opening yet in a country that for all intensive purposes, is heading backwards, not forwards.

If Ikea are so crap why are they so successful in every single country they have opened in? Not to mention popular.

I'm curious to know what furniture people on here have in their homes other than the "cheapo, tacky, chipboard furniture" that is already so prevalent and popular in Thailand?

Don't tell me that your condos and houses are full of that horrible dark wood, Chinese style wooden furniture? That stuff is fugly!

I think IKEA would have to have a very different marketing concept to be successful here.

Back in the west their main success is selling comparatively cheap furniture of relative high quality (compared to the price).

Here though IKEA prices would not be cheap anymore at all. The sectors of society that buy cheap son't use much furniture anyhow, and the little the use can be bought much cheaper.

For the average price IKEA furniture sells, you can get much higher quality furniture here (and more tasteful as well). Local made furniture is not only the garishly inlaid and very expensive Chinese style pieces (even the copies from Vietnam are expensive), but also rather good modern teak furniture (not the cheapo plantation teak garden furniture!).

I do collect a particular style of furniture which i believe is very under priced. I like Thai Chinese art deco furniture, made by mostly Chinese immigrant carpenters in the 20s to 40s - simple lines, mostly very high quality teak and other tropical woods. I buy them in the markets and tent sales in unrestored condition and refurbish them myself.

Typical prices are, for example:

A very large teak writing desk i bought for 3000 Baht, a lovely pupils desk for 800 Baht, different glass cabinets for 1500 baht to 2000 Baht (one very nice large cabinet with very subtle wood inlays for 9000 Baht - i felt like spending a bit there ).

One of my best buys was a huge lower table (Thai though) with a massive plate of Makha wood (maybe 120cm by 200cm - one piece of wood) for 6500 Baht, for which i got already offers for more than 20 000 Baht.

Also assorted different small tables and cabinets for 500 to 1000 Baht a piece.

Properly restored they are some of the most beautiful tropical furniture i know off, the simple lines and reddish brown natural wood tones make a very comfortable atmosphere in the house, and are still more than affordable.

[Briggsy]

Ikea is a veteran in tax dodging exercises.

Their "charity operations", on paper, are much bigger than Bil Gates's and nobody has ever seen any penny coming out of it. Most of their profits go around into intangible circles. How they made it into Japan, i don't know.

Thai now, makes it a hard nut to crack. IMO, that's what made them wait and see.

Could be a good sign.

I'm afraid I don't know about Ikea's tax avoidance. I do know that their service has generated many many consumer complaints in the UK. I also know that the Revenue Dept in Thailand likes to decide how much tax a company will pay even before the tax year begins. This is often backed up with threats of audits. As you have moved the debate to the tax arena, I'm sure you are aware that Thailand has a high rate of corporation tax. This, too, is a deterrent to investment.

[JonnyF]

Not really about Ikea is it?

It's about foreign companies taking their business elsewhere - they'll probably end up in one of Thailand's competitors in SE Asia - boosting their economy instead of the Thai economy. Kind of sad for the Thai people at grassroots level looking for decent jobs...

[keemapoot]

IKEA are a VERY smart international operator. They have found a way to dominate their niche, whatever you wish to call it. They are successful in every single market I know of, and I've not seen them make any mistakes. Even in Hong Kong, they occupy quite expensive space in Causeway Bay, and have made that a big profitable retail operation.

This become especially poignant that they have decided to defer plans for Thailand. It means they don't think they can be successful. This is quite telling.

[Mobi]

Not really about Ikea is it?

It's about foreign companies taking their business elsewhere - they'll probably end up in one of Thailand's competitors in SE Asia - boosting their economy instead of the Thai economy. Kind of sad for the Thai people at grassroots level looking for decent jobs...

No, it's not about Ikea.

I have no interest one way or another whether Ikea makes good or bad products that may or may not be suitable for the Thai market.

This is all about Thai protectionism.

Are they right or wrong, and will these anti 'foreign owned/controlled business' measures harm the country in the long term?

[mrtoad]

Thought that post #13 summed it up perfectly.

[samran]

that they think they can't be successful in Thailand could be for a number of reasons.

- uncertaintly about FBA...potentially. But, no doubt a company like theirs would be aiming for, and getting lots of BOI goodies, so that is a counter factor. As someone said, they are good at minimizing taxes. If they can beat the EU taxman 9 times out of 10, then the Revenue deparment here will be a walk over.

- my take on it is simply that the Thai market isn't ready for them. Their target market isn't big enough (ie middle class). Also:

1) In a country where everything is 'convinient' who in their right mind is going to spend hours putting together something from Ikea? Thai's don't do that when they can pay someone 180 baht a day to do it for them!

2) Style of furniture: If anyone has been into an average middle class Thai persons home, you'll see that the interior is the last thing they care about. It is a cultural thing stangely unique to asia (ex HK and Singapore). They care about their showiness to outsiders (ie flash car), but couldn't give a toss if their house looks like a bomb hit it. Totally the opposite mentality to the west, where our home is out best investment.

[TAWP]

Since Malaysia, the home of a lot of lazy men, has an IKEA I don't think you can write off IKEAs doubt about Thailand as consearns about peoples ability to screw together their own furniture. Heck, they would just offer a service-fee and send workers to do it and a lot of the middle class would happily pay for it.

My wife still wants IKEA to come here so she can buy furnitures she wants instead of 'low quality thai' furnitures. That is her take on it and seeing as he lived in a city with IKEA before she knows very well what they have.

Aaanyway, the reason for not wanting to settle down here is that the company cannot trust the people in power (today or tomorrow) won't screw them. As outlined earlier in this thread.

[keemapoot]

that they think they can't be successful in Thailand could be for a number of reasons.

- uncertaintly about FBA...potentially. But, no doubt a company like theirs would be aiming for, and getting lots of BOI goodies, so that is a counter factor. As someone said, they are good at minimizing taxes. If they can beat the EU taxman 9 times out of 10, then the Revenue deparment here will be a walk over.

- my take on it is simply that the Thai market isn't ready for them. Their target market isn't big enough (ie middle class). Also:

1) In a country where everything is 'convinient' who in their right mind is going to spend hours putting together something from Ikea? Thai's don't do that when they can pay someone 180 baht a day to do it for them!

2) Style of furniture: If anyone has been into an average middle class Thai persons home, you'll see that the interior is the last thing they care about. It is a cultural thing stangely unique to asia (ex HK and Singapore). They care about their showiness to outsiders (ie flash car), but couldn't give a toss if their house looks like a bomb hit it. Totally the opposite mentality to the west, where our home is out best investment.

Samran, those are good points and a good argument, and a valiant attempt to carry the country flag. However, it misses the point. The fact that the furniture is DIY home assembly doesn't mean the purchaser will actually do it. You're right, he can easily get anyone to do that for him for 180 Baht. That's not really the point.

The point is that the furniture is high-style, high-concept, and is combined with many other lifestyle shopping choices for the home. The price point too attractive, and this leads to killing the category in any market it enters. That is the real truth. It will kill the "Index" and other players in the market, and for some reason, IKEA was smart enough to see that they would be defeated by the incumbents due to whatever subturfuge method. IKEA never back down from a fight on even ground on fair rules.

They perceived the rules to be unfair, and that they wouldn't win. They were smart enough to back out knowing they couldn't win against the incumbents.

Edited September 23, 2007 by keemapoot

[pointofview]

It seems a lot of posts on this thread mis the point - too many thai appologists.

"It requires wisdom to understand wisdom: the words mean nothing if the audience is deaf"

[howtoescape]

The checkout job at Ikea may not be the greatest in the world but the many manufacturing/subsidiary jobs that a company such as this would create in Thailand will be sorely missed.

[chinthee]

IKEA is one of the best run retailers in the world and they understand their niche. They are winners in every one of their markets. I suspect they withdrew from Thailand for "other reasons."

[intumult]

Is it that bad ?

I thought with Ikea on the market , we could have some more choice for furniture .

But maybe it would be to pricy compared to what is available anyway .

Not bad at all that Ikea are not going to Thailand. With the rain and humidity their cheap, nasty, tasteless chipboard cr*p - oops, I mean furniture would not last 5 minutes.

And I can just see Thais following the instructions for the flatpack furniture assebly after a whiskey or 2

Ikea... not such a good idea IMHO

[geriatrickid]

I consider the decision in respect to Ikea a public service. For those that have an environmental streak, then Ikea with its use of noxious glues, dyes, processed wood chip and wasteful packaging won't be missed. Yes I know, the argument is protectionism. However, Ikea's homeland Sweden isn't an open market either. Although less cumbersome than other EU members, Sweden still requires its own industry specific licenses and permits.

Before everyone pisses on the Thai government, keep in mind that Sweden; has yet to complete Phase 2 monitoring of implementation of the OECD Anti-Bribery Convention and does not participate in the Extractive Industries Transparency Initiative (EITI). It aint perfect either.

[intumult]

Not bad at all that Ikea are not going to Thailand. With the rain and humidity their cheap, nasty, tasteless chipboard cr*p - oops, I mean furniture would not last 5 minutes.

And Index furniture is just fantastic quality.

Same cr*p, different name.

Give me real wood furniture. Something that will last a lifetime. There is plenty for sale in Thailand althought it is expensive initially.

I have seen many quality tables and seats made from tree trunks, highly polished and obviously solid as - a tree

[chinthee]

Is it that bad ?

I thought with Ikea on the market , we could have some more choice for furniture .

But maybe it would be to pricy compared to what is available anyway .

Not bad at all that Ikea are not going to Thailand. With the rain and humidity their cheap, nasty, tasteless chipboard cr*p - oops, I mean furniture would not last 5 minutes.

And I can just see Thais following the instructions for the flatpack furniture assebly after a whiskey or 2

Ikea... not such a good idea IMHO

Yeah, the issue is that IKEA know how to make

cheap, nasty, tasteless chipboard cr*p

better, cheaper and more profitable than anybody else.

This is obviously a threat to Index and other Thais who can't do this, and, those Thais with power will win again and avoid competition .