Ikea Delays Thai Plans

[UnknownPoster]

60,000,000 Thais would benefit from, better prices, better service and selection from the Super Stores.

Say goodby to out of date food items and a guarantee that is actually worth somthing.

A few greedy businessmen won't let it happen.

[chinthee]

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, sorry to see you on your own. Ever since Bendix left, it seems you are the only one defending Thailand's honor on this forum. There really should be more on your side just to make it interesting.

[mark100]

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.

For companies like Tesco they will still be allowed 100% foreign ownwership, but limitations are being put in place and l seriously doubt if Tesco will be opening any new stores in the near future.

l think lkea not coming to Thailand is a big blow, but obviously with the political uncertainty in the country who could blame them??

The announcement this week that martial law will continue in some areas of the country after the elections is going to nothing for investor confidence.

l wrote a post last month about the military goverment damaging Thailands long term prospects, many people thought long term the country would be ok, now lm not so sure are you ????????

[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.

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.

I'm not in denial that the rules are unfair and the perceived uncertainty into the rules are still a turn off to an extent. But my read on the thai psyche and how government rules work is that the FBA will now be left alone to save face. The only reason there was a proposal to change was as a rear guard action against the Shin sale to Temasek. Horse bolting, closing the gate and all that. Very Thai, no?? It wasn't anti-foreigner so much as anti-thaksin. FBA is off the agenda now, and if it raises its head, you can be sure that the foregin chambers and foreign governments (Except the US with their Amity treaty - they won't help) will place alot of pressure on the govt.

Every big company which moves here knows its political options from the get go...so all that is left is the market analysis.

But that is my take, and what I charge nice money for, sometimes...

The rest of it is a 2 minute analysis of the Thai market. No doubt I could be wrong. In the same way a do it yourself car wash, or self service petrol pumps have a way to go here, the business model that IKEA has may not quite be ready for the Thai market. I've done a bit of work in the past looking at products that will make the life of a Thai person easier and less reliant on other 3rd party service providers (ie DYI), many times I walk away saying "No, no.....no, no,no".

But that is my call, less a Thai flag waver, more a pragmatic one.

[cclub75]

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.

BOI for Ikea ?

No way.

Ikea is a very simple business : distribution.

BOI is mainly for exports.

You shouldn't understimate the FBA issue If Ikea would like to control its business in Thailand... well even with the current FBA it would be very difficult (distribution is part of List 3, list 3 is "forbiden" unless a licence is aked for)...

And under FBA 2, it would be totally impossible.

So ? What's the problem ? Why Ikea couldn't worry a little bit ? I mean FBA is the core of the problem. And since one year, we don't know where we go. I'm not sure that the thai gvt knows itself...

The Ikea story is a good one : because it exposes, it shows the core of the problem in Thailand : FBA...

Again, we shall repeat that an economy is not only exports businesses...

And again, on the domestic market, the thais are simply... cheating. They want the buttter (exports) without paying for it (real and open competition on the domestic market).

[soundman]

I reckon Ikea would have a hard time competing with the allready established brands like Winner, Index & SB Furniture. The quality & style of these brands is on a par with Ikea & their promotion & sale prices are at a level where Ikea could not compete with on a long term basis.

The only way Ikea could hope to compete would be to manufacture locally or in China in addition to huge BOI incentives.

Maybe this is also a factor in their decision to put their plans on hold.

[Scott]

A lot of the furniture here in Thailand is really crappy. I had a wardrobe sitting near a window and it got rained on--not soaked, just some rain that blew in. The whole side of the thing chipped, warped and peeled. A pile of newspapers that was on the floor next to it fared much better!

I would probably buy IKEA because at least I would know what I am getting.

[jackspratt]

The only way Ikea could hope to compete would be to manufacture ......... in China ..............

They already do - they have a huge manufacturing operations in China.

[jts-khorat]

The only way Ikea could hope to compete would be to manufacture locally or in China

IKEA is manufacturing on a large scale in China already for several years; this is just about diversifying into the neighboring smaller markets. Just another proof that Thailand has lost out already a long time ago.

Edited September 24, 2007 by jts-khorat

[soundman]

The only way Ikea could hope to compete would be to manufacture locally or in China

IKEA is manufacturing on a large scale in China already for several years; this is just about diversifying into the neighboring smaller markets. Just another proof that Thailand has lost out already a long time ago.

Learn new pieces of useless information everyday!

To tell the truth never been very interested in goods from Ikea because the stuff I have seen in Australia practically falls to pieces if you look at the wrong way!

[chinthee]

The only way Ikea could hope to compete would be to manufacture ......... in China ..............

They already do - they have a huge manufacturing operations in China.

I don't know this for a fact, but I strongly suspect most of their products are made in China today. We don't know what their potential plans might have been for Thailand, but it may have included complete or partially knocked down imports from their China plant, or in fact, manufacturing in Thailand as well.

Samran's points are quite good, but one gets the overriding feeling that something more is at play here. I'm sure that IKEA's strategic planning and corporate development group have looked for years at the Thai market in depth.

I guess we'll never know what spooked them.

[samran]

The only way Ikea could hope to compete would be to manufacture ......... in China ..............

They already do - they have a huge manufacturing operations in China.

I don't know this for a fact, but I strongly suspect most of their products are made in China today. We don't know what their potential plans might have been for Thailand, but it may have included complete or partially knocked down imports from their China plant, or in fact, manufacturing in Thailand as well.

Samran's points are quite good, but one gets the overriding feeling that something more is at play here. I'm sure that IKEA's strategic planning and corporate development group have looked for years at the Thai market in depth.

I guess we'll never know what spooked them.

no doubt, but when looking at risk, I tend to look at company specific risk (inc political risk) rather than just placing a nation wide risk premuim on a project. Very often, you'll get a much lower discount rate that way as you cut out alot of superflous crap. We deal with a lot of companies who do business with governments who at the drop of a hat could revoke their concessions. That definelty goes into the risk matix, but the core of their decision always is based on the business plan.....

[quiksilva]

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.

BOI for Ikea ?

No way.

Ikea is a very simple business : distribution.

BOI is mainly for exports.

You shouldn't understimate the FBA issue If Ikea would like to control its business in Thailand... well even with the current FBA it would be very difficult (distribution is part of List 3, list 3 is "forbiden" unless a licence is aked for)...

And under FBA 2, it would be totally impossible.

So ? What's the problem ? Why Ikea couldn't worry a little bit ? I mean FBA is the core of the problem. And since one year, we don't know where we go. I'm not sure that the thai gvt knows itself...

The Ikea story is a good one : because it exposes, it shows the core of the problem in Thailand : FBA...

Agreed BOI support is highly unlikely. I'm sure that Tesco's would kill to be able to have 100% foreign ownership and own the freehold of all of their stores outright, rather than having to use their current 49:51% structure to enable them to own land.

I suspect that, as a new entrant to this market, in the current climate Ikea are just not prepared to go down the local partner route especially when the likelihood of them not being able to retain control of their considerable investments (given the proposed changes to the FBA) could be quite high, even though nobody really knows whether this will ever even happen .

Edited September 24, 2007 by quiksilva

[wilko]

Don't worry - "everything will be OK after the election" - does that come in flat-pack too? - I hope the instructions are clearer - fat chance!

Edited September 24, 2007 by wilko

[Mobi]

Well I have no idea whether Ikea would do well in LOS, but I seem to remember similar thoughts about the likely success of such fast food giants as Mc Donald's, KFC, Pizza Hut etc, before they established themselves here as 'part of the furniture'.

Actually the list goes on and on. The point is that the Thais are actually very good at adapting western ideas and products to their own fashion, and I see no reason why Ikea, if marketed and positioned properly, could not find a substantial 'niche' in the Thai furniture market.

I seem to recall buying 'flat pack' furniture from both S & B and Index through the years, (I wasn't aware it was flat pack when I bought it), and of course delivery was free, and came with a team of workmen who assembled the furniture in no time flat.

No doubt Ikea would do something similar if they ever opened up here.

[Sanpatong]

BOI for Ikea ?

No way.

Ikea is a very simple business : distribution.

BOI is mainly for exports.

Rubbish.

http://www.boi.go.th/english/

You makes a business plan that covers educating and employing a Thai workforce, manufacture or source a few token bamboo lamp posts for export and there you go.

Then again, that was under Thaksin, who understands a thing or two about business and raising money. In those times he (the PM) would have already MET with Ikea and MADE IT HAPPEN.

What comes now will be what the next Fool du Jour in government is tolerated to be allowed to do, based on nothing but a guessy interpretation of Sufficiency Economy.

Rien ne va plus, guys.

Edited September 24, 2007 by Sanpatong

[soundman]

BOI for Ikea ?

No way.

Ikea is a very simple business : distribution.

BOI is mainly for exports.

Rubbish.

http://www.boi.go.th/english/

You makes a business plan that covers educating and employing a Thai workforce, manufacture or source a few token bamboo lamp posts for export and there you go.

Then again, that was under Thaksin, who understands a thing or two about business and raising money. In those times he (the PM) would have already MET with Ikea and MADE IT HAPPEN.

What comes now will be what the next Fool du Jour in government is tolerated to be allowed to do, based on nothing but a guessy interpretation of Sufficiency Economy.

Rien ne va plus, guys.

At a personal profit of course!

[tlpeng]

I think it is great to hv Ikea here in Thailand. So it's sad news that they are not coming..... yet.

[wilko]

Well I have no idea whether Ikea would do well in LOS, but I seem to remember similar thoughts about the likely success of such fast food giants as Mc Donald's, KFC, Pizza Hut etc, before they established themselves here as 'part of the furniture'.

Actually the list goes on and on. The point is that the Thais are actually very good at adapting western ideas and products to their own fashion, and I see no reason why Ikea, if marketed and positioned properly, could not find a substantial 'niche' in the Thai furniture market.

I seem to recall buying 'flat pack' furniture from both S & B and Index through the years, (I wasn't aware it was flat pack when I bought it), and of course delivery was free, and came with a team of workmen who assembled the furniture in no time flat.

No doubt Ikea would do something similar if they ever opened up here.

"Mc Donald's, KFC, Pizza Hut etc, " - since when have Ikea sold junk-food????

[soundman]

"Mc Donald's, KFC, Pizza Hut etc, " - since when have Ikea sold junk-food????

Junk furniture perhaps?

[wolfmanjack]

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.

send me a picture of the best model that you like. Suggest any changes that you think would make it better.

[quiksilva]

hehe yes getting furniture made is extremely easy and affordable here.

[Sanpatong]

This is getting tedious isn't it, but, again: Liking Ikea or not is NOT the point. The point is that the current feudal government, as well the shaky coalition governments supervised by it in the future, couldn't get solid international business even if it ripped off their diapers and crawled up their bottoms.

[wilko]

True....

[wolfmanjack]

This is getting tedious isn't it, but, again: Liking Ikea or not is NOT the point. The point is that the current feudal government, as well the shaky coalition governments supervised by it in the future, couldn't get solid international business even if it ripped off their diapers and crawled up their bottoms.

I don't care about Ikea. I want a picture of what he considers to be the best computer desk so I can make one. I have a friend that works on computers and he may be able to sell a few for me.

[Mobi]

"Mc Donald's, KFC, Pizza Hut etc, " - since when have Ikea sold junk-food????

Junk furniture perhaps?

You beat me to it

And BTW, if I remember correctly, Ikea in the UK most certainly did sell junk food in their in-store restaurants

The point I'm making is that Thais do embrace the worst of Western culture, despite most 'experts' predictions that such and such 'will never work in Thailand.' They invariably do, after they have been re-packaged - Thai style.

[onnut]

Ikea is cheap and tacky.

I bought a complete set of bedroom furniture from a Thai firm that was hand made to my wishes and it was great and looks great. it took them three weeks to make and cost less then 80K this stuff will last years.

with Ikea stuff you have to be gentle when opening cupboard doors because they are easy to fall off. and it all looks the same. I am glad they are not coming to Thailand.

[baboon]

Can we all stop blathering on about the relative merits of furnature and keep on TOPIC for f@cks sake?

[TAWP]

send me a picture of the best model that you like. Suggest any changes that you think would make it better.

A PM is one the way.

[the gent]

Personally, I take encouragement from the Thai ruling mafia's refusal to share the spoils of development since it will ensure that my future pension will always be sufficient to meet my needs.

Ikea are a slick operation and the Thai spin would be a top quality food mart at discounted prices in every store. They couldn't fail. Cheap but the appearance of quality is a natural for the Thai consumer and without a single competitor Ikea would have made a killing.