Flood-Hit Thai Economy Retools For 2012

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NEW YEAR SPECIAL

Flood-hit economy retools for 2012

Business Reporters

The Nation

The flood aftermath and fast-changing consumer behaviour in the digital community have created opportunities for businesses while phasing out those that are uncompetitive and outdated. The Nation's Business Desk reports on this year's expected market trends in products and services.

RETAIL

Luxury department stores will be a rising star in the retail sector as Thailand transforms from a shopping destination for mass products to one offering luxury goods luring tourists from around Asia.

Tourists come to Thailand for two main reasons. The first is to enjoy Thai hospitality, while shopping is the second draw. To differentiate the country from its rivals, Thailand needs to promote itself as the "luxury-shopping destination in Asia". Tourists, who have strong purchasing power, will come to the country to seek high-end products they cannot find in their homelands.

Another star this year will be online shopping. The boom in computer tablets such as the iPad will make online shopping more convenient. Consumers will enjoy more e-book applications while paper-based books will see lower sales.

Retailers will have a clearer idea of their target customers this year, as they offer not "one size fits all" products and services, but "one size fits one".

BROADCAST

Satellite TV businesses are blooming with the increased penetration of KU-band and C-band satellite dishes in the Kingdom. However, radio-programme developers are facing business losses because advertisers have turned to alternative media such as cinema, outdoor, transit, in-store media, Internet and satellite TV.

Despite this changing environment, advertising via television remains strong at 60 per cent of total billings.

Last year, satellite dishes replaced territorial antennas in 50 per cent of households, and industry observers expect that in the next three years the penetration of satellite TV will reach 80 per cent. By that time, advertising expenditure in satellite TV is forecast to double from its current level, to Bt5 billion.

Another reason that radio broadcasters are facing a downturn is the changed behaviour of listeners, as young people are spending less time listening to the radio as a result of the Internet, particularly in social media.

COMMODITIES

The prices of agricultural goods are predicted to continue rising this year, with the sunrise commodities predicted to be fuel crops, crude oil and gold, while rice and rubber will show bearish performance.

Sugar will see its price rise more robustly than other commodities because of increasing demand for fuel crops. Global warming will affect sugar-cane output in many countries, further bolstering the sugar price.

Crude oil's price shrank to less than US$100 a barrel in late 2011, but is predicted to rise gradually this year because of higher consumption in emerging countries. Consequently, the average oil price is expected to be $105-$110 a barrel.

Tapioca exports, both in terms of volume and value, will increase this year as cassava plantations recover from the insect outbreak two years ago. Demand for tapioca products in the global market is high, as cassava is considered a fuel crop. Exports will mainly go to China.

Gold has become the quintessential flight-to-quality instrument. Driven by factors ranging from currency issues to sovereign debt crises, gold remains a popular diversification play in investors' portfolios. The gold price dropped slightly for a short period in 2011, but will climb in the long run, especially in the second half of this year as worries about political conflict, European debt and a weakening US dollar boost gold demand. It is estimated that the price will be $1,500-$1,600 per ounce in the first half, and could approach $2,000-$2,500 in the second half of the year.

Rice, however, will face a gloomy prospect this year because Thai rice prices are much higher than those of export rivals after the government's rice-pledging scheme introduced last year. Tougher export competition will also be a factor. India has lifted its rice-export ban while other Asean countries have expanded their rice production.

Rubber will not enjoy the same high prices as in 2011. The price has dropped below Bt90 per kilogram from a high of Bt180 last year. Economic growth is slowing in China, which is the world's biggest rubber importer, accounting for 35 per cent of global trading volume. Moreover, the effect of the flood disaster in Thailand late last year on automobile manufacturing will reduce demand for rubber through the first half of 2012. It is forecast that the rubber price will climb after auto-makers resume full export capacity by the second half.

TOURISM

People in the hotel industry say small to medium-sized and independent hotels will become more popular this year thanks to their attractive prices of not over Bt4,000 per night compared with normal rates of business and luxury hotels of around Bt5,000.

Because of economic slowdowns, both international and local travellers will take shorter vacations. Instead, they will go more often, thus preferring cheaper accommodation.

Home stays will be on a rising trend.

International brands such as Ibis and Best Western should gain more business. Moreover, boutique hotels will grow gradually as operators can sell their rooms online and through direct e-mail to targeted groups. This practice will help reduce operators' direct marketing expenses and hidden operating costs.

However, hotels whose service focuses on foreigners or business meetings will be less popular because of the economic downturn in many markets.

Low-cost airlines will see great opportunities. Thai Airways International will cash in on this rising trend in July by launching Thai Smile Air as its budget carrier to compete in both Bangkok and the region. Thai Smile plans to operate mainly to China, India and Asean countries.

Traditional tourist activities such as going to beaches, mountain climbing and camping may see a reduction for the first six months of 2012. Beyond that, operators say it is too early to make predictions.

BANKS

Loans for home and vehicle repairs are expected to be strong as the banking industry serves consumers' needs to fix their flood-damaged assets.

Auto-cash products will be on the move as consumers whose car loans are paid off need cash to restore their homes or improve their liquidity. Their cars will become their asset guarantee.

Bancassurance is also a popular channel through which individual and corporate clients can purchase risk coverage, including personal accident and health insurance.

For corporate customers, bankers expect trade credit insurance will present greater business opportunity as traders seek to reduce risks from global economic instability.

On the other hand, the trend of lower interest rates might not benefit individual customers who have money in savings accounts. Lower-income people do not have the option of getting higher returns from the deposit products available to high-net-worth individuals.

Bills of exchange were the banks' sunrise product in 2011. This was a way for the banks to mobilise funds by offering higher returns to customers than regular deposit accounts. The banks can do this as they are not subject to a 0.4-per-cent insurance premium on B/E deposits.

The fierce competition of B/Es issued to individuals led regulators to be concerned about sales of these products to retail investors, so the banks will not be able to promote them aggressively to individuals until regulators devise clear rules. Hence B/Es are not expected to be a strong product for banks in 2012.

TELECOMMUNICATION

If the Information and Communication Technology Ministry can keep its promise, Thais will see wider coverage of free high-speed public Wi-Fi service everywhere.

The ministry kicked off the first phase of the service in 10,000 spots nationwide in late December, such as in public areas, city halls, airports and inter-provincial bus stations. The coverage is expected to be expanded to 20,000 spots this month. The ICT Ministry targets expanding the service to 250,000 spots nationwide within five years.

This year will also see the shutdown of CDMA (code division multiple access) cellular service in Thailand in favour of higher-technology HSPA (high-speed packet access).

Hong Kong's Hutchison Telecom introduced CDMA cellular service to Thailand in 2003 and joined with CAT Telecom to market the service in 25 provinces. CAT later created its own CDMA network in the other 51 provinces.

True Corp took over Hutchison's CDMA businesses in Thailand in December 2010 and is migrating the customers of Hutch networks in 25 provinces to its subsidiary Real Move, which provides third-generation HSPA wireless broadband. CAT is also migrating its CDMA customers in 51 provinces to its own 3G-HSPA network. This process is expected to be complete in the first half of the year before it switches off the CDMA networks.

ENERGY

A rising industry this year is likely to be energy, including renewable energy. Investment in this sector is ranked the highest by the Board of Investment in terms of applications for investment incentives. From January to November last year, 1,630 projects with a combined value of Bt615 billion were submitted to the BOI for investment promotion, of which 376 projects with a combined investment value of Bt246.9 billion are in the service and infrastructure sector, which includes energy.

Renewable-energy projects such as solar, wind and biomass power plants are among the top BOI applications. The large investment in these sectors is attributed to the government's strong support for green energy.

There is an unclear picture on what were the sunset industries in 2011, but they are likely to be labour-intensive sectors. These may fade out from the Thai manufacturing base as the BOI has a clear policy not to provide incentives to such industries. Examples of labour-intensive industries are textiles, garments and leather. These low-paying industries will find it difficult to compete as the minimum daily wage is increased to Bt300 beginning in April, and may have to consider relocating to neighbouring countries such as Cambodia and Vietnam.

-- The Nation 2012-01-02