Doing Business in Thailand
by: Erika Visser, Associate partner of Hofstede Insights
Thailand is the founding member of ASEAN and the ASEAN Free Trade Area (AFTA), and thus enjoys strong trade agreements with other countries in the region including Singapore, Malaysia, Indonesia, Philippines, and Brunei. These integral relations and the location of Thailand makes it a good business platform. Foreign investors are attracted by the skilled and cost-effective workforce, strong exports, natural resources, strong intellectual property rights, a modern business environment, and a sound infrastructure. According to the World Bank, Thailand ranks as the world’s 46th best nation for ease of doing business, and third in Southeast Asia. Thailand is ranked in 70th place in the world for ease of getting credit, according to the World Bank and International Finance Corporation (IFC).
Top challenges doing business in Thailand:
- Lengthy procedures to acquire construction permits
- Trading across borders is cheap but bureaucratic and involves several procedures
- Enforcing contracts takes over a year
- Completing corporate taxes and other business-specific levies are very time consuming
Thai society is a highly structured society with Buddhism at the top, then the king and the monarchy, then the military and moneyed elite followed by public servants and the growing middle class, lastly are the farmers and unskilled workers. Thai organisations are hierarchical where rank and position play an important role and decisions are made at the top.
Three most important things for doing business in Thailand:
- Hierarchy is very important and the most senior person should be shown great respect and addressed in the appropriate manner.
- As a relationship-oriented society, relationships are more important than tasks. Face-to-face meetings are preferred to help establish these relationships and required before business can be conducted. Never make any negative comments about the Thai king or the monarchy, this will most likely end business relationships.
- Avoiding conflict and nonverbal communication are important elements to help maintain harmony. Thailand has 13 smiles and each smile has a different meaning from victory to embarrassment. As a foreigner always be friendly by smiling.
What to look for in a good partner:
- Understands the local and national political situation very well, because it can change overnight and is always fluid.
- Has good connections with the government.
- Has the proper status and therefore you should explore his/her formal titles, e.g. vice president is an important one, because these titles are not used as casually as in the USA.
- Has the ability and willingness to be your contact on the ground or help you find a good one.
- Has lived and or worked and or has done business in the Western world and therefore is sensitive to the direct way of communication and task orientation of most Europeans.
- Ideally advanced his/her local education abroad.
Ensure you have a another third-party contact on the ground that can check the credentials of your potential partner first.
Thai meetings tend to be structured affairs and meeting invitations need to be sent out well in advance. A meeting can turn out as a platform where the boss gives a speech to employees, and Thai employees will usually not raise questions during a meeting as they do not want to indicate that the boss has given incomplete or inadequate information. If the meeting is held in Thai, staff might be more likely to contribute ideas if asked. Always check staff’s ideas prior to a meeting and discuss and agree what needs to be said during the meeting to eliminate any unknown factors.
Always be punctual but be prepared to wait, and expect meetings to run over time. Initial meetings between foreigners and Thai business partners are usually more formal and used for building rapport, as business relationships are based on familiarity and trust, thus when having a first meeting do not expect business decisions to be made. Meetings are always started with small talk and you might be asked multiple personal questions, this will be followed by business discussions from the most senior Thai counterpart - follow his/her lead and wait for their cue. Try to avoid topics about the Thai king, religion and politics, rather talk about topics like hobbies, food, personal interests, and family. Older people and people with the highest rank are usually introduced first and they are shown great respect. The meeting platform is not for subordinates to brainstorm or a platform to express their ideas, it is mainly for the boss to boost morale, give direction or re-confirm decisions that have already been made. Honour the titles and job descriptions from your Thai counterpart, as these elements play an important role in showing respect in a hierarchical society. Always send an agenda prior to the meeting with the meeting content, information about your company, and any relevant data. Be prepared to translate materials in Thai. Thais will often not inform their foreign counterparts if they do not understand what has been said, this leads to frustration. Foreigners can then leave a meeting thinking that they have reached an agreement only to realise that nothing has been done as Thais are mostly not able to say ‘no’. Interpreters are good to help interpret what has been agreed and to avoid misunderstandings. Always remain polite, calm and professional during business meetings.
Buddhism and the monarchy greatly influence social and business behaviour. The family is the center of Thai life and each member has a specific role to play. The father is the leader of the household and the mother conducts most of the day-to-day management of the family. Always respect the hierarchy, titles, seniority, and age - this will help to foster long-term relationships. Usually business relationships become social ones, unlike some western countries that always keep relationships professional. This is an important part of doing business in Thailand.
Thais will ask many personal questions, and sharing this information will help to bond with your business partner and allow them to see whether you are a trustworthy partner to do business with in the long run. Be aware of any special seating arrangements for meetings or appropriate gifts and business entertainment to always give face to your Thai business counterparts. Implicit communication is another important aspect in understanding Thai behaviour, and thus pay attention to nonverbal cues and do not cause conflict or display your emotions in public as this will let your Thai counterpart lose face, eroding trust, damaging, and possibly ending, business relationships. Buddhism requires some activities in the workplace such as blessings and ceremonies that might need to be organised by the employer, for example, a new company’s premises should be blessed by monks. Employees believe that this blessing will determine the success of the company. Monks are happy to perform blessings for a modest donation to their temple.
Business Entertainment / Meals
Socialising is a very important part of establishing trust and long-lasting relationships. Initial business meetings will take place over lunch or drinks and entertainment is an important element in developing strong business relationships. You should avoid talking about business at the dinner table unless your host raises the subject. It is not unusual for your Thai host to keep on filling your cup or glass. The most honoured person will be seated in the middle of the table, to avoid any confusion, wait to be told where to sit. Wait for your Thai host to start eating or drinking before you do - follow their lead. Most meals are shared plates and a fork and spoon are used as utensils for rice and chopsticks for noodles. The spoon should be held in the right hand and the fork in the left hand. It is polite to leave some food on your plate as a sign that you are satisfied with the amount of food provided, however, never leave rice on your plate as rice has an important value in Thai culture and leftovers are seen as being wasteful. Meals are usually paid for by the host. Never offer to split the bill or to pay if your Thai counterpart is the host.
Business cards are usually exchanged after an initial introduction and should include details of your education, professional qualifications, and business title. This will allow your Thai counterparts to establish where you sit in the hierarchy. Business Cards should be presented and received with both hands and the writing should face your Thai counterpart. When receiving a business card, always examine the content before putting it away - never write on a business card or fold it. Your business cards should preferably be translated into Thai and high quality business cards are favoured in Thailand as it represents ‘face’ and status. Never place a business card in your back pocket as it might get bent and it is rude to sit on it. Hand out your business card to the most senior person first then continue down the ranks.
Appearances are very important in Thailand and the standard of dressing is seen as a symbol of rank, so ensure that your clothing is free of wrinkles and stains. As a foreigner, when attending business meetings, western business attire is suitable. Men can wear a dark-coloured suit, a long-sleeved shirt and a tie, while women may wear modest skirts, trouser suits or dresses with shoulders that are always covered. Suit jackets can be removed due to the extreme heat and put back on indoors where there is air conditioning. Wear smart shoes and make sure that you have good quality socks as you most likely will be asked to remove your shoes. Shoes should always be clean and polished. Black is not a good colour as it is used for funerals. Do not show piercings or tattoos.
Business Meetings and Greetings
Thais usually have a first and a last name and no middle name. Nearly all Thai people will have a nickname that you can use in social settings when offered. A boss can respectfully use staff nicknames in the workplace and they will use a more formal and respectful way to address the boss. First introductions are more formal and thus titles and family names are used. ‘Khun’ is usually used as a non-gender specific honourific used before a person’s name and is roughly translated as Mr, Mrs or Miss. Shaking hands is not part of traditional Thai greetings. Greetings often involve the Thai ‘wai’ where hands are raised as if in prayer and the head is bowed slightly. The Thai ‘wai’ is a traditional greeting to give ‘face’ or to show respect to superiors. Usually the younger person will initiate the ‘wai’ and the lower the head is bowed, the more respect is shown. As a foreigner you are not expected to return a ‘wai’, a simple smile and nod is acceptable. Smiling is also good nonverbal communication to show friendliness when greeting a Thai counterpart, however, smiling in uncomfortable situations is not advised.
Exchanging gifts is a regular practice when conducting business in Thailand. Gifts do not need to be expensive, but are kind gestures that help to establish and strengthen relationships. Never open a gift in the presence of the giver. Make sure that your gift is neatly wrapped. Fruit, flowers, candy or chocolates are safe choices and good if you bring it from your country of origin. When invited to someone’s house always bring a small gift of appreciation.
How to manage people and build trust
As a majority buddhist society, buddhism plays an important role in everyday life and it affects business and management practices. Harmony is essential and thus conflict should always be avoided. Management styles are more formal, authoritarian and autocratic, and the boss should act like a boss and dress like a boss, showing their status as a leader to be respected by their employees. Status can be shown by wearing good quality, appropriate business attire, gold jewelry, flashy cars, fancy apartments, etc. The boss will need to spend more time in developing trusting relationships as a fostering and caring environment forms a significant part of office culture. Bear in mind that each person has a very distinct role within the organisation, and maintaining that role helps to keep order. Thai people believe that their supervisors have been chosen because they have more experience and greater knowledge than those they manage and it is therefore, unnecessary, and even inappropriate for them to consult lower-ranking individuals when making decisions. The boss is expected to be directive and to extend their management beyond the workplace. If there are any family issues that needs to be taken care of, the boss is expected to offer guidance. Thai employees are more likely to respond to a boss that is visible and friendly, showing that he or she is trying to look after their interests. The concept of ‘sanook’ is very important to a harmonious working environment. ‘Sanook’ refers to a happy working environment without conflict or quarrels. The boss should never single out or embarrass employees as this will erode trust and disrupt the harmony. Thais enjoy working together as a team and usually do not enjoy competitive behaviours. The manager/boss is expected to make decisions.
One of the biggest challenges when managing in Thailand is to extract information from staff, especially in the case of problems or setbacks. “Greng jai’ is a concept to give respect and not to disturb others. This might create an issue as staff might not have a critical thinking attitude and do not want to ask questions. If Thai staff has bad news, they will not volunteer this information to the boss, rather telling the boss what he or she wants to hear and creating bigger problems in the long-run. A trusting relationship and showing that a boss can patiently receive staff questions, objections and opinions can help to reduce the ‘greng jai’.
What can the boss do to build trust and create a good working environment for staff?
- Know your staff, where they are from and what their personal interests or hobbies are. Remember their names and if they are married, if they have children, how many children they have, their ages and special occasions that they are celebrating
- Use nicknames respectfully prefaced by ‘khun’
- Organise social events for staff; bills should always be picked up by the boss
- Gifts for special occasions should be presented to staff from the boss,
- Buy snacks for the office and distribute it. Especially when travelling, bring back some cookies or chocolates from other countries
- Offer shared incentives rather than competitive rewards
- Request deadlines rather than ordering it
- Thai staff develop loyalty to a person rather than a company - keep this in mind
- The importance of relationships should also be extended to customers
- Thai employees enjoy a sense of ceremony - celebrate birthdays with a small gift, a card and a cake or snacks that everyone can share at the office
Due to the tight social groups formed in Thailand, firing low performing employees usually has a more damaging effect on office morale than in more individualistic countries, thus downsizing is not as common. Lines between social and business relationships can become blurred contributing to a non-competitive attitude at work. Thai employees value teamwork and see themselves as team players.
Other than sick or study leave, young male employees might be needed for military service or male Buddhists might want to serve as part-time monks. They might be called to serve for one month or more being paid their usual salary.
Middle management tends to be very patient due to the slow pace and bureaucratic nature of Thai society. They also tend to be more reactive rather than proactive. They are great at taking orders, however, poor at delegating tasks. The boss has to be very directive defining tasks and checking whether instructions have been understood and if it has been completed. Poorly defined tasks might not be executed and just pile up in in-trays.
Decision-making is always done at the top of the hierarchy. Be patient as Thais are not quick to make decisions. It is important to identify the key-decision makers and to cultivate long-lasting relationships, this will help to speed up the process.
As a relationship-oriented society, trusting business relationships are usually between people and not companies. Changing a party in your negotiating team will slow down or halt the process and you might need to start all over again. Causing a loss of face can have a disastrous outcome and should be avoided. Any negative feedback can be delivered through a third party person to avoid a loss of face. The main negotiation style is cooperative or compromising if it can help move the negotiation forward. Always be patient and diplomatic as negotiation takes time and a lot of patience is needed in order to be successful. Avoid pressure tactics.
Due to the slow pace of society and as a relationship-oriented culture, Thai people usually do not deem meeting timelines as very important. Thai people can also have a relaxed attitude to appointments and reschedule or cancel last minute when more pressing matters demand their attention. The boss can help adjust the office culture by setting an example to always be on time and to adhere to schedules. Keep in mind that the traffic jams in Bangkok can be a reason for staff being late.
Be Especially Careful with
Be especially careful with religious aspects and talking about the Thai king in a negative way. It is best is to steer clear from talking about the Thai king as any conversation about him might be deemed as negative. Remain very respectful and humble towards Thais. They are very sensitive especially about the Thai political and governmental regime and religion. Corruption is everywhere; decide upfront what your policy is: go with it or 100% not; or go with it partly through using “agents” who are paid a fee or percentage of business deals.
Short Case Study (by Hofstede Insights Consultant Walter Jahn)
Thailand, high Power Distance (PDI): the very first training I gave on culture was in Thailand. It was a ve-day training in the South of Thailand in Hua Hin. We drove past a palace and my Thai colleague commented that it was the summer palace of the King. During 2004, I had read that the King was unwell and I therefore asked how he was doing. When we reached the hotel, she told me that Thais never speak about the King in any negative way. I thought, “wow, I was not thinking about him in a negative way”, however, speaking about him being ill was seen as negative. The Thai laws are very strict and you can go to prison for saying something bad about the King. This is a great example of high Power Distance.