Whilst a major ASEAN country like India dropped its exchange rate over the past 9 years, Thailand not only retained its rate but slightly increased it as well. On 31st December 2010, 1 USD would equal 44.7125 INR. In 2019, 26th June, 1 USD equaled 69.199 INR. Such has been the growth of Dollar over the past year. But, during this same span of time, and to the amazement of West, Thai Baht has been equally competitive. On 31st December 2010, 1 USD equaled for 30.025 Baht. And on 26th June 2019, 1 USD equaled for 30.735 Baht. The aggregate economic value of Dollar is still way greater than Baht. But, the economic growth of baht has been almost similar to that of USD.
This growth of Thailand’s currency was accelerated by the Thailand government’s Thailand Digital 4.0 policy. In just a year of adopting the policy, the exchange rate of USD to baht has dropped from 33.155 to 30.78. This bold commercial performance of Thailand has attracted the attention of investors across the world. And naturally, business in Thailand seeing a growth bigger than ever before. With Thailand’s estimated foreign reserve being 207 billion USD in January 2019, the nation benefits hugely from its international trades.
How can this surge in baht influence business in Thailand
To understand the impact of the baht surge on businesses in Thailand, you need to understand how exchange rates impact the businesses. A global market is always the aspiration for any business. And to play in the global market, a business will need to import and export on both production and supply ends. Obviously enough, imports and exports are quite directly linked with a nation’s exchange rate.
Appreciation in the exchange rate shows economic progress, but it is not so bright on the exporting firms. An appreciation will make exports expensive, which in turn will hamper the competition between exporting firms. A depreciation, on the other hand, is a beneficial situation for exporting firms. As there is depreciation or devaluation of the currency, the export items will become cheaper in the international market. Hence, foreign buyers will be more motivated to purchase. As a result, exporting firms will benefit from their domestic boundaries.
For imports, however, it is exactly the opposite. This is why if you are thinking of starting a business in Thailand, this is the right time for you. As the exchange rate appreciates, the importing of raw material will come cheaper. The imports required for your startup business will be available at a lower cost. So in terms of aggregate import and export, the appreciation of baht in 2019 will have mixed impacts on doing business in Thailand. If your Firm is an exporting firm, it is likely to face a challenging scenario. But, on the flip side, if your firm requires a lot of importing, you will save your expenditure on raw materials. Hence, your business will suffer on prospering in 2020, will depend on how well you capitalize on the baht appreciation.
How can Startups capitalize on the baht appreciation
If dealt tactfully, any economic environment can be utilized to the benefit of a business. The fluctuations in the exchange rate will either reduce the foreign price or increase profit margin, or vice-versa. Now is this which one is good for your business in Thailand, and which one is not? Unfortunately, this is a counterproductive approach. The right approach is, whatever the outcome of fluctuations, how can you utilize it to the benefit of your business. You can hire a Startup business consultant who will provide various disaster management services, and help you survive the exchange rate challenges.
Stay completely local – If you are setting up a company in Thailand, this is probably the safest way to stay unaffected by the risks of exchange rates. When you keep your business entirely local, you make no foreign commercial interactions. Your customers are local, you pull in your raw materials within your domestic borders. And even your employees and offices are set up within domestic borders. This way, the currency can appreciate or depreciate, it won’t bother you.
Focus on your imports – In times of currency appreciation, the cost of imports come down drastically. Hence in 2020, focus on opening a business in Thailand, that requires a lot of importing in terms of raw material. You will be able to get the best quality raw materials but at a cheaper cost. As a result, you yield better quality products at a lower cost.
Restrict You exports – Currency appreciation will make your exports expensive, hence foreign buyers will be less inclined to buy your product. Even though your product will have a higher foreign price, it will have a lower profit margin. Hence, it is best to keep your customer base domestic. As a thumb rule import global and sell domestic, in times of appreciation.
Pick on the sufferers – If you are planning to start a business in Thailand during 2020, look out for the industries with sufferers from currency appreciation. Certain industries will have existing players, who lay a heavy focus on self-sufficiency for raw materials. Meaning they do not import raw materials but acquire or produce them domestically. Now being existing for a long time, they will have a long stock of supply to get rid of. Hence, even if they start producing new products with import raw materials, they cannot start selling them right away. This is where you need to take advantage of the situation. With a fresh start, you can produce better quality products with cheap imported raw materials and start selling them right away. As a result, you will produce better and sell cheaper.
Reap the benefits of exporter’s doom – If you are a group of skilled economists and business managers, you can figure out ways to get an exporting firm out of currency appreciation troubles. he exporting market is a slug during the currency appreciation. They need dire help from industry experts. Such a scenario is ripe to open a Startup Consulting. You can provide disaster consultancy services to those firms, who are knee-deep in stocks and are drowning in currency appreciation.
Make an inventory check – Make a thorough account of your business in Thailand. List each and every activity that includes foreign currency. For example overseas revenues, overseas payment to suppliers, raw materials, constructions and employees, and such. It could even account for the investments in global stocks, funds, or bonds. This will keep you a thorough idea of the impact you are taking from a currency appreciation. Once you have made the accounts, make decisions, that will aim to reduce foreign revenues and increase foreign expenditure.
Pass it on to the customer: Whatever impact the appreciation is having, make sure to toss a piece of it to your customers. If your production cost reduces due to the appreciation, let the customers enjoy it too. However, if your cost increases, increase your selling price as well.
Focus on nations behind Thailand in currency – Appreciation is in general generous towards importing. But, what’s better is to import from countries whose currency is behind baht. As a matter of fact, it will be beneficial to get the maximum production process completed in such nations, and then sell it in Thailand. Business opportunities in Thailand are plenty, but 2020 is going to be tricky. Because of baht appreciation, you can build offices in a backward nation, pull raw materials, hire employees, and get your product produced. Doing so you will get the entire production done cheaper than you would have in Thailand. And then simply sell it in Thailand with a greater margin. The bottom line, in times of currency appreciation, production outsourcing to backward currency nations, is a good idea.
Target countries suffering from inflation- Countries that are already suffering from inflation have a reduced foreign price. In 2019, with baht appreciation in Thailand, it is already beneficial for a Thai business to import Raw Materials. If you do so further, from a nation with a low foreign price, you will be able to maximize the import benefits of currency appreciation.
Do not import from countries undergoing currency appreciation as well – Countries undergoing currency appreciation, are less motivated to export. In fact, since they expect to get a lesser value as compared to the previous exchange rate, they tend to mark up the final price. If you import from such nations, although you will be paying lesser as compared to your previous exchange rate, you won’t be getting the cheapest price on the global market.
Demand elastic products – Demand elastic products are good items to trade with during currency fluctuations. The demand elasticity of a product is the sensitivity of its demand with respect to change in another economic variable. Higher the elasticity of demand for a product with respect to a particular economic variable means higher chances of changes in customer’s responsiveness. Evaluate the market and figure commodities and services that have high demand elasticity with respect to currency appreciation. And then, comfortably start a business in Thailand dealing with such commodities and services.
- How to obtain financing for your business in Thailand
- Top 10 Business Opportunities in Thailand
- 10 Key Steps to endure your Startup success in Asia
- Franchise Opportunities in Thailand
- How Coronavirus Impacted the World Economy and Thailand Business?
- Startup Business Options,
- Investment opportunities in Thailand
Latest posts by Andy Aditya (see all)
- 2022 – Strategies for the hospitality industry to bounce back - May 14, 2022
- Overview of Thailand’s Startup Ecosystem - May 7, 2022
- Critical Success Factors for Startups in Thailand - April 29, 2022