Question

How do firms in Asia (in this case, in Thailand) overcome market failure?

What costs and benefits do US -based Ford and British companies experience as a result of FDI in Thailand?

What role does Thailand’s location play in its booming economy? Is agglomeration involved?

Are there confrontations with inbound FDI?

Should foreign -invested and domestic firms sell more to domestic consumers in Thailand?

How will the coup affect the auto and other American and British companies doing business in Thailand?

Answer 1

1. The firms in Asia (as in this case Thailand) overcome market failure by engaging in more liberal trade policies. The trade balances are maintained through import and exports. If a country has higher exports then they saved from market failure. Most of the Asian countries, like China, Thailand, Vietnam, Taiwan etc have increased their export orientation, which is helping them survive.

2. Foreign direct investment is an hierarchical mode of market entry strategy (as defined in Seven Hollensen, Global Marketing). This mode of market entry is has high risk but at the same time it is also a high return option. When firms like Ford from US and other British companies invest in Thailand through FDI mode, they get market access not only in Thailand but also to the countries in the region. Export involves high logistics cost, so when a firm from US exports to Thailand, Vietnam, Taiwan, or Australia from US the cost of transportation would be very high. But if the same firm has a production unit in Aisa, the transportation cost would be reduced and the FDI option would add to their competitive advantage. Hence, it can said that though the  costs investing through FDI might be high the returns are equally high for the firm.

3. Thailand is centrally located in Asia with port connectivity. It acts as a gateway to countries in all directions like India and China and also to other ASEAN countries.

4. There are certain confrontations with inbound FDI for Thailand. The WGI tool i.e. World Governance Indicators show that the political stability is low for the country and the level of corruption is also on the higher side.

5. While Thailand is a thriving economy but only selling to domestic consumer in Thailand is not going to be a profitable strategy in the long run. This could lead to market saturation. The firms should have an export orientation.

6.. Thai economy has been exposed to several coups. Till 2014 there has been 12 coups in Thailand. The 2014 coup was also one of them. The coups create market turmoils and the Foreign Investors get apprehensive of the situations. Some of the firms might pull back their investments. However, in the case of automobile firms the exit from the market is not an easy option. Because it is an high investment proposition. The firms that have already  invested in Thailand will have to wait for the economy to stabilize. While the firms considering investment in Thailand, might get dissuaded due to political unrest.