Thailand: The Elephant in the Room
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In a region where epic conflict, horrific tragedy and staggering success often co-exist side-by-side, Thailand has long enjoyed a reputation as a stable and safe oasis for travelers, expats and businesses. But her image as the exotic, yet safe destination is equal parts reality, elaborate stagecraft and skillful marketing.
Throughout all of the tough times this region has seen, Thailand has always managed to stay somewhat above the fray. Even as European colonial powers annexed her neighbors, Thailand remained free and independent. And when World War 2 raged through the peninsula, Thailand again escaped relatively unscathed. This good fortune continued through the Vietnam War years when Thailand did double duty as an airbase for American B-52s outbound to Vietnam, Laos and Cambodia and as a playground for American soldiers inbound for some R&R.
Steady wins the race
Today Thailand remains a bulwark in Southeast Asia; a stable, business-friendly nation with good infrastructure, a large population (60+ million) and skilled labor force. As such, Thailand is a major hub for the manufacturing and distribution of everything from automobiles to hard drives to computer components. Coupled with a booming middle class of eager consumers, the appeal to multinationals is obvious.
The numbers don’t lie. The Asia financial crisis of 1997 and the global crisis of 2008 aside, Thailand has experienced steady and robust growth. From 1981 until 2012, Thailand’s GDP Growth has averaged 7.5% in purchasing power. Per capita income has risen 35% since 1999 and stands at $8,400 annually.
The man behind the curtain
This is not to say that all is perfect in paradise: far from it. Thailand has seen more than her fair share of internal conflict and political strife, from military coups, violent quashing of populist uprisings and pitched street battles with red or yellow-shirted activists. Beneath this thin veneer of calm, ever-present political tensions simmer and threaten to bubble to the surface.
An uneasy peace has existed for many years between the military and the civilian government, held together by a shared reverence for King Bhumibol Adulyadej, who is regarded by the people as somewhat of an infallible demi-god. It would be difficult to overstate the importance of the king in Thai culture, life and politics. Although the majeste is the law of the land, one could argue that such restrictions are redundant, as the people’s devotion to the king here is real. Even those who might normally take any opportunity to spurn the institution of the monarchy would agree that this king stands out as the quintessential model of the benevolent monarch. True, this is a constitutional monarchy with no real legal authority, but he is so beloved by his people that his words alone hold a level of influence and power only dreamed of by most leaders, elected or otherwise. When tempers rise it is almost always the influence and intervention of King Bhumibol that saves the day and brings the situation back from the brink.
But at 84 years old, the king is aging and in poor health, causing whispers of concern over what will happen when he eventually passes on. According to the rules of succession, the king’s son is next in line, but it is not the position itself which makes King Bhumibol so effective, so it cannot be assumed that the new king will have the same influence as did his father. That is if he is even permitted to become king.
The rumor mill is rife with theories on how events will play out as various factions jockey for power in the absence of King Bhumibol. Given Thailand’s recent history, fears that conflict will ensue are not unfounded, and it is not a stretch to assume that there will be violence and that the military will get involved. The only question is how intense will it get, how long will it take to resolve itself and how much damage will be done before stability is restored.
A house of cards
One need only refer to the recent floods that swept through the country to get a sense of how much events in Thailand affect global trade and the operations and fortunes of companies throughout the world. One broken link in the global supply chain can (will) send ripples throughout the global economy. In the aftermath of last year’s floods it is estimated that hard drive prices in the US spiked 10% as manufacturers struggled to recover. Hewlett Packard Co. (NYSE: HPQ) blamed the crisis in part for a 44% decline in earnings for the quarter in question, while Western Digital (NASDAQ: WDC) saw their hard drive shipments for the same period drop by more than half.
The effects on auto manufacturing were no less dramatic, with Toyota (NYSE: TM) reporting an 18.5% decline in profits as lack of parts and components from Thailand caused factories in other countries to slow production. Other manufacturers saw similar declines, with Honda (NYSE: HMC) blaming the floods for lost production of more than 250,000 vehicles and a 20% global decline in production.
Moreover, there were the effects on the travel industry. A vital and busy regional hub, Thailand relies heavily on travel and tourism as a staple of the economy and is a crucial source of revenue for numerous international airlines, hotel chains and tour operators. According to the Association of Thai Travel Agents (ATTA) bookings dropped 70% and cancellations ran a hefty 25% as a direct result of the floods.
The effects of the floods seem to be receding along with the water levels. The economy is currently booming with 11.5% growth in March of this year.
It may seem counterintuitive to think that the king of a small country in a region few know much about having any effect on global business, but it pays to remember that a slave rebellion on the island of Haiti forced Napoleon to sell the Louisiana Territory to the United States for a paltry $15 million, paving the way for American expansion to the Pacific and changing the course of world history.
The butterfly effect on steroids.
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