Start-up in Thailand – a dangerous venture?

Analysis19.10.2018Isabel Matthes, King's College London

In some parts of the world start-ups sprout like mushrooms after the rain. Around 100 million are recorded each year. Despite the fact that most of them fail – which is the case all over the world - , it has become clear to most governments that the surviving enterprises can play a significant role in economic growth. So far there has been more warm drizzle than pouring rain in Thailand. But in recent years a relocation of investments from North America and Europe to Southeast Asia has been registered and the Thai government has been determined to perform a rain dance.

Since 2014 Thailand witnessed a sudden influx of digital nomads. This is due to the kingdom’s favourable preconditions. Rent and resource prices in Bangkok and Chiang Mai are low, if compared to other metropolises, which translates into a comfortable living standard or workspace. Many expatriates settle – or want to settle – in Thailand which results in an assortment of local and foreign employees with different sets of skills and hence increased human capital. 

But the market differs from “traditional” start-up ecosystems such as California or Hong Kong. Uber, the poster boy of disruptive start-ups, has had less success in Thailand (and other Southeast Asian countries) than in the US and Europe. Instead it was the Singapore-based transportation service app 'Grab' that conquered the region and bought Uber’s operations in Asia in March this year. It seems that Grab was better able to provide a tailor-made solution to local needs. Innovation, it seems, has to be like a tailor-made suit and Grab was better able to provide just such a solution to local needs.

At present it seems that there are less 'tailors' in Thailand and its surroundings than in start-up hotspots like London, Stockholm or California. But signs are encouraging. Many Silicon Valley-based Thai talents are moving back home. Furthermore, new opportunities and the developing ecosystem have also attracted the tech giants Facebook, Google, AWS and Microsoft which provide free resources to qualified start-ups.

Thai laws are lagging behind, though. In the past most digital nomads had been working on tourist visas simply because it was difficult to obtain work permits. This entailed a risky tiptoeing on the fringes of immigration laws for years. On the background of the draconic penalties, imposed on those without valid visa or work permission, this has clearly been one of the major impediments for Thailand's start-up scene. It was, in fact, a self-imposed hindrance to the growth of the start-up scene and the Thai economy.

In 2016 the government launched its pioneer project 'Startup Thailand'. The main goal of the platform is to promote the growth of start-ups and the start-up ecosystem in Thailand. Furthermore, there have been aspirations to facilitate the process of doing business in the kingdom. In 2017 the 'Digital Nomad Visa' was introduced. This 'smart visa' is supposed to make the country more attractive to entrepreneurs and business professionals. The visa promises its applicants a longer stay than the usual three months, and a permission to work.

Alas, it may not be suited for all digital nomads, especially those working as content writers and other professions that do not fit into the 'highly skilled professional' category of entrepreneurs Thailand wants to attract. Another cornerstone of the government's support is a 20 billion Baht ($602m) fund for SMEs. But simply doling out money might not be enough – and governments are usually not very good at investing in business ventures, since they use other people’s money. 

Some of Thailand's other regulations also demand complicated work-arounds and can be discouraging. Complex legislation and investment structures remain a bitter reality. Unless one is an American citizen, under the US Treaty of Amity, one is not allowed to fully own a company in Thailand. For each expatriate employee, one must provide jobs for four Thai employees as well. Additional addresses in nearby countries might be required and an obligatory visarun can become a monthly ritual.

Startup in Thailand
Thailand’s attempt in building ecosystem for startups

Thailand is not the only one struggling. There is only a handful of technology companies in Southeast Asia that are valued more than $1 billion, in contrast to China, which has more than 30 of them. China is, of course, due to its scale hard to compete with. Yet, there are 10 ASEAN countries with more than 625 million inhabitants. How can the scarcity of interesting start-ups in this region be explained? For most Southeast Asian countries, apart from the fact that the economies are still separated by significant barriers to trade, especially in services, it is the problem of traditional family conglomerates that continue to dominate the economic landscape. Paul McKenzie, a consultant with Citic Securities in Hong Kong, claims that the strict regulations towards licences ensure that most opportunities continue to go to the well-connected, leaving most opportunities idle. Taking a look at start-up hotspots like Silicon Valley or Stockholm makes one thing clear: the attractive places have local laws that support businesses.

The one thing that Thailand certainly has is potential. The start-up ecosystem is growing rapidly and there is a serious focus of the government on start-ups. Recent government policies helped improving the conditions for entrepreneurial ventures. They have lifted the burden of unsuitable visa of many shoulders and by funding start-up conventions and SMEs enticed a start-up friendly environment. Yet, in view of competition like China, this will hardly be enough. If Thailand genuinely wants to be recognised as a start-up heaven, then it needs to open up to digital nomads of all professional backgrounds, not just to a select group of highly skilled ones.  Foreigners should be allowed to own businesses and counterproductive bureaucratic hurdles should be reduced. Otherwise, the weather will remain drizzly.