The Nation

SPECIAL REPORT

Companies look overseas for growth

Limitations and hurdles in the domestic market are making many firms seek investment opportunities abroad

Since late last year, leading local corporations have invested billions of baht abroad to ride the wave of globalisation sweeping the world, before they are left behind and marginalised. The Nation surveyed these explorers and found diverse motivations for them to look for greener pastures out of the country. Central Retail Corporation, the country's biggest retail group, decided to gain a foothold in the EU market by taking over the top department store in Italy as well as to extend its own Central brand in Asia, as the domestic market is too small for its ambitions. Hotels are embarking on diversification outside the country in a bid to offset slow growth domestically.Energy firms like PTT Exploration and Production and Banpu need to seek sources of energy overseas for secure supply reasons. Saha Mitr Phol Sugar Corporation wants to smooth out its sugar supply by producing from various countries with different harvest seasons. Sahaviriya Steel Industries had little choice but to set up operations overseas, as there was no space for it in the country due to environmental protests by communities. Garment manufacturers, which will likely face wage hikes imposed by the next government, have moved out to set up production bases overseas where labour is cheaper.

HospitalityMajor Thai hotel developers and hospitality management firms are continuing to expand in overseas markets in order to offset slow growth domestically.At least four big domestic players, Dusit International, Amari Hotels and Resorts, Centara Hotels & Resorts and Minor Hotel Group, are entering international markets to manage or operate hotels, mostly in Asia and the Middle East.They are eyeing properties in the Pacific region as well as further afield in North America and Africa.A spokesperson from the Thai Hotels Association (THA) said Thai hotels had created new brands to expand globally. Successful new brands include Minor Hotel Group's luxury unit Anantara and dusitD2 from Dusit International.Minor plans to launch a new four-star brand soon. It will be aimed at the upper-middle market both in Thailand and overseas.The THA believes that using new brands will help operators to strengthen and gain more business.Shifting overseas is a sensible move in terms of returns compared to focusing on the domestic market, where political unrest has blighted the industry for years. The Thai tourism industry was damaged heavily last year by political demonstrations.Dusit International said it had already opened six hotels in Egypt, the Philippines and the United Arab Emirates. It is planning to run 11 hotels in Bahrain, China, India, Saudi Arabia, United Arab Emirates and the United States, as well as in Thailand. Another long-standing player, Amari Hotels and Resorts, has a strategic plan to add 40 new properties across Asia by 2018.The expansion will focus on India, Vietnam, Australia, China and possibly Hong Kong and Singapore. Mumbai, New Delhi, Oman and Bali are also key considerations.Centara Hotels & Resorts is also expanding fast overseas. The group operates hotels in the Maldives and the Philippines.Its Boutique Collection brand operates the Moksha Himalaya Spa Resort in India and the Chen Sea Resort & Spa Phu Quoc in Vietnam.It is also planning new hotels and resorts in Manila. Dillip Rajakarier, chief executive officer of Minor Hotel Group, said his company had a five-year expansion plan that would see its number of hotels and resorts in Thailand and overseas rise from 72 to 105 by the end of 2015.New properties are planned in Africa, China, India, Vietnam, Indonesia, the Middle East and the Pacific region.Minor Group expects to raise the number of Anantara resorts from 21 to 50 by 2015. It will also increase the number of its timeshare units from 20 to 200 units over the same period.The group recently took over an Australian group, Oaks Hotels & Resorts, which should help it to expand in the Australia and New Zealand markets. Jonathan Wigley, chief executive officer of Bangkok-based Absolute Hotel Services Group, said it planned to manage 18 properties under the U Hotels & Resorts brand in Thailand, Vietnam, India, Indonesia and Qatar.The group also plans to commence management of properties in Indonesia and India this year. It will also start operating nine properties in Thailand, Qatar, Vietnam and India in 2012 and seven more in Thailand, Vietnam and India in 2013.

Inroads into global marketplaceCentral Retail Corporation (CRC) has been at the forefront in moving out to regional and global markets to fulfil its dream of becoming one of the world-class retailers in the global arena.CEO Tos Chirathivat said recently that in Thailand, the group is one of the largest and most diversified, with formats ranging from department stores (Central, Robinson, Zen, La Rinascente) and category killers (Powerbuy, Supersport, B2S,homeWorks, Office Depot, Thai Watsadu) to supermarkets (Central Food Hall, Tops Market, Tops Super, Tops Daily)."We have stores both in Bangkok and upcountry. Retailing in Thailand is growing but the market is quite limited. If we want to grow more than 10 per cent each year, we have to expand to foreign countries," he said.China is a fast growing country with a large population that has enough disposable income to spend on lifestyle and luxury products, he said. "China has great potential for growth for our retail formats. We opened our first Central in Hangzhou in May 2010. "We will launch two stores, Central and Zen, in Shenyang about the second and third quarter of this year. We recently signed a contract with the developer of MixC Shopping Complex to open one more store in Chengdu, which is our fourth store in China. "Besides, we plan to open at least two to three stores each year in China. In 10 years, we plan to have 30 stores in China. We are also looking out for acquisition opportunities. Opportunities in China are diverse and we can be flexible in choosing them," he said. Last May, CRC took over La Rinascente, Italy's supreme luxury department store, which catapulted the company into the top tier by expanding to Europe. "This fills the luxury segment, completing the fourth spectrum of department stores. Besides our existing 11 La Rinascente stores, our plan is to expand locally with more flagship stores in several major and tourist cities such as Rome, Venice and Florence as well as other important cities such as Napoli and Bologna, giving us coverage in all prime cities in Italy. We also plan to take our stores to other countries in Europe and Asia in the future," he said."With over 64 years of direct retail experience, CRC is confident that our brand and business propositions will appeal to our target customers. As for business opportunities, Central Retail is the leader in developing retail formats and we have very strong foundations in merchandising and introducing new products to our customers. "Our strengths lie in our people. In addition, our unique products and services, as well as sophisticated operating systems, are the hallmarks of the retail industry, which we believe can make us successful in Thailand and foreign countries," he added. Kobchai Chirathivat, president and CEO of Central Pattana (CPN), a leading mall developer and a unit of Central Group, said the company has crafted a fourth-decade strategy to become a regional player."We have continued to develop and progress and want to be a centre of many communities. We are now Thailand's best shopping mall and want to move forward to the new era by becoming one of the leading world-class shopping mall operators," he said.CPN would like to become a world-class retail developer, with strong focus on expanding its shopping malls in overseas markets such as China. CPN's first overseas shopping complex is scheduled to open in Qingdao in eastern China's Shandong province by 2013.The project in Qingdao was a joint venture with local investors in China. CPN will hold 30 per cent.

Stable and secure suppliesPTT Exploration and Production (PTTEP) has been roaming the world to secure energy sources for the Kingdom. Last year, it was successful in joining the Kai Kos Dehseh oil sands project in Canada. It purchased a 40-per-cent stake in the project from Statoil, Norway's national oil company, for US$2.28 billion (Bt70.3 billion), the biggest overseas investment a Thai enterprise has ever made. The first business collaboration has become a big and important step for PTTEP to grow outside the country in the oil and gas exploration and production (E&P) business. The companies signed an agreement to cooperate in the business development of unconventional oil and gas exploration and production in promising areas like Canada. Besides collaborating with Statoil, PTTEP is also exploring E&P opportunities in South America and Africa. It has set a target to produce 900,000 barrels of oil equivalent per day in oil and gas by 2020. That would make Thailand a top-five E&P player in Asia behind China, Malaysia, Japan and South Korea. Sahaviriya Steel Industries (SSI) early this year concluded a deal to take over Teesside Cast Product, a UK-based steel smelter, from Tata Steel UK for $500 million. This investment has been recognised as a way out for SSI as the company had faced resistance from local people to building a steel blast furnace, the upstream plant of the steel industry. SSI allocated $150 million to increase the capacity of slab at Teesside to 10 million tonnes from 5 million tonnes currently, and it will not stop investing overseas. The company is also eyeing iron ore and coking coal mines in the Atlantic to supply Teesside. New investment is expected to come out over three to five years. Now, SSI has become the biggest integrated steel manufacturer in Asean. Mitr Phol Sugar Corporation is another company that is pursuing mergers and acquisitions in Australia and other countries in Asia-Pacific. The company last year acquired a 19.9-per-cent stake in Maryborough Sugar Factory, Australia's third-largest sugar miller with annual capacity of 500,000 tonnes, from Guinness Peat Group. The cost was Bt1.2 billion. Besides Thailand, Mitr Phol has sugar businesses in China, Laos and now Australia. The sugarcane harvest season in each country is different. They are also located in different geographical and climate zones. This allows Mitr Phol to reduce the risk from global warming and seasonal dependence. Thailand is one of the countries with a low price for sugar. This has not been encouraging for sugar manufacturers, as the retail sugar price in the domestic market is controlled. Exporting sugar will give them more revenue. If they can have their own sugar mill outside the country, they can enjoy the world price. Coalminer Banpu last year took its biggest step overseas by taking over Australia's Centennial Coal for A$2 billion (Bt66 billion). The company would like to reduce the risk from relying heavily on the coal business in Indonesia. Besides, Australia is among the world's top-three coal exporters and boasts abundant reserves. Centennial Coal will benefit Banpu's operating results this year, as the output from coal mines in Indonesia, China and Australia will be about 51 million tonnes. The company's revenue is set to grow by 40 per cent from Bt65.285 billion in 2010 due to the increase in coal output of 19 million tonnes from Australia. After Banpu disposed of China's Daning coalmine early this year to avoid the uncertainty of licence renewal, it had to either invest in new sites or increase capacity in existing coal mines so that it could maintain its revenue. This means that the company is always looking for the opportunity to invest overseas.

Sunset Industry As a really labour-intensive industry, garment manufacturers have to set up second production bases outside the Kingdom because political parties have pledged to hike the minimum daily wage to Bt300.They have been preparing the move for a year, as rising production costs, particularly wages, will dull their export edge. Setting up second bases would also support the plan to upgrade Thailand to a real trading hub for garments in the regional and global markets, paving the way for Bangkok to become the head office for all management. The populist platforms launched during election rallies have galvanised those manufacturers into rushing to establish second bases outside the country. However, they do not consider cheaper labour as the only important factor. There are also other variables such as logistics, investment regulations and skilled worker development.The most popular country now is Vietnam. It is not far from Thailand and it has clear investment regulations and privileges for foreign investors. It also has a big enough labour pool to ensure smooth operations in the future. Other interesting countries are mainly in Asean, such as Indonesia, but also Bangladesh and China. Thai manufacturers plan to take advantage of not only labour support but also low duties through single markets under the Asean Economic Community and free trade pacts with targeted trading partners. As least six to seven of the largest garment manufacturers - Nice Apparel, Hi-Tech Group, Thong Thai Textile, Nan Yang Textile, Liberty Garment, Hong Seng Knitting and Oriental Garment - have focused on locations in three promising countries to set up plants.Sukij Kongpiyacharn, president of the Thai Garment Manufacturers Association, said almost all of their manufacturing focuses on sportswear. They will invest an average of US$8 million to $10 million (Bt242 million to Bt303 million) on setting up the new sites. Each company expects to employ between 2,000 to 5,000 workers.Those major players had combined sales of more than $700 million out of total Thai garment exports of $3.2 billion last year.


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