- SEARCH OUR SITE -  ABOUT US - ADVERTISING - SUBSCRIPTION  - CONTACT US - BUSINESS INDEX - PHOTO LIBRARY  - OTHER MAGAZINES -

 

Phuket Magazine Vol. 13.1

Where Dreams Come True
For some people, Phuket is the ideal spot for their dream house and the interior of that house is where the dream comes true

Art on the Eighth Latitude
For others, Phuket works its magic, inspiring artists to create.

King’s Cup Review - A Great Regatta
Though breezes were lighter than perfect, the fifteenth regatta proved that the show goes on in any conditions.

Investing in Phuket: A Rock Foundation or Castles in the Sand?
Phuket is not only beautiful but it’s also a safe haven in these

Ice Cream: Thai Style
Ever have ice cream on a hot dog bun? Try it — you might like it, as well as other ice cream novelties as only the Thais can create them.

Soft Lighting, Softer Music and Spicy Thai Cuisine

A Lazy Lunch at Rydges Beach Resort

Expat Diary: Jai Yen. Jai Yen Yen

ARCHIVES:

For at least half a decade, the number of foreign tourists coming to Phuket each year has continued to grow at an average of 10 percent, and for some years as high as 12-16 percent. Due to the baht devaluation in 1997, the Thai currency at the same time has dropped in value from 25 baht to about 44 baht a dollar. Average tourist spending has risen from 2,865 to about 3,645 baht a day, mostly because of this factor alone. There's no doubt that Phuket and its people have gotten richer - just the opposite of what has happened to the rest of the country.

None of this has gone unnoticed, and naturally everyone wants to get their piece of the pie. Even as we speak, yet another stranger may be crossing the Sarasin Bridge - jumping on the bandwagon with a plan to make good here on the island. At the airport, a new arrival may have just arrived from Europe with a bag full of cash. He too has great plans to make it big, planning never to return to his home country. If all goes well, at least.

"Most people don't believe me," says Khun Veerachai Tantiwathanavallop, director at Phuket's Commercial Registration Office, a man with his finger on the pulse of the island's business and investment scene, "when I say that almost all of the businesses that come to register with my office must, in one way or the other, have some ties with foreigners. Really, I myself cannot actually figure it out how this happens. They come from all over the world. I've heard of some countries that earlier I'd never thought existed."

Among Thais, it's obvious - Phuket is the only place in the country with positive growth prospects. With Phuket's brand of tourism, demand and, hence income, come mainly from abroad, and the operative factor is the world economy, rather than the domestic. And, with the currency devaluation, it's even cheaper for foreigners to come to Phuket, creating even greater demand.

Meanwhile, apart from the fact that Phuket is a tropical paradise, it's become a desirable place for foreigners to live. The island has all the right ingredients to set up and run a successful tourist business: a beautiful landscape, tropical climate, exotic culture, an exceptionally hospitable and service-minded people, little or no political risk, a weak currency, and consistent demand, to name a few.

In short, according to Khun Pamuke, Phuket is the "total package".
Another encouraging factor in conducting business in Phuket are the Board Of Investment (BOI) tax incentives extended to investors. The BOI offers two kinds of benefit. One is tax-based incentives, such as tax holidays or tariff exemptions. Then there are non-tax privileges such as guarantees, protections, permissions, and services.

On Phuket, investors receive a 50 percent reduction on import duty on machinery that is subject to import duty of not less than 10 per cent. They enjoy exemptions from corporate income tax for three years, increased to five years for projects located within industrial estates or promoted industrial zones. Such a project must have a capital investment of 10 million baht or more (excluding cost of land and working capital), and obtain ISO 9000 or similar international standard certification within two years from its start-up date, otherwise the corporate income tax exemption will be reduced by one year. There will also be import-duty exemptions for one year on raw or essential materials used in the manufacturing of export products.

The non-tax privileges, meanwhile, are available to all BOI-promoted projects, regardless of location, industry or other conditions.

Although all this is true, and even if companies are big enough to meet all the requirements, non-tourism related enterprises are better off locating elsewhere, if the same privileges are available, given the high overhead costs of doing business on Phuket. For those in the tourism industry, on the other hand, Phuket is already the first choice, regardless of the privileges.
In essence, take a "perfect" product (such as Phuket the Total Package), combine it with business experience, a chance to offer Thai people what they have never seen and experienced, and a connection with businesses back home, and you have some good reasons why foreigners should invest their life's savings, working to realize their dreams here.

It seems as if anything goes, and everyone can make it here, whether the business under question is a hotel, guesthouse, bungalow, restaurant, pub, spa, tour company, dive company, or any of the other businesses that can be seen springing up in and around Patong, Kata and Karon.

"There are all sorts of foreign investors here," says Mr Eric Snyder, managing partner at Jairak Enterprise. "Professionals and big-time players, small-time players, and those whom I call the ones thinking below the belt, who have never run a business before." Mr Snyder is a prominent legal business consultant, a Phuket veteran and an ex-New Yorker who left the Big Apple for Phuket twenty-something years ago.

"Yes," according to Snyder, "setting up here is pretty straightforward, just a lot of paperwork and that's all."

It's easy to start a business in Thailand. It's easy to take money out. The island is a stranger to political turmoil and religious conflict. Phuket has a unique character and beauty. The island and the surrounding area is an easy place to live both for businessmen and others. More importantly, Phuket is a recognized quality destination in the world travel arena and is enjoying a period of healthy growth.

At the end of the day, then, Phuket is seeing more and more investment. More investments bring more support businesses. More businesses bring more jobs. More jobs bring more money. More money brings more people and still more investment. And it just keeps on going, at least over the past few years.

It's a self-fulfilling prophecy that is unlikely to end, unless the 10 percent growth begins to fall and the 4 billion baht in additional income pouring into the island each year - what has appeared to be a sure thing - starts to disappear, something that was unlikely to happen. At least until last September 11. The conflict in Afghanistan has yet to be resolved, as of this writing, and it's difficult to tell how long it's going to last. Along with the rest of the world, Phuket has felt some repercussions, and that magic number of 10 percent is now in doubt for the coming year.

Whether it's a business supplying cooking gas or an up-market home, there's some constricting of the market. "Some home buyers," says Mr Snyder, "have already started picking up the phone and calling the developers here to say something like 'Forget about the swimming pool, my stock just went down'.
"However," adds K. Pamuke, "some other projects, hotels or residential estates for example, have to go on to meet whatever commitments they might have. After that, I think, everyone will pause to wait and see."

Pamuke nevertheless maintains his overall positive outlook. "After all," he says, "thanks to our political stability, we have been left in a better position than regional competitors like Langkawi and Bali. And, in the long run, unless you do something really disastrous to the place, beach destinations, no matter what, tend not to lose their appeal. Personally, I don't think that it's going to get any worse."

Ultimately, the next couple of years are going to present themselves as a real test for business owners and the island itself. If - and it is a big if - the number of tourists and hence business volume dropped and continued to drop, inevitably some businesses would have to fold, and many foreign investors, however reluctantly, would have to fly home, while fewer and fewer decided to move here. If that happened, then there would be a so-called correction period, whether V- or U-shaped.

The "below-the-belt" investors, as Snyder terms them, are likely going to have to think somewhere higher now, given the not-so-lofty situation back home and here. The others who already have a foot in the island door, meanwhile, have to start thinking seriously about market demand, some of them for the first time.

According to Khun Pamuke, this might in fact be a good time for Phuket and businesses to shift into high gear, while its competitors are having a tough time merely just trying to survive. This doesn't mean more rooms, restaurants, and bars, as shifting into high gear on Phuket has often implied, but maybe it is time for the island to up-grade itself. As he says, "There are several other things that we should have done while all this building craze was going on, such as establishing a water treatment system and mass transportation - the basic infrastructure, so to speak. To me, that is where good investment prospects lie." And there are the entertainment and hotel support industries as well.
Phuket remains a sound investment location, now and for the long run. Investors, especially the smaller entrepreneurs, however, are now required to think differently.

Recent events on the world scene have demonstrated things can take a wrong turn, and that the "sure bet" can suddenly be transformed into bad debt.

Instead of thinking differently, perhaps it's more accurate to suggest we need to start thinking, while there's still time.