Saturday, September 22, 2007

Ikea delays Thai plans as government moves to tighten foreign ownership laws

Last Updated: 12:51am BST 23/09/2007

WHAT price flatpack furniture in Bangkok? Ikea, the Swedish retail group, has put plans to expand into Thailand firmly on the shelf amid an increasingly uncertain environment for multinational investors.

The Daily Telegraph can reveal that the lingering after-effects of last year's military coup and a series of tougher laws on foreign ownership have prompted Ikea to postpone a move into one of south-east Asia's most important economies.

The delay reflects growing nervousness among overseas investors following Draconian revisions to Thailand's Foreign Business Act and the publication of draft legislation covering the retail sector which may have a serious impact on Tesco and Carrefour, the French supermarkets group.

Since the ousting of Thaksin Shinawatra, the former prime minister and current owner of Manchester City Football Club, a year ago this week, the Thai government has proposed changes to the definition of a "foreign" company to mean one which is not controlled or majority-owned by Thais. It has also vowed to stamp out the use of nominee shareholders for the subsidiaries of multinationals operating there, alarming the many overseas firms which have largely relied on the use of such structures.

"The foreign business ownership laws have always been complicated but there has always been a measure of understanding," said Alastair Henderson, managing partner of Herbert Smith, the law firm, in Bangkok.

"The latest proposals have meant great uncertainty for companies about the regulatory climate they are going to face and whether they will be able to retain control of their investments."

An Ikea spokesman said the Thai market "is still under evaluation" by Inter Ikea Systems, which owns the home improvement retailer's concept and trademark. An unnamed franchisee, which will further investigate the market, has been selected, she added.

The toughening of Thailand's foreign ownership laws could affect a string of Britain's biggest companies, including British American Tobacco, Alliance Boots and HSBC.

The south-east Asian country's interim government, which has said it is likely to hold democratic elections in December, has held numerous talks with officials from the European Commission and overseas chambers of commerce stationed in Bangkok.

One official said its actions were evidence of "a clear protectionist backlash" and could lead to Thailand being "cut out of the global economy".

"The government responded two weeks ago to a letter sent months ago [by the overseas chambers] which alleged that Thailand was in breach of its World Trade Organisation obligations," said the official.

"The government denied this, saying the amendments were 'not inconsistent' with its obligations."

Among the foreign investors with most at stake from a more hostile Thai regime is Tesco, which operates 400 stores and employs more than 28,000 people in Thailand.

"We continue to invest in the country, opening new stores and giving more Thai people the opportunity to benefit from our low prices and quality products," said a spokesman for Britain's biggest retailer. "However, we are concerned that the current uncertainty may deter new foreign investors."

According to a briefing document prepared by the trade section of the British embassy in Thailand, the number of British investment projects submitted to Thailand's Board of Investment has tailed off so far this year compared with 2006.

The new legal environment has been criticised by some Thai politicians worried that foreign investors might leave or, like Ikea, put investment decisions on hold. Assembling flatpack furniture might be a while off yet.

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