Using international & Thai legal Standards in business for optimal results

Global challenges

Globalisation has advanced significantly at an ever faster pace. However, this is now being challenged through issues such as trade tariff ‘wars’, states seeking control over data and technology by imposing restrictions on 5G technology market participants, wealth inequality, climate change dischord and supply chain realignment due to technological advancement.

Balancing international and domestic norms

Whilst this has an effect on all of society, those that elect to invest in developing markets such as Thailand must establish how to strike a good balance between international norms and practices and cultural and domestic norms, which interplay and can affect standards of business with varying degrees of positivity and negativity.

Avoiding a race to the bottom

If we apply a basic ecosystem theory to business, then Thailand is a mini-system inextricably linked to the wider global system. Therefore, the adoption of business standards must take into account both international and Thai standards to produce optimum results. In order to avoid an aggregate result of lowest common denominator standards, your operation standards and objectives must be analysed in the context of both international law and domestic law. If you are to understand your legal framework of operations correctly, then it would be wise to obtain legal advice on both.

Global trade standards – ICC Incoterms 2020

Thailand continues to adopt or promote international standards and in certain business areas this results in successful outcomes. For example, the International Chamber of Commerce (“ICC”) of Thailand, part of the ICC which is the world’s largest global business organisation and sits as an observer member of the United Nations, has launched a revised set of standards for global trade, referred to as INCOTERMS 2020. These set out situations of trade where certain pre-agreed understandings are incorporated into an agreement between trading parties and intermediaries. The use of standardised international terms means that there is a significant reduction of potential conflict, and an increase in the efficiency and financial optimal results, in trade. These terms work perfectly well within the domestic framework of Thai law, other jurisdictions, and the global legal framework.

Conflict of laws

Similarly, when conducting business, which involves international investment, international standards can be brought into a framework with good results, provided there is no conflict with Thai law. To establish this, an understanding of both Thai laws, other laws and international law is required. For example, if a successful hotel and branded residence development company wishes to expand its operations into Thailand, it cannot do so without adapting its model and standards to conform. Whilst this seems obvious in its simplicity, the nuances of local laws may require a change in processes and standards which will affect budgeting and standards. Any contractual or corporate arrangement with a hotel brand would need to take these differences into account to be successful.

Corporate governance

Corporate governance for investment situations also requires smart analysis and incorporation of standards. Businesspeople accustomed to a certain style of corporate governance may not be prepared for domestic differences in small-medium enterprises in Thailand. Therefore, when setting up or acquiring an interest in a Thai company, and considering how that company will be managed, how decisions will be made, an alignment between your international corporate governance standards and expectations, and those domestically will be necessary.

Paper protections versus real risk management

Part of the purpose of standards is to assist business players value investments and businesses by reference to an accepted yardstick. Therefore, legal tools used to secure rights can be categorised by usefulness by reference to their strength and timing of implementation. For example, understanding the global/Thai standards interplay before making an investment, through due diligence and analysis, will mitigate risk and avoid conflict/unnecessary expense. Creating contractual protections with conditions prior to investment is also a good pre-payment tool. Representations and warranties and a ‘claw back’ in a commercial contract may be rendered ineffective if there are no substantive monies available, such as a guarantee or escrow, to support a claim made after an investment.

Wide-thinking approach increases potential investment returns

Thailand has a wide-ranging raft of domestic standards and accepts international standards as part of its legal framework. To navigate a transaction and produce optimal results, you and your advisors should work together to make certain that as many angles as possible are covered to ensure the value you attribute to an investment is properly reflected with risk discounts and premiums. This requires a multi-faceted understanding of the Thai business environment, law, business practices, cultural nuances and international practice.

By Desmond Hughes, Senior Partner of Hughes Krupica.
Hughes Krupica is a law firm which specialises in Real Estate; Construction; Hospitality; Corporate; Commercial; Personal Injury; Dispute Resolution; and Litigation, operating in Bangkok and Phuket, servicing clients in relation to their business activities in Thailand and in other regions of Asia.