Bangkok Post : Legal snares hinder expansion

REGIONAL MARKETS

While firms in Thailand are increasingly drawn to growing investment opportunities in neighbouring countries, they sometimes overlook crucial legal issues, says David Doran, chairman and founding partner of DFDL Mekong (Thailand).

Thai firms need to check their paperwork, says David Doran of DFDL Mekong.

In more than 15 years of legal practice in the Mekong region he has seen businesses make many mistakes that could have been easily avoided through proper legal procedures.

"Thai businessmen can be very close with Cambodian, Myanmar or Lao businessmen. Sometimes, they rely too strongly on the connection and relationship," said Mr Doran.

"I don't want to downgrade the importance of the personal relationship, because it's also very important. However, you shouldn't rely too much on it, but more on the law and the contract."

Without the right documentation, businesses are at risk if disputes develop with foreign governments or firms.

Investments can also be jeopardised by changes in government, which can weaken relationships with officials, he said. Although Laos has a one-party system, its officials change quite often. Cambodia also has elections every five years.

"You need to have a strong understanding of the legal system and strong legal documentation in addition to a strong relationship with the local partners and good connections with the government," he added.

Business laws are among the many factors that determine the investment environment for foreign investors. For instance, Cambodia places few restrictions on foreign investment while Vietnam tends to protect the interests of local parties more carefully, he said.

Setting up a firm in Cambodia is quite easy and can take only two to three weeks. Investors need not apply to an investment board for a licence, as they do in Thailand, Laos or Burma. It is also easy to get information and meet officials.

But foreign investors can need four to six months to set up their businesses in Burma and Laos. Yet the Lao government - while basing its policy, like Vietnam, on developing the country's economy - has laws and decrees that aid foreign investors and attract investment.

Vietnam has one of the region's most restricted markets for foreign investors, with tight limits on equity foreign investors can hold in sectors such as retail.

"Each country has its difficulties but also has benefits. If you know what the attraction is, then you can focus on that to open the doors," said Mr Doran.

In his view, Thailand could benefit from reassessing its regulations in some sectors to encourage foreign investments.

"Most Thai businesses are quite good at competing with their foreign counterparts. Many areas no longer need to be protected," he said.

For example, as Thai firms are adept at resort development, foreigners' ownership rights and lease terms could be revised, he said. Letting foreign owners renew their leases or take leases for 50 years, rather than the current 30 years, could attract foreign business.

But on grounds of national security, Mr Doran would oppose allowing foreigners to buy land in Thailand.

False assumptions about the Mekong region also lead investors astray. Thai firms and other foreign investors can view countries in the Mekong region as new markets just opened to investment, which makes them disregard local laws.

"They do not take legal compliance in these countries as seriously as they would when investing in their own countries," he said.

Tax and labour compliance are among the key areas investors should be aware of, along with the availability of financing.

"It's a problem that sometimes investors don't focus on that aspect. They assume that banks in Laos or Cambodia will lend to them on the same basis as Thai banks. They don't understand the necessary criteria," said Mr Doran.

Investors must ensure proper documentation of aspects such as contracts and investment licensing for their projects to get financial support from local banks.

Relate Search: David Doran, DFDL Mekong