CHAPTER 2 DEFINITION OF TERMS

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1 CHAPTER 2 DEFINITION OF TERMS From the topic of this study, the terms that can be extracted includes: PEST Analysis, Thailand, ASEAN and Regional Block PEST Analysis: PEST Analysis is an important concept of today s business in general and for the area of Marketing and Strategic Managements in particular. PEST is in fact the framework of analysis of the macroeconomic environment of a country. A PEST analysis serves the purpose of identifying those factors that might in turn affect a number of vital variables that are likely to influence an organization. As a matter of fact the "radical and ongoing changes occurring in society create an uncertain environment and have an impact on the function of the whole organization (Tsiakkiros 2002, p ). Thus, in today s business world it is very important to analyse a country by means of these variables in order to make any strategic decision. A PEST analysis includes Political: That is, the legal and regulatory factors of a nation like the political trends, the government structure and regulations etc Economic: It basically includes the economic growth trends, exchange rates, job/unemployment trend, inflation, import/export ratio, production level etc. Social: under this comes the demographics i.e. the people of a country, their lifestyle changes, education, population shifts, the society and culture etc Technological: It includes the general infrastructure of a country, the advancement in information technology, means of communication, new discoveries etc As a matter of fact all these variables are interrelated and have their influence on the prevailing business environment of a country therefore a PEST Analysis is an important aspect of the growth strategy of a company beyond its domestic borders because it gives the company a real time picture of the opportunities and threats that are there in the external environment. According to Michael E Porter, PEST ensures that a company s performance is aligned positively with the powerful forces of change that are affecting the business environment (Porter 1991, p ). Thus, a PEST analysis of Thailand will help us in knowing the prevailing macroeconomic environment of the country and its readiness to accept the growing changes in today s business environment. 1

2 2.2. Thailand Picture 1: Thailand on the Globe (Source: Google Images) Thailand- officially known as The Kingdom of Thailand is politically structures as a Constitutional Monarchy with the King as the Head of the State. It is located at the centre of Indochina Peninsula, bordered in the west by Myanmar and the Andaman Sea, towards its east is the Kingdom of Cambodia and towards north is Laos, in the south it is bordered by Malaysia and the Gulf of Thailand. The total land mass of Thailand is consists of 513,120 square kilometres and the total water mass consists of 2,230 square kilometres making it the 51 st largest country in the world by means of area. Thailand according to 2011 data consists of 69.5 million people, thereby making it the 20 th most populous country of the world. Inhabited mainly by the indigenous Thai people, which consists of the 75 % of the total population it also has a significant amount of Chinese people consisting of 14 % of the total population. The other ethnic groups consist of 11 % of the total population of Thailand. (World Wide Web, CIA World Fact book, 2 nd Oct 2012) Politically Thailand is a Constitutional Monarchy and has gone through its own share of political upheavals. Thailand s political progression can be divided into six significant phases The Sukhothai Kingdom, The Ayutthaya Kingdom, The Thonburi kingdom, The Rattanakosin Kingdom, then came an era of Military regime and ultimately the present day Democratic setup with a Constitutional Monarchy system of governance with The King Bhumibol Adulyadej (Rama IX) as the Head of the State. In spite of the recent political crisis which originated during 2006, Thailand made continuous progress towards modernization and a society which technically can be described as a wealthy state. 2

3 Thailand s economy is generally considered a Tiger Economy, owing to its rapid economic growth. Thailand is known for being the world s leading exporter of rice. Other important exports from Thailand include rubber, cotton, tobacco, tapioca and sugarcane along with numerous natural and mined resources like tin, lead zinc etc (Hoar. Timothy D 2004, p.65). However, its journey through time was never smooth. Thailand was adversely affected by the turbulence of the 1970s and early 1980s than virtually any other oil-importing developing country. However, the successful adjustment took the form of consistently high rates of economic growth, low inflation and only a moderate growth of external debt (Warr and Nidhiprabha, 1996, pg vii) Picture 2: Thailand s National Flag (Source: Google Images) Interestingly, Thailand is one of those countries which remained free from the colonial rule whereas most of its contemporary societies were the colonies of one or the other western powers. Like any other regions in South East Asia, Thailand s culture and society is also got influenced by the culture and religions of India. Other cultures that have their own imprints in making the greater Thai culture are Chinese, Islamic and to some extent the European culture. Today, Thailand is a medley of the ethnic, linguistic, religious and cultural nuances of all these cultures which has been finely blended together for centuries to be evolved into its present form. Saffron-robed monks, slender dancers, monumental ruins, gilded Buddha images, exquisite handicraft- here are some of the stereotypical images of Thailand featured in travel guidebooks. Such clichés of exoticism made the country one of the most popular tourist destinations over the last two decades. This international popularity generated wealth but also fears of an erosion of the distinctive Thai identity, leading academics and bureaucrats to rally 3

4 behind the cri du caeur, we love Thai culture! Concurrently, the national agency for promotion of tourism reassured prospective visitors about the country s enduring traditions in the face of rapid modernization with the slogan: Thailand remembers its gracious past and anticipates its dynamic future (Maurizio Peleggi 2007, p.7) Thus we can say that the present day Thailand is trying to make a fine balance between its glorious past and the rapid pace of modernization in all aspects. A country known for being a Buddhist country by heart and by soul, where the King, the Head of the state is still constitutionally stipulated to be a follower of Buddhism and a guardian of the faith, a country where Buddhism still exists as a living force ASEAN One Vision, One Identity, One Community With this motto, ASEAN the acronym for the Association of the Southeast Asian Nations which is known to be the first attempt for regional integration of Asia came into existence. The very inception of ASEAN is based on the theory of Regionalism, which is often seen as a periphery of globalization. Regionalism is defined as the condition by which group of nationstates, usually in the same geographic region, agree to cooperate and share responsibilities to achieve common goal (David M Balam & Michael Veseth 2005). However, as a matter of fact regionalization is often seen as a complementary term which came into its form to address the weaknesses of globalization in the form of regional cooperation. In the words of Ernst B. Hass regional cooperation is a vague term covering any interstate activity with less than universal participation designed to meet commonly experienced need (Ernst B. Hass 1958, p.16) ASEAN came into existence on 8 th August 1967 in Bangkok, Thailand with the signing of the ASEAN Declaration or most commonly known as the Bangkok Declaration by the five founding members comprising, Indonesia, Malaysia, Philippines, Singapore and Thailand. After that Brunei joined on 7 th January 1984, Vietnam on 28 th July 1995, Laos and Myanmar on 23 rd July 1997 and Cambodia on 30 th April 1999 and thus making the biggest association of its kind in Asia. (World Wide Web, ASEAN official website, 7 th Oct 2012). 4

5 Picture 3: ASEAN Member States (Source: World Wide Web, 7th Oct 2012) The aims and purposes of ASEAN as stated in the Declaration are: 1. To accelerate the economic growth, social progress and cultural development in the region through joint endeavours in the spirit of equality and partnership in order to strengthen the foundation of a prosperous and peaceful community of Southeast Asian Nations; 2. To promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries of the region and adherence to the principles of the United Nations; 3. To promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific and administrative fields; 4. To provide assistance to each other in the form of training and research facilities in the educational, professional, technical and administrative spheres; 5. To collaborate more effectively for the greater utilization of their agriculture and industries, the expansion of their trade, the improvement of their transportation and communication facilities and the raising of the living standard of their peoples; 5

6 6. To promote Southeast Asian studies; and 7. To maintain close and beneficial cooperation with existing international nd regional organizations with similar aims and purposes, and explore all avenues for even closer cooperation among themselves. After its formation the ASEAN, the heads of government of the member countries signed the Treaty of Amity and Cooperation in Southeast Asia on 24 th February 1976 which lays down the basic principles of inter-state relation in the region. They are: 1. Mutual respect for the interdependence, sovereignty, equality, territorial integrity, and national identity of all nations; 2. The right of every state to lead its national existence free from external interference, subversion and coercion; 3. Non- interference in the internal affairs of one another; 4. Settlement of differences or disputes by peaceful manner; 5. Renunciation of the threat or use of force; and 6. Effective cooperation among themselves. Picture 4: ASEAN Flag (Source: Google Images) 6

7 The official description of the ASEAN Flag as provided by ASEAN Secretariat is: 1. The ASEAN flag is a symbol of member states unity and support for the principles and endeavour of ASEAN and is a means to promote greater ASEAN awareness and solidarity. 2. The ASEAN flag represents a stable, peaceful, united and dynamic ASEAN. The colours of the flag blue, red, white and yellow- represent the main colours of the flags of all the ASEAN member states 3. The blue represents peace and stability. Red depicts courage and dynamism. White shows purity and yellow symbolises prosperity. 4. The ten stalks of padi in the centre of the Emblem represent the dream of ASEAN s founding Fathers for an ASEAN comprising all the countries in Southeast Asia, bounded together in friendship and solidarity. 5. The circle represents the unity of ASEAN. The ASEAN Secretariat has provided a similar description for the ASEAN emblem as well: 1. The ASEAN Emblem shall be the official emblem of ASEAN. 2. The ASEAN emblem represents a stable, peaceful, united and dynamic ASEAN. The colours of the flag blue, red, white and yellow- represent the main colours of the state crests of all the ASEAN Member states. 3. The blue represents peace and stability. Red depicts courage and dynamism. White shows purity and yellow symbolises prosperity. 4. The ten stalks of padi in the centre of the Emblem represent the dream of ASEAN s founding Fathers for an ASEAN comprising all the countries in Southeast Asia, bounded together in friendship and solidarity. 5. The circle represents the unity of ASEAN. 6. The ASEAN emblem is the reserved copyright of ASEAN. 7

8 ASEAN is increasingly becoming a major regional block in the present world scenario and the vision of ASEAN 2020 is playing a fundamental role in the same. The description given by the ASEAN secretariat for An Outward- Looking ASEAN is We see an outward-looking ASEAN playing a pivotal role in the international fora and advancing ASEAN s common interest. We envision ASEAN having an intensified relationship with its Dialogue partners and other regional organizations based on equal partnership and mutual respect (World Wide Web document, ASEAN official webpage, 7th Oct 2012) 2.4. Regional Trade Block The Trade liberalization in the global perspective is often known to have originated from two approaches. The first is a reciprocal reduction of trade barriers on a non-discriminatory basis. Under the general Agreement on Tariff and Trade (GATT) and its successor the World Trade Organization (WTO), member nations acknowledged that tariff reductions agreed on by any two other nations would be extended to all other member. The second approach to trade liberalization occurs when a small group of nations, typically on a regional basis, form a regional trading arrangement. Under this system, member nations agree to impose lower barriers to trade within the group than to trade with non-member nations. Each member nation continues to determine its domestic policies, but the trade policy of each includes preferential treatment for group members (Robert J Carbaugh 2011, p. 271) In a way, a regional block is a kind of association of a group of nations which aims at promoting trade within the group and to defend the members from the continuously intensified global competition. The four major such trade blocks of the world are: The European Union (EU), Southern Common Market (MERCOSUR), North American Free Trade Agreement (NAFTA) and more recently ASEAN, the Association of Southeast Asian Nations.The growth and development of this particular trend of forming regional trade blocks is often said to be due to three main reasons- Firs reason being, the failure of the very principle of GATT and WTO to implement on a real basis, the process of the multilateral trade liberalizations. It is because when these organizations were formed i.e. after the Second World War, most off the Asian, African and Middle Eastern countries were still colonies. Moreover, these institutions were the brain child of the American and European counterparts and also these newly developed countries found 8

9 the underlying premise that the international trade would be conducted on the basis of market forces. It is because, these developing countries were characterized by a large amount of government involvement in the economic affairs. Secondly, during 1970s and 80s the economic growth of the developed countries have slowed down. This provided an impetus to the intra- industry trade in the developing counterparts. Thus, regional trade organizations appeared to provide the means to capitalize on trade s ability to act as an engine of growth ( Yeng, Perdikis & Kerr, 1999, p. 5) The third reason was the growing realization among the developing nations that the prevailing protectionist attitude for import substitution is not serving their purpose and thus they were looking for opening their economies. And in that scenario, the regional trade organizations provided the much needed change because, by means of regional trade, the pace of change would be under governmental control of the individual member states and moreover, there is a less economic difference than with the developed counterparts. (Yeng, Perdikis & Kerr, 1999) Therefore we can say that a Regional Trade block is a complementary trend towards opening up of individual economies of the nations and integrating it into the world economy. 9