Geared For Growth


When Tos Chirathivat and his billionaire family make acqui- sitions for their Thailand-based retail, property and hotel empire, they often do it in style.

Seeking additional prime space in Bangkok’s congested downtown in 2006, Tos’s Central Group bought 1.4 hectares (3.5 acres) of the British am- bassador’s front lawn, which it’s now transforming into a curvaceous luxury shopping mall in the shape of an infinity symbol. Then, in 2011, the family entered the European market, paying $350 million for the Italian department store chain La Rinascente SpA, whose stately flagship emporium fronts Milan’s Piazza del Duomo.

Lately, the urbane Tos, a former Citigroup Inc. investment banker who was educated at New York’s Columbia University, has also been ex- panding in an entirely different direction. He’s opening stores, malls and hotels in Thailand’s poorest region, the parched northeastern plateau of Isan, which is home to one-third of Thai- land’s 67 million inhabitants. “We are going into towns we would never have thought of five years ago,” says Tos, 49, in his executive suite overlooking the U.K.’s now much-diminished Bangkok embassy compound. “There’s a real boom going on in those places.”

For much of Thailand’s recent his- tory, the powerhouse of Southeast Asia’s second-biggest economy has been its glitzy capital. Now, a convergence of local and international currents is re- shaping the nation’s economic geogra- phy. In the northeast, rising incomes, property prices and consumer spending have sent economic growth surging by 8 percent annually, or double the rate of Bangkok, according to Siam Com- mercial Bank Pcl. Meanwhile, further to

the south, Thailand’s burgeoning auto industry—now the 10th-biggest manufacturer in the world—has brought such prosperity to a region known as the eastern seaboard that one province, Rayong, has become twice as rich as Bangkok in terms of per capita income, according to government data.

A visit to Udon Thani (population 400,000), 565 kilometers (350 miles) northeast of Bangkok but only 90 kilo- meters from Laos’s capital, Vientiane, testifies to the transformation taking place. In 2011, this rice-growing re- gion’s gross domestic product per capita was just $1,500—one-ninth that of Bangkok, according to government statistics. Yet today, Tos’s bustling Central Plaza mall in the center of town would not look out of place in Hong Kong, Singapore or even Milan.

Nearby, at the local Mercedes-Benz dealership, owner Chettaphon Ruangpattana, whose family originally started off in business dealing in retreaded tires, says he sold 120 of the German luxury cars last year, compared with 55 in 2008. Across town, the Siam Global House Pcl home-improvement center now stocks $6,000 timber-paneled Jacuzzis alongside more-mundane bathroom fittings. The local unit of U.K.-based supermarket giant Tesco Plc anchors a second shopping mall.

And down a dirt road in a village of still predominantly wooden houses, farmer Uthai Thongsaensuk, 45, slurps spicy tom yum soup and tells how he bought 1.2 hectares of land in 2011 for 500,000 baht ($16,000), then sold it this year for three times the price. He spent part of the proceeds on a tractor for himself and a washing machine for his mother-in-law.

In the past two years, populist Prime Minister Yingluck Shinawatra, whose government’s power base is among the poor, has lifted rural incomes by subsidiz- ing Thailand’s 17 million rice farmers and raising the minimum wage to $10 a day. Yingluck also fueled a property boom by announcing she would spend $64 billion over six years on infrastructure such as high-speed trains that would cut travel time between Bangkok and Udon from eight hours to 21⁄2.

At the same time, moves by Thailand and nine Southeast Asian neighbors to relax border controls and form a Euro- pean Union–style common market of 604 million people in 2015 are trans- forming remote Thai regions. Towns such as Udon, once the penultimate stop on a railroad line of little consequence, now straddle international trade routes linking Thailand to fast-growing Laos, Cambodia, Vietnam, Myanmar and, ultimately, China. “The future is outside Bangkok,” says Tos, who, since 2009, has also opened malls in the Isan cities of Khon Kaen and Ubon Ratchathani as well as Chiang Rai, in the former opium- growing Golden Triangle.

Although few foreign investors are likely to have visited those cities, they’re already betting Tos has got it right. During the four years ended on Oct. 7, shares in the three listed companies the Chirathivat family controls—mall developer Central Pattana Pcl, hotel operator Central Plaza Hotel Pcl and retail chain Robinson Department Store Pcl—far outperformed even the 90 percent return of the benchmark Stock Exchange of Thailand Index, lifting the value of the family’s stake to $6.7 billion. Foreign investors own about one-fourth of the biggest listed Central Group company, Central Pattana, which leapt 246 percent over that period. “It is a stock that has done re- ally well for us,” says Adithep Vanabriksha, Bangkok-based chief investment officer for Thailand at Aberdeen Asset Management Plc, which manages $322 billion worldwide.

Some investors who backed other entrepreneurs have done even better. Witoon Suriyawanakul, 56, began his business life selling nuts and bolts from a wooden shack in one of Isan’s poorest towns, Roi Et. Today, after building a 25-outlet chain of Home Depot–style, cash-and-carry stores, he’s a nascent billionaire.

In August 2009, Witoon raised $19.5 million by selling shares in his company, Siam Global House, on the Thai exchange. Last year, blue-chip Siam Cement Pcl, a company controlled by King Bhumibol Adulyadej’s money manager, the Crown Property Bureau, paid $300 million for a 30 percent stake. Since the initial public offering, Siam Global’s shares have risen 15-fold as of Oct. 7. Yet it doesn’t have a single outlet in Bangkok. “Our investors want us to stay upcountry,” says Witoon, whose 40 percent stake was worth $628 million as of Oct. 7.

“People who think that Bangkok is Thailand are wrong,” says Boonyong Tansakul, 48, Singer Thailand Pcl’s chief executive officer. The company, a descendant of the U.S. sewing machine manufacturer founded in 1851, makes 95 percent of its sales outside the capital. It has delivered a 16-fold return over three years by diversifying into appliances as diverse as air conditioners and simple gasoline pumps that are increasingly re- placing jerrycans in rural villages.

Viewed from Bangkok, prospects for Thailand as a whole certainly don’t look as exciting as they do from the hin- terland. After devastating floods stalled output in 2011, the economy surged back in 2012 to grow by 7.1 percent. Since then, slowing demand for Thai- land’s exports forced the government to cut its 2013 growth forecast to 3.7 percent. In the first half, the economy even entered a technical recession when it recorded successive quarters of negative growth.

The benchmark SET Index was up less than 2 percent this year in local currency as of Oct. 7 compared with a 20 percent rise in the Standard & Poor’s 500 Index. In another blow, Thailand lost its 30-year-old status as the world’s No. 1 rice exporter, falling behind India and Vietnam after the government’s decision to pay above-market rates to farmers kept prices high and made Thai rice less competitive. “The rice scheme has been widely acknowledged by foreign investors as a disaster,” says Prinn Panitchpakdi, Bangkok-based country head for investment bank CLSA Ltd.

Still, Thailand has bounced back from worse setbacks. Although the country is prone to coups d’etat, civil strife and natural disasters, tourism is booming. Through it all, Thailand has become the world’s leading manufacturer of hard- disk drives by quantity and last year leapt ahead of Britain, Spain and Can- ada as an auto producer. Of the 2.4 mil- lion vehicles produced in Thailand by Japanese, U.S. and European carmakers, 1 million were exported.

In 2012, Dearborn, Michigan–based Ford Motor Co. opened its second factory in Thailand, where sales that year rose 88 percent to 55,000—Ford’s biggest jump anywhere in the world, according to its president for Southeast Asia, Matt Bradley. Domestic sales account for only about one-fourth of Ford’s production in Thailand, where it makes Fiesta and Focus small sedans and Ranger one- ton trucks. The rest of the vehicles were shipped mainly to neighboring countries and Australia. Most attractive for Ford is Southeast Asia, where the company says vehicle ownership per capita is less than a 10th that of the U.S. “It’s one of the best potential growth areas in the world,” Bradley says.

Beside a broad highway two hours out of Bangkok, a signpost directs motorists to turn off for “Detroit of the East.” In one sense, this industrial zone in Rayong province is well named because it’s the regional headquarters of both Ford and General Motors Co. In another, the moniker couldn’t be more inappropriate. While Detroit is in the throes of the biggest U.S. municipal bankruptcy, Rayong has become the richest province in Thai- land, according to government statistics.

There may be more good news to come. A renewed marketing effort in 2014 should help Thailand regain the No. 1 spot in the international rice mar- ket, says Sumeth Laomoraphorn, CEO of the country’s largest packaged-rice exporter, CP Intertrade Co.

Equally important for investors, Thailand remains politically stable, says Adithep, of Aberdeen Asset. The country has been rocked by 15 successful and attempted coups since 1946—the last of which, in 2006, overthrew the present prime minister’s brother Thaksin Shinawatra. In August, Yingluck completed her second year in office and should now see out her four-year term, according to Adithep. “This government is quite dominant,” he says.

Still, things can change fast in Thai- land. Since Thaksin’s overthrow, Thai society has been split between a minority urban elite and the majority pro- Thaksin and pro-Yingluck rural poor. Ensconced in his Central Group head- quarters, Tos Chirathivat knows that all too well: In 2010, during a period when anti-Thaksin parties were in power, pro- Thaksin protesters burned down Tos’s biggest Bangkok mall, CentralWorld. Now, he says, he’s hopeful the narrowing of the urban-rural wealth gap will ease simmering tensions. “It’s part of grow- ing up,” he says. “Once we pass that stage, Thailand will become a major player.”

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