Nestle’s Coffee Challenges in Thailand Spark Concerns Over Foreign Joint Ventures

Nestle is in a legal dispute with Thai partner PM Group over dissolving their partnership for the Nescafe brand, with PM Group resisting due to potential profit losses.

Key Points

• Background: Nestle, a Swiss food giant, is in conflict with its Thai partner, PM Group, over the Nescafe brand of instant coffee.
• Current Situation: Nestle aims to dissolve its partnership with PM Group and continue independent sales, while PM Group opposes this move.
• Legal Battle: The disagreement has escalated into a legal dispute, with PM Group citing concerns about profit loss.

Nestlé, the manufacturer of Nescafé instant coffee, has been temporarily prohibited from engaging in any business activities related to Nescafé products in Thailand. This court order, issued by the Minburi Civil Court, has sparked fears of widespread shortages across various sales channels, with retailers expressing concerns about substantial losses if the product is unavailable for even a short period.

The conflict stems from Nestlé’s termination of its agreement with Quality Coffee Products (QCP), the former Thai manufacturer of Nescafé, leading to legal actions and the temporary injunction. Nestlé has stated that it respects the law and is pursuing legal avenues to overturn the temporary injunction.

Conflict between Nestlé and QCP

• The conflict stems from Nestlé’s termination of its agreement with QCP, the former Thai manufacturer of Nescafé, which had been in place since 1990.
• Nestlé claims the termination, which took effect on December 31st, 2024, was legally sound and backed by a ruling from the International Court of Arbitration.
• QCP was established in 1989 as a 50/50 joint venture between Nestlé and the influential Mahagitsiri family, with Nestlé holding authority over management, production, distribution, and marketing of Nescafé products.
• After the agreement ended, the shareholders couldn’t reach a consensus on QCP’s future operations, leading to legal actions and the temporary injunction

Foreign companies aiming to operate in Thailand are required to establish a local business where a Thai partner holds the majority share. According to an executive at a Japanese consulting firm in Thailand, they receive two to three consultations annually from midsized Japanese retailers expressing concerns that their Thai partners contribute less than anticipated while claiming a disproportionate share of the profits.

A 2024 survey conducted by the Japan Bank for International Cooperation revealed that Vietnamese manufacturers view Vietnam as the most promising economy in Southeast Asia, followed by Indonesia and Thailand. Thailand experienced its lowest vote share on record.

As global corporations tackle the challenges of entering emerging markets, Nestlé’s experience may shape the future structuring of joint ventures, especially in terms of risk management and quality assurance. The evolving situation in Thailand underscores the careful balance foreign investors must strike between expanding operations and ensuring the reliability of their investments.

Sources: The Financial Times, Reuters, The Nation, Chulalongkorn University, and Nestle’s Thailand coffee troubles raise doubts for foreign joint ventures