The Thai Handicrafts Export Centre is now facing negative factors on every side. The small Tonpao firm designs and manufactures hand-made products made from saa paper. Though ranked in the top 10 exporters of such items in Thailand, it generates annual sales of less than Bt100 million.

Hikes in world oil prices, the strengthening of the baht against the US dollar and fierce competition from China and within the Kingdom are among factors reducing the company's spending power.

Over the past six months, a drop of nearly 20 per cent against the dollar has put the squeeze on the Thai Handicrafts Export Centre, whose saa products are all exported.

The European Union is its main market and accounts for 55 per cent of its revenues, followed by the United States at 40 per cent. The remainder of its exports go to Japan and other Asian countries.

"One way or the other, you have to proceed with anything that helps the company to cut costs," says managing director Tawee Theppanya.

Apart from the strong baht, the world's economic slow-down is also a major factor in damaging the firm's sales. "There have been a lower number of products ordered," says Tawee.

The company last year recorded Bt40 million in sales, a massive drop from nearly Bt100 million just a few years earlier. The aforementioned negative factors have also narrowed its gross margin to 20 per cent, from 25 per cent before.

Tawee points out that once there is a slump in spending power, the first expenditure to be cut is luxury items. Consequently, its gift products made from saa paper have taken a hit. The company makes products such as boxes, bags, gifts and greeting cards.

"Reducing costs is one way to maintain our margins if we cannot increase our products' prices," says Tawee.

The Thai Handicrafts Export Centre has tried to reduce costs by slashing a number of workers, adopting a factory-management programme, developing new designs and introducing a new market range.

Its Profitable Environmental Management Programme (Prema) has lowered its production costs 30 per cent over the last few years.

Prema is a programme aimed at SMEs, featuring a well-managed production process that is friendly to the environment and supported by the German Technical Cooperation, a corporation owned by the German government.

Tanapol Ketchit, production and personnel manager at the Thai Handicrafts Export Centre, says savings on production costs can be attributed to the programme.

"All workers have been approached to help create the rules and principles of working in the factory," he says.

Tanapol says efficiency continues to increase because of this approach. Every process can be checked and audited, resulting in a lower number of defective products and wasted raw materials.

"Now there are hardly any defective products found. Space used for inventories is also three times smaller than before. It helps the company save inventory costs by Bt400,000 to 500,000," he explains.

The company had 500 full-time and part-time staff just a few years ago. Now it has 78 full-time and 50 part-time employees, cutting costs by another 10 per cent.

"Design is the most important aspect of our hand-made products. Preserved with unique designs, we create our own patterns on products made with saa paper," says Tawee, who had experience in handicrafts from his previous business, which involved sculpting wood into decorative products, such as animal shapes, picture frames and gifts.

The Thai Handicrafts Export Centre has six full-time designers creating a variety of new patterns, so that its products can be differentiated from copycat or me-too products manufactured in China.

Tawee is planning to create a new range of products made of saa paper and other materials to serve the high-end market as an alternative, widening the company's sales margins.

"I believe high-priced products can be sold provided they are of genuine quality; otherwise, Rolex wrist-watches would not be saleable," he says.

With Thailand's exports of saa products amounting to about Bt3 billion annually, manufacturers are facing flat growth because of competitors like China, India, Nepal and Vietnam.

Yet Tawee predicts the industry can still have a bright future, as consumers are becoming more concerned with buying environmentally friendly products. "We [Thai producers] will fight and beat our rivals with design and quality."

The Thai Handicrafts Export Centre is confident its sales revenues will double to Bt60 million next year.

Sasithorn Ongdee

The Nation

Chiang Mai