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Published on August 7, 2007

The experts said the collapse of these non-competitive industries was a result of an accumulation of problems, due to their failure to add value and build up their own brand names. Instead, for years they have relied on subcontracting production.

These manufacturers no longer enjoy a cost advantage in this labour-intensive industry, losing out to rival countries, particularly China and Vietnam.

Bangkok Public Relations managing director Hasan Basar a long-time businessman in Thailand and a consultant to many large multinational corporations, suggested Thailand needed to keep looking for higher value-addition in its labour-intensive export industries.

Providing high value addition often requires manufacturers to invest heavily in special equipment. However, this is a high-risk investment, because long-term supply contracts are not the norm in this industry, and manufacturers must have the competence and create the confidence to retain long-term customers. Many garment manufacturers have done this and successfully continue to export apparel.

He added that Vietnam and China were serious competitors in footwear. And with more and more of the support industries moving there, things are going to become increasingly tough for this sector. The baht's appreciation is perhaps the straw that broke the camel's back for these operations - simply accelerating an existing trend in the loss of competitiveness of Thai-based manufacturers. However, that is not to say Thai manufacturers are losing out in this sector. Many have taken their customer relations and know-how to offshore-based ventures in China and Vietnam.

Korapin Pittayanukoon, marketing manager of Carrier (Thailand), which manufactures air-conditioning products under the Carrier and Toshiba brands, said all principal brands faced tougher competition and that companies had to focus on controlling and minimising costs and prices to stay competitive.

"Even with our own brand and despite receiving full support in production know-how from our Japanese partner, Toshiba, we're affected by the intense competition, especially from South Korean rivals, which use pricing strategy to gain market share," Korapin said.

"However, we need to do everything to control and minimise our costs to compete with them," he said, adding that the strong baht had reduced margins on exports.

Korapin said in this competitive business environment, manufacturers that relied heavily on subcontracting would be even more greatly affected.

Businessman Sakkachat Sivabovorn said most of Thailand's industries that subcontracted production were in a serious crisis, losing competitiveness to countries with lower labour costs, particularly in the electronics, footwear and garment sectors.

Sakkachat worked 17 years for TRK Bangkok Industry and Exporter - manufacturer of the Carryboy brand of fibreglass canopies for pickups - before resigning in 2001 to establish his own publishing company, iDesign.

Sakkachat said industries like toys and home furniture that subcontracted a lot were struggling to survive, having lost their competitiveness to other countries. He said that only by adding design and features and developing their own brands and marketing networks could they compete with their rivals. Their failure to change will see them suffer the same plight as the electronics, footwear and garment industries.

"There are only a few industries, such as jewellery and pickups, in which Thailand is being used by multinational players as their manufacturing or assembling bases, due to high domestic consumption and plenty of local raw materials," he said.

Sakkachat warned that if local labour-intensive manufacturers did not realise the importance of upgrading production in terms of design and value-added functions and of creating their own brands, then they would lose business to rivals like China within the next three to five years.

Kwanchai Rungfapaisarn

The Nation