Firms turn attention to domestic markets as exports drop amid global crisis

Thai exporters battling for survival are facing the twin crises of a drop in purchasing power and pressure to reduce prices.

Exporters have not only been hit by the US financial crisis but also by domestic economic sluggishness. They say people around the world have expressed concern about global recession, which will directly reduce consumption.

Although there have been no reports of employee layoffs, some producers plan to cut production soon to cope with declining orders. Current production is supplying advance orders, which will be shipped through the rest of the year.

Some exporters have been hit by the global financial meltdown and local political turmoil.

Bags and travelling goods

Yingkiat Liu, president of Liu De Sac, said the company's domestic sales revenue had been low since early this year, while exports had shown signs of declining during the past few months due to the global economic downturn.

"The political uncertainty has reduced the number of travellers, which has affected sales, while Thais are not in a mood to shop, in particular for products in this sector or other luxury goods," said Yingkiat.

He added that most companies in the sector complained of fewer orders from overseas while domestic selling had also declined.

Liu De Sac is a producer of Carry All travelling bags, document bags and computer and accessory bags with distribution centres at department stores and airports nationwide. The company expects 10-per-cent growth this year, despite lower export growth as it concentrates more on domestic sales.

Exports now account for only 20 per cent of total sales. To maintain business growth, the firm has adopted four new strategies.

First, it plans to improve organisational competence by finding overseas partners to promote its products at overseas trade fairs. Yingkiat said the firm was trying to do more promotion by attending overseas trade fairs as in Hong Kong and India.

Foreign partners will give the company new export opportunities and save exhibition costs.

Second, the firm will produce a greater variety of products that serve the demand of the market. For instance, the company used to produce only casual travel bags, but now it is focusing more on computer bags, digital-camera bags and other accessories as the market has a higher demand for bags for electronic gadgets, while general products face high competition from China.

Third, the company is focusing more on its own brand-name products and high value-added designer goods as these fetch more income than made-to-order goods.

Own brand and brand licences account for 95 per cent of income.

"We cannot rely on cheap products as we're facing high competition from China, Vietnam and Indonesia. The move to produce our own brand name has gradually increased income for the firm and created sustainable business growth," said Yingkiat.

Lastly, the firm his maintaining its employment level in order to save costs. Instead of increasing the number of regular employees, it will subcontract employees or companies to produce its goods when it receives more orders.

Jewellery and ornaments

Most firms in the sector are facing a downturn, while foreign buyers have forced them to lower their prices following the slump in economic growth.

Some small and medium-sized enterprises (SMEs) have been closed down because of lack of financial liquidity, while large firms have had to downsize and turn into lean organisations to sustain the business.

Wisit Thanapatanavibul, managing director of Wisirint, said his company faced a critical period as sales had fallen from Bt100 million last year to only Bt60 million this year.

The firm has had to downsize its business by laying off more than 60 per cent of employees during the last few years. First it tried to retain the employees by reducing working hours. , From more than 300 employees, the firm now employs only about 100. Some of the others have found new jobs.

The company has also had to quote lower prices in some markets despite the low profit margin to maintain business.

"Many foreign buyers, in particular from the United States, the European Union and South Africa, bargain for costume jewellery and ornaments as they have lower purchasing power," said Wisit.

More than of 50 per cent of the company's export revenue comes from the US.

To compensate for losses from lower export revenue, Wisit said he was trying to find new buyers in traditional markets as well as exploring new potential markets in Asia, the Middle East, Eastern Europe and Russia.

The firm has also turned to more domestic marketing to make up for losses from lower export growth.

Wisit said that many firms in the sector and other non-essential products faced difficulty sustaining business. The government should help with expenses incurred in exploring new markets overseas, he said, and the Finance Ministry must also inject financial liquidity by accelerating return of VAT and reducing tariffs.