Companies get lean and mean

Economy January 04, 2013 00:00

By Watchara Pussayanawin,


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Many labour-intensive sectors have tried to adjust their operations to deal with the nationwide imposition of a Bt300 minimum daily wage. These efforts range from trying to trim logistics costs, to improving production efficiency, to hiring only skilled w

Tawee Piyapattana, president of Pacific Fish Processing Co, which specialises in the production of frozen seafood, said the company, which employs 3,000 staff, would not lay off people to cut costs but would focus more on trimming logistics expenses. It will also boost efficiencies in production and human-resource management.

It will not raise prices in the short term, which would risk loss of market share during a time of intense competition in the export market. Total export of processed seafood last year dropped 15 per cent amid tough competition from exporters in neighbouring countries.

The chairman of the Textile Industry Club of the Federation of Thai Industries (FTI), Somsak Srisupornwanit, said the shutdown of one textile company in Saraburi province was the result of declining purchase orders from foreign markets as Europe’s economy slows. But he added that the minimum-wage increase had aggravated the company’s situation: While its revenue fell, its labour costs rose.

The wage increase will also pressure manufacturers in remote areas to relocate their plants to urban areas to save logistics costs, or they could migrate to low-paying neighbouring countries. Therefore, it is possible that in the future the concentration of factories in Greater Bangkok and major cities will be denser.

However, Somsak does not expect to see a great number of factories closing down, as their owners will try all means to survive. The textile business is not limited to garment production but can supply products to different sectors, such as the fast-growing auto industry. He added at that in one car model, at least 40 spots in the body used textile material.

Car production in Thailand is expected to reach 2.6 million units this year.

If the textile makers begin to work more closely with other high-growth sectors or supply products to the fashion sector, they will have a chance to survive. Small textile companies can also seek subcontracts from bigger peers, he added.

FTI vice chairman Vallop Vitanakorn said textile plants would not abruptly shut down in reaction to rising labour costs but would first slow production and stop recruiting new workers. If they have to recruit, they will select only skilled labour. The plants that cannot afford the wage adjustment could move to less developed neighbouring countries such as Cambodia and Myanmar.

Sukit Kongpiyajarn, president of the Thai Garment Manufacturers Association, said after a meeting with members on the impact of minimum-wage increase that they would have to improve their production efficiency and control costs. If they pay overtime for 25 days, they will experience an additional cost of Bt1,600 per worker per month.

He expects it to become clear in the second quarter if the sector can survive. However, he noted that Thailand is not the only country trying to improve the incomes of its lowest-paid citizens. Vietnam has also raised labour wages by 18 per cent. If the garment firms can hold on for three years, the competition between Thailand and Vietnam will be on par.